Impact Medical Solutions, Inc. (OTCBB: IMSU) is a medical technologies company whose first product is a non-invasive medical device based on a proprietary technology called Muscle Pattern Recognition (MPR). MPR was developed as a unique clinical tool intended for the kinesiologic analysis of muscle function.  MPR’s initial application is as a biomechanical test that can objectively discriminate between normal and abnormal musculoskeletal function of the back and neck.  MPR analyzes patterns of muscle recruitment during the performance of specific body postures and provides detailed physiological information on muscle function that can assist in the diagnosis and treatment of back and neck injuries and illness.  The information provided by the MPR System is not available from any other non-invasive system or commercial test. 

The Back Pain Market

According to the U.S. National Institute for Occupational Safety and Health (NIOSH), back pain is one of the most common and significant musculoskeletal problems in the world.  In the U.S., it is estimated that the annual direct and indirect cost of diagnosing and treating back injuries is $50 – $100 billion.  Back pain is the leading cause of disability in the U.S. for people younger than 45, the most expensive health care problem for those in the 20 to 50 year-old age group, and accounts for over 24% of all occupational injuries involving days away from work.  Musculoskeletal disorders account for $1 of every $3 spent for workers’ compensation.

Target Commercial Markets

Within the medical community, the target markets include those health care providers who treat patients with back pain - Neurologists, Orthopedic Physicians, Physical Medicine and Rehabilitation (PM&R), Occupational Medicine, General Practitioners and Chiropractors.  There are over 450,000 of these practitioners in the U.S. alone.

The largest market for MPR outside the medical market is the self insured employer market which represents between 35 - 40 million workers in the U.S.  This market is acutely aware of the economic cost associated with back problems and is highly motivated to adopt new technologies to help save on employee health care costs.

Other significant markets include Health Maintenance Organizations (HMOs), Workers’ Compensation Carriers and Insurance Companies.

Product History

Impact Medical acquired all the intellectual property rights covering the MPR System in September 2003.  Prior to the acquisition by IMS, approximately $7.4 million had been spent on the development of the MPR technology. 

A prototype version of the MPR System was market-tested by the developer and was successful in receiving reimbursement from more than sixty organizations including several large self insured employers and some of the largest insurance companies in North America.  Some of these organizations include:

Results from the early market testing of MPR clearly demonstrated a demand for the product and a willingness to pay for the test.  Equally important, many of the previous customers stated that they would be willing to expand their usage of MPR if the test was supported by an independent clinical trial and appropriately priced to encourage broader use.

Scientific Validation

All recording hardware used by the MPR System has received Food and Drug Administration (FDA) 510(k) clearance as a recording device and satisfies CE Marking requirements for the European Union.   Additional 510(k) submissions will be made leading up to, and following the independent clinical trial of the MPR System.  Dr. V. Reggie Edgerton of UCLA and Dr. Steven Wolf of Emory University reviewed the technical aspects of the MPR System and confirmed the validity of the science in three peer-reviewed articles.

Legal Validation

A legal precedent was established through the California Workers’ Compensation Appeals Board when it issued a decision that confirmed the validity of the MPR methodology and mechanism.  The decision found that MPR was a “valid and useful diagnostic medical tool” when used in the proper case.

Business Model

Impact’s primary source of revenue will be based on a per-use basis of the MPR test.  By providing services using this model, the Company is able to eliminate one of the most common objections in medical device sales – the cost of capital equipment.  Equally important, they are able to maintain full control over their data analysis software and intellectual property.  By maintaining this level of control over the data and data analysis, Impact will be able to build a database of back injuries larger than any other database of its kind.  They expect this database to open up a number of new business opportunities including the development of unique clinical models that can be used to further reduce the cost of health care. Impact Medical management estimates that there are approximately six million MPR evaluation opportunities per year in the U.S. and an equivalent number in the E.U.  Impact estimates the total annual market for MPR exceeds $1.2 billion. 

The MPR Technology

MPR is a non-invasive clinical tool for the kinesiologic analysis of muscle function.  MPR’s initial application is as a biomechanical test that can objectively discriminate between normal and abnormal musculoskeletal function of the back and neck.  MPR analyzes patterns of muscle recruitment - the engagement of muscles in order to perform specific body movements.  MPR test results provide detailed physiological information on muscle function that can assist in the diagnosis and treatment of back and neck injuries and illness. The results of an MPR test are presented in a comprehensive report that provides detailed information on muscle function incorporating site, nature and severity of dysfunction. 

Impact believes that the capabilities of the patent-protected MPR System are unique and that the system addresses an unmet market need for an objective, evidence-based test that can be used by physicians and other health care professionals to better assess and manage patients with impaired musculoskeletal function.  The MPR System also supports the cost-containment and risk management goals of insurers, workers’ compensation carriers, self insured employers and managed care providers by reducing health care costs associated with back and neck injuries. 

The MPR System recently completed a clinical trial at Advanced Clinical Research in Salt Lake City, Utah and results have confirmed the safety and efficacy of the test.  The Company expects to begin an independent, pre-marketing validation study beginning in the first quarter of 2008.  The Company anticipates completing the pre-marketing study by the end of the third quarter of 2008 followed by a commercial roll-out of the MPR System in the fourth quarter of 2008.

Regulatory Requirements

The Food and Drug Administration (FDA) regulates all medical devices manufactured in the United States.  IMS is working with experienced FDA/regulatory consultants and has already identified suitable predicate devices, which are substantially equivalent to the MPR System.  A new 510(k) premarket notification to the FDA is planned for 2008 to approve the system for sale as an adjunct diagnostic device.  Additional performance and marketing claims will be filed with the FDA after the completion of the clinical trial - the results of which will determine the degree of clinical utility for the MPR test as a diagnostic tool in its own right.  

Reimbursement - CPT Coding

MPR, health practitioners use reimbursement “codes”.  In the past, MPR has been reimbursed under a general CPT code for “Alternative Neuromuscular Disorders” (Code #95999).  To obtain broad acceptance of the MPR System with health care practitioners, it may be important for the Company to obtain a more specific CPT code for the test.  To achieve this goal, they are working with a leading specialized consulting firm that provides regulatory services to companies that operate in the medical device industry.

Patents

The MPR System is protected by one issued U.S. patent covering numerous aspects of the technology.  The patent was granted in August 2001 and will expire in August 2020.  The patent is broad and includes the method for determining muscle dysfunction of a subject; the system for determining muscle dysfunction of a subject; the computer readable medium having stored instructions (computer programs) for analyzing the muscle dysfunction of a subject; a muscle dysfunction evaluation network (data collection, analysis, reporting and communications links) for determining muscle dysfunction of subjects; and a muscle dysfunction report.

The Back Market

According to the U.S. National Institute for Occupational Health and Safety (NIOSH), back pain is one of the most common and significant musculoskeletal medical problems in the world.  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.  Other notable statistics include:

About 1% of the United States population is chronically disabled because of back pain and an additional 1% is temporarily disabled; 

• Two percent of the United States work force has compensable back injuries each year;
• Almost 16.2 million office visits result from back pain conditions.

In one of the largest analyses of its kind, a team of Duke University Medical Center researchers found that patients suffering from back pain consume more that $90 billion annually in health-care expenses, with approximately $26 billion of that amount directly attributable to treating back pain.  According to the Duke University study, published in Spine in January 2004, the annual per capita expenditures for patients with back pain were 1.6 times higher than those without back pain. These increased expenditures were found in all categories including inpatient charges, office visits, prescription drugs, outpatient care, home health care and emergency room care.

For most patients, the cause or causes of persistent back pain remain poorly understood.  Although imaging procedures, including computerized tomography (CT) and magnetic resonance imaging (MRI), are able to accurately define structural pathology, the correlation of these anatomic findings with physiology, back pain, and other clinical complaints is imprecise.

Acute low back pain is often recurrent, and most patients with a history of acute episodes eventually have more chronic symptoms.  Also, people who seek medical attention for back pain are thought to be at increased risk for chronic pain and disability. Patients in all three groups (acute, sub acute and chronic) are appropriate candidates for MPR. 

Based on market data, including information from the Atlanta-based Centers for Disease Control and Prevention (CDC), the Company conservatively estimates that there are between five and ten million MPR evaluation opportunities per year in the U.S. and an equal number of opportunities outside North America.

Several trends have expanded the market for better solutions to diagnosing back problems:

• Increased employer and payor aggressiveness in quantifying and seeking ways to reduce the economic toll of back injuries, one of the largest segments of health care costs;
• Growing awareness of the need for objective information in medical-legal injury litigation;
• Need for measuring patient treatment effectiveness and managing patients to successful outcomes;
• Increased health care purchaser and provider attention to injury prevention; and,
• Increased patient awareness of diagnostic and treatment alternatives.
• Primary care physicians, who initially treat the majority of patients with back pain;
• Specialists including neurologists, orthopedic surgeons, physical medicine and rehabilitation physicians (PM&R) and occupational medicine practitioners
• Employer market;
• The Workers’ Compensation market;
• Heath Maintenance Organizations (HMOs); and,
• Insurance companies.

Sales and Marketing

The traditional delivery of health care, when decision-making was based on the sole discretion of the treating physicians, has evolved toward a more financially based, protocol-driven medical care that is known as evidence-based medicine. This new healthcare paradigm has created new and complex relationships between all organizations that populate every point of the health care compass – integrated insurers, self insured employers, managed care organizations, third party administrators, risk managers and physician networks. Complicated new relationships have evolved and must all be considered as part of the marketing effort of MPR.

There are three broad markets for MPR under which all other target markets fall.  They are:

• Employer,
• Medical,
• Worker’s Compensation and Insurance.

The initial target markets for MPR are the Employer and Medical market.

Employers

There are two different markets within the Employer market, each requiring a unique sales and marketing approach.  The two markets are the self insured Employer market and the Employer market covered by workers’ compensation and/or private insurance. 

There are a large and growing number of employers that do not contract with insurance companies to insure their employees, but they have enough employees to do risk pooling like an insurance company would.  These employers are called “Self Insured”.  Self insurance, in the context of workers’ compensation (WC), is a program under which an employer assumes the financial risk for the vast majority of its WC liabilities.   The employer may contract with a reinsurer to pay amounts in excess of a certain threshold, in order to share the risk for potential catastrophic claims experience, however any claims and/or losses remain with the employer. 

Impact will be focusing much of its early marketing efforts with the largest and most influential Health Care Administrators. Some of these groups include previous users of MPR and initial discussions with several potential customers are already underway.  There are over 2,000 of these companies with 5,000 or more employees each, representing approximately 38 million workers.

The goal within the self insured Employer market is to initiate customer-specific programs with several large companies and/or organizations where Impact can begin generating revenue while at the same time establishing MPR usage patterns, reimbursement rates and highly credible reference sites. 

The second market within the Employer market is one that is covered by workers’ compensation and/or private insurance.  Most of these employers are experience-rated for workers’ compensation and they can directly benefit from a reduction in the medical and income continuation costs due to better discernment in the diagnosis and treatment of back problems.  These employers stand to reduce health care costs by using MPR.

Penetrating this market involves a longer sales cycle and will require, among other things, a pharmacoeconomic, or cost-benefit study to support the payor reimbursement of MPR.  Successfully penetrating this market will also be conditional on MPR receiving support from the Medical market.   

Medical Market

The target markets for MPR within the medical profession include Neurologists, Orthopedic Surgeons, Physical Medicine and Rehabilitation Specialists (Physiatrists), Occupational Medicine Practitioners (OccMed), Primary Care Physicians (GPs) and Physical Therapists.  According to recent data, there are approximately 464,000 medical professionals within these disciplines in the United States. For MPR to be accepted by this market there are three important conditions that must be met:

1. The clinical effectiveness of MPR must be demonstrated in an independent clinical trial and the results must be published in one or more peer-reviewed journals;
2. Medical professionals must be certain that they will be reimbursed if they prescribe the test; and,
3. There must be minimal disruption in the way physicians treat their patients when introducing MPR into their practice.

Discussions have already begun with Federal healthcare providers and large key national employers and insurers. They have all indicated their interest and intention to become involved with Impact both as users and buyers of the MPR services upon completion of the clinical trial and with FDA clearance.

In almost all states, employers are required to purchase insurance for their employees from a workers' compensation insurance company.  When a worker is injured, his or her claim is filed with the insurance company who then pays medical and disability benefits according to a state-approved formula.

The workers' compensation system provides replacement income, medical expenses and sometimes vocational rehabilitation benefits (i.e. on the job training, schooling or job placement assistance).  An employee temporarily unable to work due to work-related injury is often entitled to receive two-thirds of their average wage up to a fixed ceiling.  Many employees are eligible for these wage-loss replacement benefits as soon as they've lost a few days of work because of an injury (i.e. back injury) that is covered by workers' compensation.

Although state laws vary, insurance carriers are usually able to dictate or influence the sources of care for back problems, particularly in the crucial early period.  These organizations have the authority to recommend the use of MPR in their assessment and treatment protocols.  Workers' compensation boards, like self insured companies, stand to generate substantial savings by using MPR because of the enormous costs involved in lost productivity associated with employee time away from work. 

Initial discussions with two state Workers’ Compensation boards are currently underway and plans are being made to contact other players involved in the implementation of the workers' compensation system. They include:

• Employers and employer organizations,
• Injured workers,
• Labor unions and workers' organizations,
• Attorneys and their organizations
• The state agencies that regulate and implement the workers’ compensation program

Insurance Companies

Addressing the needs of the insurance companies will be another important component of the marketing plan because their reimbursement policies and practices will have an impact on Impact's methods of distribution, growth strategy and revenues.  Third party payers can be very controlling and onerous for physicians to deal with on a day-to-day basis and if Impact is successful in establishing clear reimbursement policies for MPR, physicians will be more likely to use the test because they will be saved the aggravation of fighting the insurance company over billing and payment for the test.

Competitors

To date the main competitors of Impact have been unable to penetrate the major medical, public pay and employer markets due to lack of independent clinical trial results. All are private companies.

• Myosymmetries International - pain treatment clinic; technology compares left side vs. right side (lower back only); primarily for Fibromyalgia or Chronic Fatigue Syndrome.
• Biotonix - musculoskeletal form and function test; reflective markers/digital photographs of patient, compares to expert system; based more on bone structure, analyzes posture; primary market - chiropractic market.
• Precision Biometrics – product used primarily by chiropractors; left side vs. right side; technology has been undergoing research for >13 years; no peer review or independent clinical trials.
• Noromed - range of motion and muscle testing devices; two products – one compares left side vs. right side; second measures range of motion.

Executive Officers and Board

In September 2003, Impact assembled a team of experienced healthcare executives, world-class medical opinion leaders and financial executives to complete the commercial development of the MPR System.  The following is a summary of each the executive officers, key personnel, Board of Directors and Medical Advisory Board. 

Wayne Cockburn - CEO, Director: Mr. Cockburn joined IMS in September 2003.  Prior to IMS, Mr. Cockburn was President at MPR Health Systems from January 2002 until September 2003 and Executive Vice President from January 2000 until January 2002.  From January 1995 to December 1999, Mr. Cockburn was Vice President, Business Development for Lorus Therapeutics, a public biotechnology company.  Mr. Cockburn’s background includes strategic planning, corporate finance, corporate partnering, corporate governance and mergers and acquisitions.  Mr. Cockburn has served on the board of directors of several private and public companies and currently serves on the boards of IMS, MPR Health Systems, Inc., Next Millennium Commercial Corp. and Red Juggernaut, Inc.

Alan J. Goldman, M.D. - Vice President, Clinical and Medical Affairs: Dr. Goldman joined IMS in September 2003.  Prior to joining IMS, Dr. Goldman was a practicing Board Certified neurologist for 30 years and an Associate Clinical Professor of Neurology at the University of California (Irvine).  Through his practice, Dr. Goldman attained extensive experience with work-related injuries. He served as a neurology consultant to numerous insurers and served for four years on the Medical Advisory Board of Blue Cross.  Dr. Goldman serves as an expert witness in Workers’ Compensation and general liability litigation matters and was recently appointed as a Medical Panel Chairperson for the State of Utah Labor Commission.  His Workers Compensation appointments include Independent Medical Examiner for the State of California in 1990, Qualified Medical Evaluator, State of California in 1991 and Agreed Medical Evaluator, State of California in 1992.  Dr. Goldman is also a member of the American Academy of Neurology, the California Medical Association, the Utah Medical Association and a Past-President of the Orange County Neurological Society. At IMS, Dr. Goldman is responsible for all the clinical and medical affairs of the Company.  In addition to being a key member of the management team, Dr. Goldman also serves as Chairman of the Company's Medical Advisory Board.

Steve Asselin - Vice President, Research and Development: Prior to joining IMS in September 2003, Mr. Asselin was the Director of the Biomechanics Lab at HealthSouth Inc. from September 2000 to December 2002.  Mr. Asselin was responsible for the development of the Biomechanics Lab at HealthSouth to enhance and support the clinical programs and services of the company.  From May 1994 until September 1999, Mr. Asselin was Research Coordinator at Spinex Medical Technologies.  From February 1992 until March 1994, Mr. Asselin was Director, Clinical and Spinoscopy Affairs with a physician group in Boston, Mass.  Prior to that, Mr. Asselin was a Research Assistant at Spinex Medical Technologies from September 1989 until February 1992.  Mr. Asselin is coauthor of six scientific publications dealing with back injuries and back function and author and/or coauthor of approximately 30 scientific abstracts.

George Papagiannis – Regulatory Affairs Quality/Assurance Advisor:  Mr. Papagiannis is an electrical/biomedical engineer with 20 years experience in medical devices and healthcare technologies.  Mr. Papagiannis brings a broad background of expertise in guiding product development and navigating this highly regulated marketplace. 

Over the years, Mr. Papagiannis has held senior management positions in 3 Quebec-based medical device companies that develop non-invasive diagnostic systems and products in the fields of spinal movement disorders, EEG, sleep, and cardiopulmonary monitoring. During his last appointment, he was responsible for the transfer to production, manufacturing, and delivery of private-labeled medical devices for a large multinational company. Mr. Papagiannis has also worked extensively in a consulting capacity in regulatory affairs, clinical trial support, quality assurance, manufacturing operations, and business process engineering for medical device, healthcare quality and information systems, pharmacoeconomics and biotechnology firms, in Canada and the US. His has also completed and guided many submissions to the FDA, Health Canada and international regulatory bodies.

Marci J. Hein – Consulting CFO:  Ms. Hein is a Certified Public Accountant who has over 20 years experience in auditing with special emphasis in SEC reporting for small companies.  Ms. Hein also has extensive experience with the CPA profession’s peer review process at the state and national levels.  Ms. Hein is the Chair, California Society of Certified Public Accountants’ Audit Committee and a member of the California Society of Certified Public Accountants’ Council. 

Patricia Colvin - Director of Operations and Financial Controller: Ms. Colvin joined IMS in September 2003 and is responsible for Operations and Human Resources for the Company.  Ms. Colvin is also responsible for Quality Control for the Muscle Pattern Recognition technology, including the development and implementation of policies and procedures for software development, hardware assembly, material outsourcing and training and certification of Technicians and Trainers.  Prior to joining IMS, Ms. Colvin was Director of Operations and Human Resources at MPR Health Systems from February 1997 until August 2003.

Board of Directors

George D. Angelidis - President and CEO, Hospital Network, Inc.: Mr. Angelidis has been the President of Hospital Network, Inc., a partnership initially consisting of 6 Michigan-based hospitals, since 1998.  Since that time Mr. Angelidis has expanded Hospital Network to 17 hospitals by adding 11 new hospital members and structuring a new entity, Hospital Network Healthcare Services L.L.C.  He is directly responsible for the company's mobile MRI, bone density and TUMT services, mobile Occupational Wellness, and Medical Waste Disinfection programs.  Additionally, the Network is providing medical record scanning and archiving, a regional PACs archiving service, and a member Telehealth service.  Mr. Angelidis also manages three affiliated ventures for the fifteen healthcare partners.  Prior to joining Hospital Network, Mr. Angelidis spent eighteen years with Eastman Kodak Company where his most recent position was Senior Technical Sales Representative for the Health Sciences Division.  Mr. Angelidis spent time with Picker International in Cleveland, Ohio as their Regional Sales Manager, Manager Group Accounts and Zone Sales Manager and was responsible for over five hundred million dollars in annual sales.Prior to Picker International, Mr. Angelidis was Vice President of Sales and Manager at King’s Medical in Hudson, Ohio where he gained experience in capital equipment programs.  Once introduced to mobile services Mr. Angelidis spent five years with Medical Consultants Imaging, Co. located in Cleveland as Vice President of Sales, Marketing and Business Development.  Medical Consultants Imaging Co. was the first joint venture partner of Hospital Network in 1986.

Wayne D. Cockburn (see above)

Donald W. Paterson - President, Cavandale Corporation: Since May 1986, Mr. Paterson has been President of Cavandale Corporation, a company principally engaged in providing strategic corporate consulting to emerging growth companies within the technology and healthcare industries.  Prior to founding Cavandale Corporation, Mr. Paterson was a Director and Vice-President of Wood Gundy Inc., a Canadian investment bank, from Jan. 1982  to Sep. 1988 where he was directly involved in leading the firm’s activities in financing Canadian and international high technology companies.  Mr. Paterson currently serves on the board of directors of Angoss Software Corp., EFOS Corp., Lorus Therapeutics Inc., Homeservice Technologies Inc., Inc., NewGrowth Corp., Telepanel Systems Inc., Utility Corp. and Impatica Inc.  Mr. Paterson also serves on the board of directors of MPR Health Systems, Inc.

Stephen Schectman, Ph.D. – Director: Mr. Schectman joined IMS on January 1, 2004.  Immediately prior to joining IMS, Mr. Schectman was a partner in NewHealth Solutions Group, a healthcare consulting firm.  From June 1996 until February 2003, Mr. Schectman was Senior Director, Health Care Strategy Unit at Schering-Plough, and Vice-President, Business Development, Schering MyHealth Solutions, Inc.  Mr. Schectman’s experience includes positions of Senior Management Associate of JRB Associates, Inc., Director, Washington Office for IMS Americas Ltd., President, Alpha 1 Biomedicals, Inc., President, Research Data Corporation, President & CEO, Large Scale Biology Corporation, Executive Vice President & Founder, the Encore Group, Consultant for Medco Containment Services, Inc., and Managing Partner for Hudson Bio Capital, Inc. He has served on the board of directors of several private and public companies. Mr. Schectman holds a BS in Biology and General Science from Randolph-Macon College, a Doctor of Philosophy in Physiological Psychology from the University of Tennessee, and a Special Research Fellowship at Georgetown University of Medicine, Department of Medical Physiology.

Medical Advisory Board

The Company has also established a Medical Advisory Board (MAB) whose members provide advice on the clinical, medical and scientific affairs of IMS, and who work with us on new product development.  The MAB is chaired by Alan Goldman, MD, the Company’s Vice President of Clinical and Medical Affairs.  

Gunnar B.J. Andersson, MD, PhD: Dr. Andersson is the Chairman of Orthopedic Surgery at the Rush University Medical Center in Chicago; managing partner of Midwest Orthopedic, and; past-President of the International Society for the Study of the Lumbar Spine.  Dr. Andersson is also the Chairman of the American Academy of Orthopedic Surgeons Research Development Committee.

V. Reggie Edgerton, PhD: Dr. Edgerton is Professor and Vice Chairman of the Departments of Physiological Sciences and Neurobiology at the UCLA Medical Center, and; Project Program Director for the evaluation of neurophysiological changes in microgravity for NASA.

Scott Haldeman DC, MD, PhD: Dr. Haldeman is a Clinical Professor of Neurology at the University of California, Irvine and Adjunct Professor in the Research Division at the UCLA Medical Center.  Dr. Haldeman is also Chairman of the Research Council of the World Federation of Chiropractic and a Past-President of the North American Spine Society.

Steven L. Wolf, PhD: Dr. Wolf is a Professor in the Department of Rehabilitation Medicine; a Professor in Geriatrics in the Department of Medicine, and; Associate Professor in the Department of Cell Biology at the Emory School of Medicine.  Dr. Wolf is also a Professor in Health and Elder Care in the Nursing School at Emory and the Former Chair of the Advisory Council of the American Physical Therapy Association.

Prospects for the Future

• Global market opportunity in excess of $1 billion.
• Superior and innovative technology – ability to become ‘gold standard’.
• Proprietary patent protected technology and IP.
• Capability to become market leader and create significant barriers to entry to competitors.
• Sustainable and high margin business model.
• Attractive partner candidate.
• Experienced management team.