Impact Medical Solutions, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATION - Impact Medical Solutions, Inc.	ex32_1.htm
EX-31.1 - CERTIFICATION - Impact Medical Solutions, Inc.	ex31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_________________________

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended		March 31, 2011
	OR
o	TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from				to

	Commission file number:	000-52117
	ITECH MEDICAL, INC.
	(Exact Name of Registrant as Specified in Its Charter)
	Delaware			20-5153331
	(State of Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)
	17011 Beach Blvd., Suite 900, Huntington Beach, CA			92647
	(Address of Principal Executive Offices)			(Zip Code)
	(714) 841-2670
	(Registrant’s Telephone Number, Including Area Code)

	(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

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 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. x 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). o Yes o No

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,” "non-accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. As of May 20, 2010, there were 37,280,001 shares of the registrant’s Common Stock issued and outstanding.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	15
Item 4T.	Controls and Procedures	15

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits	16

SIGNATURES		17

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

iTech Medical Solutions, Inc.

(A Development Stage Company)

Condensed Consolidated Balance Sheets (Unaudited)

	March 31,			December 31,
	2011			2010
ASSETS
Current assets
Cash	$	300,385		$	983,292
Other current assets		57,037			49,495

Total current assets		357,422			1,032,787

Furniture and equipment, net of accumulated depreciation		12,302			12,960

Patent, net of accumulated amortization		276,959			284,312
	$	646,683		$	1,330,059

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Loans from related parties	$	20,000		$	184,967
Note payable		34,613			34,613
Accounts payable		360,265			296,528
Accrued interest		233,983			234,873
Accrued vacation		116,117			96,386
Accrued salaries, bonuses and other payroll related items		1,262,860			1,269,841
Director compensation		98,750			83,750
Total current liabilities		2,126,588			2,200,958

Commitments and contingencies		-			-

Shareholders' deficit
Preferred stock, 10,000,000 shares authorized, $.0001 par value,
no shares issued and outstanding		-			-
Common stock, 100,000,000 shares authorized, $.0001 par value,
37,276,336 and 36,703,836 shares issued and outstanding
at March 31, 2011 and December 31, 2010, respectively		3,728			3,671
Additional paid-in capital		19,085,012			13,915,344
Deferred option and warrant costs		(224,749	)		(123,643	)
Deficit accumulated during the development stage		(20,343,896	)		(14,666,271	)
Total shareholders' deficit		(1,479,905	)		(870,899	)
	$	646,683		$	1,330,059

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

iTech Medical Solutions, Inc.

(A Development Stage Company)

Condensed Consolidated Statements of Operations

(Unaudited)

							Cumulative
							from inception
							(October 20,
	Three months						1997) to
	ended March 31,						March 31,
	2011			2010			2011

Costs and expenses:

Research and development	$	231,554		$	28,197		$	1,721,702
Medical and clinical		98,139			66,241			1,761,661
General and administrative		5,342,979			388,359			15,336,042

Operating loss		(5,672,672	)		(482,797	)		(18,819,405	)

Other income (expense):

Interest expense		(2,754	)		(7,641	)		(1,513,711	)
Interest income		100			-			433

		(2,654	)		(7,641	)		(1,513,278	)

Loss before provision for taxes		(5,675,326	)		(490,438	)		(20,332,683	)

Provision for taxes		2,299			921			11,213


Net loss	$	(5,677,625	)	$	(491,359	)	$	(20,343,896	)

Basic and diluted net loss per share	$	(0.15	)	$	(0.02	)

Basic and diluted weighted average number of common shares outstanding		37,006,642			26,691,733

Maximum number of common shares (not included in denominator of diluted loss per share calculation due to their anti-dilutive nature) attributable to exercise of :
Outstanding options		3,913,600			2,953,600
Outstanding warrants (Series A-G)		24,791,543			14,710,463

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

iTech Medical Solutions, Inc.

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

							Cumulative
							from inception
							(October 20,
	Three months						1997) to
	ended March 31,						March 31,
	2011			2010			2011
Cash flows from operating activities:
Net loss	$	(5,677,625	)	$	(491,359	)	$	(20,343,896	)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization		8,189			9,089			297,147
Loss on disposal of assets		44			-			2,014
(Gain)/Loss on extinguishment of debt		106,450			-			190,382
Amortization of loan discount		-			2,908			1,235,164
Issuance of common stock for services & interest		103,566			-			3,593,640
Issuance of stock options and warrants for services		4,711,303			168,357			6,732,346
Decrease (increase) in prepaid expenses		(7,542	)		(8,177	)		(57,037	)
Increase (decrease) in accounts payable		63,737			6,589			372,265
Increase (decrease) in accrued expenses		26,860			52,965			1,711,710
Net cash used by operating activities		(665,018	)		(259,628	)		(6,266,265	)

Cash flows from investing activities:
Capital expenditures		(218	)		(3,617	)		(88,445	)
Net cash used by investing activities		(218	)		(3,617	)		(88,445	)

Cash flows from financing activities:
Proceeds from loans from related parties		-			125,000			527,015
Proceeds from convertible debt		-			-			452,991
Proceeds from loans from others		-			-			10,000
Payments on note payable		(20,000	)		-			(85,387	)
Issuance of common stock, net of costs		-			-			5,738,668
Net cash provided (used) by financing activities		(20,000	)		125,000			6,643,287

Effect of exchange rate changes		2,329			4,213			11,808

Net increase (decrease) in cash		(682,907	)		(134,032	)		300,385
Cash, beginning of period		983,292			146,477			-
Cash, end of period	$	300,385		$	12,445		$	300,385

Non-cash investing and financing activities:
Issuance of common stock & note payable for patent	$	-		$	-		$	500,000
Issuance of warrants with debt	$	-		$	-		$	830,539
Conversion of debt to equity	$	147,300		$	-		$	147,300
Issuance of stock for deferred services	$	212,100		$	-		$	212,100

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

iTech Medical Solutions, Inc.

(A Development Stage Company)

Condensed Consolidated Statements of Shareholders’ Equity (Deficit)

From Inception (October 20, 1997) to March 31, 2011 (Unaudited)

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

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

iTech Medical Solutions, Inc.

(A Development Stage Company)

Condensed Statements of Shareholders’ Equity (Deficit)

From Inception (October 20, 1997) to March 31, 2011 (Unaudited) (continued)

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

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

iTech Medical Solutions, Inc.

(A Development Stage Company)

Condensed Statements of Shareholders’ Equity (Deficit)

From Inception (October 20, 1997) to March 31, 2011 (Unaudited) (continued)

	Common Stock									Accumulated
					Additional		Deferred			During the			Total
	Number				Paid-in		Option &			Development			Shareholders'
	of Shares		Total		Capital		Warrant Cost			Stage			Equity (Deficit)
Balance, December 31, 2009		26,691,733	$	2,669	$	9,593,824	$	(258,326	)	$	(10,757,603	)	$	(1,419,436	)
Warrants issued for shareholder compensation		-		-		272,843		-			-			272,843
Stock options granted		-		-		217,184		-			-			217,184
Shares issued for services		2,836,428		284		1,182,211		(100,000	)		-			1,082,495
Shares issued for cash		6,675,675		668		2,449,332		-			-			2,450,000
Shares issued upon conversion of debt		312,500		31		124,969		-			-			125,000
Shares issued for shareholder compensation		187,500		19		74,981		-			-			75,000
Amortization of share, option and warrant cost		-		-		-		234,683			-			234,683
Net loss for 2010		-		-		-		-			(3,908,668	)		(3,908,668	)
Balance, December 31, 2010		36,703,836		3,671		13,915,344		(123,643	)		(14,666,271	)		(870,899	)
Warrants issued		-		-		81,099		-			-			81,099
Value of Series A & B warrant extension		-		-		4,611,436		-			-			4,611,436
Stock options granted		-		-		11,340		-			-			11,340
Shares issued for services		210,000		21		212,079		(212,100	)		-			-
Shares issued upon conversion of debt		362,500		36		253,714		-			-			253,750
Amortization of share, option and warrant cost		-		-		-		110,994			-			110,994
Net loss for Q1 2011		-		-		-		-			(5,677,625	)		(5,677,625	)
Balance, March 31, 2011		37,276,336	$	3,728	$	19,085,012	$	(224,749	)	$	(20,343,896	)	$	(1,479,905	)

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

iTech Medical, Inc.

(Formerly known as Impact Medical Solutions, Inc.)

(A Development Stage Company)

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2011

1. Organization and summary of significant accounting policies

Organization and Line of Business

iTech Medical, Inc. (a development stage company) (the "Company"), was incorporated in Nevada on October 20, 1997. From October 1997 to September 2003, the Company was a shell corporation. On September 9, 2003, the Company acquired from MPR Health Systems, Inc., all of that company’s rights and assets, including a patent, relating to a medical information system called Muscle Pattern Recognition (“MPR”). Since 2003, the Company has been involved in the development and pre-market clinical testing of the MPR System.

On January 22, 2010 the Company entered into a research and development contract with Salus Research, Inc. (“Salus”), a Canadian entity owned by a Company officer and two members of the Company’s Board of Directors. Salus began conducting scientific research and experimental development activities in Canada ("SR&ED") and plans to claim for Canadian Scientific Research and Experimental Development tax credits. The Company funds 100% of these expenditures, is at risk for 100% of its losses and owns 100% of all scientific discoveries, and as a result is the party that is the primary beneficiary of the relationship as defined by FASB ASC 810-10-05. Salus has no other financing other than amounts received from the Company. The Company has determined Salus to be a variable interest entity. Starting in January 2010 the Company has consolidated the financial results of Salus for financial reporting purposes to comply with Accounting Principles Generally Accepted in the United States. All intercompany transactions have been eliminated in consolidation. During 2011, the Company remitted CND$277,000 to Salus to fund scientific research and experimental development and is obligated to remit an additional CND$175,000 through June 2011.

Interim periods

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of results for any future period. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2010.

2. Loans from related parties

Goldman Note

On December 3, 2007, the Company borrowed $40,000 from Alan Goldman, an executive officer. This loan bears interest at 10% per annum with an original maturity date of March 3, 2008. As additional consideration for the loan, the Company issued to Mr. Goldman 40,000 Series B Warrants with a fair value of $14,126. On January 19, 2011 the Company paid $20,000 on this loan leaving a $20,000 balance which is due June 30, 2011.

2. Loans from related parties (con’t)

Cavandale Note

In 2004, the Company borrowed CDN$145,000 from Cavandale Corporation, a corporation owned by Donald W. Paterson, one of the directors. The loans bear interest at 10% per annum with an original maturity date of November 1, 2004. As additional consideration for the loan, the Company issued to Cavandale Corporation 211,270 Series A Warrants with a fair value of $4,225. On February 19, 2011, the loan was converted to 362,500 shares of common stock resulting in a loss on the transaction of $106,450 which is recorded as general and administrative expenses in the accompanying statement of operations.

3. Shareholders’ equity

Stock issuance

As mentioned in Note 2 above, on February 19, 2011, the Company issued 362,500 shares of common stock for conversion of the Cavandale note.

On February 1, 2011, the Company issued 210,000 shares of common stock to two vendors for services valued at $212,100. The value of these services will be amortized over the one year contract period with these vendors.

Warrants

On March 25, 2011, the Company extended the expiration dates of both the Series A and Series B common stock purchase warrants. The Series A expiration date was extended from June 30, 2011 to June 30, 2012 and the Series B expiration date was extended from December 31, 2011 to December 31, 2012.

As a result of the due date extensions, the 4,420,603 Series A and 7,424,858 Series B warrants outstanding were re-valued at $4,611,436 using the Black-Scholes method and the resulting expense is included in general and administrative expenses in the accompanying statement of operations. The following weighted average assumptions were used to calculate the re-valued warrants: term of 1.25 – 1.75 years; risk-free interest rate of 0.625%; volatility of 164% - 194%; and a weighted fair value of $.3621 - $.4055.

On March 25, 2011, the Board of Directors also agreed to issue 200,001 Series B warrants to replace the Series D warrants that had expired. These warrants were valued at $81,099 using the Black-Scholes method and the resulting expense is included in general and administrative expenses in the accompanying statement of operations. The following weighted average assumptions were used to calculate the newly issued warrants: term of 1.75 years; risk-free interest rate of 0.625%; volatility of 194%; and a weighted fair value of $.4055.

3. Shareholders’ equity (continued)

Outstanding options and warrants

Security Type	Balance, December 31, 2010	Additions	Balance, March 31, 2011	Exercise Price	Expiration Date
2003 Stock option plan	2,953,600	---	2,953,600	$.25	March 10, 2014
2008 Stock option plan	960,000	---	960,000	$.25	June 24, 2020
Series A warrants	4,420,603	---	4,420,603	$.50	June 30, 2012
Series B warrants	7,424,858	200,001	7,624,859	$1.00	December 31, 2012
Series C warrants	1,185,001	---	1,185,001	$1.25	September 1, 2012
Series D warrants	---	---	---	$.95	September 1, 2010
Series E warrants	2,480,000	---	2,480,000	$.30	December 31, 2012
Series F-1 warrants	4,000,000	---	4,000,000	$.40	August 31, 2013
Series F-2 warrants	2,675,675	---	2,675,675	$.60	August 31, 2013
Series F-3 warrants	1,000,000	---	1,000,000	$.75	February 28, 2014
Series F-4 warrants	1,000,000	---	1,000,000	$.80	February 28, 2014
Series G-1 warrants	---	---	---	$.60	October 31, 2014
Series G-2 warrants	---	---	---	$.75	October 31, 2014
Series G-3 warrants	---	---	---	$.80	October 31, 2014
Series G-4 warrants	405,405	---	405,405	$..37	August 31, 2013

4. Subsequent events

Management has reviewed transactions through the date these financial statements were available for issuance, noting the following subsequent events:

On April 7, the Company extended the expiration dates of the Series C common stock purchase warrants from September 1, 2011 to September 1, 2012.

On March 12, 2011, the Company extended the Phase II Election Period of the Stock Purchase Agreement (the "Agreement"), dated March 19, 2010 and amended March 22, 2010, with Revox Ventures, Ltd. to April 30, 2011. Under the original Agreement, as amended, the Phase II Election Period was the 60 day period commencing upon the date the Company filed its 510(k) application regarding our Muscle Pattern Recognition System with the United States Food and Drug Administration (which occurred on February 22, 2011. Since Revox Ventures did not exercise their option to proceed with the Phase II financing within the period called for in the March 12, 2011 extension agreement, the Agreement expired on April 30, 2011 in accordance with its terms.

On May 13, 2011, the Company issued 3,666 shares of common stock to a vendor for services valued at $1,246.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements

All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report.

General

iTech Medical, Inc. is a development stage company engaged in the research and commercial development of healthcare information systems and technologies.

The Company was incorporated in 1997 in Nevada as Impact Medical Solutions, Inc. On September 9, 2003, the Company acquired a patent from MPR Health Systems, Inc. for a patented medical information system called Muscle Pattern Recognition (“MPR”). In December 2006, the Company merged into its wholly owned subsidiary Freedom 1, Inc., a Delaware corporation, and effectively reincorporated into Delaware. The Company changed its name to iTech Medical Inc. in 2009.

Business

The Company is a development stage company engaged in the research and commercial development of healthcare information systems and technologies. To date, we have focused on developing a proprietary platform called Muscle Pattern Recognition (MPR), a unique clinical tool for the analysis of muscle function.

MPR is a non-invasive, proprietary technology platform that objectively analyzes muscle recruitment patterns of the neck and back - the coordinated engagement of muscle groups in order to perform specific body movements. We believe that the MPR test results provide comprehensive information regarding those muscle recruitment patterns that can assist the healthcare professional in the evaluation and treatment of neck and back injuries and illnesses. The results of an MPR evaluation are presented in a detailed report that we believe provides objective, clinically relevant evidence on the status of underlying biomechanical and neuromuscular integrity, or the overall health of the neck and back.

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

Our success is dependent upon several factors, including establishing the efficacy of MPR in clinical trials, obtaining the necessary regulatory approvals to market MPR and maintaining sufficient levels of funding through public and/or private financing. ITM has not commercially marketed MPR in any market to-date.

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

Our target markets for MPR include primary care physicians, neurologists, orthopedic surgeons, physical medicine and rehabilitation physicians and occupational medicine practitioners; the Workers’ Compensation market; the self-insured employer market, and; Health Maintenance Organizations (HMOs).

Trends and Drivers. We believe several trends have emerged in our market. These include a growing number of employers and payors who are seeking ways to quantify and reduce the costs associated with back injuries; the continuing need for objective information in medical-legal injury litigation; the growing need for measuring patient treatment effectiveness and managing patients to successful outcomes; an increase in health care purchaser and health care provider attention to injury prevention, and; an increase in patient awareness of diagnostic and treatment alternatives. We believe these trends will be beneficial to our company because they support the demand for clinically proven tools that can reduce the costs and improve the outcomes of patients with neck and back pain.

We also recognize that there is a continuing trend by third party payors to reduce overall health care expenditures, and this trend affects a significant portion of our market. If we can demonstrate positive results in our clinical trial, our biggest challenge will be convincing the third party payors to accept the MPR system as a net savings rather than a net cost to the healthcare system.

Plan of Operation

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

·	completing an international, multi-center Outcome Study;

·	obtaining clearance from the FDA to begin marketing and sales of the MPR System in the U.S.;

·	sign one or more distribution deals for the MPR System in North America and/or Europe; and,

·	begin sales in North America and Europe.

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

·	Develop an awareness of MPR with physicians, employers, insurance companies, HMOs and other potential users of the MPR System;

·	Establish strong clinical and financial evidence of the key MPR value propositions through formal clinical studies representing our two target markets: North America and Europe;

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

·	Establish a Reimbursement Support Services Team to assist our customers in their submissions for insurance reimbursement during the early stages of MPR market adoption;

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

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

·	Form corporate alliances for the development, sales and marketing of MPR in a number of important yet opportunistic foreign markets that do not currently fall within our targeted geographic markets.

Funds currently available to us will not be adequate for us to complete these programs. We had $300,385 cash on hand as of March 31, 2011 however as of May 15, 2011, we had a negative cash balance of $8,657. We are in the development stage and have not earned any revenue since our inception. Therefore, we will need to raise additional funds in order to fully implement our business plan. However, there can be no assurance that we will be successful in raising such additional funds on favorable terms if at all. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we might seek to compensate providers of services by issuance of stock in lieu of cash.

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

Results of Operations

Revenues. We have not generated any revenues since our inception on October 20, 1997.

Cash and Cash Equivalents. At March 31, 2011, we had $300,385 cash and cash equivalents on hand compared to $983,292 at December 31, 2010. This decrease was due to increased expenses incurred in our research and development activities.

Total Assets. At March 31, 2011, we had total assets of $646,683 compared to $1,330,059 at December 31, 2010. This decrease was primarily due to a decrease in cash and cash equivalents and to the amortization of our patent.

Total Liabilities. At March 31, 2011, we had total current liabilities of $2,126,588 compared to $2,200,958 at December 31, 2010. This decrease was primarily due to a decrease in loans payable.

Research and Development. For the three months ended March 31, 2011, we had research and development expenses of $231,554 compared to $28,197 for the three months ended March 31, 2010. The increase in spending was primarily due to an increase in staff related to the research and development of the MPR System.

Medical and Clinical Expenses. For the three months ended March 31, 2011, we had medical and clinical expenses of $98,139 compared to $66,241 for the three months ended March 31, 2010. This increase was primarily due to the costs incurred in the design of our clinical trial program for 2011.

General and Administrative Expenses. For the three months ended March 31, 2011, we had general and administrative expenses of $5,342,979 compared to $388,359 for the three months ended March 31, 2010. This increase was due to non-cash expenses of $4,611,436 related to the extension of our Series ‘A’ and Series ‘B’ Warrants; $81,099 related to the issuance of new Series ‘B’ warrants; $11,340 related to the amortization of stock options; $7,428 related to warrant amortization; and an increase in the issuance of common stock for services valued at $103,566.

Operating Losses. For the three months ended March 31, 2011, we had an operating loss of $5,672,672, compared to $482,797 for the three months ended March 31, 2010. This increase was due to non-cash expenses of $4,611,436 related to the extension of our Series ‘A’ and Series ‘B’ Warrants; $81,099 related to the issuance of new Series ‘B’ warrants; $11,340 related to the amortization of stock options; $7,428 related to warrant amortization; an increase in the issuance of common stock for services valued at $103,566, and an increase in research and development and clinical affairs expenses.

Net Loss. For the three months ended March 31, 2011, we had a net loss of $5,677,625 compared to $491,359 for the three months ended March 31, 2010. This increase was due to non-cash expenses of $4,611,436 related to the extension of our Series ‘A’ and Series ‘B’ Warrants; $81,099 related to the issuance of new Series ‘B’ warrants; $11,340 related to the amortization of stock options; $7,428 related to warrant amortization; an increase in the issuance of common stock for services valued at $103,566, and an increase in research and development and clinical affairs expenses.

Liquidity and Capital Resources

We continue to develop and enhance the features and performance of our technology with the goal of introducing new products based on our research and development activities. Eight of our thirteen employees and one of our independent consultants devote at least a portion of their time to research and development activities.

For the three months ended March 31, 2011 and March 31, 2010, we incurred a net loss of $5,677,625 and $491,359, respectively. At March 31, 2011, we had $300,385 cash on hand, as compared to $983,292 at December 31, 2010. At March 31, 2011, we had a stockholders’ deficit of $1,479,905 as compared to $870,899 at December 31, 2010.

We had $300,385 cash on hand as of March 31, 2011 however as of May 15, 2011, we had a negative cash balance of $8,657. We will need to raise additional capital to support our projected increases in staffing and other operating expenses, which we cannot give any assurance we will be able to accomplish. If we are unable to raise additional capital, it will be necessary for us to significantly reduce expenses to stay in business. In addition, any new equity or debt financing that we secure may not be available to us at prices that would be acceptable. Our failure to reduce expenses or obtain necessary financing could impair our ability to stay in business.

Financings

There were no financings during the quarter ended March 31, 2011.

Critical Accounting Policies

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

Long Lived Assets

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

Research and Development Costs

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

Share-based Compensation

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

N/A

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

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

Management’s Report on Internal Control Over Financial Reporting

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

iTech Medical’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on its assessment, management has concluded that iTech Medical maintained effective internal control over financial reporting as of December 31, 2010, based on criteria in “Internal Control - Integrated Framework” issued by the COSO.

Change in Internal Controls

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

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

N/A

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

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

None.

Item 5. Other Information.

Item 6. Exhibits.

EXHIBIT INDEX


Exhibit No.		Description
31.1		Certification of the Company’s Principal Executive Officer and Chief Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002, with respect to the registrant’s Report on Form 10-Q for the quarter ended March 31, 2011.

32.1		Certification of the Company’s Principal Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 20, 2011	ITECH MEDICAL, INC.
	By:	/S/ WARREN G. BAKER
		Warren G. Baker
		President, Chief Executive Officer

		/S/ WAYNE D. COCKBURN
		Wayne D. Cockburn
		Chief Financial Officer

Impact Medical Solutions, Inc. - FORM 10-Q - May 20, 2011

Attached files

Impact Medical Solutions, Inc. Reports