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      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">UNITED
          STATES</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SECURITIES
          AND EXCHANGE COMMISSION</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">WASHINGTON,
          DC 20549</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>FORM
          8-K</strong></font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CURRENT
          REPORT PURSUANT</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">TO
          SECTION 13 OR 15(d) OF THE</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SECURITIES
          EXCHANGE ACT OF 1934</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br>&#160;</div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date
          of
          report (Date of earliest event reported): November 4, 2005</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">VirtualScopics,
          Inc.</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">
          <div>
            <hr style="COLOR: #000000" align="center" noshade size="1" width="25%">
          </div>
          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Exact
            Name of Registrant as Specified in Its Charter)</font></div>
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        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Delaware</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">
          <div>
            <hr style="COLOR: #000000" align="center" noshade size="1" width="20%">
          </div>
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            or
            Other Jurisdiction of Incorporation)</font></div>
        </div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br>&#160;</div>
        <div align="center">
          <table bgcolor="#ffffff" cellpadding="0" cellspacing="0" width="100%">

              <tr bgcolor="#ffffff">
                <td width="37%">
                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">333-120253</font></div>
                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">
                    <hr style="COLOR: #000000" align="center" noshade size="1" width="50%">
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                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Commission
                    File Number)</font></div>
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                <td width="25%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
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                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">04-
                    3007151</font></div>
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                    <hr style="COLOR: #000000" align="center" noshade size="1" width="50%">
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                    Employer Identification No.)</font></div>
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                <td width="37%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
                <td width="25%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
                <td width="37%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
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                <td width="37%">&#160;</td>
                <td width="25%">&#160;</td>
                <td width="37%">&#160;</td>
              </tr>
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                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">350
                    Linden Oaks, Rochester, New York</font></div>
                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">
                    <hr style="COLOR: #000000" align="center" noshade size="1" width="75%">
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                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Address
                    of Principal Executive Offices)</font></div>
                </td>
                <td width="25%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
                <td width="37%">
                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">14625</font></div>
                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center">
                    <hr style="COLOR: #000000" align="center" noshade size="1" width="50%">
                  </div>
                  <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Zip
                    Code)</font></font></div>
                </td>
              </tr>

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        </div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        </div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(585)
          249-6231</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">
          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">
            <hr style="COLOR: #000000" align="center" noshade size="1" width="20%">
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          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Registrant&#8217;s
            Telephone Number, Including Area Code)</font></div>
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        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font id="TAB1" style="MARGIN-LEFT: 36pt"></font>&#160;</div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ConsultAmerica,
          Inc., 13070 Addison Road, Roswell, GA 30075</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">
          <hr style="COLOR: #000000" align="center" noshade size="1" width="30%">
          <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Former
            Name or Former Address, if Changed Since Last Report)</font></div>&#160;</div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Check
          the
          appropriate box below if the Form 8-K filing is intended to simultaneously
          satisfy the filing obligation of the registrant under any of the following
          provisions (see General Instruction A.2. below):</font></div>
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        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="FONT-FAMILY: Wingdings">o<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;</font></font>Written
          communications pursuant
          to Rule 425 under the Securities Act (17 CFR 230.425)</font></div>
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        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="FONT-FAMILY: Wingdings">o<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;</font></font>Soliciting
          material pursuant to
          Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)</font></div>
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        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="FONT-FAMILY: Wingdings">o<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;</font></font>Pre-commencement
          communications
          pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
          240.14d-2(b))</font></div>
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        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="FONT-FAMILY: Wingdings">o<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;</font></font>Pre-commencement
          communications
          pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
          240.13e-4(c))</font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
        <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
          <div id="FTR">
            <div id="GLFTR" style="WIDTH: 100%" align="left">
            </div>
          </div>
          <div id="PN" style="PAGE-BREAK-AFTER: always">
            <div style="WIDTH: 100%; TEXT-ALIGN: center">
            </div>
            <div style="WIDTH: 100%; TEXT-ALIGN: center">
              <hr style="COLOR: black" noshade size="2">
            </div>
          </div>
          <div id="HDR">
            <div id="GLHDR" style="WIDTH: 100%" align="right">
            </div>
          </div>
        </div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>INFORMATION
          TO BE INCLUDED IN THE REPORT</strong></font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>TABLE
          OF CONTENTS</strong></font></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      </div>
    </div>
    <div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table cellpadding="0" cellspacing="0" width="100%">

            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
                    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
                      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEMS
                          1.01, 5.01, 5.02 AND 5.03 - ENTRY INTO A MATERIAL DEFINITIVE
                          AGREEMENT,
                          CHANGES IN CONTROL OF REGISTRANT / </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">DEPARTURE
                          OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
                          APPOINTMENT OF
                          PRINCIPAL OFFICERS / AMENDMENTS TO </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ARTICLES
                          OF INCORPORATION OR BY-LAWS; CHANGE IN FISCAL
                          YEAR</font></div>
                      </div>
                    </div>
                  </div>
                </div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Summary</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Exchange
                  Transaction</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Private
                  Placement</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Lock-up
                  Agreements</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Registration
                  Statement</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
                  2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                  Exchange Transaction</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Description
                  of Our Company and its Predecessor</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Description
                  of Business</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cautionary
                  Statements</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">18</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Cautionary
                  Language Regarding Forward-Looking Statements and Industry
                  Data</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">23</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Management's
                  Discussion and Analysis or Plan of Operation</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">24</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Description
                  of Property</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">28</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Security
                  Ownership of Certain Beneficial Owners and Management</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">28</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Directors,
                  Executive Officers, Promoters and Control Persons</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">29</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Executive
                  Compensation</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">32</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain
                  Relationships and Related Transactions</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">32</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Description
                  of Securities</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">34</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Placement
                  Agent Warrants</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">35</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Market
                  Price of and Dividends on Common Equity and Related Stockholder
                  Matters</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">36</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Legal
                  Proceedings</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">36</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Indemnification
                  of Directors and Officers</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">36</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
                  3.02 - UNREGISTERED SALES OF EQUITY SECURITIES</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">37</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                  Private Placement</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">37</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
                  4.01 - CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">38</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ITEM
                  9.01 - FINANCIAL STATEMENTS AND EXHIBITS</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">38</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Financial
                  Statements of Businesses Acquired</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">38</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pro
                  Forma Financial Statements</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">38</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="94%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SIGNATURES</font></div>
              </td>
              <td align="left" valign="bottom" width="3%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">41</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    </div>
    <div>
    </div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
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        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>ITEMS
      1.01, 5.01, 5.02, AND 5.03 - ENTRY INTO A MATERIAL DEFINITIVE
      AGREEMENT</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>,
      CHANGES IN CONTROL OF REGISTRANT / DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS;
      ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS / AMENDMENTS TO
      ARTICLES OF INCORPORATION OR BY-LAWS; CHANGE IN FISCAL
      YEAR.</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Summary</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      November 4, 2005, we, VirtualScopics, Inc., or the company, acquired all of
      the
      outstanding membership units of VirtualScopics, LLC, or VirtualScopics, in
      exchange for shares of our common stock, par value $.001 per share. As a result,
      VirtualScopics is now a wholly-owned subsidiary of the company. The transaction
      is referred to in this Current Report on Form 8-K, or this report, as the
      exchange transaction. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">VirtualScopics
      is a provider of image-based biomarker solutions to customers in the
      pharmaceutical, biotechnology and medical device industries that are designed
      to
      facilitate cost-effective drug and medical device development. VirtualScopics
      is
      headquartered in Rochester, New York.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At
      the
      time of the exchange transaction, our corporate name was ConsultAmerica, Inc.
      and our trading symbol was &#8220;CSAA.OB.&#8221; Concurrently with the exchange transaction
      we changed our name to VirtualScopics, Inc. and our trading symbol to &#8220;VSCP.OB.&#8221;
      As a result of the Exchange transaction, VirtualScopics became our wholly-owned
      subsidiary, with former members of VirtualScopics' acquiring a majority of
      the
      outstanding shares of our common stock. The exchange transaction was consummated
      pursuant to a Securities Exchange Agreement, dated November 4, 2005, among
      the
      company, VirtualScopics, and certain of the former members of
      VirtualScopics.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Concurrently
      with the closing of the exchange transaction, we completed the sale of 4,084.488
      units in a private placement to accredited investors for $1,000 per unit. Each
      unit consists of one share of our newly created series A convertible preferred
      stock, par value $.001, and a detachable, transferable warrant to purchase
      200
      shares of our common stock for $4.00 per share. Each share of series A
      convertible preferred stock is initially convertible into 400 shares of our
      common stock. We received gross proceeds of $4,084,488 in consideration for
      the
      sale of these units.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Concurrent
      with the closing of the exchange transaction and the private placement, we
      redeemed 70,537,500 shares of our common stock from our former directors, Edward
      A. Sundberg and Lindsay Sundberg, for aggregate consideration of $200 and
      immediately cancelled those shares.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Exchange
      Transaction</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>General</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At
      the
      closing of the exchange transaction, the former members of VirtualScopics
      received shares of our common stock for outstanding common membership units
      and
      preferred membership units of VirtualScopics held by them. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
      a
      result, at the closing of the exchange transaction, we issued an aggregate
      of
      17,326,571 shares of our common Stock to the former members of VirtualScopics,
      representing approximately 74% of our outstanding shares of common stock and
      the
      1,633,795 shares of common stock initially issuable upon the conversion of
      the
      4,084.488 shares of our series A convertible preferred stock sold in our private
      offering. The consideration issued in the exchange transaction was determined
      as
      a result of arm's-length negotiations between us and
      VirtualScopics.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Immediately
      prior to the exchange transaction closing, VirtualScopics members held
      outstanding warrants to purchase 559,221 VirtualScopics membership units and
      options to purchase 2,457,422 VirtualScopics membership units. Pursuant to
      the
      Securities Exchange Agreement, we have agreed to issue shares of our common
      stock upon the exercise of these warrants and options in lieu of VirtualScopics
      membership units previously issuable thereunder, and, based upon the exchange
      ratio used for the exchange transaction, we are obligated upon the exercise
      of
      these warrants and options to issue 532,490 shares and 2,339,990 shares of
      our
      common stock, respectively.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      disclosure set forth under Item 2.01 of this report is incorporated by reference
      into these Items. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
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        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Changes
      Resulting From the Exchange Transaction</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      intend
      to carry on VirtualScopics&#8217; business as our sole line of business. We have
      relocated our executive offices to those of VirtualScopics at 350 Linden Oaks,
      Rochester, New York 14625. Our new telephone number is (585) 249-6231.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pre-exchange
      transaction stockholders of our company will not be required to exchange their
      existing ConsultAmerica stock certificates for certificates of the Company,
      since the OTC Bulletin Board will consider our existing stock certificates
      as
      constituting &#8220;good delivery&#8221; in securities transactions subsequent to the
      exchange transaction. The American Stock Exchange and Nasdaq Capital Market,
      where we intend to apply to list our common stock for trading, will also
      consider the submission of existing stock certificates as &#8220;good delivery.&#8221; We
      cannot be certain that we will receive approval to list our common stock on
      the
      American Stock Exchange or Nasdaq Capital Market.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Change
      of Board Composition and Executive Officers </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Prior
      to
      the closing of the exchange transaction and the private placement, our board
      of
      directors was composed of Edward A. Sundberg and Lindsay Sundberg. On November
      4, 2005, in accordance with our by-laws for filling newly-created board
      vacancies, these directors appointed Warren Bagatelle and Robert Klimasewski
      to
      our board of directors. On that same day, Mr. Sundberg and Ms. Sunberg resigned
      as directors and Mark Coburn, Saara Totterman and Sidney Knafel, all of whom
      are
      existing VirtualScopics directors, were then elected to serve as additional
      directors of our company. Sovereign Bancorp, which acted as an advisor to
      VirtualScopics in connection with the exchange transaction, is allowed two
      designees to be nominated to the company&#8217;s board of directors during the first
      two years following the consummation of the exchange transaction. All directors
      hold office until the next annual meeting of stockholders and the election
      and
      qualification of their successors. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Prior
      to
      the closing of the exchange transaction and the private placement, Edward A.
      Sundberg was our President, Secretary, Chief Executive Officer, Chief Financial
      Officer, and Chief Accounting Officer and Lindsay Sundberg was our Treasurer.
      Mr. Sundberg and Ms. Sundberg resigned from all of the offices that they held
      effective as of November 4, 2005.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      November 4, 2005, our board of directors named the following persons as our
      new
      executive officers: Robert Klimasewski - Chief Executive Officer and Molly
      Henderson - Chief Financial Officer and Vice President of Finance. Officers
      are
      elected annually by our board of directors and serve at the discretion of our
      board. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      disclosure set forth under &#8220;Directors, Executive Officers, Promoters and Control
      Persons&#8221; in Item 2.01 of this report is incorporated in its entirety by
      reference into these Items. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Change
      of Stockholder Control</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Except
      as
      described above under &#8220;Change of Board Composition and Executive Officers,&#8221; no
      arrangements or understandings exist among our present or former controlling
      stockholders with respect to the election of persons to our board of directors
      and, to our knowledge, no other arrangements exist that might result in a change
      of control of our company. Further, as a result of our redemption of shares
      from
      Mr. Sundberg and Ms. Sundberg and the issuance of the 17,326,571 shares of
      our
      common stock to the former members of VirtualScopics, a change of stockholder
      control of our company has occurred. Prior to the redemption and closing of
      the
      exchange transaction, Mr. Sundberg and Ms. Sundberg owned 94.2% of our
      outstanding shares of common stock. After these transactions, former members
      of
      VirtualScopics own approximately 74% of our outstanding voting securities,
      including our common stock and series A convertible preferred stock. We are
      continuing as a &#8220;small business issuer,&#8221; as defined under the Securities
      Exchange Act of 1934, following the exchange transaction.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      disclosure set forth under &#8220;Security Ownership of Certain Beneficial Owners and
      Management&#8221; in Item 2.01 of this report is incorporated by reference into these
      Items. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Accounting
      Treatment</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      accordance with Statement of Financial Accounting Standards No. 141, &#8220;Business
      Combinations&#8221; (SFAS 141), and the assumptions and adjustments described in the
      accompanying notes to the unaudited pro forma combined condensed financial
      statements, VirtualScopics is considered the accounting acquiror in the exchange
      transaction. Because VirtualScopics&#8217; owners as a group retained or received the
      larger portion of the voting rights in the combined entity and VirtualScopics&#8217;
      senior management represents a majority of the senior management of the combined
      entity, VirtualScopics was considered the acquiror for accounting purposes
      and
      will account for the exchange transaction as a reverse acquisition. The
      acquisition will be accounted for as the recapitalization of VirtualScopics
      since, at the time of the acquisition, we were a company with minimal assets
      and
      liabilities. Consequently, the assets and liabilities and the historical
      operations that will be reflected in the financial statements will be those
      of
      VirtualScopics and will be recorded at the historical cost basis of
      VirtualScopics.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
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        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Amendments
      to Certificate of Incorporation or By-laws; Change in Fiscal
      Year</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>&#160;</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In&#160;connection&#160;with
      the exchange transaction, our board of directors and stockholders approved
      and
      filed a certificate of amendment to our certificate of incorporation with the
      Delaware Secretary of State on November 4, 2005, thereby changing our name
      to
      VirtualScopics, Inc. In addition, on November 4, 2005, our board of directors
      approved a change in fiscal year end from August 31 to December 31. We will
      not
      file a transition report reflecting the change of our fiscal year to that of
      VirtualScopics because for accounting purposes,&#160;VirtualScopics is deemed
      to
      be the &#8220;accounting acquiror&#8221; in the reverse acquisition.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Private
      Placement</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Concurrent
      with the closing of the exchange transaction, we completed the sale of 4,084.488
      units in a private placement to accredited investors. Each unit consists of
      one
      share of our series A preferred stock and a warrant. We sold each unit for
      $1,000 pursuant to the terms of a Confidential Private Placement Memorandum,
      dated October 3, 2005, as supplemented, and private placement subscription
      agreements executed and delivered by each investor on or before the closing
      of
      the private placement. Each share of series A preferred stock is initially
      convertible into 400 shares of our common stock at any time. Each warrant
      entitles the holder to purchase 200 shares of our common stock at an exercise
      price of $4.00 per share through November 4, 2009. The form of the private
      placement subscription agreement is filed as Exhibit 10.4 to this
      report.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      received gross proceeds from the private offering of $4,084,488. Placement
      agents, selected dealers and advisors received an aggregate of
      $326,758</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">in
      cash
      fees in connection with the private placement and reimbursement of $56,167
      in
      expenses. In addition, these parties will receive warrants to purchase $163,379
      shares of our common stock at an exercise price of $2.50.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">After
      the
      closing of the exchange transaction and the private placement, we had
      outstanding 21,889,076 shares of common stock, 4,084.488 shares of series A
      preferred stock (which are convertible into 1,633,795 shares of common stock
      at
      any time). In addition we are obligated to issue 532,490 shares of common stock
      upon the exercise of warrants held by holders of VirtualScopics warrants, and
      2,339,990 shares of common stock upon the exercise of options held by holders
      of
      VirtualScopics options.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Lock-up
      Agreements</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      connection with the exchange transaction, former VirtualScopics members who
      now
      hold 16,050,914 shares of our common stock and holders of VirtualScopics
      warrants and options who now have the right to acquire&#160;at least 90%&#160;of
      the&#160;shares of our common stock entered into &#8220;lock-up agreements&#8221; with us.
      The form of the lock-up agreements entered into by them are filed as Exhibits
      10.2 and 10.3 to this report. The &#8220;lock-up agreements&#8221; prohibit these persons
      from directly or indirectly, publicly selling or otherwise transferring the
      shares of our common stock issued to them in or as a result of the exchange
      transaction, except as follows:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Each
                former VirtualScopics securities holder who served as a director
                and/or an
                employee of VirtualScopics and/or held in excess of 100,000 lock-up
                shares
                (and the affiliates or related parties of such former VirtualScopics
                securities holders) as of the closing of the exchange transaction,
                the
                &#8220;insiders,&#8221; may, beginning 12 months after the exchange transaction
                closing and at three-month intervals thereafter, if the 30-day average
                trading price (immediately preceding the sale) of our common stock
                is
                above $4.00 per share, sell up to 12.5% of his or her original number
                of
                lock-up shares during each three-month
                period.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Each
                former VirtualScopics securities holder who is not an insider may,
                beginning 12 months after the exchange transaction closing and at
                three-month intervals thereafter, sell 25% of his or her original
                number
                of lock-up shares during each three-month
                period.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
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        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Each
                insider may, beginning 18 months after the exchange transaction closing
                and at three-month intervals thereafter, if the 30-day average trading
                price (immediately preceding the sale) of our common stock is below
                $4.00
                per share, sell a maximum of 25,000 of his or her original number
                of
                lock-up shares each three-month period, irrespective of the
                price.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Each
                former VirtualScopics securities holder, may, beginning 24 months
                after
                the exchange transaction closing and at three-month intervals thereafter,
                sell up to 12.5% of his or her original number of lock-up shares
                during
                each three-month period, irrespective of the
                price.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">All
      former VirtualScopics securities holders who acquire shares of our common stock
      pursuant to VirtualScopics options assumed by us are considered insiders for
      purposes of determining the applicable lock-up provisions. All permitted sales
      of lock-up shares that may be made during each time period are cumulative.
      All
      lock-up agreements expire 48 months after the exchange transaction
      closing.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      we
      engage an underwriter or placement agent during the 24 months after the closing
      of the exchange transaction to raise a minimum of $5.0 million through the
      sale
      of our common stock and/or other equity securities, in a public offering or
      private placement, then upon notice of commencing such public offering or
      private placement, all holders of lock-up shares must, if required by the
      underwriter or placement agent, refrain from making any sales, transfers or
      other dispositions in the course of such offering, but, in any event, for not
      more than 90 consecutive days.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Registration
      Statement</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      agreed with investors in our private placement to use our commercially
      reasonable best efforts to file a shelf registration statement with the SEC
      covering the resale of all shares of common stock underlying the series A
      preferred stock and warrants issued in connection with the private placement
      by
      May 2, 2006. We are obligated to maintain the effectiveness of the shelf
      registration statement for twelve months after the registration statement
      becomes effective. If the shelf registration statement is not filed with the
      SEC
      by May 2, 2006, then each investor in the private placement is entitled to
      receive an additional number of shares of our series A preferred stock equal
      to
      2% of the total number of shares of our series A preferred stock purchased
      by
      such investor in the private placement for each month (or portion thereof)
      that
      we do not file the registration statement with the SEC, up to 20% of the
      original number of shares of our series A preferred stock purchased by each
      investor in the private placement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      also
      agreed to use our best efforts to respond to all SEC comments to the shelf
      registration statement (if any) within 20 business days of receiving such
      comments</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      but in
      any event not later than 30 business days from the date of receiving such
      comments</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
      If we
      fail to respond to the SEC comments within 30 business days of receiving such
      comments, then each investor in the private placement is entitled to receive
      an
      additional number of shares of our series A preferred stock equal to 2% of
      the
      total number of shares of our series A preferred stock purchased by such
      investor in the private placement for each month (or portion thereof) that
      we do
      not respond to the SEC&#8217;s comments, up to 20% of the original number of shares of
      series A preferred stock purchased by each investor in the private
      placement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>ITEM
      2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Information
      concerning the principal terms of the exchange transaction and the business
      of
      VirtualScopics is set forth below.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>The
      Exchange Transaction</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      November 4, 2005, we entered into the Exchange Agreement with VirtualScopics
      and
      its members. On November 4, 2005, the exchange transaction provided for in
      the
      Securities Exchange Agreement was completed and VirtualScopics became our
      wholly-owned subsidiary.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the Securities Exchange Agreement, at closing, former members of
      VirtualScopics received an aggregate of 17,326,571 shares of our common stock,
      representing approximately 74% of our outstanding common stock and common stock
      issuable upon conversion of our series A convertible preferred stock sold in
      our
      concurrent private placement. In exchange for the shares we issued to the former
      VirtualScopics members, we acquired 100% of the outstanding membership units
      of
      VirtualScopics. The consideration issued in the exchange transaction was
      determined as a result of arm&#8217;s-length negotiations between the
      parties.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">6</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Immediately
      prior to the exchange transaction closing, VirtualScopics members held
      outstanding warrants to purchase 559,221 VirtualScopics membership units and
      options to purchase 2,457,422 VirtualScopics membership units. Pursuant to
      the
      Securities Exchange Agreement, we have agreed to issue shares of our common
      stock upon the exercise of these warrants and options in lieu of VirtualScopics
      membership units previously issuable thereunder, and, based upon the exchange
      ratio used for the exchange transaction, we are obligated upon the exercise
      of
      these warrants and options to issue 532,490 shares and 2,339,990 shares of
      our
      common stock, respectively.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Following
      the exchange transaction, all of our current business operations will be
      conducted through our wholly-owned subsidiary, VirtualScopics. See &#8220;Description
      of Business&#8221; below. Prior to the exchange transaction, there were no material
      relationships between us and VirtualScopics, between VirtualScopics and our
      respective affiliates, directors or officers, or between any associates of
      VirtualScopics or our respective officers or directors. All of our pre-exchange
      transaction liabilities were settled prior to closing.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Description
      of Our Company and its Predecessor</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      were
      formed as a Delaware corporation in 1988 to be a management consulting firm.
      Prior to the exchange transaction, we </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">provided
      strategic business planning to small companies. </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
      a
      result of the exchange transaction, we have succeeded to the business of
      VirtualScopics and plan to continue this business. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Description
      of Business</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are a
      provider of image-based biomarker solutions to the pharmaceutical, biotechnology
      and medical device industries. We focus on applying our imaging technology
      in
      two areas:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">improve
                the efficiency and effectiveness of the pharmaceutical and medical
                device
                research and development processes; and
</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">provide
                unique products to improve treatment planning and diagnosis of patients
                in
                a clinical setting. </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      image-based biomarker measurement and visualization tools enable automated,
      accurate and reproducible measurement of minute changes that occur in anatomic
      structures in musculoskeletal, oncological, cardiological and neurological
      diseases. For pharmaceutical, biotechnology and medical device manufacturers,
      these tools can significantly alleviate or reduce clinical development
      bottlenecks by dramatically increasing the speed, accuracy and reliability
      of
      the demonstration of a new compound&#8217;s efficacy. Further, these measurements can
      be used to assess the viability of continuing a drug development project and
      eliminate as soon as possible a drug that is doomed to fail. Early failure
      is
      critical to the pharmaceutical industry to prevent the expenditure of limited
      R&amp;D funds on a drug that will not perform as expected. We believe that this
      is especially important today with the large number of compounds that are
      awaiting evaluation.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      technology may also be applicable in the development of products for patient
      treatment and surgical planning. We will focus on the deployment of diagnostic
      tools and services in the areas of arthritis, cancer, cardiology, neurology
      and
      other diseases. This diagnostic use has not yet been cleared or approved by
      the
      U.S. Food and Drug Administration.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Benefits
      for Pharmaceutical, Biotech and Medical Device
      Companies</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      benefits to pharmaceutical companies from using our image analysis tools can
      include shorter clinical development time, and earlier determination of the
      effectiveness or ineffectiveness of a new drug or compound, thereby permitting
      curtailment of trials that are not likely to be beneficial and avoiding mistaken
      termination of compounds that are likely to prove efficacious,
      through:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">improved
                precision in the measurement of existing biomarkers resulting in
                shorter
                observation periods, with beneficial cost savings within a clinical
                trial;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">7</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
      </div>
      <div id="HDR">
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        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">new
                biomarkers, which are better correlated with disease states, again
                reducing trial length and therefore costs;
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">reduced
                processing time for image data analysis through
                automation.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      addition, our technology reduces aggregate clinical development costs
      through:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">improved
                precision for existing biomarkers, thus requiring smaller patient
                populations and lower administrative costs;
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">new
                biomarkers that serve as better correlates, leading to better early
                screening and elimination of weak drug candidates in pre-clinical
                trials.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Benefits
      to Patients and Health Care Providers in a Diagnostic
      Setting</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      specific diagnostic opportunities that we plan to pursue are treatment
      monitoring and surgical planning, with particular emphasis on the osteoarthritis
      and oncology markets. Osteoarthritis and cancer are leading causes of disability
      and death, respectively, throughout much of the developed world, and
      technologies for closely monitoring disease progression and response to
      treatment in both areas are currently lacking. We believe this presents us
      with
      a significant market opportunity. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      treatment monitoring and surgical planning, our technology is designed to offer
      patients and medical insurers the following benefits:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">improved
                diagnosis of early stage patients in both osteoarthritis and cancer,
                which
                is a vital benefit, as early diagnosis is likely to lead to more
                successful and less expensive treatment, as well as better patient
                outcomes;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">better
                treatment planning of patients based on determination of patient
                response
                to compounds or other treatment options (in oncology, for example,
                we have
                demonstrated the ability to determine whether patients are showing
                response to an anti-angiogenic drug after only 48 hours of treatment)
                (Glenn Liu </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>et
                al., </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Dynamic
                Contrast-Enhanced Magnetic Resonance Imaging As a Pharmacodynamic
                Measure
                of Response After Acute Dosing of AG-013736, an Oral Angiogenesis
                Inhibitor, in Patients With Advanced Solid Tumors: Results From a
                Phase I
                Study,&#8221;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Journal
                of Clinical Oncology, </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">vol.
                20, August 20, 2005); and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">enhanced
                surgical planning leading to shorter and less invasive surgical procedures
                with improved patient outcomes.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      osteoarthritis, we believe that our technology is the only reliable and scalable
      technology on the market to be able to assess the current status of the
      cartilage in the knee, as well as determine if treatment options are improving
      the patient&#8217;s status. Additionally, we believe that our technology is the only
      one that can measure the health of the other surrounding tissues in the knee
      joint, including the meniscus and fluid volume, and surrounding muscle and
      ligament tissue. In oncology, we are the first company able to provide blood
      flow and volume measurements for cancer diagnosis and monitoring in a
      standardized and consistent way across multiple institutions (Jerry M. Collins,
      &#8220;Imaging and Other Biomarkers in Early Clinical Studies: One Step at a Time
      or
      Re-Engineering Drug Development?,&#8221;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Journal
      of Clinical Oncology, </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">vol.
      20,
      August 20, 2005). These measurements are vital for assessing patient response
      to
      next-generation anti-angiogenic cancer drugs.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Our</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>
      Technology Solution</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Although
      the entire suite of our technologies encompasses more than 35 algorithms, the
      five technologies that form the key differentiators for our solution are as
      follows:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">automated
                segmentation for easier lesion detection and
                measurement;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">8</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">automated
                feature extraction for efficient and effective
                analysis;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">automated
                co-registration for tracking changes over
                time;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">orthogonal
                and multi-sequence fusion for integrating information from multiple
                sources; and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ability
                to measure blood flow and metabolic
                activity.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      discussion below provides an explanation of the above technologies and how
      these
      technologies are unique in comparison to what is presently
      available.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Automated
      Segmentation </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      developed a series of algorithms that automatically segment MRI and CT image
      files into the components seen on the original set of images (i.e., hard
      tissues, such as bones, and soft tissues including muscles, fat, skin,
      vasculature, etc.). CT scans use computerized analysis of x-rays to detect
      tumors. MRIs use magnetic fields and radio-frequency waves to produce
      three-dimensional (or 3D) images of normal and abnormal tissue. Low-contrast
      images and non-uniform-illuminated images are automatically segmented as well
      as, and as easily as, high-contrast image data files. We believe that our
      successful autosegmentation of both high and low-contrast image data files
      is an
      important breakthrough in medical image analysis.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      image
      produced through the autosegmentation process is extremely significant from
      a
      drug discovery standpoint. After the image data file has been autosegmented,
      the
      resulting 3D image is a highly accurate, computer-manipulable, composite-model.
      These models present each component as a separate 3D object. The model can
      be
      disassembled structure by structure on the computer screen in much the same
      way
      that a plastic composite model can be separated into its components. This
      capability allows an individual to focus on specific structures and obtain
      measurements of parameters such as thickness, volume or surface area to
      determine the efficacy of a drug in changing the size or shape of a lesion
      or
      other defect. This approach to measurement contrasts with the time-consuming
      and
      costly radiologist-driven evaluation process that is commonly used. Further,
      the
      ability to obtain highly accurate, segmented 3D models is designed to enable
      the
      use of new biomarkers to determine efficacy. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Other
      imaging technology developers have created &#8220;autorendered&#8221; 3D visualizations.
      These visualizations are &#8220;glued-together&#8221; images and do not allow for a
      structure to be segmented into its components in order to obtain the desired
      measurements to determine efficacy. Once again, the burden is on the radiologist
      to observe changes in the structure and obtain measurements of the
      biomarkers.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Automated
      Feature Extraction</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      many
      cases, the structures that need to be extracted and measured in medical images
      do not have distinguishable statistical borders with some parts of the
      surrounding tissue. In these cases, statistics-based segmentation will not
      be
      able to fully identify the structures of interest. We handle these cases using
      an algorithm that combines statistical tissue identification with a 3D geometric
      model for structure shape that is able to estimate the optimal location for
      a
      hypothetical border where none is discernable in the data. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Automated
      Co-Registration</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Another
      key to our technology for use in determining drug efficacy is a time-lapsed
      series of segmented MRI or CT image data files collected over a period of days,
      weeks, months or years. A patent-pending co-registration/disease tracking
      algorithm is applied to track the changes in a specific patient
      anatomy/pathology over time. We can create a continuous cine-loop, provide
      precise measurements, or create 3D motion trajectory maps of slowly changing
      pathology or degenerating joints. Further, all these phenomena are also
      presented as numerical values.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">These
      capabilities rely on our core autosegmentation platform to produce ultra-high
      resolution data files. When a series of ultra-high resolution data files are
      viewed in sequence through our technology, clinical researchers can
      automatically track, analyze and measure disease response to drug therapy.
      Since
      the data file is segmented, the clinicians can focus in on biomarkers of
      interest. For example, the volume of the whole brain, including gray and white
      matter (common biomarkers for determining the effect of drugs aimed at treating
      certain neurological diseases) can be segmented and measured over time. This
      capability would significantly improve the drug discovery process for
      degenerative neurological diseases such as multiple sclerosis, Parkinson&#8217;s and
      Alzheimer&#8217;s diseases. Similarly, the time-lapse technology allows
      musculoskeletal clinical researchers to track a patient&#8217;s response to drug
      treatment for joint diseases such as osteoarthritis.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">9</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Standard
      MRI or CT exams may miss abnormal findings because certain pathologic conditions
      are dependent on the position of the joint or exist in response to stress.
      Special positioning devices must be used first to guide and maintain the joint
      in a specific imaging plane and second to produce the load. Using a series
      of
      six image data files collected over a period of minutes, its technology can
      produce a cine-loop of a joint and its surrounding tissue. This is designed
      to
      enable, for example, the assessment of a compound efficacy of diagnostic
      procedure in treating a ligament tear or the success of ACL tissue
      repair.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Orthogonal
      and Multi-Sequence Fusion</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Data
      files are typically based on a single series of MRI or CT images. The reason
      that autosegmentation has historically been so difficult to achieve is because
      there is not enough contrast between multiple low-contrast structures,
      particularly in a standard MRI data file. Somehow the data resolution must
      be
      optimized to accentuate the contrast and enable autosegmentation. Our team
      has
      developed two new patent-pending data acquisition techniques to enhance our
      autosegmentation efforts, orthogonal and multi-sequence fusion of image data
      files. Both of these techniques optimize imaging data and provide the highest
      possible resolution and contrast in the data file, enabling the application
      of
      the autosegmentation algorithms.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Orthogonal
      fusion starts with two perpendicular series of images, which are fused and
      then
      reconstructed. This fusion-reconstruction process enhances inter-plane
      resolution. This eliminates the discrepancy between in-plane resolution and
      slice thickness and creates isotropic voxels, increasing the accuracy of the
      original data and producing an isotropic resolution DICOM data file. The
      autosegmentation algorithms can then be applied to create ultra-high resolution,
      isotropic, composite models. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      second technique supporting our autosegmentation algorithms is multi-sequence
      fusion. Multi-sequence fusion starts when multiple MRI image data files are
      obtained using different pulse/parameter sequences. An algorithm is then applied
      which automatically registers and merges the multiple MRI image data files.
      This
      enhances the visualization of different tissue types and improves the contrast
      between tissues. After image data files are fused, they can be segmented to
      create a 3D composite model containing the information of all the MRI data
      files. In addition, the sequences have been written by us in such a way that
      they can acquire multiple data sets in the same time as required for a single
      data set. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Measurement
      of Blood Flow and Metabolic Activity</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A
      growing
      number of anti-cancer drugs both on the market (e.g., Iressa and Avastin) and
      under development are designed to reduce the blood supply available to tumors,
      thereby depriving them of the ability to grow and spread. During development,
      these compounds require the ability to accurately measure blood flow and
      vascular permeability in</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>
      vivo, </em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">in
      order
      to determine dose-response relationships and compound efficacy. In the clinic,
      this same capability is necessary in order to determine whether a particular
      patient is responding to treatment. We have developed a method, using dynamic
      contrast enhanced magnetic resonance imaging (DCE-MRI), to accomplish this.
      This
      technique involves repeated imaging, generally every five to ten seconds, for
      a
      period of several minutes before and after the injection of a gadolinium-based,
      FDA-approved, contrast agent. Tracer concentration changes over time can then
      be
      measured both in normal and cancerous tissues, and based on this information
      parameters such as blood flow, blood volume and vascular permeability can be
      derived. These parameters have been shown to relate directly to the activity
      of
      anti-angiogenesis and anti-vascular cancer drugs, and to allow the prediction
      of
      response or failure after only a few days of treatment.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Sales
      and Marketing</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      business development strategy is centered on an active calling effort aimed
      at
      pharmaceutical companies, biotechnology companies, principal investigators
      and
      clinical research organizations, or CROs. To date, we have made significant
      inroads by having contracts with 14 of the leading pharmaceutical, biotechnology
      and medical device companies including Pfizer, Johnson &amp; Johnson (DePuy) and
      Wyeth.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      continue to grow our business by leveraging relationships with our current
      customers. Our current customers have begun introducing us to other therapeutic
      groups within their organization. We continue to receive positive feedback
      from
      our customers, which has resulted in new projects.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      March
      2004, we entered into a services and co-marketing agreement with Chondrometrics
      GmbH and a consulting agreement with Dr. Felix Eckstein, the founder of that
      company. Dr. Eckstein is an internationally recognized authority in
      osteoarthritis research, especially as it relates to cartilage degeneration.
      These agreements were intended to leverage the research activities between
      us
      and Dr. Eckstein and co-market each party&#8217;s services. The agreements expire on
      December 31, 2006, and automatically renew in one-year increments until either
      party delivers written notice of its intention not to renew.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      June
      2005, we signed a non-exclusive partnership agreement with Research Dynamics
      Consulting Group Ltd. (a Rochester-based CRO) to co-market the clinical research
      services and technologies of both companies. The arrangement allows for either
      party to receive a 6.5% commission on the introduction of potential new
      customers. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Complementing
      our sales and marketing effort, we actively participate in medical conferences
      to showcase our technology, as well as collaborating with principal
      investigators on their academic research, which often results in highly visible,
      published research. We have already built a strong base of clinical
      collaborators across varied disease platforms. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are
      continuing an active sales and marketing effort and are currently in discussions
      with a number of additional potential customers to form business and/or
      strategic alliances.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Pfizer
      Strategic Alliance</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      July
      2002, we entered into a multi-year strategic alliance under a clinical imaging
      and services agreement with Pfizer, which was expanded and renewed for two
      years
      in&#160;July 2005, to accelerate the discovery, validation and application
      of
      image-based biomarkers for clinical research. As part of the agreement, Pfizer
      made an equity investment in VirtualScopics which is now represented by our
      common stock that Pfizer received in the exchange transaction. Pursuant to
      the
      terms of the agreement with Pfizer, we granted Pfizer a worldwide,
      non-exclusive, perpetual, royalty-free license to use, reproduce and modify
      "tool boxes" that we develop for Pfizer using&#160;our image analysis tools
      technology and that Pfizer will use for the research and development of its
      pharmaceutical products. The relationship enables Pfizer to apply our technology
      to ongoing clinical research in an effort to identify and validate biomarkers
      correlating to clinical outcomes. The biomarkers may then be used to assess
      the
      efficacy of new pharmaceutical compounds in the clinical trial process.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">This
      alliance represents a growing trend in the pharmaceutical industry to apply
      new
      technologies to accelerate the clinical development of compounds. Pfizer has
      a
      long history of investing in new clinical technologies and is considered an
      industry leader in this area. Approximately 70% of our revenues for the 12
      month
      period ending December 31, 2005 are expected to be attributable to Pfizer.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Industry
      Background and Market Trends</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Market
      in Pharmaceutical and Medical Device Development</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      current market for MRI and CT image analysis in clinical drug trials is
      approximately $140 million and is growing at over a 50% annual rate. The market
      is expected to exceed $1.0 billion annually by 2010. The use of MRI and CT
      imaging to determine efficacy of drugs is expected to continue rapid growth.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Growth
      is
      a function of:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                FDA&#8217;s desire to use MRI and CT imaging to determine efficacy due to its
                non-invasive nature;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                pharmaceutical industry&#8217;s desire to accelerate the time to market and
                reduce the cost of clinical drug trials; and
</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">11</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">an
                increase in the number of drugs undergoing clinical trials owing
                to
                significant and growing pharmaceutical R&amp;D.
</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Currently,
      the most significant bottleneck in drug development is the clinical trial
      process. In a recent study, Lehman Brothers and McKinsey &amp; Co. estimate that
      the clinical development phase takes approximately seven years (50% of the
      total
      time) and $690 million (80% of the total cost of drug development), as
      illustrated below.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
      Time to Development a New Pharmaceutical Compound</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Years</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><img src="barchart01.jpg" alt=""><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
      Cost to Develop a New Pharmaceutical Compound</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>($million)</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><img src="barchart02.jpg" alt=""><br><font style="DISPLAY: inline; FONT-SIZE: 7pt; FONT-FAMILY: Arial, sans-serif">Source:
      Lehman Brothers and McKinsey &amp; Co.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Image
      Analysis and Image-Based Biomarker Development</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      conducted extensive primary research to determine the current size of the market
      for image analysis services in the pharmaceutical industry. The information
      was
      collected as part of our discussions with many of the major companies that
      currently serve the industry. These include Bio-Imaging Technologies, Synarc,
      Beacon Bioscience, Perceptive, Duke Image Analysis Laboratories and Boston
      University, as well as a number of other academic centers in the United States
      and Europe. We have found that the market is fragmented, with approximately
      $140
      million in total annual revenues projected for 2005. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      industry is currently undergoing a rapid growth phase as the use of imaging
      end-points is becoming more accepted by the FDA and the number of compounds
      being tested by pharmaceutical companies continues to increase. We estimate
      the
      annual growth rate for the market at 40% to 60% for the next five years. Our
      estimates are based on a bottom-up calculation of the individual growth rates
      of
      the companies and academic centers within the industry. Some of the largest
      players, which offer the broadest set of capabilities, are growing even faster.
      Specifically, Bio-Imaging Technologies, Perceptive (division of Parexel), Synarc
      and Beacon Bioscience. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      also conducted extensive market research to fully understand the potential
      market opportunity for image analysis and image-based biomarker development
      for
      clinical drug studies. This research entailed meetings and phone interviews
      with
      leading experts in the areas of medical imaging, drug development and medical
      research, and with specialists in neurology, oncology and musculoskeletal
      disorders. More than 20 companies and academic centers (which serve as clinical
      trial sites) participated in our market research. Based on this research, we
      estimate that the market, which has projected sales of $140 million in 2005,
      has
      the potential to continue to grow at a 50% annual rate to reach $1.0 billion
      in
      total sales by 2010.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">12</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      following table displays the number of drugs, in all therapeutic areas,
      currently in Phases II and III, the average number of patients in a study,
      which
      is based on our own experience and confirmed through market research, and the
      average number of scans per patient annually. We have assumed that within the
      next five years between 25% and 40% of clinical trials will be using MRI or
      CT
      to determine efficacy. We estimate that approximately 35% of clinical trials
      can
      use imaging end-points to better determine efficacy. These include oncology,
      musculoskeletal and neurology clinical trials, and cardiology trials. The $750
      assumed charge per image is based on our current price of $800 and the average
      market rate for premium image analysis services.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Total
      Market Potential in 2010</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table border="1" bordercolor="#000000" cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="12%" style="BORDER-BOTTOM: medium none">&#160;</td>
            <td valign="bottom" width="11%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">No.
                of Drug Trials*</font></div>
            </td>
            <td valign="bottom" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">%
                of Trials</font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">using
                MRI/CT in 2010 in targeted areas</font></div>
            </td>
            <td valign="bottom" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">No.
                of Patients</font></div>
            </td>
            <td valign="bottom" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">No.
                of Revisits/</font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Annual
                Scans</font></div>
            </td>
            <td valign="bottom" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Price
                Per</font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Image</font></div>
            </td>
            <td valign="bottom" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Market
                </font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Potential</font></div>
            </td>
          </tr>
          <tr>
            <td align="left" valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Phase
                I &amp; II</font></div>
            </td>
            <td valign="top" width="11%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2,107</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">35%</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">100</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$750</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$166
                million</font></div>
            </td>
          </tr>
          <tr>
            <td align="left" valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Phase
                III</font></div>
            </td>
            <td valign="top" width="11%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">719</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">35%</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1250</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$750</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: medium none">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$708
                million</font></div>
            </td>
          </tr>
          <tr>
            <td align="left" valign="top" width="12%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Totals</font></div>
            </td>
            <td valign="top" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2,826</font></div>
            </td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: #000000 thin solid">&#160;</td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: #000000 thin solid">&#160;</td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: #000000 thin solid">&#160;</td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: #000000 thin solid">&#160;</td>
            <td valign="top" width="12%" style="BORDER-BOTTOM: #000000 thin solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$874
                million</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>*Source:
      Biospace.com (September 2005)</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">It
      is
      likely that this estimate of market potential is conservative. This is based
      on
      the fact that the number of drugs in Phase II and III studies will continue
      to
      increase due to the pharmaceutical companies&#8217; significant and growing R&amp;D
      budgets, combined with the likelihood that greater than 35% of the studies
      will
      rely on MRI or CT imaging.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Market
      for Diagnostic Applications</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Currently,
      more than 355 million people worldwide have arthritis (joint inflammation),
      according to published data. Arthritis is one of the most prevalent diseases
      and
      leading cause of disabilities in the United States, affecting nearly 46 million
      Americans of all ages, or about one of every six people. Arthritis is one of
      the
      most prevalent chronic health problems and the nation&#8217;s leading cause of
      disability among Americans over age 15. There are more than 100 types of
      arthritis, such as osteoarthritis, rheumatoid arthritis (and juvenile rheumatoid
      arthritis), gout and psoriatic arthritis. Arthritis has been reported as the
      cause of disability more than any other chronic disease including back pain,
      heart or lung conditions, diabetes or cancer.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Osteoarthritis,
      a degenerative joint disease and one of the most common forms of arthritis,
      affects almost 190 million people worldwide (53% of arthritis patients) and
      20.7
      million Americans. It primarily affects the joint cartilage. It usually affects
      the weight-bearing joints, such as knee, feet, spine and fingers. It results
      in
      nearly 39 million physician visits annually in the United States, according
      to
      statistics from the Arthritis Foundation and Centers for Disease Control &amp;
      Prevention, 2002 and 2005.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">An
      increasing trend is the use of imaging technology, as it provides a non-invasive
      method, to diagnose and plan for the treatment of diseases. Currently, the
      aggregate market for medical imaging services by hospitals and imaging centers
      generates $48 billion in annual revenues. We plan to tap into this market by
      providing quantification and visualization services for existing MRI and CT
      imaging modalities. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">There
      are
      approximately 20,000 CT scanners and 14,000 MRI scanners in use globally.
      Assuming one image per week is sent from each of the scanners to us for analysis
      at an average price per analysis of $250, the resulting opportunity approximates
      $850 million annually. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Image
      Analysis Solutions in Pharmaceutical and Medical Device Industries</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Drug
      discovery and development has been constrained by the lack of accurate image
      analysis tools and appropriate image-based biomarkers. In many clinical studies,
      X-ray is the chosen modality for evaluating a compound&#8217;s efficacy. X-ray imaging
      in drug discovery has significant limitations, which include:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">13</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">partial
                or complete inability to detect changes in a region of interest due
                to
                poor contrast or occlusion;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">subject
                to inter/intra-observer variability - error in radiologist measurements
                can amount to upwards of 30% for small structures of
                interest;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                need for a radiologist to perform manual tracings is not only subject
                to
                error, but is also time consuming;
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">reliance
                on a radiologist for biomarker measurements results in very limited
                throughput.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      constraints mentioned above can add months and years to the drug discovery
      process. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      use
      of MRI and CT to determine drug efficacy is increasing, owing to its superior
      information content relative to X-ray. MRI and CT are more sensitive to
      pathology, provide higher contrast for soft tissue and are three-dimensional.
      These attributes improve the detection of disease and the ability to monitor
      disease progression over time. While MRI and CT are preferred modalities, they
      too suffer from the need to have a radiologist review the images, detect
      disease, monitor progression and, when necessary, perform manual
      calculations.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Diagnostic
      Service in the Arthritis Market</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Outside
      of cardiovascular diseases, arthritis is the most common disease in the United
      States affecting the population at large. Arthritis is the source of at least
      44
      million visits to health care providers, 744,000 hospitalizations, and 4 million
      days of hospital care per year. Nearly 60% of persons with arthritis are in
      the
      working age population, and they have a low rate of labor force participation.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Disabilities
      and illness from arthritis have a sizable impact on the U.S. economy. The
      estimated cost of arthritis is about $64.8 billion. Of this amount, 24% was
      attributable to direct medical costs and 76% was attributable to indirect costs
      from lost wages. Drug sales of anti-arthritics in the United States totaled
      $1.7
      billion for the year ended November 1998 for 70.5 million prescriptions
      dispensed. In the United States, more than $35 billion is spent annually on
      medical expenses and lost wages related to osteoarthritis, according to the
      CDC.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      the
      early stages, arthritis is generally treated with conservative nonsurgical
      measures. Ultimately, if the disease does not respond to these options, several
      surgical remedies (i.e., arthroscopic surgery and cartilage grafting) are used.
      Joint replacement is often used to relieve the pain and disability that
      accompanies all types of arthritis.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Early
      diagnosis is important to begin treatment that can help relieve pain, improve
      mobility and minimize long-term disability. Currently, patients go through
      a
      long &#8220;trial-and-error&#8221; period with their physicians in an attempt to find a drug
      or appropriate life style change that relieves pain without causing severe
      side
      effects.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Intellectual
      Property </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      depend
      on our ability to develop and maintain the proprietary aspects of our technology
      to distinguish our services from our competitors&#8217; products and services. We
      consider our patented technology and the technology for which we have applied
      for patent protection to be of material importance to our business plan. We
      hold&#160;6</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      patents
      issued by the United States Patent and Trademark Office</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
      We have
      also applied for a number of other patents, both domestically and in foreign
      jurisdictions. To protect our proprietary technology, we rely primarily on
      a
      combination of confidentiality procedures, copyright, trademark and patent
      laws.
      Our policy is to require employees and consultants to execute confidentiality
      and invention assignment agreements upon the commencement of their relationship
      with us. These agreements provide that confidential information developed or
      made known during the course of a relationship with us must be kept confidential
      and not disclosed to third parties except in specific circumstances and for
      the
      assignment to us of intellectual property rights developed within the scope
      of
      the employment relationship.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">14</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Competition</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      competition is largely comprised of a limited number of university research
      centers that are working on developing the next generation of image analysis
      tools. Aside from the university centers, there are a few commercial entities
      that have a desire to provide these advanced image services; however, we believe
      they are constrained by their lack of technical capabilities.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">One
      group
      of potential competitors is clinical research organizations providing clinical
      trial services to pharmaceutical companies. As of the date of this report,
      we
      believe that none of the leading CROs have technology capabilities that are
      comparable to our technology.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CROs
      typically provide manual and non-differentiated interpretation of medical images
      for the pharmaceutical industry. The second group of competitors are technology
      companies that provide 3D visualization technology to medical equipment
      manufacturers and hospitals. We may compete with these companies in providing
      diagnostics services to the market. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      believe that currently there is an opportunity for us to establish a technology
      advantage and a set of differentiated services in the advanced image-based
      biomarker market.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Competitors
      in Accelerating Pharmaceutical and Medical Device Development</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      main
      CROs which participate in imaging trials are Bio-Imaging Technologies, Synarc,
      Perceptive and Beacon Bioscience. These companies use heavily manual approaches
      that are unable to quantify minute structures in medical images. As a result,
      it
      may be difficult for them to offer differentiated services to achieve large
      margins. Additionally, some academic centers have worked on software that has
      applications for neurological diseases. These academic centers include Duke
      Image Analysis Laboratory, University of Pennsylvania, University of Montreal
      and University of California at San Francisco. However, we believe these
      organizations lack the required FDA compliance standards and ability to scale
      their operations to meet customer demand and we believe they offer inferior
      technology.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Based
      on
      our research and feedback from our customers, we believe that our technology
      is
      superior to the technologies and methods currently utilized by CROs because
      of
      our patented autosegmentation capabilities, patent-pending data processing
      techniques and orthogonal and multi-sequence fusion. These proprietary
      processing techniques enhance the MRI or CT data file and allow for segmentation
      of the most complex structures that are critical to evaluation of disease
      progression. For example, currently CROs are unable to provide automated
      volumetric quantification of meniscus volume, bone marrow edema volume, T2
      lesions volume and cartilage roughness. Our work has shown that all of these
      end-points are critical markers for determining the stage of osteoarthritis
      in
      patients. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      believe CROs recognize the pharmaceutical industry&#8217;s desire to have a quicker,
      less costly and more efficient means of determining efficacy through imaging,
      but they have not focused on developing the technology. It is highly likely
      that
      CROs will obtain the desired capabilities through the acquisition of a company
      that has developed the necessary image analysis technology. Given that there
      are
      a limited number of entities with automated segmentation and measurement
      technology, an acquisition of such an entity by a CRO would position the CRO
      at
      the forefront of a growing market. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Academic
      institutions such as the University of Pennsylvania, University of Montreal
      and
      University of California at San Francisco tend to have more advanced technology
      than their commercial peers. However, their commercial efforts are constrained
      by being part of an academic institution. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Indirect
      Competitors in Diagnostic Market</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      three-dimensional visualization software offers significant advantages for
      viewing joint images. Our software is able to not only create 3D visualization,
      but also to separate a volume into its component structures, i.e., hard tissues,
      such as bones, and soft tissues, including muscles, fat, skin and vasculature.
      Low-contrast images and those with non-homogeneous gross intensity are
      automatically segmented as well as, and as easily as, high-contrast image data
      files. The successful segmentation of both high and low-contrast image data
      files is an important breakthrough in medical image analysis. This capability
      allows an analyst to focus on specific biomarkers and obtain volume and shape
      measurements of biological structures, such as cartilage, meniscus, fluid and
      bone narrow edema.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">15</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
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        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      need
      to diagnose and to provide treatment and surgical planning for osteoarthritis
      patients is not a new problem. As a result, many large and small companies
      have
      been trying to find a solution. The treatment and surgical planning for a number
      of diseases is hampered by the lack of appropriate measurements and
      visualization tools. It is difficult and extremely challenging to determine
      compound efficacy in a disease such as osteoarthritis. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      identified the research efforts of the following companies as potential
      competition due to our attempts to solve similar problems. These companies
      are
      Vital Images, Cedara, Medical Media Systems, R2 Technology and ViaTronix.
      Customers such as GE Healthcare, Philips, Siemens and Toshiba currently use
      software from these companies.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Government
      Regulation</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Healthcare
      is heavily regulated by the federal government, and by state and local
      governments. The federal laws and regulations affecting healthcare change
      constantly, thereby increasing the uncertainty and risk associated with any
      healthcare-related company such as VirtualScopics. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      federal government regulates healthcare through various agencies, including
      the
      following:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                Food and Drug Administration, or FDA, which administers the Food,
                Drug,
                and Cosmetic Act, or FD&amp;C Act, as well as other relevant
                laws;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Centers
                for Medicare &amp; Medicaid Services, or CMS, which administers the
                Medicare and Medicaid programs;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                Office of Inspector General, or OIG, which enforces various laws
                aimed at
                curtailing fraudulent or abusive practices, including by way of example,
                the Anti-Kickback Law, the Anti-Physician Referral Law, commonly
                referred
                to as Stark, the Anti-Inducement Law, the Civil Money Penalty Law,
                and the
                laws that authorize the OIG to exclude health care providers and
                others
                from participating in federal healthcare programs;
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                Office of Civil Rights which administers the privacy aspects of the
                Health
                Insurance Portability and Accountability Act of 1996, or
                HIPAA.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">All
      of
      the aforementioned are agencies within the Department of Health and Human
      Services, or HHS. Healthcare is also provided or regulated, as the case may
      be,
      by the Department of Defense through its TriCare program, the Public Health
      Service within HHS under the Public Health Service Act, the Department of
      Justice through the Federal False Claims Act and various criminal statutes,
      and
      state governments under the Medicaid program and their internal laws regulating
      all healthcare activities.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">FDA</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      currently meet the requirements of </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Good
      Clinical Practices: Consolidated Guidance</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
      which
      governs the conduct of clinical trials, and our software complies with the
      FDA&#8217;s
      Regulation 21 CFR Part 11 (Electronic Records; Signatures) and 21 CFR Part
      820.30, which outline the requirements for design controls in medical
      devices.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      FDA
      regulates medical devices. A &#8220;medical device,&#8221; or device, is as an article,
      including software and software associated with another medical device, which,
      among other things, is intended for use in the diagnosis of disease or other
      conditions, or in the cure, mitigation, treatment or prevention of disease,
      in
      man or other animals. Computer software that complements a CT or MRI scan,
      such
      as VirtualScopics, is considered a medical device and is therefore subject
      to
      FDA regulation. Even when used to assist clinical trials, the software may
      be
      considered a medical device subject to clearance or approval by the FDA, as
      discussed below, depending on how the software is used.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">16</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
      date,
      no such FDA clearance or approval has been sought or granted and, accordingly,
      our sales have been limited to those uses not requiring FDA clearance or
      approval. Absent such approval or clearance and to comply with the FD&amp;C Act,
      our current sales to pharmaceutical companies for use in clinical drug trials
      is
      limited to those protocols where the image-based product is used by radiologists
      to facilitate their observations of and to document MRI or CT scans. Our
      significant growth in the clinical drug trial area depends on acceptance by
      the
      FDA of image-based biomarkers for new drug approvals. No assurance can be given
      that the FDA will continue or increase acceptance of biomarkers for new drug
      approvals. We would need to obtain FDA clearance or approval, as discussed
      below, before using our technology and services for diagnostic or treatment
      planning in a clinical setting or as part of a clinical trial. No assurance
      can
      be given that such clearance or approval would be granted or that it would
      be
      granted in a timely manner. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Devices
      are subject to varying levels of regulatory control, the most comprehensive
      of
      which requires that a clinical evaluation be conducted before a device receives
      approval for commercial distribution. In the United States, we generally are
      able to obtain permission to distribute a new device in two ways. The first
      applies to any new device that is substantially equivalent to a device first
      marketed prior to May 1976. In this case, to obtain FDA permission to distribute
      the device, we generally must submit a premarket notification application (a
      section 510(k) submission), and receive an FDA order finding substantial
      equivalence to a device (first marketed prior to May 1976) and permitting
      commercial distribution of that device for its intended use. A 510(k) submission
      must provide information supporting its claim of substantial equivalence to
      the
      predicate device.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      clinical data from human experience are required to support the 510(k)
      submission, these data must be gathered in compliance with investigational
      device exemption (IDE)&#160;regulations for investigations performed in the
      United States. The 510(k) process is normally used for software products of
      the
      type that we propose distributing. The FDA review process for premarket
      notifications submitted pursuant to section 510(k) takes on average about 90
      days, but it can take substantially longer if the agency has concerns, and
      there
      is no guarantee that the agency will &#8220;clear&#8221; the device for marketing, in which
      case the device cannot be distributed in the United States. Nor is there any
      guarantee that the agency will deem the article subject to the 510(k) process,
      as opposed to the more time-consuming and resource intensive and problematic,
      premarket approval, or PMA, process described below. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      second, more comprehensive, approval process applies to a new device that is
      not
      substantially equivalent to a pre-1976 product. In this case, two steps of
      FDA
      approval generally are required before we can market the product in the United
      States. First, we must comply with IDE regulations in connection with any human
      clinical investigation of the device. Second, the FDA must review our PMA
      application, which contains, among other things, clinical information acquired
      under the IDE. The FDA will approve the PMA application if it finds there is
      reasonable assurance the device is safe and effective for its intended
      use.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain
      changes to existing devices that do not significantly affect safety or
      effectiveness can be made with in</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>&#160;vitro</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      testing
      under reduced regulatory procedures, generally without human clinical trials
      and
      by filing a PMA supplement to a prior PMA. Exported devices are subject to
      the
      regulatory requirements of each country to which the device is exported, as
      well
      as certain FDA export requirements. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">After
      approval or clearance to market is given, the FDA and foreign regulatory
      agencies, upon the occurrence of certain events, have the power to withdraw
      the
      clearance or require changes to a device, its manufacturing process, or its
      labeling or additional proof that regulatory requirements have been
      met.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A
      device
      manufacturer is also required to register with the FDA. As a result, we may
      be
      subject to periodic inspection by the FDA for compliance with the FDA&#8217;s Quality
      System Regulation requirements and other regulations. In the European Community,
      we are required to maintain certain International Organization for
      Standardization (ISO)&#160;certifications in order to sell product and to
      undergo periodic inspections by notified bodies to obtain and maintain these
      certifications. These regulations require us to manufacture products and
      maintain documents in a prescribed manner with respect to design, manufacturing,
      testing and control activities. Further, we are required to comply with various
      FDA and other agency requirements for labeling and promotion. The Medical Device
      Reporting regulations require that we provide information to the FDA whenever
      there is evidence to reasonably suggest that a device may have caused or
      contributed to a death or serious injury or, if a malfunction were to occur,
      could cause or contribute to a death or serious injury. In addition, the FDA
      prohibits us from promoting a medical device for unapproved
      indications.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">17</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Medicare
      and Medicaid</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Inasmuch
      as a significant percentage of the projected patient population that could
      potentially benefit from our device are elderly, Medicare would likely be a
      potential source of reimbursement. Medicare is a federal program that provides
      certain hospital and medical insurance benefits to persons age 65 and over,
      certain disabled persons, persons with end-stage renal disease, and those
      suffering from Lou Gehrig&#8217;s Disease. In contrast, Medicaid is a medical
      assistance program jointly funded by federal and state governments and
      administered by each state pursuant to which benefits are available to certain
      indigent patients. The Medicare and Medicaid statutory framework is subject
      to
      administrative rulings, interpretations and discretion that affect the amount
      and timing of reimbursement made under Medicare and Medicaid. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Medicare
      reimburses for medical devices in a variety of ways depending on where and
      how
      the device is used. However, Medicare only provides reimbursement if CMS
      determines that the device should be covered and that the use of the device
      is
      consistent with the coverage criteria. A coverage determination can be made
      at
      the local level by the Medicare administrative contractor (formerly called
      carriers and fiscal intermediaries), a private contractor that processes and
      pays claims on behalf of CMS for the geographic area where the services were
      rendered, or at the national level by CMS through a National Coverage
      Determination. There are new statutory provisions intended to facilitate
      coverage determinations for new technologies, but it is unclear how these new
      provisions will be implemented. Coverage presupposes that the device has been
      cleared or approved by the FDA and further, that the coverage will be no broader
      than the approved intended uses of the device (</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>i.e</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.,
      the
      device&#8217;s label) as approved or cleared by the FDA, but coverage can be narrower.
      In that regard, a coverage determination may be so limited that relatively
      few
      patients will qualify for a covered use of the device; a narrow Medicare
      coverage determination may undermine the commercial viability of the device.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A
      coverage determination, whether local or national, is a time-consuming,
      expensive and highly uncertain proposition especially for a new technology
      and
      inconsistent local determinations are possible. On average, according to an
      industry report, Medicare coverage determinations for medical devices lag 15
      months to five years or more behind FDA approval for that device. Moreover,
      Medicaid programs and private insurers are frequently influenced by Medicare
      coverage determinations. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Even
      if
      Medicare covers a device for certain uses, that does not mean that the level
      of
      reimbursement will be sufficient for commercial success. The Medicare
      reimbursement levels for covered procedures are determined annually through
      two
      sets of rulemakings, one for outpatient departments of hospitals under the
      Outpatient Prospective Payment System, or OPPS, and the other, for procedures
      in
      physicians&#8217; offices under the Resource-Based Relative Value Scales, or RBRVS
      (</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>i.e</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.,
      Medicare fee schedule). If the use of a device is covered by Medicare, a
      physician&#8217;s ability to bill a Medicare patient more than the Medicare allowable
      amount is significantly constrained by the rules limiting balance billing.
      For
      covered services in a physician&#8217;s office, Medicare normally pays 80% of the
      Medicare allowable amount and the beneficiary pays the remaining 20%, assuming
      that the beneficiary has met his or her annual Medicare deductible and is not
      also a Medicaid beneficiary. For services performed in an outpatient department
      of a hospital, the patient&#8217;s co-payment under Medicare may exceed 20% depending
      on the service. Usually, Medicaid pays less than Medicare, assuming that the
      state covers the service. In addition, private payors, including managed care
      payors, increasingly are demanding discounted fee structures and the assumption
      by healthcare providers of all or a portion of the financial risk. Efforts
      to
      impose greater discounts and more stringent cost controls upon healthcare
      providers, </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>e.g</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.,
      physicians, by private and public payors are expected to continue. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Fraud
      and
      Abuse</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">There
      are
      extensive federal and state laws and regulations prohibiting fraud and abuse
      in
      the healthcare industry that can result in significant criminal and civil
      penalties that can materially affect us. These federal laws include, by way
      of
      example, the following:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                anti-kickback statute prohibits certain business practices and
                relationships that might affect the provision and cost of healthcare
                services reimbursable under Medicare, Medicaid and other federal
                healthcare programs, including the payment or receipt of remuneration
                for
                the referral of patients whose care will be paid by Medicare or other
                governmental programs; </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">18</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                physician self-referral prohibition (commonly referred to as the
                Stark
                Law), which prohibits referrals by physicians of Medicare or Medicaid
                patients to providers of a broad range of designated healthcare services
                in which the physicians (or their immediate family members) have
                ownership
                interests or with which they have certain other financial
                arrangements;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                anti-inducement law, which prohibits providers from offering anything
                to a
                Medicare or Medicaid beneficiary to induce that beneficiary to use
                items
                or services covered by either
                program;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                False Claims Act, which prohibits any person from knowingly presenting
                or
                causing to be presented false or fraudulent claims for payment to
                the
                federal government (including the Medicare and Medicaid programs);
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                Civil Monetary Penalties, which authorizes the United States Department
                of
                Health and Human Services to impose civil penalties administratively
                for
                fraudulent or abusive acts.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sanctions
      for violating these federal laws include criminal and civil penalties that
      range
      from punitive sanctions, damage assessments, money penalties, imprisonment,
      denial of Medicare and Medicaid payments, or exclusion from the Medicare and
      Medicaid programs, or both. These laws also impose an affirmative duty on those
      receiving Medicare or Medicaid funding to ensure that they do not employ or
      contract with persons excluded from the Medicare and other government
      programs.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Many
      states have adopted or are considering legislative proposals similar to the
      federal fraud and abuse laws, some of which extend beyond the Medicare and
      Medicaid programs to prohibit the payment or receipt of remuneration for the
      referral of patients and physician self-referrals regardless of whether the
      service was reimbursed by Medicare or Medicaid. Many states have also adopted
      or
      are considering legislative proposals to increase patient protections, such
      as
      limiting the use and disclosure of patient specific health information. These
      state laws also impose criminal and civil penalties similar to the federal
      laws.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      the
      ordinary course of their business, medical device manufacturers and suppliers
      have been and are subject regularly to inquiries, investigations and audits
      by
      federal and state agencies that oversee these laws and regulations. Recent
      federal and state legislation has greatly increased funding for investigations
      and enforcement actions which have increased dramatically over the past several
      years. This trend is expected to continue. Private enforcement of healthcare
      fraud also has increased due in large part to amendments to the civil False
      Claims Act in 1986 that were designed to encourage private persons to sue on
      behalf of the government. These whistleblower suits by private persons may
      be
      filed by almost anyone, including present and former patients or nurses and
      other employees, and even competitors. HIPAA, in addition to its privacy
      provisions, created a series of new healthcare related crimes.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
      federal and state budget pressures continue, federal and state administrative
      agencies may also continue to escalate investigation and enforcement efforts
      to
      root out waste and to control fraud and abuse in governmental healthcare
      programs. A violation of any of these federal and state fraud and abuse laws
      and
      regulations could have a material adverse effect on a suppliers&#8217; liquidity and
      financial condition. An investigation into the use of a device by physicians
      may
      dissuade physicians from either purchasing or using the device. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Privacy
      Provisions of HIPAA</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">HIPAA,
      among other things, protects the privacy and security of individually
      identifiable health information by limiting its use and disclosure. HIPAA
      directly regulates &#8220;covered entities&#8221; (healthcare providers, insurers and
      clearinghouses) and indirectly regulates &#8220;business associates&#8221; with respect to
      the privacy of patients&#8217; medical information. All entities that receive and
      process protected health information are required to adopt certain procedures
      to
      safeguard the security of that information. It is uncertain whether we would
      be
      deemed to be a covered entity under HIPAA and it is unlikely that we would,
      based on our current business model, be a business associate. Nevertheless,
      we
      will likely be contractually required to physically safeguard the integrity
      and
      security of any patient information that we receive, store, create or transmit.
      If we fail to adhere to our contractual commitments, then our physician
      customers may be subject to civil monetary penalties. </font></div>
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    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">19</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Employees</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
      of
      November 4, 2005, we had 41 employees and six contract radiologists. Of our
      employees, 33 are full-time, four have Ph.D.&#8217;s and six have a master&#8217;s degree in
      their respective scientific fields.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Cautionary
      Statements</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>We
      have a limited operating history, which limits the information available to
      you
      to evaluate our business, and have a history of operating losses and uncertain
      future profitability.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">VirtualScopics
      was formed in July 2000 and began generating revenue in December 2000.
      VirtualScopics has incurred significant losses from operating activities since
      it began operations, including cumulative net losses of $7.9 million (as of
      June
      30, 2005) over the last four and a half years. Limited operating and financial
      information is available to evaluate our historical performance and future
      prospects. Thus, we face the risks and difficulties of an early-stage company
      including the uncertainties of market acceptance, competition, cost increases
      and delays in achieving business objectives. There can be no assurance that
      we
      will succeed in addressing any or all of these risks or that we will achieve
      future profitability, and the failure to do so would have a material adverse
      effect on our business, financial condition and operating results. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Because
      the image-based biomarker technologies industry is new and evolving, its future
      growth or ultimate size is difficult to predict. Our business will not grow
      if
      the use of image-based biomarkers does not continue to grow.
</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are a
      provider of image-based biomarker solutions in the emerging image-based
      biomarker industry. Our industry is in the early stages of market acceptance
      of
      products and related services and is subject to rapid and significant
      technological change. Because of the new and evolving nature of technologies
      comprising image-based biomarker solutions and services, it is difficult to
      predict the size of the image-based biomarker market, the rate at which the
      market for our services will grow or be accepted, if at all, or whether emerging
      technologies will render our services less competitive or obsolete. If the
      market for our services fails to develop or grows more slowly than anticipated,
      we would be significantly and materially adversely affected. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>If
      our products and services do not achieve market acceptance, we may not achieve
      our revenue and earnings goals in the time projected, or at all.
</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      we are
      unable to operate our business as contemplated by our business model or if
      the
      assumptions underlying our business model prove to be unfounded, we could fail
      to achieve our revenue and earnings goals within the time we have projected,
      or
      at all, which would have a detrimental effect on our businesses. Our ability
      to
      generate revenues is highly dependent on building and maintaining relationships
      with leading pharmaceutical, medical device, medical technology and healthcare
      companies. No assurance can be given that a sufficient number of such companies
      will demand our services or other image-based biomarker services, thereby
      expanding the overall market for image-based biomarker services and enabling
      us
      to increase our revenue to the extent expected. In addition, the rate of the
      market&#8217;s acceptance of MRI and CT image-based biomarkers cannot be predicted.
      Failure to attract and maintain a significant customer base would have a
      detrimental effect on our business, operating results and financial condition.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Our
      future growth will be harmed if we are unsuccessful in developing and
      maintaining good relationships with marketing and distribution
      entities.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      business strategy may in the future be dependent on our ability to develop
      relationships with marketing and distribution entities such as CROs, and medical
      technology companies that allow us to increase our throughput capacity,
      specifically for conducting Phase III clinical trials. These entities recommend
      our services to our clients, provide us with referrals and help us build
      presence in the market. These relationships require a significant amount of
      time
      to develop. Currently, we have established a limited number of these
      relationships. We must expand current relationships and establish new
      relationships to grow our business in accordance with our business plan. We
      may
      not be able to identify, establish, expand and maintain good relationships
      with
      quality distribution entities. Additionally, it is uncertain that such
      relationships will fully support and recommend our services. Our failure to
      identify, establish, expand and maintain good relationships with quality
      marketing and distribution entities would have a material and adverse effect
      on
      our business.</font></div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
      </div>
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      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>We
      are dependent on our strategic alliance with Pfizer until we can diversify
      our
      customer base, and a significant portion of our resources are required to
      maintain this alliance.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">While
      we
      continue to pursue a broad range of customers, our agreement with Pfizer will
      require us to devote a substantial portion of our business efforts to this
      strategic alliance. We currently project that Pfizer projects will represent
      approximately 70% of our revenue in 2005. We anticipate that our revenues from
      Pfizer will continue to grow, however, the relative percentage of the Pfizer
      business will decline as we continue to broaden our customer base. Therefore,
      at
      present, our results will depend heavily on our strategic alliance with Pfizer
      and the delivery of our services to Pfizer. Additionally, Pfizer may terminate
      its contractual relationship with us for any or no reason on 30 days&#8217; advance
      notice. A decision by Pfizer to discontinue or limit our relationship could
      have
      a material adverse impact on our business. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>The
      majority of the contracts we have with customers are cancelable for any reason
      by giving 30 days&#8217; advance notice.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      customers typically engage us to perform services for them on a
      project-by-project basis and are required by us to enter into a written
      contractual agreement for the work, labor and services to be performed.
      Generally, our project contracts are terminable by the customer for any or
      no
      reason on 30 days&#8217; advance notice to us. If a number of our customers were to
      exercise cancellation rights, our business and operating results would be
      materially and adversely affected.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Our
      operating results will be harmed if we are unable to manage and sustain our
      growth.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      business is unproven on a large scale and actual operating margins may be less
      than expected. If we are unable to scale our capacity efficiently, we may fail
      to achieve expected operating margins, which would have a material and adverse
      effect on our operating results. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Our
      products and services may become obsolete if we do not effectively respond
      to
      rapid technological change on a timely basis. </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      services are new and our business model is evolving. Our services depend on
      the
      needs of our customers and their desire to utilize image-based biomarkers in
      drug development, new medical device development and clinical diagnosis and
      treatment. Since the image-based biomarker industry is characterized by evolving
      technologies, uncertain technology and limited availability of standards, we
      must respond to new research findings and technological changes affecting our
      customers and alliance partners. We may not be successful in developing and
      marketing, on a timely and cost-effective basis, new or modified products and
      services, which respond to technological changes, evolving customer requirements
      and competition. If we are unsuccessful in this regard, our business and
      operating results could be materially and adversely affected.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>If
      we fail to recruit and retain qualified senior management and other key
      personnel, we will not be able to execute our business
      plan.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      business plan requires us to hire a number of qualified personnel, as well
      as
      retain our current key management employees. The industry is characterized
      by
      heavy reliance on luminaries and opinion leaders in the therapeutic areas.
      We
      must, therefore, attract leading medical and engineering talent both as
      full-time employees and as collaborators, to be able to execute our business
      strategy. Presently, our key senior management and key employees are: Dr. Saara
      Totterman, Chief Medical Officer, Dr. Jose Tamez-Pena, Chief Technology Officer,
      and Dr. Edward Ashton, Vice President of Product Development.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      not entered into employment agreements with any members of our key senior
      management team, although our agreements with some of these members contain
      confidentiality and non-competition provisions. The loss of the services of
      one
      or more of our senior managers could impair our ability to execute our business
      plan, which could hinder the development of products and services and materially
      and adversely affect our business and results of operation. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">21</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>If
      we fail to protect our intellectual property, our current competitive strengths
      could be eroded and we could lose customers, market share and
      revenues.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      viability will depend on our ability to develop and maintain the proprietary
      aspects of our technology to distinguish our service from our competitors&#8217;
      products and services. To protect our proprietary technology, we rely primarily
      on a combination of confidentiality procedures, copyright, trademark and patent
      laws.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      hold
      United </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">States</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      patents
      which begin to expire in November 2018 and end in October 2022. We have a number
      of foreign filings pending, or issued, which cover the technology that is the
      subject of our United States patents. We also have a number of pending United
      States patent applications with corresponding foreign filings. In addition,
      we
      are developing a number of new innovations for which we intend to file patent
      applications. No assurance can be given that any of these patents will afford
      meaningful protection against a competitor or that any patent application will
      be issued. Patent applications filed in foreign countries are subject to laws,
      rules, regulations and procedures that differ from those of the United States,
      and thus there can be no assurance that foreign patent applications related
      to
      United States patents will issue. If these foreign patent applications issue,
      some foreign countries provide significantly less patent protection than the
      United States. In addition, our contractual relationships, including our
      strategic alliance with Pfizer, gives proprietary rights, including ownership
      rights, in proprietary technology to parties other than us. The status of
      patents involves complex legal and factual questions and the breadth of claims
      issued is uncertain. Accordingly, there can be no assurance that our patents,
      and any patents that may be issued to us in the future, will afford protection
      against competitors with similar technology. No assurance can be given that
      patents issued to us will not be infringed upon or designed around by others
      or
      that others will not obtain patents that we would need to license or design
      around. If others&#8217; existing or future patents containing broad claims are upheld
      by the courts, the holders of such patents could require companies, including
      us, to obtain licenses or else to design around those patents. If we are found
      to be infringing third-party patents, there can be no assurance that any
      necessary licenses would be available on reasonable terms, if at
      all.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Despite
      our efforts to protect our proprietary rights, unauthorized parties may attempt
      to copy aspects of our products and services or obtain and use information
      that
      we regard as proprietary. Unauthorized use of our proprietary technology could
      harm our business. Litigation to protect our intellectual property rights can
      be
      costly and time-consuming to prosecute, and there can be no assurance that
      we
      will be able to enforce our rights or prevent other parties from developing
      similar technology or designing around our intellectual property.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Although
      we believe that our products and services do not and will not infringe upon
      the
      patents or violate the proprietary rights of others, it is possible such
      infringement or violation has occurred or may occur which could have a material
      adverse effect on our business.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      business is heavily reliant upon patented and patentable systems and methods
      used in our image-based biomarker solutions and related intellectual property.
      In the event that products and services we sell are deemed to infringe upon
      the
      patents or proprietary rights of others, we could be required to modify our
      products and services or obtain a license for the manufacture and/or sale of
      such products and services. In such event, there can be no assurance that we
      would be able to do so in a timely manner, upon acceptable terms and conditions,
      or at all, and the failure to do any of the foregoing could have a material
      adverse effect upon our business. Moreover, there can be no assurance that
      we
      will have the financial or other resources necessary to enforce or defend a
      patent infringement or proprietary rights violation action. In addition, if
      our
      products and services or proposed products and services are deemed to infringe
      or likely to infringe upon the patents or proprietary rights of others, we
      could
      be subject to injunctive relief and, under certain circumstances, become liable
      for damages, which could also have a material adverse effect on our
      business.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>We
      are subject to numerous pharmaceutical, medical device and healthcare industry
      regulations, which could adversely affect the nature and extent of the products
      and services we offer. </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Many
      aspects of the pharmaceutical, medical device and healthcare industry are
      subject to regulation at the federal level. From time to time, the regulatory
      entities that have jurisdiction over the industry adopt new or modified
      regulations or take other actions as a result of their own regulatory processes
      or as directed by other governmental bodies. This changing regulatory
      environment could adversely affect the nature and extent of the services we
      are
      able to offer.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
      date,
      our sales have been limited to those uses not requiring FDA clearance or
      approval. To significantly expand our business, we would need to obtain FDA
      clearance or approval before marketing our products. There can be no assurance
      that such clearance or approval would be granted or that it would be granted
      in
      a timely manner. Our inability to obtain the requisite clearance or approval
      from the FDA may have a significant adverse financial impact on our operations
      and financial viability. To effectively market our products to physicians as
      a
      diagnostic and treatment aid, we would also need to obtain appropriate coverage
      and favorable reimbursement from third-party payors, such as Medicare. There
      can
      be no assurance that appropriate coverage would be granted or that reimbursement
      levels or conditions of coverage would be adequate to ensure acceptance among
      physicians. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">22</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>We
      may in the future experience competition from academic sites and imaging
      CRO&#8217;s.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Competition
      in the development of image-based biomarker technologies is expected to become
      more intense. Competitors range from university-based research and development
      projects to development stage companies and major domestic and international
      companies. Many of these entities have financial, technical, marketing, sales,
      distribution and other resources significantly greater than ours. There can
      be
      no assurance that we can continue to develop our biomaker technologies or that
      present or future competitors will not develop technologies that render our
      image-based biomaker technology obsolete or less marketable or that we will
      be
      able to introduce new products and product enhancements that are competitive
      with other products marketed by industry participants.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>The
      trading price of our stock may be adversly affected if we are not able to
      expand. </em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      future plans are based on the assumption that we will derive from the use of
      our
      technology in diagnostic products. We have also assumed that we would be able
      to
      fund the development and growth of this part of our business from, in part,
      our
      existing and projected revenue from pharmaceutical clinical trials. Before
      we
      can expand our business, will need significant further development and marketing
      of our technology for use in diagnostic products. We have not, at this time,
      identified all of the development and marketing requirements for this
      application of our technology. If we are unable to generate the necessary funds
      for this development and marketing and our expansion, we may be required to
      seek
      additional capital to fund these activities. In addition, if our plans or
      assumptions with respect to our business change or prove to be inaccurate,
      we
      may be required to use part or all of the net proceeds we received in the
      private placement to fund such expenses and/or seek additional capital. This
      will depend on a number of factors, including, but not limited to:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">our
                ability to successfully market our
                products;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                growth and size of the image-based biomarker technology
                industry;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                market acceptance of our products and services; and
                </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">our
                ability to manage and sustain the growth of our
                business.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If
      we
      need to raise additional capital, it may not be available on acceptable terms,
      or at all. Our failure to obtain required capital would have a material adverse
      effect on our business. If we issue additional equity securities in the future,
      you could experience dilution or a reduction in priority of your
      securities.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>There
      has been no active public market for our securities.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">There
      has
      been no active public market for our stock to date. An active public market
      for
      our common stock may not develop or be sustained.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>The
      market price of our common stock may fluctuate
      significantly.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      market price of our common stock may fluctuate significantly in response to
      factors, some of which are beyond our control, such as product liability claims
      or other litigation; the announcement of new products or product enhancements
      by
      us or its competitors; developments concerning intellectual property rights
      and
      regulatory approvals; quarterly variations in our competitors&#8217; results of
      operations; changes in earnings estimates or recommendations by securities
      analysts; developments in our industry; and general market conditions and other
      factors, including factors unrelated to our own operating
      performance.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">23</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
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        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Because
      we became public through a &#8220;reverse public offering,&#8221; we may not be able to
      attract the attention of major brokerage firms.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Additional
      risks are associated with becoming public through a &#8220;reverse public offering.&#8221;
      Securities analysts of major brokerage firms may not provide coverage of us
      since there is no incentive to brokerage firms to recommend the purchase of
      our
      common stock. No assurance can be given that brokerage firms will want to
      conduct any secondary public offerings on behalf of us in the
      future.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Our
      common stock may be considered a &#8220;penny stock&#8221; and may be difficult to
      sell.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      SEC
      has adopted regulations which generally define &#8220;penny stock&#8221; to be an equity
      security that has a market or exercise price of less than $5.00 per share,
      subject to specific exemptions. The market price of our common stock may drop
      below $5.00 per share and therefore may be designated as a &#8220;penny stock&#8221;
      according to SEC rules. This designation requires any broker or dealer selling
      these securities to disclose certain information concerning the transaction,
      obtain a written agreement from the purchaser and determine that the purchaser
      is reasonably suitable to purchase the securities. These rules may restrict
      the
      ability of brokers or dealers to sell our common stock and may affect the
      ability of our shareholders to sell their shares. In addition, since our common
      stock is currently quoted on the OTC Bulletin Board, our shareholders may find
      it difficult to obtain accurate quotations of our common stock and may
      experience a lack of buyers to purchase such stock or a lack of market makers
      to
      support the stock price. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>A
      significant number of the shares of our common stock are eligible for sale,
      and
      their sale could depress the market price of the our common
      stock.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sales
      of
      a significant number of shares of our common stock in the public market could
      harm the market price of our common stock. In the exchange transaction, we
      issued 17,326,571 shares of our common stock and agreed to issue 2,872,480
      shares pursuant to VirtualScopics options and warrants we assumed. Of the shares
      issued in the transaction, 16,050,914 shares are subject to lock-up agreements
      and&#160;over 90%&#160;shares issuable pursuant to options and warrants
      are
      subject to lock-up agreements. These lock-up agreements provide for periodic
      releases of the shares following the first anniversary and through the fourth
      anniversary of the exchange transaction. We issued 4,084.488 shares of our
      series A preferred stock in the private placement which are convertible into
      1,633,795 shares of our common stock. In the private placement, we also issued
      warrants for the purchase of up to an aggregate of 816,898 shares of common
      stock to investors and additional warrants to purchase 163,380 shares to the
      placement agent and its subagents. All of the securities issued in the exchange
      transaction and the private placement are restricted under federal securities
      laws. These shares will generally be eligible for sale under SEC Rule 144.
      In
      general, SEC Rule 144 provides that a person who has held restricted shares
      for
      a period of one year may, upon filing with the SEC of a notification on Form
      144, sell into the market common stock in an amount equal to the greater of
      1%
      of the outstanding shares or the average weekly number of shares sold in the
      last four weeks prior to such sale. Such sales may be repeated once each three
      months, and any of the restricted shares may be sold by a non-affiliate after
      they have been held two years. In addition, the shares of common stock issuable
      upon conversion of our series A preferred stock and exercise of the warrants
      issued in connection with the private placement, however, are entitled to be
      included in a shelf registration statement that we are required to file with
      the
      SEC on or before May 2, 2006 pursuant to agreed upon terms We also expect in
      the
      future to file a registration statement on Form S-8 to register the sale of
      shares issued pursuant to the assumed VirtualScopics options. Sales of our
      common stock either pursuant to Rule 144 or the a registration statement may
      have a depressive effect on the market for the shares of our common
      stock.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Our
      principal stockholders have significant voting power and may take actions that
      may not be in the best interests of other
      stockholders.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      officers, directors, principal stockholders and their affiliates control
      approximately 73.4% of our voting securities. If these stockholders act
      together, they will be able to exert significant control over our management
      and
      affairs requiring stockholder approval, including approval of significant
      corporate transactions. This concentration of ownership may have the effect
      of
      delaying or preventing a change in control and might adversely affect the market
      price of our common stock. This concentration of ownership may not be in the
      best interests of all our stockholders.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>We
      do not anticipate paying dividends in the foreseeable future, and the lack
      of
      dividends may have a negative effect on the stock
      price.</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      currently intend to retain our future earnings to support operations and to
      finance expansion and, therefore, do not anticipate paying any cash dividends
      on
      our capital stock in the foreseeable future.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
      </div>
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        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Cautionary
      Language Regarding Forward-Looking Statements and Industry
      Data</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">This
      report contains &#8220;forward-looking statements&#8221; within the meaning of the Private
      Securities Litigation Reform Act of 1995 that involve risks and uncertainties,
      many of which are beyond our control. Our actual results could differ materially
      and adversely from those anticipated in such forward-looking statements as
      a
      result of certain factors, including those set forth below and elsewhere in
      this
      report. Important factors that may cause actual results to differ from
      anticipated results include, but are not limited to, for example:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">adverse
                economic conditions;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">inability
                to raise sufficient additional capital to operate our
                business;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">unexpected
                costs, lower than expected sales and revenues, and operating
                defects;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">adverse
                results of any legal proceedings;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
                volatility of our operating results and financial
                condition;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">inability
                to attract or retain qualified senior management personnel, including
                sales and marketing, and scientific personnel;
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">other
                specific risks that may be referred to in this
                report.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 12pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">All
      statements, other than statements of historical facts, included in this report
      regarding our strategy, future operations, financial position, estimated revenue
      or losses, projected costs, prospects and plans and objectives of management
      are
      forward-looking statements. When used in this report, the words
&#8220;will,&#8221;&#8220;may,&#8221;&#8220;believe,&#8221;&#8220;anticipate,&#8221;&#8220;intend,&#8221;&#8220;estimate,&#8221;&#8220;expect,&#8221;&#8220;project,&#8221;&#8220;plan,&#8221;&#8220;could,&#8221;&#8220;would&#8221;
      and similar expressions are intended to identify forward-looking statements,
      although not all forward-looking statements contain such identifying words.
      All
      forward-looking statements speak only as of the date of this report. We do
      not
      undertake any obligation to update any forward-looking statements or other
      information contained herein. Potential investors should not place undue
      reliance on these forward-looking statements. Although we believe that our
      plans, intentions and expectations reflected in or suggested by the
      forward-looking statements in this report are reasonable, we cannot assure
      our
      stockholders or potential investors that these plans, intentions or expectations
      will be achieved. We disclose important factors that could cause our actual
      results to differ materially from its expectations under &#8220;Cautionary Statements&#8221;
      and elsewhere in this report. These cautionary statements qualify all
      forward-looking statements attributable to the company or persons acting on
      its
      behalf.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Information
      regarding market and industry statistics contained in this report is included
      based on information available to us that we believe is accurate. It is
      generally based on academic and other publications that are not produced for
      purposes of securities offerings or economic analysis. We have not reviewed
      or
      included data from all sources, and we cannot assure our stockholders or
      potential investors of the accuracy or completeness of the data included in
      this
      report. Forecasts and other forward-looking information obtained from these
      sources are subject to the same qualifications and the additional uncertainties
      accompanying any estimates of future market size, revenue and market acceptance
      of products and services. We have no obligation to update forward-looking
      information to reflect actual results or changes in assumptions or other factors
      that could affect those statements. See &#8220;Cautionary Statements&#8221; for a more
      detailed discussion of uncertainties and risks that may have an impact on future
      results.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Management&#8217;s
      Discussion and Analysis or Plan of Operation</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>The
      following discussion should be read in conjunction with VirtualScopics&#8217;
      statement of financial position, and related statements of operations, changes
      in members&#8217; equity and cash flow as of and for the six months ended June 30,
      2005 (unaudited) and June 30, 2004 (unaudited) and the years ended December
      31,
      2004 and December 31, 2003, included elsewhere in this report. This discussion
      contains forward-looking statements, the accuracy of which involves risks and
      uncertainties. Our actual results could differ materially from those anticipated
      in the forward-looking statements for many reasons including, but not limited
      to, those discussed in &#8220;Cautionary Statements&#8221; and elsewhere in this report. We
      disclaim any obligation to update information contained in any forward-looking
      statements. </em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">25</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
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        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Overview</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      July
      2000, VirtualScopics was formed after being spun out of the University of
      Rochester. In June 2002, VirtualScopics purchased the underlying technology
      and
      patents created by VirtualScopics&#8217; founders from the University. VirtualScopics
      owns all rights to the patents underlying its technology. See &#8220;Certain
      Relationships and Related Transactions-Acquisition of Intellectual Property
      from
      University of Rochester.&#8221; Since VirtualScopics&#8217; inception, VirtualScopics&#8217;
      principal activities have consisted of:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">research
                and development;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">hiring
                technical, sales and other
                personnel;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">business
                development of customer and strategic relationships;
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">raising
                capital.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      derive
      revenue primarily through our image processing services. Revenues are recognized
      as the MRI and CT images that we process are quantified and delivered to our
      customers.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      2001,
      we earned revenue of $88,053 through image processing services mostly for
      Pfizer. In 2002, we generated revenue of $950,785. This increase over 2001
      reflected the increase in our business development activities. During 2002,
      we
      significantly expanded our contract services with Pfizer and earned revenue
      on
      15 new projects, as well as expanded our customer base with two new customers.
      Those contracts provided for nearly $2,800,000 in total payments. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      found that our customers value the ability to better understand the efficacy
      profile of their compounds. To date, all customers have expressed interest
      in
      expanding their service agreements with us. We have also submitted proposals
      and
      bids for a number of other contracts. However, there can be no assurance that
      we
      will secure contracts from these efforts or that any such contracts or any
      of
      its existing contracts will not be cancelled on 30 days&#8217; advance notice by a
      customer.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Results
      of Operations</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      following table sets forth selected consolidated operating results for each
      of
      the last two fiscal years and for each of the six months periods indicated,
      presented as a percentage of net sales:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">26</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div>&#160;</div>
      <div>
        <table cellpadding="0" cellspacing="0" width="100%">

            <tr>
              <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td colspan="5" valign="bottom" width="26%" style="BORDER-BOTTOM: #000000 thin solid">&#160;

                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>For
                  the Year Ended</strong></font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td colspan="5" valign="bottom" width="25%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>For
                  the Six Months Ended</strong></font>&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td width="2%" style="BORDER-BOTTOM: #ffffff thin solid">&#160;</td>
              <td colspan="2" valign="bottom" width="12%" style="BORDER-BOTTOM: black thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Dec.
                  31,</strong></font></div>
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>2004</strong></font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff thin solid">&#160;</td>
              <td colspan="2" valign="bottom" width="12%" style="BORDER-BOTTOM: black thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Dec.
                  31,</strong></font></div>
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>2003</strong></font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff thin solid">&#160;</td>
              <td colspan="2" valign="bottom" width="12%" style="BORDER-BOTTOM: black thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>June
                  30,</strong></font></div>
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>2005</strong></font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff thin solid">&#160;</td>
              <td colspan="2" valign="bottom" width="11%" style="BORDER-BOTTOM: black thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>June
                  30,</strong></font></div>
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>2004</strong></font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff thin solid">&#160;</td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="43%">&#160;</td>
              <td width="2%">&#160;</td>
              <td align="right" colspan="2" valign="bottom" width="12%">&#160;</td>
              <td align="left" valign="bottom" width="2%">&#160;</td>
              <td align="right" colspan="2" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>($
                  in thousands)</strong></font></div>
              </td>
              <td align="left" valign="bottom" width="2%">&#160;</td>
              <td align="right" colspan="5" valign="bottom" width="25%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(unaudited)</strong></font>&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Statement
                  of Operations Data:</strong></font></div>
              </td>
              <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" colspan="2" valign="bottom" width="12%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" colspan="2" valign="bottom" width="12%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" colspan="2" valign="bottom" width="12%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" colspan="2" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Revenue</font></div>
              </td>
              <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$</font></div>
              </td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2,516</font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$</font></div>
              </td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3,013</font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$</font></div>
              </td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1,690</font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$</font></div>
              </td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1,364</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Gross
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              </td>
              <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">952</font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1,516</font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">582</font></div>
              </td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">552</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Operating
                  expenses</font></div>
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              <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
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                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Research
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              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1,239</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">694</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">487</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">490</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
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                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sales
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">496</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">541</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">270</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">252</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
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                <div style="DISPLAY: block; MARGIN-LEFT: 12pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">General
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1,566</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1,375</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">892</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">611</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
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              <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Loss
                  from operations</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(2,349</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(1,094</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(1,067</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(801</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
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              <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ccffcc solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Interest
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              <td width="2%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(2</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">14</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc solid">&#160;</td>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Net
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              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 double">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(2,351</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 double">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(1,080</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 double">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(1,065</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #000000 double">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(800</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">)</font></div>
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        </table>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Results
      of Operations Six Months Ended June 30, 2005 Compared to Six Months Ended June
      30, 2004</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Revenue</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      had
      revenues of approximately $1.7 million for the first half of 2005. Through
      June
      30, 2005, we performed work for seven new customers and signed 19 new projects
      which provide for total payments of more than $3.6 million over the next 18
      months. The majority of the projects represent pre-clinical, Phase I and Phase
      II studies.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      revenues for the first half of 2004 totaled approximately $1.4 million. The
      2005
      increase is attributable to a new cardiovascular project in February 2005.
      The
      project is expected to be for approximately 6 months and result in total
      billings of approximately $800,000.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Gross
      Profit</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      had a
      gross profit of $582,000 for the six months ended June 30, 2005 compared to
      $552,000 for the comparable period in 2004. Our gross profit margin decreased
      as
      a percentage of revenue to approximately 34% for the six months ended June
      30,
      2005 compared to approximately 40% for the comparable period in 2004. This
      decrease is attributable to the product mix of our services as well as the
      hiring of two software developers and an image technician at the end of 2004
      in
      order to handle the anticipated increase in sales.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Operating
      Expenses</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      had
      operating expenses for the first half of 2005 of $1,649,000, which consisted
      primarily of service costs related to revenues (image analysis, project
      management and radiology) and research and development costs which consisted
      mainly of algorithm development and software development on existing and new
      projects. General and administrative costs largely represent management and
      consulting services, as well as legal costs. This is an increase of
      approximately $296,000 over operating expenses for the same period of 2004.
      This
      increase is attributable to the increased amortization of approximately $80,000
      related to the right to use asset as well as hiring of a CEO in June 2004,
      prior
      to that time our Chief Operating&#160;Officer was the acting
      CEO.&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Interest
      (Expense)/Income, net</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Interest
      income for the six months ended June 30, 2005 was $14,013 comprised of interest
      derived on the company&#8217;s operating and savings accounts, compared to interest
      income of $17,714 in the same period in 2004. The lower interest income in
      2005
      compared to 2004 resulted from the lower average cash balance in 2005. This
      interest income was partially offset by interest expense of $12,369, compared
      to
      interest expense in the same period in 2004 of $16,653. This interest expense
      was due to loans from certain VirtualScopics members.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">27</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Net
      Loss</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      net
      loss for the six months ended June 30, 2005 was approximately $1.1 million
      compared to a net loss of approximately $800,000 for the six months ended June
      30, 2004. The increase in our net loss over the prior period was primarily
      related to higher operating expenses. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Results
      of Operations Year Ended December 31, 2004 Compared to Year Ended December
      31,
      2003</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Revenue</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      2004,
      we had revenues of $2.5 million compared to 2003 revenue of $3.0 million. The
      $500,000 decline in 2004 was attributed to focus on compliance within the
      company to ensure compliance with FDA documentation standards. To date, we
      have
      been satisfactorily audited by five customers. The systems and processes that
      we
      use are compliant with Title 21, CFR Part 11. In 2004, we derived our revenues
      from the following activities: 64% from musculoskeletal projects, 13% from
      oncology services, 19% from consulting services, and 4% from neurology and
      sexual dysfunction services.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During
      2003, we brought on six new customers including Johnson &amp; Johnson (DePuy).
      Our revenues for 2003 totaled $3.0 million, of which 77% was generated from
      Pfizer, 55% related to work performed for customers in musculoskeletal diseases,
      27% was derived in oncology studies, 11% was attributable to consulting services
      and 7% related to sexual dysfunction and neurology studies.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Gross
      Profit</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      gross
      profit for fiscal 2004 decreased to $952,000 compared to gross profit of $1.5
      million in 2003. This decline of approximately $564,000 was attributed to a
      decline in revenue over the prior period of approximately $500,000 and hiring
      of
      one image technician and two software developers in late 2004 in order to handle
      the increasing demands from customers.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Operating
      Expenses</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      majority of our operating expenses are composed of salaries for our signal
      processing, software development and image analysis personnel. For the year
      ended December 31, 2004, as compared to the year ended December 31, 2003, total
      operating expenses increased from $2.6 million to $3.3 million. During this
      time, we added software developers, built out the image analysis operations
      staff, entered into collaboration agreements with leading physicians, invested
      in patenting our technology and hired additional personnel to strengthen our
      management team.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Interest
      (Expense)/Income, net</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Interest
      income for the year ended December 31, 2004 was $27,440 comprised of interest
      derived on the company&#8217;s operating and savings account, compared to interest
      income of $46,943 in the same period in 2003. 2004 interest income was offset
      by
      interest expense of $29,037, compared to interest expense in the same period
      in
      2003 of $32,721. This interest expense was primarily from loans from founders
      and the change was attributable to lower average principal balances to the
      loans. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Net
      Loss</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      had a
      net loss approximately $2.4 million for 2004 compared to a net loss of
      approximately $1.1 million for 2003. This net loss was attributable to both
      our
      decrease in revenue and increase in operating expenses over 2003.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Liquidity
      and Capital Resources</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Prior
      to
      the exchange transaction, VirtualScopics financed its operations through sales
      to customers, equity investments and loans by its founders, and by private
      placements of equity securities. The private placements included the issuance
      by
      VirtualScopics of series A preferred membership units in August 2001, which
      resulted in proceeds of $2.0 million, series B preferred membership units in
      June 2002, which resulted in proceeds of $2.5 million, and series C preferred
      membership units in December 2002, January 2003 and April 2003, which resulted
      in net proceeds of $4.5 million and the exercise of warrants by series A
      preferred unit holders in December 2004, which resulted in proceeds of $1.4
      million. All of these membership units were converted into shares of our common
      stock in the exchange transaction which closed on November 4, 2005.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">28</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      November 4, 2005, we closed on our private placement for the sale of 4,084.488
      shares of our newly issued series A convertible preferred stock. We received
      gross proceeds of $4,084,488 from the private placement. As of November 4,
      2005,
      including the cash proceeds from the private placement, we had approximately
      $3.6</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      million
      in cash and cash equivalents. We currently expect that existing cash and cash
      equivalents will be sufficient to fund operations for the next 12 months. If
      in
      the next 12 months our plans or assumptions change or prove to be inaccurate,
      we
      may be required to seek additional capital through public or private debt or
      equity financings. If we need to raise additional funds, we may not be able
      to
      do so on terms favorable to us, or at all. If we cannot raise sufficient funds
      on acceptable terms, we may have to curtail our level of expenditures and our
      rate of expansion.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Off
      Balance Sheet Arrangements</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      have
      no off-balance sheet arrangements, other than the consulting agreements and
      operating leases (as described in &#8220;Contractual Obligations&#8221; below) that have or
      are reasonably likely to have a current or future effect that is material to
      investors on our financial condition, revenues or expenses, results of
      operations, liquidity, capital resources or capital expenditures. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Contractual
      Obligations</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      following table summarizes our contractual obligations at December 31, 2004
      and
      the effects we expect such obligations to have on liquidity and cash flow in
      future periods.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div>&#160;</div>
      <div>
        <div>
          <table cellpadding="0" cellspacing="0" width="100%">

              <tr>
                <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
                <td width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
                <td align="left" colspan="14" valign="bottom" width="54%" style="BORDER-BOTTOM: #000000 thin solid">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Payments
                    Due by Period (in thousands)</strong></font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              </tr>
              <tr>
                <td align="left" valign="bottom" width="43%">&#160;</td>
                <td width="2%">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%">&#160;</td>
                <td align="left" valign="bottom" width="1%">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Less
                    than</strong></font></div>
                </td>
                <td align="left" valign="bottom" width="1%">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%">&#160;</td>
                <td align="left" valign="bottom" width="1%">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%">&#160;</td>
                <td align="left" valign="bottom" width="1%">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>More
                    than</strong></font></div>
                </td>
                <td align="left" valign="bottom" width="1%">&#160;</td>
              </tr>
              <tr>
                <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
                <td width="2%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%" style="BORDER-BOTTOM: #000000 thin solid">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Total</strong></font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%" style="BORDER-BOTTOM: #000000 thin solid">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>1&#160;Year</strong></font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%" style="BORDER-BOTTOM: #000000 thin solid">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>1-3&#160;Years</strong></font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%" style="BORDER-BOTTOM: #000000 thin solid">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>3-5&#160;Years</strong></font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
                <td align="left" colspan="2" valign="bottom" width="10%" style="BORDER-BOTTOM: #000000 thin solid">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>5&#160;Years</strong></font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              </tr>
              <tr bgcolor="#ccffcc">
                <td align="left" valign="bottom" width="43%" style="BORDER-BOTTOM: #ccffcc">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Operating
                    Leases</font></div>
                </td>
                <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$</font></div>
                </td>
                <td align="right" valign="bottom" width="9%" style="BORDER-BOTTOM: #ccffcc">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">241,080</font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$</font></div>
                </td>
                <td align="right" valign="bottom" width="9%" style="BORDER-BOTTOM: #ccffcc">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">179,788</font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$</font></div>
                </td>
                <td align="right" valign="bottom" width="9%" style="BORDER-BOTTOM: #ccffcc">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">61,292</font></div>
                </td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">
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                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
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                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
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                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
                <td align="right" valign="bottom" width="9%" style="BORDER-BOTTOM: #ffffff">
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                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
                <td align="right" valign="bottom" width="9%" style="BORDER-BOTTOM: #ffffff">
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                <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
              </tr>

          </table>
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div>
        <hr style="COLOR: #000000" align="left" noshade size="1" width="10%">
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="left" style="WIDTH: 6pt">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(1)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;
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            <td align="left">
              <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
                connection with one of our consulting arrangement with Dr. Felix
                Eckstein,
                we also entered into a Services and Co-Marketing Agreement dated
                March 1,
                2004, in which we agreed to pay Chondrometrics GmbH, a German limited
                liability company,&#160;fees equal to 7% of gross revenues&#160;derived
                by
                us from certain services each year throughout the term of the agreement.
                <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
                are obligated to make minimum payments to Chondrometrics for the
                first
                three years of the agreement. As such we made a payment to Chondrometrics
                of $110,700 in 2004. In 2005, the minimum payment of $75,000 was
                made.
                Additionally, we are obligated to make a minimum payment of $60,000
                for
                the period ended March 31, 2007. The agreement terminates after three
                years unless terminated earlier pursuant to the agreement </font>for the
                12-month period ended March 31,
                2005.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
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                  </font></div>
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              <td align="left">
                <div align="left">
                  <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
                    are obligated to pay Kevin Parker a consulting fee of $4,000
                    per month
                    pursuant to our consulting agreement with him. The agreement
                    may be
                    terminated by either party upon 90 days, written notice. The
                    consulting
                    agreement payments set forth in the table do not include any
                    payments that
                    may be made to Mr. Parker more than 5 years from the date of
                    this
                    report.</font></div>
                </div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Description
      of Property</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      November 2003, VirtualScopics entered into a lease agreement for 12,258 square
      feet of office space at our corporate headquarters in Rochester, New York.
      The
      annual rent under the lease is approximately $184,000. The lease is for 30
      months ending in April 2006 and is renewable for an additional two-year term.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Security
      Ownership of Certain Beneficial Owners and Management</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of November 7, 2005 by:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">each
                person who is known by us to beneficially own 5% or more of our common
                stock;</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">each
                of our directors and executive officers;
                and</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 36pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif">&#183;&#160;&#160;</font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">all
                of our directors and executive officers, as a
                group.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">29</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="bottom" width="71%" style="BORDER-BOTTOM: black thin solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Name</strong></font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: black thin solid">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black thin solid">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: black thin solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Number
                of</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Shares</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Beneficially</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Owned</strong></font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman Bold, serif"><sup><strong>(1)</strong></sup></font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: black thin solid">
            </td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black thin solid">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: black thin solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Percentage
                of</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Shares</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Beneficially</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Owned</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px" align="center"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman Bold, serif"><sup><strong>(2)</strong></sup></font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: black thin solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; MARGIN-RIGHT: 0px">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="#ccffcc">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
          </tr>
          <tr bgcolor="#ffffff">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>5%
                or Greater Stockholders:</strong></font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
          </tr>
          <tr bgcolor="#ccffcc">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
          </tr>
          <tr bgcolor="#ffffff">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">University
                of Rochester</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(3)</sup></font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4,641,975</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">19.4</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">%</font></div>
            </td>
          </tr>
          <tr bgcolor="#ccffcc">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Loeb
                Investors Company 147, LP</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(4)</sup></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4,500,564</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">19.1</font></div>
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            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">
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                Jose Tamez-Pena</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(5)</sup></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
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            <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
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            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">8.4</font></div>
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            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">%</font></div>
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            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
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            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
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              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">%</font></div>
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            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
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            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5.2</font></div>
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            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">%</font></div>
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            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
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          <tr bgcolor="#ffffff">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
          </tr>
          <tr bgcolor="#ccffcc">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Directors
                and Executive Officers:</strong></font></div>
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            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
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          <tr bgcolor="#ffffff">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
          </tr>
          <tr bgcolor="#ccffcc">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Robert
                Klimasewski </font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(4)(5)</sup></font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">39,442</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">*</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
          </tr>
          <tr bgcolor="#ffffff">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Warren
                Bagatelle</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(4)(5)</sup></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4,544,918</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">19.3</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">%</font></div>
            </td>
          </tr>
          <tr bgcolor="#ccffcc">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Molly
                Henderson, CPA</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(5)</sup></font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">104,716</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px">
                <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">*</font></div>
              </div>
            </td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px">&#160;</div>
            </td>
          </tr>
          <tr bgcolor="#ffffff">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Dr.
                Saara Totterman</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(5)</sup></font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1,186,316</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5.0</font></div>
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            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">%</font></div>
            </td>
          </tr>
          <tr bgcolor="#ccffcc">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sidney
                Knafel</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(4)(5)</sup></font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">39,442</font></div>
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            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ccffcc">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">*</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ccffcc">&#160;</td>
          </tr>
          <tr bgcolor="#ffffff">
            <td align="left" valign="bottom" width="71%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Directors
                and Executive Officers as a group (6 persons)</font></div>
            </td>
            <td width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px">
              </div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5,910,864</font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">&#160;</td>
            <td align="right" valign="bottom" width="11%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px">
              </div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">24.9</font></div>
            </td>
            <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff">
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px">
              </div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0px; TEXT-INDENT: 0px; LINE-HEIGHT: 1; MARGIN-RIGHT: 0px"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">%</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">*
      Less
      than 1% of outstanding shares of common stock</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(1)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
            <td align="left">
              <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Includes
                the conversion of all shares of series A preferred stock and the
                exercise
                of warrants to purchase common stock into common stock. Also includes
                options to purchase shares of VirtualScopics exercisable within sixty
                (60)
                days, which have been assumed by us. Each share of series A preferred
                stock is initially convertible into 400 shares of common stock at
                any
                time.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(2)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
            <td align="left">
              <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                calculation in this column is based upon 23,522,870 shares of common
                stock
                outstanding on November 7, 2005 (which assumes the conversion of
                all
                shares of series A preferred stock into common stock), plus the number
                of
                shares of common stock subject to outstanding options and warrants.
                The
                shares of common stock underlying such options and warrants are deemed
                outstanding for purposes of computing the percentage of the person
                holding
                such options but are not deemed outstanding for the purpose of computing
                the percentage of any other person.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(3)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
            <td align="left">
              <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Includes
                357,075 shares of common stock which may be purchased upon the exercise
                of
                an outstanding warrant. The address of the University of Rochester
                is
                Office of Technology Transfer, 610 Hylan Building, RC Box 270140,
                Rochester, NY 14627.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(4)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
            <td align="left">
              <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Mr.
                Bagatelle may be deemed to be the beneficial owner of the shares
                of common
                stock owned Loeb Investors Company 147, LP, a limited partnership
                in which
                he is a general partner. Messrs. Klimasewski and Knafel are limited
                partners in Loeb Investors Company 147, LP, and disclaim any beneficial
                ownership of such shares. The address for Loeb Investors Company
                147, LP
                is 61 Broadway, Suite 2400, New York, NY
                10006.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(5)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
            <td align="left">
              <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Presently
                reported ownership includes&#160;15,871, 15,871, 104,746, 44,354,
                39,442&#160;and 39,442 shares issuable under options exercisable
                within 60
                days of November 7, 2005 held by Drs. Totterman and Tamez-Pena, Ms.
                Henderson and Messrs. Bagatelle, Klimasewski and Knafel, respectively.
                The
                address of each is c/o VirtualScopics, Inc., 350 Linden Oaks, Rochester,
                NY, 14625.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(6)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
            <td align="left">
              <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                address of Pfizer, Inc. is 50 Pequot Ave., MS 6025-C4127, New London,
                Connecticut 06320.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(7)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
            <td align="left">
              <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Shares
                owned by GE Medical Systems, a Division of General Electric Company,
                with
                an address of 3000 North Grandview Blvd., Waukesha, Wisconsin
                53188.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Directors,
        Executive Officers, Promoters and Control Persons</strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        table
        below shows certain information about our directors and executive officers
        as of
        November 4, 2005:</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table cellpadding="0" cellspacing="0" width="100%">

            <tr>
              <td align="left" valign="top" width="24%" style="BORDER-BOTTOM: medium none">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><u>Name</u></strong></font></div>
              </td>
              <td valign="top" width="11%" style="BORDER-BOTTOM: medium none">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><u>Age</u></strong></font></div>
              </td>
              <td align="left" valign="top" width="37%" style="BORDER-BOTTOM: medium none">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><u>Position</u></strong></font></div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="justify" valign="top" width="24%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td valign="top" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td align="justify" valign="top" width="37%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="justify" valign="top" width="24%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Robert
                  Klimasewski</font></div>
              </td>
              <td valign="top" width="11%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">62</font></div>
              </td>
              <td align="justify" valign="top" width="37%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chief
                  Executive Officer and Director </font></div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="justify" valign="top" width="24%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td valign="top" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td align="justify" valign="top" width="37%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="top" width="24%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Warren
                  Bagatelle</font></div>
              </td>
              <td valign="top" width="11%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">67</font></div>
              </td>
              <td align="left" valign="top" width="37%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chairman
                  of the Board and Director</font></div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="top" width="24%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td valign="top" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td align="left" valign="top" width="37%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="top" width="24%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Molly
                  Henderson, CPA</font></div>
              </td>
              <td valign="top" width="11%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">34</font></div>
              </td>
              <td align="left" valign="top" width="37%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chief
                  Financial Officer and Vice President of Finance </font></div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="top" width="24%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td valign="top" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td align="left" valign="top" width="37%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="top" width="24%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Dr.
                  Saara Totterman, M.D., Ph.D.</font></div>
              </td>
              <td valign="top" width="11%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">64</font></div>
              </td>
              <td align="left" valign="top" width="37%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Director
                  </font></div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="top" width="24%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td valign="top" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td align="left" valign="top" width="37%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="top" width="24%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Mark
                  Coburn</font></div>
              </td>
              <td valign="top" width="11%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">51</font></div>
              </td>
              <td align="left" valign="top" width="37%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Director</font></div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="top" width="24%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td valign="top" width="11%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
              <td align="left" valign="top" width="37%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="top" width="24%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sidney
                  Knafel</font></div>
              </td>
              <td valign="top" width="11%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">72</font></div>
              </td>
              <td align="justify" valign="top" width="37%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Director</font></div>
              </td>
            </tr>

        </table>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">30</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Robert
      Klimasewski</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>&#160;</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">was
      named
      Chief Executive Officer of the company and was elected as a director of the
      company on November 4, 2005. He has served as Chief Executive Officer of
      VirtualScopics since June 2005 and has been a board member of VirtualScopics
      since its inception. Mr. Klimasewski served as President and Chief Executive
      Officer of Transcat, Inc. (formerly Transmation, Inc.), a publicly-held global
      distributor of professional grade test, measurement and calibration instruments,
      from 1994 to 1998, when he relinquished those titles and assumed the role of
      Chairman of the Board of Transcat. In 2002, Mr.&#160;Klimasewski stepped
      down as
      Chairman of the Board of Transcat and was re-appointed President and Chief
      Executive Officer. He served in those roles until 2004, when he retired. Mr.
      Klimasewski remains on Transcat&#8217;s board of directors. He also was a co-founder
      of Burleigh Instruments Inc., a manufacturer of precision scientific
      instrumentation, which was sold in December 2000. He served for 18 years on
      the
      board of directors of Laser Power Corporation, a publicly-held company, until
      its sale in 2000. He currently serves on the board of directors of Lumetrics,
      Inc. and The University Technology Seed Fund. He is a member of the University
      of Rochester&#8217;s Visiting Committee for the School of Engineering and Applied
      Science. Mr. Klimasewski holds B.S. and M.S. degrees in optical engineering
      from
      the University of Rochester</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>.</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Warren
      Bagatelle</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      has
      served as a director of the company since November 4, 2005, as a director of
      VirtualScopics since August 2001, as Chairman of the Board of the company since
      November 4, 2005, and as the Chairman of the Board of VirtualScopics since
      August 2002. Mr. Bagatelle has been a managing director of Loeb Partners
      Corporation since 1988, where his responsibilities include all elements of
      corporate finance. Specific activities cover identifying, financing and
      monitoring investments in small and medium size companies, providing advisory
      services on mergers, acquisitions, divestitures and restructurings, and advising
      on, managing and co-managing public offerings. Loeb Partners is a full service
      investment banking firm based in New York City. Mr. Bagatelle is a general
      partner of Loeb Investors Company 147, L.P., one of VirtualScopics&#8217; former unit
      holders and one of our stockholders. Mr. Bagatelle is also a director of
      FuelCell Energy, Inc. and Electro Energy Inc., as well as several private
      companies. He received his M.B.A. degree from Rutgers University and his B.A.
      degree in economics from Union College</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>.</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Molly
      Henderson, CPA</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      has
      served as Chief Financial Officer and Vice President of Finance of the company
      since November 4, 2005 and of VirtualScopics since May 2003. She served as
      VirtualScopics&#8217; Controller from October 2002 to May 2003. Ms.&#160;Henderson
      oversees all financial aspects of the company&#8217;s operations. She has previously
      served as the Corporate Controller of Ultralife Batteries, Inc., a publicly-held
      provider of high performance lithium battery solutions. Ms.&#160;Henderson&#8217;s
      primary functions at the company include providing strategic direction and
      overseeing all financial related matters, as well as overseeing and ensuring
      proper accounting standards of the company. Earlier in her career, she was
      a
      Manager in the audit division of PricewaterhouseCoopers LLP, and her clients
      included Bausch &amp; Lomb, Inc., Frontier Communications, Topicana and FF
      Thompson Health System. Ms. Henderson received her M.B.A. and B.S. degrees
      from
      the State University of New York at Buffalo. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Dr.
      Saara Totterman, M.D., Ph.D.</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      has
      served as a director of the company since November 4, 2005. Dr. Totterman is
      one
      of VirtualScopics&#8217; founders, has served as the Chief Medical Officer and a
      director of VirtualScopics since its inception. She is responsible for both
      setting the strategic direction for the medical research that we undertake,
      as
      well as ensuring thorough medical oversight for all the clinical programs that
      the company conducts. Prior to founding VirtualScopics, she served as the
      director of the MR Center at the University of Rochester Medical Center having
      full responsibility for the operation of the center with profit and loss
      oversight for $35 million in annual revenues. Dr. Totterman is internationally
      recognized as an authority in musculoskeletal CT and MRI, having over 100
      publications in peer-reviewed journals and making over 120 presentations at
      international meetings. She has also contributed to the writing of 11 book
      chapters and is a reviewer for </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Radiology</em></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
      the
      highest ranked radiological journal in the world, for which she has won several
      awards. Dr. Totterman&#8217;s main research concentration has been MR imaging
      technology development and image segmentation, which have formed the foundation
      for its technology. She has extensive experience in multidisciplinary research,
      collaborating with engineering and physics scientists and is frequently sought
      out as an advisor to the pharmaceutical industry. She received her M.D. degree
      at the University of Oulu, Finland, her Ph.D. in medicine at the University
      of
      Bergen, Norway and her B.A. degree in medicine from the University of Oulu,
      Finland. </font></div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        </div>
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    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Mark
      Coburn</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      has
      served as a director of the company since November 4, 2005 and of VirtualScopics
      since December 2000. He is Associate Provost and Director of the Office of
      Technology Transfer at the University of Rochester. He is formerly the President
      of the Research Foundation of the University of Rochester, one of
      VirtualScopics&#8217; former unit holders and one of our shareholders. Earlier in his
      career, Mr. Coburn served as Deputy Director in the Contracts and Grants Office
      at the University of Southern California and Director/Patent Coordinator in
      the
      Office of Sponsored Projects at the University of California, Santa Cruz. Mr.
      Coburn has had professional affiliations serving as President of the Society
      of
      Research Administrators (SRA), Western Section and Co-Chair of the SRA
      International Annual Meeting. Mr. Coburn serves as a Director of RTek Medical
      Systems, LLC and is a member of the Association of University Technology
      Managers. Mr. Coburn holds a B.A. degree in zoology from Miami University (Ohio)
      and a M.S. degree in technology management from the Gradzio Graduate School
      of
      Business at Pepperdine University.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Sidney
      Knafel</em></strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      has
      served as a director of the company since November 4, 2005 and of VirtualScopics
      since August 2001. Mr. Knafel is presently the managing partner of SRK
      Management Company, a private investment company. He also serves as Chairman
      of
      BioReliance Corporation, a biological testing company, and Chairman of Insight
      Communications Company, a cable communications company. Mr. Knafel is a director
      of IGENE Biotechnology, Inc. and General American Investors Company, Inc. as
      well as several private companies. He is a graduate of Harvard College and
      the
      Harvard Graduate School of Business Administration. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Director
      Compensation</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      intend
      to pay each non-management director a participation fee of $500 for each regular
      and special meeting of our board of directors attended and to award each such
      director stock options granted under our 2004 Non-Statutory Stock Option Plan.
      VirtualScopics compensated its directors solely through options granted under
      its Long-Term Incentive Plan. Our board of directors will review director
      compensation annually and adjust it according to then current market conditions
      and good business practices. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>2004
      Non-Statutory Stock Option Plan</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the September 13, 2004 board of directors' approval and subsequent
      stockholder approval, we adopted our </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2004
      Non-Statutory Stock Option Plan</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      (the
      "2004 Plan"). We have reserved for issuance up to 1,500,000 shares of our common
      stock for non-statutory stock options that may be granted under the 2004 Plan.
      Non-statutory stock options do not meet certain requirements of the Internal
      Revenue Service as compared to incentive stock options which meet the
      requirements of Section 422 of the Internal Revenue Code. Nonqualified options
      have two disadvantages compared to incentive stock options. One is that
      recipients have to report taxable income at the time that they exercise the
      option to buy stock, and the other is that the income is treated as
      compensation, which is taxed at higher rates than long-term capital gains.
      As of
      November 4, 2005, no options were outstanding under the 2004 Plan.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      purpose of the 2004 Plan is to provide directors, officers and employees of,
      as
      well as consultants, attorneys and advisors to, </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
      company</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      and its
      subsidiaries, if any, with additional incentives by increasing their ownership
      interest in </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
      company.</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;&#160;Directors,
      officers and other employees of </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
      company </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">and
      its
      subsidiaries are eligible to participate in the 2004 Plan. Options in the form
      of Non-Statutory Stock Options ("NSO") may also be granted to directors who
      are
      not employed by us and consultants, attorneys and advisors to us providing
      valuable services to us and our subsidiaries. In addition, individuals who
      have
      agreed to become an employee of, director of or an attorney, consultant or
      advisor to us and/or our subsidiaries are eligible for option grants,
      conditional in each case on actual employment, directorship or attorney, advisor
      and/or consultant status. The 2004 Plan provides for the issuance of NSO's
      only,
      which are not intended to qualify as "incentive stock options" within the
      meaning of Section 422 of the Internal Revenue Code, as amended. Further, NSO's
      have two disadvantages compared to ISO's in that recipients of NSOs must report
      taxable income at the time of NSO option exercise and income from NSO's is
      treated as compensation which is taxed at higher rates than long-term capital
      gains.</font></div>
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        </div>
      </div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
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    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      board
      of directors or a compensation committee (once established) will administer
      the
      Plan with the discretion generally to determine the terms of any option grant,
      including the number of option shares, exercise price, term, vesting schedule
      and the post-termination exercise period.&#160;&#160;Notwithstanding this
      discretion (i) the term of any option may not exceed 10 years and (ii) an option
      will terminate as follows: (a) if such termination is on account of termination
      of employment for any reason other than death, without cause, such options
      shall
      terminate one year thereafter; (b) if such termination is on account of death,
      such options shall terminate 15 months thereafter; and (c) if such termination
      is for cause (as determined by the board of directors and/or compensation
      committee), such options shall terminate immediately. Unless otherwise
      determined by the board of directors or compensation committee, the exercise
      price per share of common stock subject to an option shall be equal to no less
      than 10% of the fair market value of the common stock on the date such option
      is
      granted. No NSO shall be assignable or otherwise transferable except by will
      or
      the laws of descent and distribution or except as permitted in accordance with
      SEC Release No. 33-7646 as effective April 7, 1999.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      2004
      Plan may be amended, altered, suspended, discontinued or terminated by the
      board
      of directors without further stockholder approval, unless such approval is
      required by law or regulation or under the rules of the stock exchange or
      automated quotation system on which the common stock is then listed or quoted.
      Thus, stockholder approval will not necessarily be required for amendments
      which
      might increase the cost of the 2004 Plan or broaden eligibility except that
      no
      amendment or alteration to the 2004 Plan shall be made without the approval
      of
      stockholders which:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

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            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">would
                decrease the NSO price (except as provided in the 2004
                Plan),</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 72pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif"><strong><em>&#183;&#160;&#160;</em></strong></font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">change
                the classes of persons eligible to participate in the Plan,
                </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 72pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif"><strong><em>&#183;&#160;&#160;</em></strong></font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">extend
                the NSO period, or materially increase the benefits accruing to Plan
                participants,</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 72pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif"><strong><em>&#183;&#160;&#160;</em></strong></font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">materially
                modify Plan participation eligibility requirements,
                or</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table cellpadding="0" cellspacing="0" id="list" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td align="right" style="WIDTH: 72pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Symbol, serif"><strong><em>&#183;&#160;&#160;</em></strong></font></td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">extend
                the expiration date of the Plan.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Unless
      otherwise indicated the Plan will remain in effect for a period of ten years
      from the date adopted unless terminated earlier by the board of directors except
      as to NSOs then outstanding, which shall remain in effect until they have
      expired or been exercised.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>VirtualScopics,
      LLC 2005 Long Term Incentive Plan</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At
      the
      time of the exchange transaction closed, VirtualScopics maintained the
      VirtualScopics LLC 2005 Long-Term Incentive Plan and the VirtualScopics, LLC
      2001 Long-Term Incentive Plan. The purpose of these plans was to allow
      VirtualScopics employees, directors, consultants and strategic partners to
      participate in VirtualScopics&#8217; growth and to generate an increased incentive for
      these persons to contribute to VirtualScopics&#8217; future success and prosperity and
      to focus on its growth. Employees, directors, consultants and strategic partners
      were all eligible to receive awards under the plans. The plans are administered
      by the board of directors of VirtualScopics. As of the closing of the
      VirtualScopics had outstanding under these plans options to purchase 2,568,422
      common units granted to employees and executives and options to purchase 210,000
      common units granted to directors at exercise prices ranging from $0.70 per
      unit
      to $2.25 per unit. On November 4, 2005, the board of directors of VirtualScopics
      resolved not to issue any more options under these plans. Pursuant to the
      Securities Exchange Agreement, we have agreed to issue shares of our common
      stock upon the exercise of these warrants and options in lieu of membership
      units previously issuable thereunder. Based upon the exchange ratio used for
      the
      exchange transaction, we are obligated upon the exercise of these options to
      issue 2,339,990 shares of our common stock</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
      We have
      reserved sufficient shares for these options.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
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    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Executive
      Compensation</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br>
      <div>
        <table cellpadding="0" cellspacing="0" width="100%">

            <tr>
              <td align="left" valign="bottom" width="16%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="7%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td align="left" colspan="3" valign="bottom" width="19%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ANNUAL
                  COMPENSATION</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
              <td align="left" colspan="5" valign="bottom" width="35%" style="BORDER-BOTTOM: #000000 thin solid">
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                  COMPENSATION</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">&#160;</td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Number
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              <td align="left" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Bonus
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Securities</font></div>
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              <td align="left" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Other
                  Annual</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Stock</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Underlying</font></div>
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              <td align="left" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">All
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Name
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              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Year</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Salary</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Compensation</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Award(s)</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Options/SARs</font></div>
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              <td align="left" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Compensation</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="16%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">
                  <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Position</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Ended(1)</font></div>
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              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="6%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">($)</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">($)</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="8%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">($)</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(#)</font></div>
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              <td align="left" valign="bottom" width="2%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%" style="BORDER-BOTTOM: #000000 thin solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">($)</font></div>
              </td>
              <td align="left" valign="bottom" width="1%" style="BORDER-BOTTOM: #ffffff solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Robert
                  Klimasewski</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2004</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
              </td>
              <td align="left" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Director
                  and CEO (1)</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2003</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="left" valign="bottom" width="16%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="7%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="6%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="12%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="8%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="12%">&#160;</td>
              <td align="left" valign="bottom" width="2%">&#160;</td>
              <td align="right" valign="bottom" width="12%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
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              <td align="left" valign="bottom" width="16%">
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2004</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">18,900</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Chief
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2003</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">209,998</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">23,805</font></div>
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              <td align="left" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(3)</font></div>
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              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2002</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">169,231</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="16%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="7%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="6%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="12%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="8%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
              <td align="right" valign="bottom" width="12%">&#160;</td>
              <td align="left" valign="bottom" width="2%">&#160;</td>
              <td align="right" valign="bottom" width="12%">&#160;</td>
              <td align="left" valign="bottom" width="1%">&#160;</td>
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            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Edward
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2004</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">127,782</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">11,134</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="2%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr bgcolor="#ffffff">
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2003</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="6%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">123,714</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">23,806</font></div>
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              <td align="left" valign="bottom" width="2%">
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              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
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            <tr bgcolor="#ccffcc">
              <td align="left" valign="bottom" width="16%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
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              </td>
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              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="right" valign="bottom" width="12%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#8212;</font></div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
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              </td>
              <td align="right" valign="bottom" width="12%">
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              </td>
              <td align="left" valign="bottom" width="1%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
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        </table>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">
      <div>
        <hr style="COLOR: #000000" align="left" noshade size="1" width="10%">
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br>
      <div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.3; MARGIN-RIGHT: 0pt" align="left">
          <div>
            <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

                <tr valign="top" style="LINE-HEIGHT: 1">
                  <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(1)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
                  <td align="left">
                    <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Mr.
                      Klimasewski was elected CEO of VirtualScopics in June 2005.
                      He will be
                      compensated by the company in stock options. <font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                      Board of Directors of the Company granted to Mr. Klimasewski
                      an option to
                      purchase 350,000 shares of our common stock at $2.50 per share
                      pursuant to
                      the terms of a new long-term incentive plan to be adopted by
                      the Company
                      subject to approval by the Company and
                      stockholders.</font></font></div>
                  </td>
                </tr>

            </table>
          </div>
        </div>
      </div>
      <div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.3; MARGIN-RIGHT: 0pt" align="left">
          <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
          <div>
            <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

                <tr valign="top" style="LINE-HEIGHT: 1">
                  <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(2)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
                  <td align="left">
                    <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Mr.
                      Schreyer resigned his position at VirtualScopics in August
                      2004.</font></div>
                  </td>
                </tr>

            </table>
          </div>
        </div>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div>
        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.3; MARGIN-RIGHT: 0pt" align="left">
          <div>
            <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

                <tr valign="top" style="LINE-HEIGHT: 1">
                  <td align="left" style="WIDTH: 6pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(3)<font id="TAB2" style="LETTER-SPACING: 6pt">&#160;&#160;&#160;</font>&#160;</font></td>
                  <td align="left">
                    <div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">These
                      options were granted pursuant to VirtualScopics&#8217; long-term incentive
                      plans. Pursuant to the Securities Exchange Agreement, we have
                      agreed to
                      issue shares of our common stock upon the exercise of these
                      options in
                      lieu of VirtualScopics membership units previously issuable
                      thereunder.
                      Based upon the exchange ratio used for the exchange transaction,
                      we are
                      obligated upon the exercise of these options to issue the number
                      of shares
                      of our common stock set forth in the table to Mr. Klimasewski,
                      Dr.
                      Totterman and Mr. Schreyer, respectively.
</font></div>
                  </td>
                </tr>

            </table>
          </div>
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Certain
      Relationships and Related Transactions</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Consulting
      Services from Dr. Kevin Parker</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Since
      his
      resignation as VirtualScopics&#8217; President and Chief Executive Officer in July
      2002, Dr. Kevin Parker has provided VirtualScopics with consulting and business
      advisory services, including advice in connection with VirtualScopics&#8217; patent
      filings. Under this arrangement VirtualScopics has paid Mr. Parker $4,000 per
      month for his services. We intend to continue this arrangement for the
      foreseeable future.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Pfizer
      Clinical Imaging and Services Agreement</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Concurrently
      with Pfizer&#8217;s equity investment in VirtualScopics in June 2002, VirtualScopics
      entered into a Clinical Imaging and Services Agreement with Pfizer. This
      agreement was renewed for a two-year period commencing August 2005. The
      agreement is intended to assist VirtualScopics in further developing and
      validating its image analysis software and image-based biomarkers through
      testing by Pfizer. The agreement may be extended for two additional one-year
      terms at the end of the current two-year term. Pfizer may terminate the
      agreement for any or no reason on 30 days&#8217; advance notice.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Acquisition
      of Intellectual Property from University of Rochester</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      June
      2002, VirtualScopics completed the acquisition from the University of Rochester
      of the intellectual property that underpins our image analysis tools for $1.5
      million in cash and a warrant to purchase 375,000 VirtualScopics common units
      for $.70 per unit. VirtualScopics purchased all the University&#8217;s right, title
      and interest in certain patents, provisional patent applications, patent
      applications and rights associated therewith relating to the systems and methods
      used in its image analysis tools. The warrant issued in the transaction was
      exercisable for ten years from the date of grant. The University assigned the
      warrant it purchased in the transaction to its affiliate, the Research
      Foundation of the University of Rochester. The Research Foundation owns
      4,500,000 shares of our common stock. Additionally, Mark Coburn, a director
      of
      the company and of VirtualScopics, is the former President of the Research
      Foundation and currently one of its directors. He is also Director of the
      University&#8217;s Office of Technology Transfer, the office that administered the
      technology and negotiated the transaction on behalf of the University. Prior
      to
      the acquisition, VirtualScopics had an exclusive license to use this technology
      from the University of Rochester under a license agreement dated December 13,
      2000, and amended as of May 18, 2001. Under the terms of the warrant, the
      University of Rochester, is entitled to purchase 357,079 shares</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">of
      our
      common stock for $.70</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>.</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">34</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Following
      the transaction, the University paid $90,000, net of taxes, to Dr. Saara
      Totterman, $90,000, net of taxes, to Dr. Kevin Parker, $30,000, net of taxes,
      to
      Dr. Edward Ashton, and $150,000, net of taxes, to Dr. Jose Tamez-Pena out of
      the
      proceeds the University received from the sale as payment for their services
      in
      developing the technology as employees of the University. In November 2002,
      VirtualScopics entered into agreements with these persons to loan to
      VirtualScopics the net proceeds they received from the University after taxes.
      Specifically, VirtualScopics issued promissory notes to these persons in the
      following amounts: Dr. Jose Tamez-Pena, $150,000; Dr. Kevin Parker, $90,000;
      Dr.
      Saara Totterman, $90,000; and Dr. Edward Ashton, $30,000. The unpaid principal
      and interest under the notes is paid quarterly ending on March 31, 2008 at
      an
      interest rate of 5.75% per year. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>MRI
      Machine</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      December 2002, VirtualScopics received an investment of $2,450,000 from GE
      Medical Systems for 1,088,889 of VirtualScopics&#8217; series C preferred units. These
      units were converted into shares of our common stock. Upon receipt of the
      proceeds of this investment, VirtualScopics purchased an MRI machine from this
      investor for $2,300,000. During 2003, the equipment was sold to the University
      of Rochester, a related party, for $2,300,000. As of December 31, 2003,
      VirtualScopics had received $1,000,000 of the payment from the University of
      Rochester with the remaining $250,000 to be received upon acceptance of the
      equipment. Additionally, VirtualScopics retained the right to use the machine
      exclusively one day a week for the next seven years. The advanced use of the
      equipment of $1,050,000 was recorded as a deferred asset on the balance sheet
      as
      of December 31, 2004 and will be amortized over the life of the agreement (seven
      years) once the equipment was accepted by VirtualScopics in April 2004. The
      equipment will be used by us for research and to broaden our ability to service
      our customers.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Matrix
      USA, LLC</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Mr.&#160;Bagatelle,
      the Chairman of VirtualScopics, and his spouse currently hold non-controlling
      interests in Matrix USA, LLC, a registered broker-dealer. Matrix USA acted
      as
      sub-agent to our placement agent in the private placement we completed
      concurrently with the exchange transaction. As a result of these services,
      Matrix USA received commissions of $62,200 and four-year warrants to purchase
      31,100 shares of our common stock.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Redemption
      of Shares From Former President</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Concurrent
      with the closing of the exchange transaction and the private placement, we
      redeemed 70,537,500 shares of our common stock from our former directors, Edward
      A. Sundberg and Lindsay Sundberg, for aggregate consideration of $200 and then
      cancelled those shares at the closing of the exchange transaction.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Former
      ConsultAmerica Transactions</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Prior
      to
      the closing of the exchange transaction we operated out of office space located
      at 13070 Addison Rd., Roswell, GA &#160;30075 provided to us by our former
      President at no cost. There was no written lease agreement. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During
      the years ended August 31, 2005 and 2004, substantially all of our revenue
      was
      associated with engagements with entities affiliated with our former President.
      The portion of proceeds attributable to us from these engagements was determined
      solely by our former President and was not the result of any independent
      negotiation. We have no commitments for future engagements with any of these
      entities. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Description
      of Securities</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Units</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Except
      for the warrants that were issued to our placement agent and sub-agents, we
      sold
      the series A preferred stock and warrants in the private placement as Units.
      Each Unit consists of one share of series A preferred stock and a warrant to
      purchase 200 shares of our common stock. The series A preferred stock and the
      warrants are detachable and separately transferable.</font></div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">35</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
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        <div id="GLHDR" style="WIDTH: 100%" align="right">
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Series
      A Preferred Stock</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>General</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      are
      authorized to issue 8,500 shares of series A preferred stock. Currently
      4,084.488 shares of series A preferred stock are outstanding. The following
      description of our series A Preferred Stock is qualified in its entirety by
      reference to the Certificate of Incorporation filed as Exhibit 3.1 to this
      report (by incorpopration by reference) and to our Certificate of Designation
      fixing the rights, powers and privileges of the series A preferred stock, a
      copy
      of which is filed as Exhibit 3.2 filed with this report.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Conversion</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Holders
      of our series A preferred stock are entitled at any time to convert their shares
      of series A preferred stock into our common stock, without any further payment
      therefor. Each share of our series A preferred stock is initially convertible
      into 400 shares of our common stock. The number of shares of our common stock
      issuable upon conversion of our series A preferred stock is subject to
      adjustment upon the occurrence of certain events, including, among others,
      a
      stock split, reverse stock split or combination of our common stock; an issuance
      of common stock or our other securities as a dividend or distribution on our
      common stock; a reclassification, exchange or substitution of our common stock;
      a capital reorganization of us; and if we sell shares of our common stock,
      or
      any stock options, warrants, convertible securities or other rights to purchase
      or acquire shares of our common stock, subject to certain exceptions, below
      $2.50 per share. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Merger</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Upon
      a
      merger or consolidation of the company with or into another company, or any
      transfer, sale or lease by us of substantially all of our common stock or
      assets, our series A preferred stock will be treated as common stock for all
      purposes, including the determination of any assets, property or stock to which
      holders of our series A preferred stock are entitled to receive, or into which
      our series A preferred stock is converted, by reason of the consummation of
      such
      merger, consolidation, sale or lease.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Voting
      Rights</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Holders
      of our series A preferred stock are entitled to vote their shares on an
      as-converted to common stock basis, and shall vote together with the holders
      of
      our common stock, and not as a separate class. Holders of our series A preferred
      stock shall also have all voting rights to which they are entitled by Delaware
      law.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Liquidation
      Rights</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      the
      event of any voluntary or involuntary liquidation, dissolution or winding-up
      of
      the company, holders of our series A preferred stock will be entitled to receive
      out of assets available for distribution to our shareholders, before any
      distribution is made to holders of our common stock, liquidating distributions
      in an amount equal to $1,000 per share or series A preferred stock. After
      payment of the full amount of the liquidating distributions to which the holders
      of the series A preferred stock are entitled, holders of the series A preferred
      stock will receive liquidating distributions pro rata with holders of our common
      stock, based on the number of shares of our common stock into which the series
      A
      preferred stock is convertible at the conversion rate then in effect.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Redemption</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      may
      not redeem our series A preferred stock at any time.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Dividends</em></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Holders
      of our series A preferred stock are not entitled to receive dividends.
</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Discussion
      of the terms of our series A Preferred Stock in this report is qualified
      entirely by reference to our Certificate of Designation attached to this report
      as Exhibit 3.2, which we filed with the Delaware Secretary of State on November
      4, 2005. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">36</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Common
      Stock</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      holders of our common stock are entitled to one vote per share. Our Certificate
      of Incorporation does not provide for cumulative voting. The holders of our
      common stock are entitled to receive dividends, if any, as may be declared
      by
      our board of directors out of legally available funds on a pro-rata basis.
      The
      company, however, has not declared or paid dividends on its common stock and
      the
      current policy of our board of directors is to retain earnings, if any, for
      the
      operation and expansion of the company. Upon liquidation, dissolution or
      winding-up of the company, the holders of our common stock are entitled to
      share
      ratably in all assets of the company that are legally available for
      distribution, after payment of or provision for all liabilities and the
      liquidation preference of any outstanding series A preferred stock. The holders
      of our common stock have no preemptive, subscription, redemption or conversion
      rights.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Warrants</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Each
      warrant issued to investors in the private placement entitles the holder thereof
      to purchase 200 shares of our common stock at the exercise price of $4.00 per
      share from the date of issuance until the fourth anniversary thereof. The
      warrants may not be redeemed by us at any time. If we issue any shares of our
      common stock or common stock equivalents for less than $2.50 per share, subject
      to certain exceptions, then the exercise price of each warrant will be adjusted
      to equal 160% of the price per share at which we issue our common stock or
      common stock equivalents. Additionally, the warrants contain provisions that
      protect the holders against dilution by adjustment of the purchase price in
      certain events, such as stock dividends, stock splits and other similar events.
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Placement
      Agent Warrants</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      issued
      warrants to our placement agent and its sub-agents for the purchase of up to
      163,380 shares of common stock. These warrants contain the same terms as those
      issued to investors in our private placement but have an exercise price of
      $2.50
      per share without any adjustment for future issuances of our common stock or
      common stock equivalents at a lower offering price and contain cashless exercise
      provisions. In addition, these warrants have registration rights that are the
      same as those granted to investors in the private placement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">None
      of
      our outstanding warrants confer upon holders any voting or any other rights
      as a
      stockholder of the company.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">This
      description of the warrants in this report is qualified entirely by reference
      to
      the forms of the warrant attached to this report as Exhibits 4.1 and
      4.2.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Transfer
      Agent</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      transfer agent for our common stock is Continental Stock Transfer, New York,
      New
      York. We act as our own transfer agent for the series A convertible preferred
      stock and the warrants.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Market
      Price of and Dividends on Common Equity and Related Stockholder
      Matters</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Market
      Price of Common Stock</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Immediately
      prior to the closing of the exchange transaction, our corporate name was
      ConsultAmerica, Inc. and our common stock was quoted on the OTC Bulletin Board
      under trading symbol &#8220;CSAA.OB.&#8221; Concurrently with the exchange transaction we
      changed our name to VirtualScopics, Inc. and our trading symbol to &#8220;VSCP.OB.&#8221;
      There, however, has been no active public market for our common stock, and
      an
      active public market may not develop or be sustained. As soon as practicable,
      and assuming we satisfy all necessary initial listing requirements, we intend
      to
      apply to list our common stock on the American Stock Exchange or the Nasdaq
      Capital Market. No assurance can be given that we will satisfy the initial
      listing requirements, or that our shares of common stock will ever be listed
      on
      those trading markets.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Units, the series A preferred stock and the warrants will not be registered
      or
      listed for trading.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
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        </div>
      </div>
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        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">37</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong><em>Dividends
      on Common Equity</em></strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      holders of our common stock are entitled to receive dividends, if any, as may
      be
      declared by our board of directors out of legally available funds on a pro-rata
      basis. The company, however, has not declared or paid dividends on its common
      stock and the current policy of our board of directors is to retain earnings,
      if
      any, for the operation and expansion of the company. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Legal
      Proceedings</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Neither
      we nor VirtualScopics is currently a party to any pending or threatened
      litigation. In the summer of 2005, VirtualScopics&#8217; former chief executive
      officer and president made a demand for severance payments alleged by him to
      be
      due in connection with his termination in the approximate amount of $230,000
      and
      certain options. VirtualScopics believes the claim is without merit and intends
      to vigorously defend against the claim.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Indemnification
      of Directors and Officers</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      Certificate of Incorporation provides that no director of the company will
      be
      personally liable to the company or our stockholders for monetary damages for
      breach of fiduciary duty as a director, except for liability (i) for any breach
      of the director&#8217;s duty of loyalty to the company or our stockholders, (ii) for
      acts or omissions not in good faith or which involve intentional misconduct
      or a
      knowing violation of law, (iii) under Section 174 of the General Corporation
      Law
      of the State of Delaware, or (iv) for any transaction from which the director
      derived an improper personal benefit. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">VirtualScopics&#8217;
      operating agreement provides that VirtualScopics will indemnify, defend and
      hold
      harmless each member of its board of directors and each officer (and the heirs,
      beneficiaries and legal representatives of each of the foregoing) from and
      against any and all actual or alleged losses, claims, damages, liabilities,
      costs and/or expenses of any nature whatsoever, except if a judgment or other
      final adjudication adverse to a director and or officer establishes (i) that
      his
      acts were committed in bad faith or were the result of active and deliberate
      dishonesty and were material to the cause of action so adjudicated, or (ii)
      that
      he personally gained in fact a financial profit or other advantage to which
      he
      was not legally entitled. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      disclosure set forth under Item 9.01 of this report is incorporated by reference
      into this Item. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>ITEM
      3.02 - UNREGISTERED SALES OF EQUITY SECURITIES</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>The
      Private Placement</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Concurrently
      with the closing of the exchange transaction, we completed the sale of 4,084.488
      units in a private placement to accredited investors pursuant to the terms
      of a
      Confidential Private Placement Memorandum, dated October 3, 2005, as
      supplemented. Each unit consists of one share of our series A convertible
      preferred stock, par value $.001 per share, and a detachable, transferable
      warrant to purchase shares of our common stock, at a purchase price of $1,000
      per unit. Each share of series A preferred stock is initially convertible into
      400 shares of our common stock at any time. Each warrant entitles the holder
      to
      purchase 200 shares of our common stock at an exercise price of $4.00 per share
      through November 4, 2009. We received gross proceeds of $4,084,488 from the
      sale
      of these units.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      private placement was made solely to &#8220;accredited investors,&#8221; as that term is
      defined in Regulation D under the Securities Act of 1933, as amended, or the
      Securities Act. None of the units, warrants or the series A preferred stock,
      or
      shares of our common stock underlying such securities were registered under
      the
      Securities Act, or the securities laws of any state, and were offered and sold
      in reliance on the exemption from registration afforded by Section 4(2) and
      Regulation D (Rule 506) under the Securities Act and corresponding provisions
      of
      state securities laws, which exempts transactions by an issuer not involving
      any
      public offering.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Brookshire
      Securities Corporation, or Brookshire, served as the lead placement agent in
      connection with the private placement. Brookshire received a cash fee in the
      aggregate of $130,689, and for the payment of $10.00, received four-year
      warrants to purchase 63,175 shares of our common stock at an exercise price
      of
      $2.50 per share on terms which are identical to those warrants included in
      the
      units except that they do not provide for an exercise price adjustment if there
      is a future offering of our common stock or common stock equivalents below
      $2.50
      per share and contain a cashless exercise provision. In addition, the warrants
      have registration rights that are the same as those afforded to investors in
      the
      private placement.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sovereign
      Bancorp. served as advisor to VirtualScopics on the structuring and execution
      of
      the exchange transaction. In connection with the identification and structuring
      of the exchange transaction, and effective as of the closing of the exchange
      transaction, we paid to Sovereign Bancorp $133,869. Sovereign Bancorp, for
      the
      payment of $10.00, also received four-year warrants to purchase 69,104 shares
      of
      our common stock at an exercise price of $2.50 per share on terms which are
      identical to the warrants issued to Brookshire. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      also
      paid actual, reasonable and necessary out-of-pocket expenses incurred by the
      Brookshire and Sovereign Bancorp., including, but not limited to, legal,
      accounting, printing, delivery and travel costs, of $56,167. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Matrix
      USA, LLC, acted as a sub-agent in the private placement. Matrix received $62,200
      as commission and</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
      for the
      payment of $10.00, also received four-year warrants to purchase </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">31,100
      </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">shares
      of
      our common stock at an exercise price of $2.50 per share on terms which are
      identical to the warrants issued to Brookshire</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      shares of our common stock and options to purchase our common stock issued
      to
      former holders of VirtualScopics common and preferred membership units, warrants
      and options in connection with the exchange transaction, and the shares of
      our
      series A preferred stock and warrants issued in the private placement, were
      exempt from registration under the Securities Act pursuant to Section 4(2)
      and/or Regulation D (Rule 506) thereof. We made this determination based on
      the
      representations of the persons obtaining such securities which included, in
      pertinent part, that such persons were &#8220;accredited investors&#8221; within the meaning
      of Rule 501 of Regulation D promulgated under the Securities Act, and that
      such
      persons were acquiring such securities for investment purposes for their own
      respective accounts and not as nominees or agents, and not with a view to the
      resale or distribution, and that each such persons understood such securities
      may not be sold or otherwise disposed of without registration under the
      Securities Act or an applicable exemption therefrom.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Thus,
      such securities may not be offered or sold in the United States absent
      registration or an applicable exemption from the registration requirements
      and
      certificates evidencing such shares contain a legend stating the
      same.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>ITEM
      4.01 - CHANGES IN REGISTRANT&#8217;S CERTIFYING ACCOUNTANT</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      November 4, 2005, upon the closing of the exchange transaction, we terminated
      Most &amp; Company, LLP, or Most, as our independent registered public
      accounting firm. Most audited our financial statements for the fiscal year
      ended
      August 31, 2005. The reason for the replacement of Most &amp; Co., LLP was that,
      following the exchange transaction, the former members of VirtualScopics own
      a
      majority of the outstanding shares of our common stock. VirtualScopics is our
      primary business unit, and the current independent registered public accountants
      of VirtualScopics is the firm of Marcum &amp; Kliegman LLP. We believe that it
      is in our best interest to have Marcum &amp; Kliegman LLP continue to work with
      our business, and we therefore retained Marcum &amp; Kliegman LLP as our new
      independent registered public accounting firm effective as of November 4, 2005.
      Marcum &amp; Kliegman LLP is located at 655 Third Avenue, 16th Floor, New York,
      New York 10017.</font><a name="fis_financial_statements_and_exhibits"/></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      appointment of Marcum &amp; Kliegman LLP was recommended and approved by our
      board of directors. During our two most recent fiscal years, and the subsequent
      interim periods, prior to June 30, 2005, we did not consult Marcum &amp;
      Kliegman LLP regarding either: (i) the application of accounting principles
      to a
      specified transaction, completed or proposed, or the type of audit opinion
      that
      might be rendered on the Company&#8217;s financial statements, or (ii) any matter that
      was either the subject of a disagreement as defined in Item 304(a)(1)(iv) of
      Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of
      Regulation S-K.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Most&#8217;s
      report on our financial statements for the fiscal year ended August 31, 2005
      did
      not contain any adverse opinion or disclaimer of opinion and was not qualified
      as audit scope or accounting principles, however such year-end report did
      contain a modification paragraph that expressed substantial doubt about our
      ability to continue as a going concern. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During
      the most recent fiscal year ended August 31, 2005, (i) there were no
      disagreements between us and Most on any matter of accounting principles or
      practices, financial statement disclosure or auditing scope or procedure which,
      if not resolved to the satisfaction of Most, would have caused Most to make
      reference to the subject matter of the disagreement in connection with its
      reports and (ii) there were no &#8220;reportable events,&#8221; as described in Item
      304(a)(1)(iv) of Regulation S-B of the Securities Exchange Act of 1934, as
      amended, or the Exchange Act. The decision to replace Most was not the result
      of
      any disagreement between us and Most on any matter of accounting principle
      or
      practice, financial statement disclosure or audit procedure. Our board of
      directors deemed it in our best interest to change independent auditors
      following the closing of the exchange transaction.</font></div>
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    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We
      furnished Most with a copy of this report prior to filing this report with
      the
      SEC. We also requested that Most furnish a letter addressed to the SEC stating
      whether it agrees with the statements made in this report. A copy of Most&#8217;s
      letter to the SEC is filed with this report as Exhibit 16.1.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br>&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>ITEM
      9.01 - FINANCIAL STATEMENTS AND EXHIBITS</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(a)</strong></font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Financial
      Statements of Businesses Acquired</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      financial statements of VirtualScopics for the six months ended June 30, 2005
      and 2004 (unaudited) and for the years ended December 31, 2004 and December
      31,
      2003 are incorporated herein by reference to Exhibits 99.1, and 99.2 to this
      report.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(b)</strong></font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Pro
      Forma Financial </strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Information</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our
      unaudited pro forma condensed combined financial statements as of and for the
      six months ended June 30, 2005 and the year ended December 31, 2004 are
      incorporated herein by reference to Exhibit 99.3 to this report, and are based
      on the historical financial statements of the company and VirtualScopics after
      giving effect to the exchange transaction. The unaudited pro forma combined
      condensed balance sheet as of June 30, 2005 is presented to give effect to
      the
      exchange transaction as if it occurred on January 1, 2005 and, due to different
      fiscal period-ends, combines the historical balance sheet of VirtualScopics
      at
      June 30, 2005 and the historical balance sheet of ConsultAmerica at August
      31,
      2005. The unaudited pro forma combined condensed statement of operations of
      VirtualScopics and the company for the six months ended June 30, 2005 and the
      year ended December 31, 2004 are presented as if the combination had taken
      place
      on January 1, 2005.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      accordance with Statement of Financial Accounting Standards No. 141, &#8220;Business
      Combinations&#8221; (SFAS 141), and the assumptions and adjustments described in the
      accompanying notes to the unaudited pro forma combined condensed financial
      statements, VirtualScopics is considered the accounting acquiror. Because
      VirtualScopics&#8217; owners as a group retained or received the larger portion of the
      voting rights in the combined entity and VirtualScopics&#8217; senior management
      represents a majority of the senior management of the combined entity,
      VirtualScopics was considered the acquiror for accounting purposes and will
      account for the exchange transaction as a reverse acquisition. The acquisition
      will be accounted for as the recapitalization of VirtualScopics since, at the
      time of the acquisition, we were an inactive shell company. Our fiscal year
      will
      end on December 31.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Reclassifications
      have been made to the company&#8217;s historical financial statements to conform to
      VirtualScopics&#8217; historical financial statement presentation.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      unaudited pro forma combined condensed financial statements should be read
      in
      conjunction with &#8220;Management&#8217;s Discussion and Analysis or Plan of Operation&#8221; set
      forth under Item 2.01 of this report, which disclosure is incorporated herein
      by
      reference, and the historical consolidated financial statements and accompanying
      notes of VirtualScopics and the company. The unaudited pro forma combined
      condensed financial statements are not intended to represent or be indicative
      of
      our consolidated results of operations or financial condition that would have
      been reported had the exchange transaction been completed as of the dates
      presented, and should not be taken as representative of the future consolidated
      results of operations or financial condition of the company.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(d)</strong></font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Exhibits</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      exhibits listed in the following Exhibit Index are filed as part of this
      report.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">40</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">EXHIBIT
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NO.</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">DESCRIPTION</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.1</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Securities
                Exchange Agreement, dated November 4, 2005 among ConsultAmerica,
                Inc.,
                VirtualScopics, LLC and the controlling members of VirtualScopics
                LLC.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3.1</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certificate
                of Amendment to Certificate of Incorporation changing name of
                ConsultAmerica, Inc. to VirtualScopics, Inc. dated November 4,
                2005.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3.2</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certificate
                of Designations, Powers, Preferences and Other Rights and Qualifications
                of Series A Convertible Preferred Stock of VirtualScopics, Inc. dated
                November 4, 2005.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4.1</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of VirtualScopics, Inc. Four-Year Warrant to Purchase Common Stock
                at
                $4.00 per share.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4.2</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of VirtualScopics, Inc. Four-Year Warrant to Purchase Common Stock
                at
                $2.50 per share.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.1</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">VirtualScopics,
                Inc. 2005 Long Term Incentive Plan.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.2</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Lock-Up Agreement between VirtualScopics, LLC and certain of its
                former
                members.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.3</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Lock-Up Agreement between VirtualScopics, LLC and its employees,
                director and certain of its former
                members.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.4</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Private Placement Subscription Agreement to purchase units in
                VirtualScopics, Inc.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.5</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Placement
                Agency Agreement dated September 30, 2005&#160;between Brookshire
                Securities Corporation and VirtualScopics,
                LLC.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.6</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Clinical
                Imaging Development and Services Agreement dated July 26, 2005 by
                and
                between VirtualScopics, LLC and Pfizer, Inc.</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(1)</sup></font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.7</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sale
                of Intellectual Property Agreement dated April 5, 2002 by and between
                VirtualScopics, LLC and the University of Rochester, as amended by
                Amendment No. 1 dated May 24, 2002.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.8</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Lease
                dated October 1, 2003 by and between VirtualScopics, LLC and 350
                Linden
                Oaks, L.P.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.9</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Equipment
                Purchase Agreement dated December, 2003 by and between VirtualScopics,
                LLC
                and the University of Rochester Medical
                Center.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.10</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Determination
                of Intellectual Property Rights Agreement dated July 1, 2002 by and
                between VirtualScopics, LLC and the University of
                Rochester.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.11</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Consulting
                Agreement dated March 1, 2004 by and between VirtualScopics, LLC
                and Felix
                Eckstein.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.12</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Services
                and Co-Marketing Agreement dated March 1, 2004 by and between
                VirtualScopics, LLC and Chrondrometrics
                GmbH.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.13</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$30,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Edward Ashton.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
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            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.14</font></div>
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                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Jose Tamez-Pena.</font></div>
            </td>
          </tr>

      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
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                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Kevin Parker.</font></div>
            </td>
          </tr>

      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
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                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Saara Totterman.</font></div>
            </td>
          </tr>

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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
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      <div id="PN" style="PAGE-BREAK-AFTER: always">
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br>
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        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
              <td style="WIDTH: 36pt">&#160;</td>
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                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">16.1</font></div>
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              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Letter
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">21.1</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.1</font></div>
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                statements of VirtualScopics, LLC as of and for the years ended December
                31, 2004 and December 31, 2003.</font></div>
            </td>
          </tr>

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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.2</font></div>
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                statements of VirtualScopics, LLC as of and for the six months ended
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                30, 2005 and 2004 (unaudited).</font></div>
            </td>
          </tr>

      </table>
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    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.3</font></div>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Unaudited
                pro forma condensed combined financial statements of VirtualScopics,
                Inc.,
                as of and for the six months ended June 30, 2005 and unaudited pro
                forma
                condensed combined Statement of Operations as of and for the year
                ended
                December 31, 2004 Statement of Operations for the six months ended
                June
                30, 2005.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div>
        <hr style="COLOR: #000000" align="left" noshade size="1" width="10%">
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">
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            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain
                confidential information contained in the document has been omitted
                and
                filed separately with the Securities and Exchange Commission under
                an
                application for confidential treatment pursuant to Rule 24b-2 promulgated
                under the Securities Exchange Act of 1934, as
                amended.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">42</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>SIGNATURES</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">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 hereunto
      duly authorized.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" bgcolor="#ffffff" border="0" cellpadding="0" cellspacing="0" width="100%">

          <tr valign="top" bgcolor="#ffffff">
            <td width="50%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td width="49%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td colspan="2"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>VIRTUALSCOPICS,
              INC.</strong></font></td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;<br>&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;<br>&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;<br>&#160;</font></td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date:
              November __, 2005</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">By:&#160;&#160;</font></td>
            <td>&#160;</td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td colspan="2"><font size="1">&#160;</font></td>
            <td align="left">
              <hr style="COLOR: #000000" align="left" noshade size="2" width="80%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Name:</font></td>
          </tr>
          <tr valign="top" bgcolor="#ffffff">
            <td colspan="2"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></td>
            <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Title:&#160;</font></td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br>&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">43</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="justify"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Exhibit
      Index</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">EXHIBIT
      </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">NO.</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">DESCRIPTION</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.1</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Securities
                Exchange Agreement, dated November 4, 2005 among ConsultAmerica,
                Inc.,
                VirtualScopics, LLC and the controlling members of VirtualScopics
                LLC.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3.1</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certificate
                of Amendment to Certificate of Incorporation changing name of
                ConsultAmerica, Inc. to VirtualScopics, Inc. dated November 4,
                2005.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3.2</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certificate
                of Designations, Powers, Preferences and Other Rights and Qualifications
                of Series A Convertible Preferred Stock of VirtualScopics, Inc. dated
                November 4, 2005.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
              <td style="WIDTH: 36pt">&#160;</td>
              <td style="WIDTH: 36pt">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4.1</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                  of VirtualScopics, Inc. Four-Year Warrant to Purchase Common Stock
                  at
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              </td>
            </tr>

        </table>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
              <td style="WIDTH: 36pt">&#160;</td>
              <td style="WIDTH: 36pt">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4.2</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                  of VirtualScopics, Inc. Four-Year Warrant to Purchase Common Stock
                  at
                  $2.50 per share.</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
              <td style="WIDTH: 36pt">&#160;</td>
              <td style="WIDTH: 36pt">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.1</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">VirtualScopics,
                  Inc. 2005 Long Term Incentive
                  Plan.</font></div>
              </td>
            </tr>

        </table>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
              <td style="WIDTH: 36pt">&#160;</td>
              <td style="WIDTH: 36pt">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.2</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                  of Lock-Up Agreement between VirtualScopics, LLC and certain of
                  its former
                  members.</font></div>
              </td>
            </tr>

        </table>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.3</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Lock-Up Agreement between VirtualScopics, LLC and its employees,
                director and certain of its former
                members.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 30pt">&#160;</font><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
              <td style="WIDTH: 36pt">&#160;</td>
              <td style="WIDTH: 36pt">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.4</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                  of Private Placement Subscription Agreement to purchase units in
                  VirtualScopics, Inc.</font></div>
              </td>
            </tr>

        </table>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.5</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Placement
                Agency Agreement dated September 30, 2005 between Brookshire Securities
                Corporation and VirtualScopics,
                LLC.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.6</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Clinical
                Imaging Development and Services Agreement dated July 26, 2005 by
                and
                between VirtualScopics, LLC and Pfizer, Inc.</font><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><sup>(1)</sup></font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.7</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Sale
                of Intellectual Property Agreement dated April 5, 2002 by and between
                VirtualScopics, LLC and the University of Rochester, as amended by
                Amendment No. 1 dated May 24, 2002.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.8</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Lease
                dated October 1, 2003 by and between VirtualScopics, LLC and 350
                Linden
                Oaks, L.P.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.9</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Equipment
                Purchase Agreement dated December, 2003 by and between VirtualScopics,
                LLC
                and the University of Rochester Medical
                Center.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.10</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Determination
                of Intellectual Property Rights Agreement dated July 1, 2002 by and
                between VirtualScopics, LLC and the University of
                Rochester.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.11</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Consulting
                Agreement dated March 1, 2004 by and between VirtualScopics, LLC
                and Felix
                Eckstein.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.12</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Services
                and Co-Marketing Agreement dated March 1, 2004 by and between
                VirtualScopics, LLC and Chrondrometrics
                GmbH.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.13</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$30,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Edward Ashton.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.14</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$150,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Jose Tamez-Pena.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">44</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.15</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$90,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Kevin Parker.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.16</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">$90,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Saara Totterman.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
              <td style="WIDTH: 36pt">&#160;</td>
              <td style="WIDTH: 36pt">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">16.1</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Letter
                  from Most &amp; Co.</font></div>
              </td>
            </tr>

        </table>
      </div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="LINE-HEIGHT: 1">
              <td style="WIDTH: 36pt">&#160;</td>
              <td style="WIDTH: 36pt">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">21.1</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Subsidiaries
                  of VirtualScopics, Inc.</font></div>
              </td>
            </tr>

        </table>
      </div>
    </div>
    <div>&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left">
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

          <tr valign="top" style="LINE-HEIGHT: 1">
            <td style="WIDTH: 36pt">&#160;</td>
            <td style="WIDTH: 36pt">
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.1</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Financial
                statements of VirtualScopics, LLC as of and for the years ended December
                31, 2004 and December 31, 2003.</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.2</font></div>
            </td>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Financial
                statements of VirtualScopics, LLC as of and for the six months ended
                June
                30, 2005 and 2004 (unaudited).</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1; MARGIN-RIGHT: 0pt" align="left"><br></div>
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              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.3</font></div>
            </td>
            <td>
              <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Unaudited
                pro forma condensed financial statements of VirtualScopics, Inc.,
                as of
                and for the six months ended June 30, 2005 and unaudited pro forma
                condensed combined Statement of Operations as of and for the year
                ended
                December 31, 2004 Statement of Operations for the six months ended
                June
                30, 2005.</font></div>
            </td>
          </tr>

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                confidential information contained in the document has been omitted
                and
                filed separately with the Securities and Exchange Commission under
                an
                application for confidential treatment pursuant to Rule 24b-2 promulgated
                under the Securities Exchange Act of 1934, as
                amended.</font></div>
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{"company-data": {"conformed-name": "VirtualScopics, Inc.", "cik": "0001307752", "assigned-sic": "7363", "irs-number": "043007151", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "333-120253", "film-number": "051195292"}, "business-address": {"street1": "350 LINDEN OAKS", "city": "ROCHESTER", "state": "NY", "zip": "14625", "phone": "585-249-6231"}, "mail-address": {"street1": "350 LINDEN OAKS", "city": "ROCHESTER", "state": "NY", "zip": "14625"}, "former-company": {"former-conformed-name": "ConsultAmerica, Inc.", "date-changed": "20041103"}}
Unassociated Document
UNITED
          STATES
SECURITIES
          AND EXCHANGE COMMISSION
WASHINGTON,
          DC 20549
FORM
          8-K
CURRENT
          REPORT PURSUANT
TO
          SECTION 13 OR 15(d) OF THE
SECURITIES
          EXCHANGE ACT OF 1934
Date
          of
          report (Date of earliest event reported): November 4, 2005
VirtualScopics,
          Inc.
(Exact
            Name of Registrant as Specified in Its Charter)
Delaware
(State
            or
            Other Jurisdiction of Incorporation)
333-120253
(Commission
                    File Number)
04-
                    3007151
(IRS
                    Employer Identification No.)
350
                    Linden Oaks, Rochester, New York
(Address
                    of Principal Executive Offices)
14625
(Zip
                    Code)
(585)
          249-6231
(Registrant's
            Telephone Number, Including Area Code)
ConsultAmerica,
          Inc., 13070 Addison Road, Roswell, GA 30075
(Former
            Name or Former Address, if Changed Since Last Report)
Check
          the
          appropriate box below if the Form 8-K filing is intended to simultaneously
          satisfy the filing obligation of the registrant under any of the following
          provisions (see General Instruction A.2. below):
o
Written
          communications pursuant
          to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting
          material pursuant to
          Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
          communications
          pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
          240.14d-2(b))
o
Pre-commencement
          communications
          pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
          240.13e-4(c))
INFORMATION
          TO BE INCLUDED IN THE REPORT
TABLE
          OF CONTENTS
ITEMS
                          1.01, 5.01, 5.02 AND 5.03 - ENTRY INTO A MATERIAL DEFINITIVE
                          AGREEMENT,
                          CHANGES IN CONTROL OF REGISTRANT /
DEPARTURE
                          OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
                          APPOINTMENT OF
                          PRINCIPAL OFFICERS / AMENDMENTS TO
ARTICLES
                          OF INCORPORATION OR BY-LAWS; CHANGE IN FISCAL
                          YEAR
1
Summary
1
Exchange
                  Transaction
1
Private
                  Placement
3
Lock-up
                  Agreements
3
Registration
                  Statement
4
ITEM
                  2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
4
The
                  Exchange Transaction
4
Description
                  of Our Company and its Predecessor
5
Description
                  of Business
5
Cautionary
                  Statements
18
Cautionary
                  Language Regarding Forward-Looking Statements and Industry
                  Data
23
Management's
                  Discussion and Analysis or Plan of Operation
24
Description
                  of Property
28
Security
                  Ownership of Certain Beneficial Owners and Management
28
Directors,
                  Executive Officers, Promoters and Control Persons
29
Executive
                  Compensation
32
Certain
                  Relationships and Related Transactions
32
Description
                  of Securities
34
Placement
                  Agent Warrants
35
Market
                  Price of and Dividends on Common Equity and Related Stockholder
                  Matters
36
Legal
                  Proceedings
36
Indemnification
                  of Directors and Officers
36
ITEM
                  3.02 - UNREGISTERED SALES OF EQUITY SECURITIES
37
The
                  Private Placement
37
ITEM
                  4.01 - CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
38
ITEM
                  9.01 - FINANCIAL STATEMENTS AND EXHIBITS
38
Financial
                  Statements of Businesses Acquired
38
Pro
                  Forma Financial Statements
38
SIGNATURES
41
2
ITEMS
      1.01, 5.01, 5.02, AND 5.03 - ENTRY INTO A MATERIAL DEFINITIVE
      AGREEMENT
,
      CHANGES IN CONTROL OF REGISTRANT / DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS;
      ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS / AMENDMENTS TO
      ARTICLES OF INCORPORATION OR BY-LAWS; CHANGE IN FISCAL
      YEAR.
Summary
On
      November 4, 2005, we, VirtualScopics, Inc., or the company, acquired all of
      the
      outstanding membership units of VirtualScopics, LLC, or VirtualScopics, in
      exchange for shares of our common stock, par value $.001 per share. As a result,
      VirtualScopics is now a wholly-owned subsidiary of the company. The transaction
      is referred to in this Current Report on Form 8-K, or this report, as the
      exchange transaction.
VirtualScopics
      is a provider of image-based biomarker solutions to customers in the
      pharmaceutical, biotechnology and medical device industries that are designed
      to
      facilitate cost-effective drug and medical device development. VirtualScopics
      is
      headquartered in Rochester, New York.
At
      the
      time of the exchange transaction, our corporate name was ConsultAmerica, Inc.
      and our trading symbol was "CSAA.OB." Concurrently with the exchange transaction
      we changed our name to VirtualScopics, Inc. and our trading symbol to "VSCP.OB."
      As a result of the Exchange transaction, VirtualScopics became our wholly-owned
      subsidiary, with former members of VirtualScopics' acquiring a majority of
      the
      outstanding shares of our common stock. The exchange transaction was consummated
      pursuant to a Securities Exchange Agreement, dated November 4, 2005, among
      the
      company, VirtualScopics, and certain of the former members of
      VirtualScopics.
Concurrently
      with the closing of the exchange transaction, we completed the sale of 4,084.488
      units in a private placement to accredited investors for $1,000 per unit. Each
      unit consists of one share of our newly created series A convertible preferred
      stock, par value $.001, and a detachable, transferable warrant to purchase
      200
      shares of our common stock for $4.00 per share. Each share of series A
      convertible preferred stock is initially convertible into 400 shares of our
      common stock. We received gross proceeds of $4,084,488 in consideration for
      the
      sale of these units.
Concurrent
      with the closing of the exchange transaction and the private placement, we
      redeemed 70,537,500 shares of our common stock from our former directors, Edward
      A. Sundberg and Lindsay Sundberg, for aggregate consideration of $200 and
      immediately cancelled those shares.
Exchange
      Transaction
General
At
      the
      closing of the exchange transaction, the former members of VirtualScopics
      received shares of our common stock for outstanding common membership units
      and
      preferred membership units of VirtualScopics held by them.
As
      a
      result, at the closing of the exchange transaction, we issued an aggregate
      of
      17,326,571 shares of our common Stock to the former members of VirtualScopics,
      representing approximately 74% of our outstanding shares of common stock and
      the
      1,633,795 shares of common stock initially issuable upon the conversion of
      the
      4,084.488 shares of our series A convertible preferred stock sold in our private
      offering. The consideration issued in the exchange transaction was determined
      as
      a result of arm's-length negotiations between us and
      VirtualScopics.
Immediately
      prior to the exchange transaction closing, VirtualScopics members held
      outstanding warrants to purchase 559,221 VirtualScopics membership units and
      options to purchase 2,457,422 VirtualScopics membership units. Pursuant to
      the
      Securities Exchange Agreement, we have agreed to issue shares of our common
      stock upon the exercise of these warrants and options in lieu of VirtualScopics
      membership units previously issuable thereunder, and, based upon the exchange
      ratio used for the exchange transaction, we are obligated upon the exercise
      of
      these warrants and options to issue 532,490 shares and 2,339,990 shares of
      our
      common stock, respectively.
The
      disclosure set forth under Item 2.01 of this report is incorporated by reference
      into these Items.
3
Changes
      Resulting From the Exchange Transaction
We
      intend
      to carry on VirtualScopics' business as our sole line of business. We have
      relocated our executive offices to those of VirtualScopics at 350 Linden Oaks,
      Rochester, New York 14625. Our new telephone number is (585) 249-6231.
Pre-exchange
      transaction stockholders of our company will not be required to exchange their
      existing ConsultAmerica stock certificates for certificates of the Company,
      since the OTC Bulletin Board will consider our existing stock certificates
      as
      constituting "good delivery" in securities transactions subsequent to the
      exchange transaction. The American Stock Exchange and Nasdaq Capital Market,
      where we intend to apply to list our common stock for trading, will also
      consider the submission of existing stock certificates as "good delivery." We
      cannot be certain that we will receive approval to list our common stock on
      the
      American Stock Exchange or Nasdaq Capital Market.
Change
      of Board Composition and Executive Officers
Prior
      to
      the closing of the exchange transaction and the private placement, our board
      of
      directors was composed of Edward A. Sundberg and Lindsay Sundberg. On November
      4, 2005, in accordance with our by-laws for filling newly-created board
      vacancies, these directors appointed Warren Bagatelle and Robert Klimasewski
      to
      our board of directors. On that same day, Mr. Sundberg and Ms. Sunberg resigned
      as directors and Mark Coburn, Saara Totterman and Sidney Knafel, all of whom
      are
      existing VirtualScopics directors, were then elected to serve as additional
      directors of our company. Sovereign Bancorp, which acted as an advisor to
      VirtualScopics in connection with the exchange transaction, is allowed two
      designees to be nominated to the company's board of directors during the first
      two years following the consummation of the exchange transaction. All directors
      hold office until the next annual meeting of stockholders and the election
      and
      qualification of their successors.
Prior
      to
      the closing of the exchange transaction and the private placement, Edward A.
      Sundberg was our President, Secretary, Chief Executive Officer, Chief Financial
      Officer, and Chief Accounting Officer and Lindsay Sundberg was our Treasurer.
      Mr. Sundberg and Ms. Sundberg resigned from all of the offices that they held
      effective as of November 4, 2005.
On
      November 4, 2005, our board of directors named the following persons as our
      new
      executive officers: Robert Klimasewski - Chief Executive Officer and Molly
      Henderson - Chief Financial Officer and Vice President of Finance. Officers
      are
      elected annually by our board of directors and serve at the discretion of our
      board.
The
      disclosure set forth under "Directors, Executive Officers, Promoters and Control
      Persons" in Item 2.01 of this report is incorporated in its entirety by
      reference into these Items.
Change
      of Stockholder Control
Except
      as
      described above under "Change of Board Composition and Executive Officers," no
      arrangements or understandings exist among our present or former controlling
      stockholders with respect to the election of persons to our board of directors
      and, to our knowledge, no other arrangements exist that might result in a change
      of control of our company. Further, as a result of our redemption of shares
      from
      Mr. Sundberg and Ms. Sundberg and the issuance of the 17,326,571 shares of
      our
      common stock to the former members of VirtualScopics, a change of stockholder
      control of our company has occurred. Prior to the redemption and closing of
      the
      exchange transaction, Mr. Sundberg and Ms. Sundberg owned 94.2% of our
      outstanding shares of common stock. After these transactions, former members
      of
      VirtualScopics own approximately 74% of our outstanding voting securities,
      including our common stock and series A convertible preferred stock. We are
      continuing as a "small business issuer," as defined under the Securities
      Exchange Act of 1934, following the exchange transaction.
The
      disclosure set forth under "Security Ownership of Certain Beneficial Owners and
      Management" in Item 2.01 of this report is incorporated by reference into these
      Items.
Accounting
      Treatment
In
      accordance with Statement of Financial Accounting Standards No. 141, "Business
      Combinations" (SFAS 141), and the assumptions and adjustments described in the
      accompanying notes to the unaudited pro forma combined condensed financial
      statements, VirtualScopics is considered the accounting acquiror in the exchange
      transaction. Because VirtualScopics' owners as a group retained or received the
      larger portion of the voting rights in the combined entity and VirtualScopics'
      senior management represents a majority of the senior management of the combined
      entity, VirtualScopics was considered the acquiror for accounting purposes
      and
      will account for the exchange transaction as a reverse acquisition. The
      acquisition will be accounted for as the recapitalization of VirtualScopics
      since, at the time of the acquisition, we were a company with minimal assets
      and
      liabilities. Consequently, the assets and liabilities and the historical
      operations that will be reflected in the financial statements will be those
      of
      VirtualScopics and will be recorded at the historical cost basis of
      VirtualScopics.
4
Amendments
      to Certificate of Incorporation or By-laws; Change in Fiscal
      Year
In connection with
      the exchange transaction, our board of directors and stockholders approved
      and
      filed a certificate of amendment to our certificate of incorporation with the
      Delaware Secretary of State on November 4, 2005, thereby changing our name
      to
      VirtualScopics, Inc. In addition, on November 4, 2005, our board of directors
      approved a change in fiscal year end from August 31 to December 31. We will
      not
      file a transition report reflecting the change of our fiscal year to that of
      VirtualScopics because for accounting purposes, VirtualScopics is deemed
      to
      be the "accounting acquiror" in the reverse acquisition.
Private
      Placement
Concurrent
      with the closing of the exchange transaction, we completed the sale of 4,084.488
      units in a private placement to accredited investors. Each unit consists of
      one
      share of our series A preferred stock and a warrant. We sold each unit for
      $1,000 pursuant to the terms of a Confidential Private Placement Memorandum,
      dated October 3, 2005, as supplemented, and private placement subscription
      agreements executed and delivered by each investor on or before the closing
      of
      the private placement. Each share of series A preferred stock is initially
      convertible into 400 shares of our common stock at any time. Each warrant
      entitles the holder to purchase 200 shares of our common stock at an exercise
      price of $4.00 per share through November 4, 2009. The form of the private
      placement subscription agreement is filed as Exhibit 10.4 to this
      report.
We
      received gross proceeds from the private offering of $4,084,488. Placement
      agents, selected dealers and advisors received an aggregate of
      $326,758
in
      cash
      fees in connection with the private placement and reimbursement of $56,167
      in
      expenses. In addition, these parties will receive warrants to purchase $163,379
      shares of our common stock at an exercise price of $2.50.
After
      the
      closing of the exchange transaction and the private placement, we had
      outstanding 21,889,076 shares of common stock, 4,084.488 shares of series A
      preferred stock (which are convertible into 1,633,795 shares of common stock
      at
      any time). In addition we are obligated to issue 532,490 shares of common stock
      upon the exercise of warrants held by holders of VirtualScopics warrants, and
      2,339,990 shares of common stock upon the exercise of options held by holders
      of
      VirtualScopics options.
Lock-up
      Agreements
In
      connection with the exchange transaction, former VirtualScopics members who
      now
      hold 16,050,914 shares of our common stock and holders of VirtualScopics
      warrants and options who now have the right to acquire at least 90% of
      the shares of our common stock entered into "lock-up agreements" with us.
      The form of the lock-up agreements entered into by them are filed as Exhibits
      10.2 and 10.3 to this report. The "lock-up agreements" prohibit these persons
      from directly or indirectly, publicly selling or otherwise transferring the
      shares of our common stock issued to them in or as a result of the exchange
      transaction, except as follows:
·
Each
                former VirtualScopics securities holder who served as a director
                and/or an
                employee of VirtualScopics and/or held in excess of 100,000 lock-up
                shares
                (and the affiliates or related parties of such former VirtualScopics
                securities holders) as of the closing of the exchange transaction,
                the
                "insiders," may, beginning 12 months after the exchange transaction
                closing and at three-month intervals thereafter, if the 30-day average
                trading price (immediately preceding the sale) of our common stock
                is
                above $4.00 per share, sell up to 12.5% of his or her original number
                of
                lock-up shares during each three-month
                period.
·
Each
                former VirtualScopics securities holder who is not an insider may,
                beginning 12 months after the exchange transaction closing and at
                three-month intervals thereafter, sell 25% of his or her original
                number
                of lock-up shares during each three-month
                period.
5
·
Each
                insider may, beginning 18 months after the exchange transaction closing
                and at three-month intervals thereafter, if the 30-day average trading
                price (immediately preceding the sale) of our common stock is below
                $4.00
                per share, sell a maximum of 25,000 of his or her original number
                of
                lock-up shares each three-month period, irrespective of the
                price.
·
Each
                former VirtualScopics securities holder, may, beginning 24 months
                after
                the exchange transaction closing and at three-month intervals thereafter,
                sell up to 12.5% of his or her original number of lock-up shares
                during
                each three-month period, irrespective of the
                price.
All
      former VirtualScopics securities holders who acquire shares of our common stock
      pursuant to VirtualScopics options assumed by us are considered insiders for
      purposes of determining the applicable lock-up provisions. All permitted sales
      of lock-up shares that may be made during each time period are cumulative.
      All
      lock-up agreements expire 48 months after the exchange transaction
      closing.
If
      we
      engage an underwriter or placement agent during the 24 months after the closing
      of the exchange transaction to raise a minimum of $5.0 million through the
      sale
      of our common stock and/or other equity securities, in a public offering or
      private placement, then upon notice of commencing such public offering or
      private placement, all holders of lock-up shares must, if required by the
      underwriter or placement agent, refrain from making any sales, transfers or
      other dispositions in the course of such offering, but, in any event, for not
      more than 90 consecutive days.
Registration
      Statement
We
      have
      agreed with investors in our private placement to use our commercially
      reasonable best efforts to file a shelf registration statement with the SEC
      covering the resale of all shares of common stock underlying the series A
      preferred stock and warrants issued in connection with the private placement
      by
      May 2, 2006. We are obligated to maintain the effectiveness of the shelf
      registration statement for twelve months after the registration statement
      becomes effective. If the shelf registration statement is not filed with the
      SEC
      by May 2, 2006, then each investor in the private placement is entitled to
      receive an additional number of shares of our series A preferred stock equal
      to
      2% of the total number of shares of our series A preferred stock purchased
      by
      such investor in the private placement for each month (or portion thereof)
      that
      we do not file the registration statement with the SEC, up to 20% of the
      original number of shares of our series A preferred stock purchased by each
      investor in the private placement.
We
      also
      agreed to use our best efforts to respond to all SEC comments to the shelf
      registration statement (if any) within 20 business days of receiving such
      comments
but in
      any event not later than 30 business days from the date of receiving such
      comments
.
      If we
      fail to respond to the SEC comments within 30 business days of receiving such
      comments, then each investor in the private placement is entitled to receive
      an
      additional number of shares of our series A preferred stock equal to 2% of
      the
      total number of shares of our series A preferred stock purchased by such
      investor in the private placement for each month (or portion thereof) that
      we do
      not respond to the SEC's comments, up to 20% of the original number of shares of
      series A preferred stock purchased by each investor in the private
      placement.
ITEM
      2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
Information
      concerning the principal terms of the exchange transaction and the business
      of
      VirtualScopics is set forth below.
The
      Exchange Transaction
On
      November 4, 2005, we entered into the Exchange Agreement with VirtualScopics
      and
      its members. On November 4, 2005, the exchange transaction provided for in
      the
      Securities Exchange Agreement was completed and VirtualScopics became our
      wholly-owned subsidiary.
Pursuant
      to the Securities Exchange Agreement, at closing, former members of
      VirtualScopics received an aggregate of 17,326,571 shares of our common stock,
      representing approximately 74% of our outstanding common stock and common stock
      issuable upon conversion of our series A convertible preferred stock sold in
      our
      concurrent private placement. In exchange for the shares we issued to the former
      VirtualScopics members, we acquired 100% of the outstanding membership units
      of
      VirtualScopics. The consideration issued in the exchange transaction was
      determined as a result of arm's-length negotiations between the
      parties.
6
Immediately
      prior to the exchange transaction closing, VirtualScopics members held
      outstanding warrants to purchase 559,221 VirtualScopics membership units and
      options to purchase 2,457,422 VirtualScopics membership units. Pursuant to
      the
      Securities Exchange Agreement, we have agreed to issue shares of our common
      stock upon the exercise of these warrants and options in lieu of VirtualScopics
      membership units previously issuable thereunder, and, based upon the exchange
      ratio used for the exchange transaction, we are obligated upon the exercise
      of
      these warrants and options to issue 532,490 shares and 2,339,990 shares of
      our
      common stock, respectively.
Following
      the exchange transaction, all of our current business operations will be
      conducted through our wholly-owned subsidiary, VirtualScopics. See "Description
      of Business" below. Prior to the exchange transaction, there were no material
      relationships between us and VirtualScopics, between VirtualScopics and our
      respective affiliates, directors or officers, or between any associates of
      VirtualScopics or our respective officers or directors. All of our pre-exchange
      transaction liabilities were settled prior to closing.
Description
      of Our Company and its Predecessor
We
      were
      formed as a Delaware corporation in 1988 to be a management consulting firm.
      Prior to the exchange transaction, we
provided
      strategic business planning to small companies.
As
      a
      result of the exchange transaction, we have succeeded to the business of
      VirtualScopics and plan to continue this business.
Description
      of Business
We
      are a
      provider of image-based biomarker solutions to the pharmaceutical, biotechnology
      and medical device industries. We focus on applying our imaging technology
      in
      two areas:
·
improve
                the efficiency and effectiveness of the pharmaceutical and medical
                device
                research and development processes; and
·
provide
                unique products to improve treatment planning and diagnosis of patients
                in
                a clinical setting.
Our
      image-based biomarker measurement and visualization tools enable automated,
      accurate and reproducible measurement of minute changes that occur in anatomic
      structures in musculoskeletal, oncological, cardiological and neurological
      diseases. For pharmaceutical, biotechnology and medical device manufacturers,
      these tools can significantly alleviate or reduce clinical development
      bottlenecks by dramatically increasing the speed, accuracy and reliability
      of
      the demonstration of a new compound's efficacy. Further, these measurements can
      be used to assess the viability of continuing a drug development project and
      eliminate as soon as possible a drug that is doomed to fail. Early failure
      is
      critical to the pharmaceutical industry to prevent the expenditure of limited
      R&D funds on a drug that will not perform as expected. We believe that this
      is especially important today with the large number of compounds that are
      awaiting evaluation.
Our
      technology may also be applicable in the development of products for patient
      treatment and surgical planning. We will focus on the deployment of diagnostic
      tools and services in the areas of arthritis, cancer, cardiology, neurology
      and
      other diseases. This diagnostic use has not yet been cleared or approved by
      the
      U.S. Food and Drug Administration.
Benefits
      for Pharmaceutical, Biotech and Medical Device
      Companies
The
      benefits to pharmaceutical companies from using our image analysis tools can
      include shorter clinical development time, and earlier determination of the
      effectiveness or ineffectiveness of a new drug or compound, thereby permitting
      curtailment of trials that are not likely to be beneficial and avoiding mistaken
      termination of compounds that are likely to prove efficacious,
      through:
·
improved
                precision in the measurement of existing biomarkers resulting in
                shorter
                observation periods, with beneficial cost savings within a clinical
                trial;
7
·
new
                biomarkers, which are better correlated with disease states, again
                reducing trial length and therefore costs;
                and
·
reduced
                processing time for image data analysis through
                automation.
In
      addition, our technology reduces aggregate clinical development costs
      through:
·
improved
                precision for existing biomarkers, thus requiring smaller patient
                populations and lower administrative costs;
                and
·
new
                biomarkers that serve as better correlates, leading to better early
                screening and elimination of weak drug candidates in pre-clinical
                trials.
Benefits
      to Patients and Health Care Providers in a Diagnostic
      Setting
The
      specific diagnostic opportunities that we plan to pursue are treatment
      monitoring and surgical planning, with particular emphasis on the osteoarthritis
      and oncology markets. Osteoarthritis and cancer are leading causes of disability
      and death, respectively, throughout much of the developed world, and
      technologies for closely monitoring disease progression and response to
      treatment in both areas are currently lacking. We believe this presents us
      with
      a significant market opportunity.
In
      treatment monitoring and surgical planning, our technology is designed to offer
      patients and medical insurers the following benefits:
·
improved
                diagnosis of early stage patients in both osteoarthritis and cancer,
                which
                is a vital benefit, as early diagnosis is likely to lead to more
                successful and less expensive treatment, as well as better patient
                outcomes;
·
better
                treatment planning of patients based on determination of patient
                response
                to compounds or other treatment options (in oncology, for example,
                we have
                demonstrated the ability to determine whether patients are showing
                response to an anti-angiogenic drug after only 48 hours of treatment)
                (Glenn Liu
et
                al.,
Dynamic
                Contrast-Enhanced Magnetic Resonance Imaging As a Pharmacodynamic
                Measure
                of Response After Acute Dosing of AG-013736, an Oral Angiogenesis
                Inhibitor, in Patients With Advanced Solid Tumors: Results From a
                Phase I
                Study,"
Journal
                of Clinical Oncology,
vol.
                20, August 20, 2005); and
·
enhanced
                surgical planning leading to shorter and less invasive surgical procedures
                with improved patient outcomes.
In
      osteoarthritis, we believe that our technology is the only reliable and scalable
      technology on the market to be able to assess the current status of the
      cartilage in the knee, as well as determine if treatment options are improving
      the patient's status. Additionally, we believe that our technology is the only
      one that can measure the health of the other surrounding tissues in the knee
      joint, including the meniscus and fluid volume, and surrounding muscle and
      ligament tissue. In oncology, we are the first company able to provide blood
      flow and volume measurements for cancer diagnosis and monitoring in a
      standardized and consistent way across multiple institutions (Jerry M. Collins,
      "Imaging and Other Biomarkers in Early Clinical Studies: One Step at a Time
      or
      Re-Engineering Drug Development?,"
Journal
      of Clinical Oncology,
vol.
      20,
      August 20, 2005). These measurements are vital for assessing patient response
      to
      next-generation anti-angiogenic cancer drugs.
Our
Technology Solution
Although
      the entire suite of our technologies encompasses more than 35 algorithms, the
      five technologies that form the key differentiators for our solution are as
      follows:
·
automated
                segmentation for easier lesion detection and
                measurement;
8
·
automated
                feature extraction for efficient and effective
                analysis;
·
automated
                co-registration for tracking changes over
                time;
·
orthogonal
                and multi-sequence fusion for integrating information from multiple
                sources; and
·
ability
                to measure blood flow and metabolic
                activity.
The
      discussion below provides an explanation of the above technologies and how
      these
      technologies are unique in comparison to what is presently
      available.
Automated
      Segmentation
We
      have
      developed a series of algorithms that automatically segment MRI and CT image
      files into the components seen on the original set of images (i.e., hard
      tissues, such as bones, and soft tissues including muscles, fat, skin,
      vasculature, etc.). CT scans use computerized analysis of x-rays to detect
      tumors. MRIs use magnetic fields and radio-frequency waves to produce
      three-dimensional (or 3D) images of normal and abnormal tissue. Low-contrast
      images and non-uniform-illuminated images are automatically segmented as well
      as, and as easily as, high-contrast image data files. We believe that our
      successful autosegmentation of both high and low-contrast image data files
      is an
      important breakthrough in medical image analysis.
The
      image
      produced through the autosegmentation process is extremely significant from
      a
      drug discovery standpoint. After the image data file has been autosegmented,
      the
      resulting 3D image is a highly accurate, computer-manipulable, composite-model.
      These models present each component as a separate 3D object. The model can
      be
      disassembled structure by structure on the computer screen in much the same
      way
      that a plastic composite model can be separated into its components. This
      capability allows an individual to focus on specific structures and obtain
      measurements of parameters such as thickness, volume or surface area to
      determine the efficacy of a drug in changing the size or shape of a lesion
      or
      other defect. This approach to measurement contrasts with the time-consuming
      and
      costly radiologist-driven evaluation process that is commonly used. Further,
      the
      ability to obtain highly accurate, segmented 3D models is designed to enable
      the
      use of new biomarkers to determine efficacy.
Other
      imaging technology developers have created "autorendered" 3D visualizations.
      These visualizations are "glued-together" images and do not allow for a
      structure to be segmented into its components in order to obtain the desired
      measurements to determine efficacy. Once again, the burden is on the radiologist
      to observe changes in the structure and obtain measurements of the
      biomarkers.
Automated
      Feature Extraction
In
      many
      cases, the structures that need to be extracted and measured in medical images
      do not have distinguishable statistical borders with some parts of the
      surrounding tissue. In these cases, statistics-based segmentation will not
      be
      able to fully identify the structures of interest. We handle these cases using
      an algorithm that combines statistical tissue identification with a 3D geometric
      model for structure shape that is able to estimate the optimal location for
      a
      hypothetical border where none is discernable in the data.
Automated
      Co-Registration
Another
      key to our technology for use in determining drug efficacy is a time-lapsed
      series of segmented MRI or CT image data files collected over a period of days,
      weeks, months or years. A patent-pending co-registration/disease tracking
      algorithm is applied to track the changes in a specific patient
      anatomy/pathology over time. We can create a continuous cine-loop, provide
      precise measurements, or create 3D motion trajectory maps of slowly changing
      pathology or degenerating joints. Further, all these phenomena are also
      presented as numerical values.
These
      capabilities rely on our core autosegmentation platform to produce ultra-high
      resolution data files. When a series of ultra-high resolution data files are
      viewed in sequence through our technology, clinical researchers can
      automatically track, analyze and measure disease response to drug therapy.
      Since
      the data file is segmented, the clinicians can focus in on biomarkers of
      interest. For example, the volume of the whole brain, including gray and white
      matter (common biomarkers for determining the effect of drugs aimed at treating
      certain neurological diseases) can be segmented and measured over time. This
      capability would significantly improve the drug discovery process for
      degenerative neurological diseases such as multiple sclerosis, Parkinson's and
      Alzheimer's diseases. Similarly, the time-lapse technology allows
      musculoskeletal clinical researchers to track a patient's response to drug
      treatment for joint diseases such as osteoarthritis.
9
Standard
      MRI or CT exams may miss abnormal findings because certain pathologic conditions
      are dependent on the position of the joint or exist in response to stress.
      Special positioning devices must be used first to guide and maintain the joint
      in a specific imaging plane and second to produce the load. Using a series
      of
      six image data files collected over a period of minutes, its technology can
      produce a cine-loop of a joint and its surrounding tissue. This is designed
      to
      enable, for example, the assessment of a compound efficacy of diagnostic
      procedure in treating a ligament tear or the success of ACL tissue
      repair.
Orthogonal
      and Multi-Sequence Fusion
Data
      files are typically based on a single series of MRI or CT images. The reason
      that autosegmentation has historically been so difficult to achieve is because
      there is not enough contrast between multiple low-contrast structures,
      particularly in a standard MRI data file. Somehow the data resolution must
      be
      optimized to accentuate the contrast and enable autosegmentation. Our team
      has
      developed two new patent-pending data acquisition techniques to enhance our
      autosegmentation efforts, orthogonal and multi-sequence fusion of image data
      files. Both of these techniques optimize imaging data and provide the highest
      possible resolution and contrast in the data file, enabling the application
      of
      the autosegmentation algorithms.
Orthogonal
      fusion starts with two perpendicular series of images, which are fused and
      then
      reconstructed. This fusion-reconstruction process enhances inter-plane
      resolution. This eliminates the discrepancy between in-plane resolution and
      slice thickness and creates isotropic voxels, increasing the accuracy of the
      original data and producing an isotropic resolution DICOM data file. The
      autosegmentation algorithms can then be applied to create ultra-high resolution,
      isotropic, composite models.
The
      second technique supporting our autosegmentation algorithms is multi-sequence
      fusion. Multi-sequence fusion starts when multiple MRI image data files are
      obtained using different pulse/parameter sequences. An algorithm is then applied
      which automatically registers and merges the multiple MRI image data files.
      This
      enhances the visualization of different tissue types and improves the contrast
      between tissues. After image data files are fused, they can be segmented to
      create a 3D composite model containing the information of all the MRI data
      files. In addition, the sequences have been written by us in such a way that
      they can acquire multiple data sets in the same time as required for a single
      data set.
Measurement
      of Blood Flow and Metabolic Activity
A
      growing
      number of anti-cancer drugs both on the market (e.g., Iressa and Avastin) and
      under development are designed to reduce the blood supply available to tumors,
      thereby depriving them of the ability to grow and spread. During development,
      these compounds require the ability to accurately measure blood flow and
      vascular permeability in
vivo,
in
      order
      to determine dose-response relationships and compound efficacy. In the clinic,
      this same capability is necessary in order to determine whether a particular
      patient is responding to treatment. We have developed a method, using dynamic
      contrast enhanced magnetic resonance imaging (DCE-MRI), to accomplish this.
      This
      technique involves repeated imaging, generally every five to ten seconds, for
      a
      period of several minutes before and after the injection of a gadolinium-based,
      FDA-approved, contrast agent. Tracer concentration changes over time can then
      be
      measured both in normal and cancerous tissues, and based on this information
      parameters such as blood flow, blood volume and vascular permeability can be
      derived. These parameters have been shown to relate directly to the activity
      of
      anti-angiogenesis and anti-vascular cancer drugs, and to allow the prediction
      of
      response or failure after only a few days of treatment.
Sales
      and Marketing
Our
      business development strategy is centered on an active calling effort aimed
      at
      pharmaceutical companies, biotechnology companies, principal investigators
      and
      clinical research organizations, or CROs. To date, we have made significant
      inroads by having contracts with 14 of the leading pharmaceutical, biotechnology
      and medical device companies including Pfizer, Johnson & Johnson (DePuy) and
      Wyeth.
10
We
      continue to grow our business by leveraging relationships with our current
      customers. Our current customers have begun introducing us to other therapeutic
      groups within their organization. We continue to receive positive feedback
      from
      our customers, which has resulted in new projects.
In
      March
      2004, we entered into a services and co-marketing agreement with Chondrometrics
      GmbH and a consulting agreement with Dr. Felix Eckstein, the founder of that
      company. Dr. Eckstein is an internationally recognized authority in
      osteoarthritis research, especially as it relates to cartilage degeneration.
      These agreements were intended to leverage the research activities between
      us
      and Dr. Eckstein and co-market each party's services. The agreements expire on
      December 31, 2006, and automatically renew in one-year increments until either
      party delivers written notice of its intention not to renew.
In
      June
      2005, we signed a non-exclusive partnership agreement with Research Dynamics
      Consulting Group Ltd. (a Rochester-based CRO) to co-market the clinical research
      services and technologies of both companies. The arrangement allows for either
      party to receive a 6.5% commission on the introduction of potential new
      customers.
Complementing
      our sales and marketing effort, we actively participate in medical conferences
      to showcase our technology, as well as collaborating with principal
      investigators on their academic research, which often results in highly visible,
      published research. We have already built a strong base of clinical
      collaborators across varied disease platforms.
We
      are
      continuing an active sales and marketing effort and are currently in discussions
      with a number of additional potential customers to form business and/or
      strategic alliances.
Pfizer
      Strategic Alliance
In
      July
      2002, we entered into a multi-year strategic alliance under a clinical imaging
      and services agreement with Pfizer, which was expanded and renewed for two
      years
      in July 2005, to accelerate the discovery, validation and application
      of
      image-based biomarkers for clinical research. As part of the agreement, Pfizer
      made an equity investment in VirtualScopics which is now represented by our
      common stock that Pfizer received in the exchange transaction. Pursuant to
      the
      terms of the agreement with Pfizer, we granted Pfizer a worldwide,
      non-exclusive, perpetual, royalty-free license to use, reproduce and modify
      "tool boxes" that we develop for Pfizer using our image analysis tools
      technology and that Pfizer will use for the research and development of its
      pharmaceutical products. The relationship enables Pfizer to apply our technology
      to ongoing clinical research in an effort to identify and validate biomarkers
      correlating to clinical outcomes. The biomarkers may then be used to assess
      the
      efficacy of new pharmaceutical compounds in the clinical trial process.
This
      alliance represents a growing trend in the pharmaceutical industry to apply
      new
      technologies to accelerate the clinical development of compounds. Pfizer has
      a
      long history of investing in new clinical technologies and is considered an
      industry leader in this area. Approximately 70% of our revenues for the 12
      month
      period ending December 31, 2005 are expected to be attributable to Pfizer.
Industry
      Background and Market Trends
Market
      in Pharmaceutical and Medical Device Development
The
      current market for MRI and CT image analysis in clinical drug trials is
      approximately $140 million and is growing at over a 50% annual rate. The market
      is expected to exceed $1.0 billion annually by 2010. The use of MRI and CT
      imaging to determine efficacy of drugs is expected to continue rapid growth.
Growth
      is
      a function of:
·
the
                FDA's desire to use MRI and CT imaging to determine efficacy due to its
                non-invasive nature;
·
the
                pharmaceutical industry's desire to accelerate the time to market and
                reduce the cost of clinical drug trials; and
11
·
an
                increase in the number of drugs undergoing clinical trials owing
                to
                significant and growing pharmaceutical R&D.
Currently,
      the most significant bottleneck in drug development is the clinical trial
      process. In a recent study, Lehman Brothers and McKinsey & Co. estimate that
      the clinical development phase takes approximately seven years (50% of the
      total
      time) and $690 million (80% of the total cost of drug development), as
      illustrated below.
Total
      Time to Development a New Pharmaceutical Compound
Years
Total
      Cost to Develop a New Pharmaceutical Compound
($million)
Source:
      Lehman Brothers and McKinsey & Co.
Image
      Analysis and Image-Based Biomarker Development
We
      have
      conducted extensive primary research to determine the current size of the market
      for image analysis services in the pharmaceutical industry. The information
      was
      collected as part of our discussions with many of the major companies that
      currently serve the industry. These include Bio-Imaging Technologies, Synarc,
      Beacon Bioscience, Perceptive, Duke Image Analysis Laboratories and Boston
      University, as well as a number of other academic centers in the United States
      and Europe. We have found that the market is fragmented, with approximately
      $140
      million in total annual revenues projected for 2005.
The
      industry is currently undergoing a rapid growth phase as the use of imaging
      end-points is becoming more accepted by the FDA and the number of compounds
      being tested by pharmaceutical companies continues to increase. We estimate
      the
      annual growth rate for the market at 40% to 60% for the next five years. Our
      estimates are based on a bottom-up calculation of the individual growth rates
      of
      the companies and academic centers within the industry. Some of the largest
      players, which offer the broadest set of capabilities, are growing even faster.
      Specifically, Bio-Imaging Technologies, Perceptive (division of Parexel), Synarc
      and Beacon Bioscience.
We
      have
      also conducted extensive market research to fully understand the potential
      market opportunity for image analysis and image-based biomarker development
      for
      clinical drug studies. This research entailed meetings and phone interviews
      with
      leading experts in the areas of medical imaging, drug development and medical
      research, and with specialists in neurology, oncology and musculoskeletal
      disorders. More than 20 companies and academic centers (which serve as clinical
      trial sites) participated in our market research. Based on this research, we
      estimate that the market, which has projected sales of $140 million in 2005,
      has
      the potential to continue to grow at a 50% annual rate to reach $1.0 billion
      in
      total sales by 2010.
12
The
      following table displays the number of drugs, in all therapeutic areas,
      currently in Phases II and III, the average number of patients in a study,
      which
      is based on our own experience and confirmed through market research, and the
      average number of scans per patient annually. We have assumed that within the
      next five years between 25% and 40% of clinical trials will be using MRI or
      CT
      to determine efficacy. We estimate that approximately 35% of clinical trials
      can
      use imaging end-points to better determine efficacy. These include oncology,
      musculoskeletal and neurology clinical trials, and cardiology trials. The $750
      assumed charge per image is based on our current price of $800 and the average
      market rate for premium image analysis services.
Total
      Market Potential in 2010
No.
                of Drug Trials*
%
                of Trials
using
                MRI/CT in 2010 in targeted areas
No.
                of Patients
No.
                of Revisits/
Annual
                Scans
Price
                Per
Image
Market
Potential
Phase
                I & II
2,107
35%
100
3
$750
$166
                million
Phase
                III
719
35%
1250
3
$750
$708
                million
Totals
2,826
$874
                million
*Source:
      Biospace.com (September 2005)
It
      is
      likely that this estimate of market potential is conservative. This is based
      on
      the fact that the number of drugs in Phase II and III studies will continue
      to
      increase due to the pharmaceutical companies' significant and growing R&D
      budgets, combined with the likelihood that greater than 35% of the studies
      will
      rely on MRI or CT imaging.
Market
      for Diagnostic Applications
Currently,
      more than 355 million people worldwide have arthritis (joint inflammation),
      according to published data. Arthritis is one of the most prevalent diseases
      and
      leading cause of disabilities in the United States, affecting nearly 46 million
      Americans of all ages, or about one of every six people. Arthritis is one of
      the
      most prevalent chronic health problems and the nation's leading cause of
      disability among Americans over age 15. There are more than 100 types of
      arthritis, such as osteoarthritis, rheumatoid arthritis (and juvenile rheumatoid
      arthritis), gout and psoriatic arthritis. Arthritis has been reported as the
      cause of disability more than any other chronic disease including back pain,
      heart or lung conditions, diabetes or cancer.
Osteoarthritis,
      a degenerative joint disease and one of the most common forms of arthritis,
      affects almost 190 million people worldwide (53% of arthritis patients) and
      20.7
      million Americans. It primarily affects the joint cartilage. It usually affects
      the weight-bearing joints, such as knee, feet, spine and fingers. It results
      in
      nearly 39 million physician visits annually in the United States, according
      to
      statistics from the Arthritis Foundation and Centers for Disease Control &
      Prevention, 2002 and 2005.
An
      increasing trend is the use of imaging technology, as it provides a non-invasive
      method, to diagnose and plan for the treatment of diseases. Currently, the
      aggregate market for medical imaging services by hospitals and imaging centers
      generates $48 billion in annual revenues. We plan to tap into this market by
      providing quantification and visualization services for existing MRI and CT
      imaging modalities.
There
      are
      approximately 20,000 CT scanners and 14,000 MRI scanners in use globally.
      Assuming one image per week is sent from each of the scanners to us for analysis
      at an average price per analysis of $250, the resulting opportunity approximates
      $850 million annually.
Image
      Analysis Solutions in Pharmaceutical and Medical Device Industries
Drug
      discovery and development has been constrained by the lack of accurate image
      analysis tools and appropriate image-based biomarkers. In many clinical studies,
      X-ray is the chosen modality for evaluating a compound's efficacy. X-ray imaging
      in drug discovery has significant limitations, which include:
13
·
partial
                or complete inability to detect changes in a region of interest due
                to
                poor contrast or occlusion;
·
subject
                to inter/intra-observer variability - error in radiologist measurements
                can amount to upwards of 30% for small structures of
                interest;
·
the
                need for a radiologist to perform manual tracings is not only subject
                to
                error, but is also time consuming;
                and
·
reliance
                on a radiologist for biomarker measurements results in very limited
                throughput.
The
      constraints mentioned above can add months and years to the drug discovery
      process.
The
      use
      of MRI and CT to determine drug efficacy is increasing, owing to its superior
      information content relative to X-ray. MRI and CT are more sensitive to
      pathology, provide higher contrast for soft tissue and are three-dimensional.
      These attributes improve the detection of disease and the ability to monitor
      disease progression over time. While MRI and CT are preferred modalities, they
      too suffer from the need to have a radiologist review the images, detect
      disease, monitor progression and, when necessary, perform manual
      calculations.
Diagnostic
      Service in the Arthritis Market
Outside
      of cardiovascular diseases, arthritis is the most common disease in the United
      States affecting the population at large. Arthritis is the source of at least
      44
      million visits to health care providers, 744,000 hospitalizations, and 4 million
      days of hospital care per year. Nearly 60% of persons with arthritis are in
      the
      working age population, and they have a low rate of labor force participation.
Disabilities
      and illness from arthritis have a sizable impact on the U.S. economy. The
      estimated cost of arthritis is about $64.8 billion. Of this amount, 24% was
      attributable to direct medical costs and 76% was attributable to indirect costs
      from lost wages. Drug sales of anti-arthritics in the United States totaled
      $1.7
      billion for the year ended November 1998 for 70.5 million prescriptions
      dispensed. In the United States, more than $35 billion is spent annually on
      medical expenses and lost wages related to osteoarthritis, according to the
      CDC.
In
      the
      early stages, arthritis is generally treated with conservative nonsurgical
      measures. Ultimately, if the disease does not respond to these options, several
      surgical remedies (i.e., arthroscopic surgery and cartilage grafting) are used.
      Joint replacement is often used to relieve the pain and disability that
      accompanies all types of arthritis.
Early
      diagnosis is important to begin treatment that can help relieve pain, improve
      mobility and minimize long-term disability. Currently, patients go through
      a
      long "trial-and-error" period with their physicians in an attempt to find a drug
      or appropriate life style change that relieves pain without causing severe
      side
      effects.
Intellectual
      Property
We
      depend
      on our ability to develop and maintain the proprietary aspects of our technology
      to distinguish our services from our competitors' products and services. We
      consider our patented technology and the technology for which we have applied
      for patent protection to be of material importance to our business plan. We
      hold 6
patents
      issued by the United States Patent and Trademark Office
.
      We have
      also applied for a number of other patents, both domestically and in foreign
      jurisdictions. To protect our proprietary technology, we rely primarily on
      a
      combination of confidentiality procedures, copyright, trademark and patent
      laws.
      Our policy is to require employees and consultants to execute confidentiality
      and invention assignment agreements upon the commencement of their relationship
      with us. These agreements provide that confidential information developed or
      made known during the course of a relationship with us must be kept confidential
      and not disclosed to third parties except in specific circumstances and for
      the
      assignment to us of intellectual property rights developed within the scope
      of
      the employment relationship.
14
Competition
Our
      competition is largely comprised of a limited number of university research
      centers that are working on developing the next generation of image analysis
      tools. Aside from the university centers, there are a few commercial entities
      that have a desire to provide these advanced image services; however, we believe
      they are constrained by their lack of technical capabilities.
One
      group
      of potential competitors is clinical research organizations providing clinical
      trial services to pharmaceutical companies. As of the date of this report,
      we
      believe that none of the leading CROs have technology capabilities that are
      comparable to our technology.
CROs
      typically provide manual and non-differentiated interpretation of medical images
      for the pharmaceutical industry. The second group of competitors are technology
      companies that provide 3D visualization technology to medical equipment
      manufacturers and hospitals. We may compete with these companies in providing
      diagnostics services to the market.
We
      believe that currently there is an opportunity for us to establish a technology
      advantage and a set of differentiated services in the advanced image-based
      biomarker market.
Competitors
      in Accelerating Pharmaceutical and Medical Device Development
The
      main
      CROs which participate in imaging trials are Bio-Imaging Technologies, Synarc,
      Perceptive and Beacon Bioscience. These companies use heavily manual approaches
      that are unable to quantify minute structures in medical images. As a result,
      it
      may be difficult for them to offer differentiated services to achieve large
      margins. Additionally, some academic centers have worked on software that has
      applications for neurological diseases. These academic centers include Duke
      Image Analysis Laboratory, University of Pennsylvania, University of Montreal
      and University of California at San Francisco. However, we believe these
      organizations lack the required FDA compliance standards and ability to scale
      their operations to meet customer demand and we believe they offer inferior
      technology.
Based
      on
      our research and feedback from our customers, we believe that our technology
      is
      superior to the technologies and methods currently utilized by CROs because
      of
      our patented autosegmentation capabilities, patent-pending data processing
      techniques and orthogonal and multi-sequence fusion. These proprietary
      processing techniques enhance the MRI or CT data file and allow for segmentation
      of the most complex structures that are critical to evaluation of disease
      progression. For example, currently CROs are unable to provide automated
      volumetric quantification of meniscus volume, bone marrow edema volume, T2
      lesions volume and cartilage roughness. Our work has shown that all of these
      end-points are critical markers for determining the stage of osteoarthritis
      in
      patients.
We
      believe CROs recognize the pharmaceutical industry's desire to have a quicker,
      less costly and more efficient means of determining efficacy through imaging,
      but they have not focused on developing the technology. It is highly likely
      that
      CROs will obtain the desired capabilities through the acquisition of a company
      that has developed the necessary image analysis technology. Given that there
      are
      a limited number of entities with automated segmentation and measurement
      technology, an acquisition of such an entity by a CRO would position the CRO
      at
      the forefront of a growing market.
Academic
      institutions such as the University of Pennsylvania, University of Montreal
      and
      University of California at San Francisco tend to have more advanced technology
      than their commercial peers. However, their commercial efforts are constrained
      by being part of an academic institution.
Indirect
      Competitors in Diagnostic Market
Our
      three-dimensional visualization software offers significant advantages for
      viewing joint images. Our software is able to not only create 3D visualization,
      but also to separate a volume into its component structures, i.e., hard tissues,
      such as bones, and soft tissues, including muscles, fat, skin and vasculature.
      Low-contrast images and those with non-homogeneous gross intensity are
      automatically segmented as well as, and as easily as, high-contrast image data
      files. The successful segmentation of both high and low-contrast image data
      files is an important breakthrough in medical image analysis. This capability
      allows an analyst to focus on specific biomarkers and obtain volume and shape
      measurements of biological structures, such as cartilage, meniscus, fluid and
      bone narrow edema.
15
The
      need
      to diagnose and to provide treatment and surgical planning for osteoarthritis
      patients is not a new problem. As a result, many large and small companies
      have
      been trying to find a solution. The treatment and surgical planning for a number
      of diseases is hampered by the lack of appropriate measurements and
      visualization tools. It is difficult and extremely challenging to determine
      compound efficacy in a disease such as osteoarthritis.
We
      have
      identified the research efforts of the following companies as potential
      competition due to our attempts to solve similar problems. These companies
      are
      Vital Images, Cedara, Medical Media Systems, R2 Technology and ViaTronix.
      Customers such as GE Healthcare, Philips, Siemens and Toshiba currently use
      software from these companies.
Government
      Regulation
Healthcare
      is heavily regulated by the federal government, and by state and local
      governments. The federal laws and regulations affecting healthcare change
      constantly, thereby increasing the uncertainty and risk associated with any
      healthcare-related company such as VirtualScopics.
The
      federal government regulates healthcare through various agencies, including
      the
      following:
·
the
                Food and Drug Administration, or FDA, which administers the Food,
                Drug,
                and Cosmetic Act, or FD&C Act, as well as other relevant
                laws;
·
Centers
                for Medicare & Medicaid Services, or CMS, which administers the
                Medicare and Medicaid programs;
·
the
                Office of Inspector General, or OIG, which enforces various laws
                aimed at
                curtailing fraudulent or abusive practices, including by way of example,
                the Anti-Kickback Law, the Anti-Physician Referral Law, commonly
                referred
                to as Stark, the Anti-Inducement Law, the Civil Money Penalty Law,
                and the
                laws that authorize the OIG to exclude health care providers and
                others
                from participating in federal healthcare programs;
                and
·
the
                Office of Civil Rights which administers the privacy aspects of the
                Health
                Insurance Portability and Accountability Act of 1996, or
                HIPAA.
All
      of
      the aforementioned are agencies within the Department of Health and Human
      Services, or HHS. Healthcare is also provided or regulated, as the case may
      be,
      by the Department of Defense through its TriCare program, the Public Health
      Service within HHS under the Public Health Service Act, the Department of
      Justice through the Federal False Claims Act and various criminal statutes,
      and
      state governments under the Medicaid program and their internal laws regulating
      all healthcare activities.
FDA
We
      currently meet the requirements of
Good
      Clinical Practices: Consolidated Guidance
,
      which
      governs the conduct of clinical trials, and our software complies with the
      FDA's
      Regulation 21 CFR Part 11 (Electronic Records; Signatures) and 21 CFR Part
      820.30, which outline the requirements for design controls in medical
      devices.
The
      FDA
      regulates medical devices. A "medical device," or device, is as an article,
      including software and software associated with another medical device, which,
      among other things, is intended for use in the diagnosis of disease or other
      conditions, or in the cure, mitigation, treatment or prevention of disease,
      in
      man or other animals. Computer software that complements a CT or MRI scan,
      such
      as VirtualScopics, is considered a medical device and is therefore subject
      to
      FDA regulation. Even when used to assist clinical trials, the software may
      be
      considered a medical device subject to clearance or approval by the FDA, as
      discussed below, depending on how the software is used.
16
To
      date,
      no such FDA clearance or approval has been sought or granted and, accordingly,
      our sales have been limited to those uses not requiring FDA clearance or
      approval. Absent such approval or clearance and to comply with the FD&C Act,
      our current sales to pharmaceutical companies for use in clinical drug trials
      is
      limited to those protocols where the image-based product is used by radiologists
      to facilitate their observations of and to document MRI or CT scans. Our
      significant growth in the clinical drug trial area depends on acceptance by
      the
      FDA of image-based biomarkers for new drug approvals. No assurance can be given
      that the FDA will continue or increase acceptance of biomarkers for new drug
      approvals. We would need to obtain FDA clearance or approval, as discussed
      below, before using our technology and services for diagnostic or treatment
      planning in a clinical setting or as part of a clinical trial. No assurance
      can
      be given that such clearance or approval would be granted or that it would
      be
      granted in a timely manner.
Devices
      are subject to varying levels of regulatory control, the most comprehensive
      of
      which requires that a clinical evaluation be conducted before a device receives
      approval for commercial distribution. In the United States, we generally are
      able to obtain permission to distribute a new device in two ways. The first
      applies to any new device that is substantially equivalent to a device first
      marketed prior to May 1976. In this case, to obtain FDA permission to distribute
      the device, we generally must submit a premarket notification application (a
      section 510(k) submission), and receive an FDA order finding substantial
      equivalence to a device (first marketed prior to May 1976) and permitting
      commercial distribution of that device for its intended use. A 510(k) submission
      must provide information supporting its claim of substantial equivalence to
      the
      predicate device.
If
      clinical data from human experience are required to support the 510(k)
      submission, these data must be gathered in compliance with investigational
      device exemption (IDE) regulations for investigations performed in the
      United States. The 510(k) process is normally used for software products of
      the
      type that we propose distributing. The FDA review process for premarket
      notifications submitted pursuant to section 510(k) takes on average about 90
      days, but it can take substantially longer if the agency has concerns, and
      there
      is no guarantee that the agency will "clear" the device for marketing, in which
      case the device cannot be distributed in the United States. Nor is there any
      guarantee that the agency will deem the article subject to the 510(k) process,
      as opposed to the more time-consuming and resource intensive and problematic,
      premarket approval, or PMA, process described below.
The
      second, more comprehensive, approval process applies to a new device that is
      not
      substantially equivalent to a pre-1976 product. In this case, two steps of
      FDA
      approval generally are required before we can market the product in the United
      States. First, we must comply with IDE regulations in connection with any human
      clinical investigation of the device. Second, the FDA must review our PMA
      application, which contains, among other things, clinical information acquired
      under the IDE. The FDA will approve the PMA application if it finds there is
      reasonable assurance the device is safe and effective for its intended
      use.
Certain
      changes to existing devices that do not significantly affect safety or
      effectiveness can be made with in
vitro
testing
      under reduced regulatory procedures, generally without human clinical trials
      and
      by filing a PMA supplement to a prior PMA. Exported devices are subject to
      the
      regulatory requirements of each country to which the device is exported, as
      well
      as certain FDA export requirements.
After
      approval or clearance to market is given, the FDA and foreign regulatory
      agencies, upon the occurrence of certain events, have the power to withdraw
      the
      clearance or require changes to a device, its manufacturing process, or its
      labeling or additional proof that regulatory requirements have been
      met.
A
      device
      manufacturer is also required to register with the FDA. As a result, we may
      be
      subject to periodic inspection by the FDA for compliance with the FDA's Quality
      System Regulation requirements and other regulations. In the European Community,
      we are required to maintain certain International Organization for
      Standardization (ISO) certifications in order to sell product and to
      undergo periodic inspections by notified bodies to obtain and maintain these
      certifications. These regulations require us to manufacture products and
      maintain documents in a prescribed manner with respect to design, manufacturing,
      testing and control activities. Further, we are required to comply with various
      FDA and other agency requirements for labeling and promotion. The Medical Device
      Reporting regulations require that we provide information to the FDA whenever
      there is evidence to reasonably suggest that a device may have caused or
      contributed to a death or serious injury or, if a malfunction were to occur,
      could cause or contribute to a death or serious injury. In addition, the FDA
      prohibits us from promoting a medical device for unapproved
      indications.
17
Medicare
      and Medicaid
Inasmuch
      as a significant percentage of the projected patient population that could
      potentially benefit from our device are elderly, Medicare would likely be a
      potential source of reimbursement. Medicare is a federal program that provides
      certain hospital and medical insurance benefits to persons age 65 and over,
      certain disabled persons, persons with end-stage renal disease, and those
      suffering from Lou Gehrig's Disease. In contrast, Medicaid is a medical
      assistance program jointly funded by federal and state governments and
      administered by each state pursuant to which benefits are available to certain
      indigent patients. The Medicare and Medicaid statutory framework is subject
      to
      administrative rulings, interpretations and discretion that affect the amount
      and timing of reimbursement made under Medicare and Medicaid.
Medicare
      reimburses for medical devices in a variety of ways depending on where and
      how
      the device is used. However, Medicare only provides reimbursement if CMS
      determines that the device should be covered and that the use of the device
      is
      consistent with the coverage criteria. A coverage determination can be made
      at
      the local level by the Medicare administrative contractor (formerly called
      carriers and fiscal intermediaries), a private contractor that processes and
      pays claims on behalf of CMS for the geographic area where the services were
      rendered, or at the national level by CMS through a National Coverage
      Determination. There are new statutory provisions intended to facilitate
      coverage determinations for new technologies, but it is unclear how these new
      provisions will be implemented. Coverage presupposes that the device has been
      cleared or approved by the FDA and further, that the coverage will be no broader
      than the approved intended uses of the device (
i.e
.,
      the
      device's label) as approved or cleared by the FDA, but coverage can be narrower.
      In that regard, a coverage determination may be so limited that relatively
      few
      patients will qualify for a covered use of the device; a narrow Medicare
      coverage determination may undermine the commercial viability of the device.
A
      coverage determination, whether local or national, is a time-consuming,
      expensive and highly uncertain proposition especially for a new technology
      and
      inconsistent local determinations are possible. On average, according to an
      industry report, Medicare coverage determinations for medical devices lag 15
      months to five years or more behind FDA approval for that device. Moreover,
      Medicaid programs and private insurers are frequently influenced by Medicare
      coverage determinations.
Even
      if
      Medicare covers a device for certain uses, that does not mean that the level
      of
      reimbursement will be sufficient for commercial success. The Medicare
      reimbursement levels for covered procedures are determined annually through
      two
      sets of rulemakings, one for outpatient departments of hospitals under the
      Outpatient Prospective Payment System, or OPPS, and the other, for procedures
      in
      physicians' offices under the Resource-Based Relative Value Scales, or RBRVS
      (
i.e
.,
      Medicare fee schedule). If the use of a device is covered by Medicare, a
      physician's ability to bill a Medicare patient more than the Medicare allowable
      amount is significantly constrained by the rules limiting balance billing.
      For
      covered services in a physician's office, Medicare normally pays 80% of the
      Medicare allowable amount and the beneficiary pays the remaining 20%, assuming
      that the beneficiary has met his or her annual Medicare deductible and is not
      also a Medicaid beneficiary. For services performed in an outpatient department
      of a hospital, the patient's co-payment under Medicare may exceed 20% depending
      on the service. Usually, Medicaid pays less than Medicare, assuming that the
      state covers the service. In addition, private payors, including managed care
      payors, increasingly are demanding discounted fee structures and the assumption
      by healthcare providers of all or a portion of the financial risk. Efforts
      to
      impose greater discounts and more stringent cost controls upon healthcare
      providers,
e.g
.,
      physicians, by private and public payors are expected to continue.
Fraud
      and
      Abuse
There
      are
      extensive federal and state laws and regulations prohibiting fraud and abuse
      in
      the healthcare industry that can result in significant criminal and civil
      penalties that can materially affect us. These federal laws include, by way
      of
      example, the following:
·
The
                anti-kickback statute prohibits certain business practices and
                relationships that might affect the provision and cost of healthcare
                services reimbursable under Medicare, Medicaid and other federal
                healthcare programs, including the payment or receipt of remuneration
                for
                the referral of patients whose care will be paid by Medicare or other
                governmental programs;
18
·
The
                physician self-referral prohibition (commonly referred to as the
                Stark
                Law), which prohibits referrals by physicians of Medicare or Medicaid
                patients to providers of a broad range of designated healthcare services
                in which the physicians (or their immediate family members) have
                ownership
                interests or with which they have certain other financial
                arrangements;
·
The
                anti-inducement law, which prohibits providers from offering anything
                to a
                Medicare or Medicaid beneficiary to induce that beneficiary to use
                items
                or services covered by either
                program;
·
The
                False Claims Act, which prohibits any person from knowingly presenting
                or
                causing to be presented false or fraudulent claims for payment to
                the
                federal government (including the Medicare and Medicaid programs);
                and
·
The
                Civil Monetary Penalties, which authorizes the United States Department
                of
                Health and Human Services to impose civil penalties administratively
                for
                fraudulent or abusive acts.
Sanctions
      for violating these federal laws include criminal and civil penalties that
      range
      from punitive sanctions, damage assessments, money penalties, imprisonment,
      denial of Medicare and Medicaid payments, or exclusion from the Medicare and
      Medicaid programs, or both. These laws also impose an affirmative duty on those
      receiving Medicare or Medicaid funding to ensure that they do not employ or
      contract with persons excluded from the Medicare and other government
      programs.
Many
      states have adopted or are considering legislative proposals similar to the
      federal fraud and abuse laws, some of which extend beyond the Medicare and
      Medicaid programs to prohibit the payment or receipt of remuneration for the
      referral of patients and physician self-referrals regardless of whether the
      service was reimbursed by Medicare or Medicaid. Many states have also adopted
      or
      are considering legislative proposals to increase patient protections, such
      as
      limiting the use and disclosure of patient specific health information. These
      state laws also impose criminal and civil penalties similar to the federal
      laws.
In
      the
      ordinary course of their business, medical device manufacturers and suppliers
      have been and are subject regularly to inquiries, investigations and audits
      by
      federal and state agencies that oversee these laws and regulations. Recent
      federal and state legislation has greatly increased funding for investigations
      and enforcement actions which have increased dramatically over the past several
      years. This trend is expected to continue. Private enforcement of healthcare
      fraud also has increased due in large part to amendments to the civil False
      Claims Act in 1986 that were designed to encourage private persons to sue on
      behalf of the government. These whistleblower suits by private persons may
      be
      filed by almost anyone, including present and former patients or nurses and
      other employees, and even competitors. HIPAA, in addition to its privacy
      provisions, created a series of new healthcare related crimes.
As
      federal and state budget pressures continue, federal and state administrative
      agencies may also continue to escalate investigation and enforcement efforts
      to
      root out waste and to control fraud and abuse in governmental healthcare
      programs. A violation of any of these federal and state fraud and abuse laws
      and
      regulations could have a material adverse effect on a suppliers' liquidity and
      financial condition. An investigation into the use of a device by physicians
      may
      dissuade physicians from either purchasing or using the device.
Privacy
      Provisions of HIPAA
HIPAA,
      among other things, protects the privacy and security of individually
      identifiable health information by limiting its use and disclosure. HIPAA
      directly regulates "covered entities" (healthcare providers, insurers and
      clearinghouses) and indirectly regulates "business associates" with respect to
      the privacy of patients' medical information. All entities that receive and
      process protected health information are required to adopt certain procedures
      to
      safeguard the security of that information. It is uncertain whether we would
      be
      deemed to be a covered entity under HIPAA and it is unlikely that we would,
      based on our current business model, be a business associate. Nevertheless,
      we
      will likely be contractually required to physically safeguard the integrity
      and
      security of any patient information that we receive, store, create or transmit.
      If we fail to adhere to our contractual commitments, then our physician
      customers may be subject to civil monetary penalties.
19
Employees
As
      of
      November 4, 2005, we had 41 employees and six contract radiologists. Of our
      employees, 33 are full-time, four have Ph.D.'s and six have a master's degree in
      their respective scientific fields.
Cautionary
      Statements
We
      have a limited operating history, which limits the information available to
      you
      to evaluate our business, and have a history of operating losses and uncertain
      future profitability.
VirtualScopics
      was formed in July 2000 and began generating revenue in December 2000.
      VirtualScopics has incurred significant losses from operating activities since
      it began operations, including cumulative net losses of $7.9 million (as of
      June
      30, 2005) over the last four and a half years. Limited operating and financial
      information is available to evaluate our historical performance and future
      prospects. Thus, we face the risks and difficulties of an early-stage company
      including the uncertainties of market acceptance, competition, cost increases
      and delays in achieving business objectives. There can be no assurance that
      we
      will succeed in addressing any or all of these risks or that we will achieve
      future profitability, and the failure to do so would have a material adverse
      effect on our business, financial condition and operating results.
Because
      the image-based biomarker technologies industry is new and evolving, its future
      growth or ultimate size is difficult to predict. Our business will not grow
      if
      the use of image-based biomarkers does not continue to grow.
We
      are a
      provider of image-based biomarker solutions in the emerging image-based
      biomarker industry. Our industry is in the early stages of market acceptance
      of
      products and related services and is subject to rapid and significant
      technological change. Because of the new and evolving nature of technologies
      comprising image-based biomarker solutions and services, it is difficult to
      predict the size of the image-based biomarker market, the rate at which the
      market for our services will grow or be accepted, if at all, or whether emerging
      technologies will render our services less competitive or obsolete. If the
      market for our services fails to develop or grows more slowly than anticipated,
      we would be significantly and materially adversely affected.
If
      our products and services do not achieve market acceptance, we may not achieve
      our revenue and earnings goals in the time projected, or at all.
If
      we are
      unable to operate our business as contemplated by our business model or if
      the
      assumptions underlying our business model prove to be unfounded, we could fail
      to achieve our revenue and earnings goals within the time we have projected,
      or
      at all, which would have a detrimental effect on our businesses. Our ability
      to
      generate revenues is highly dependent on building and maintaining relationships
      with leading pharmaceutical, medical device, medical technology and healthcare
      companies. No assurance can be given that a sufficient number of such companies
      will demand our services or other image-based biomarker services, thereby
      expanding the overall market for image-based biomarker services and enabling
      us
      to increase our revenue to the extent expected. In addition, the rate of the
      market's acceptance of MRI and CT image-based biomarkers cannot be predicted.
      Failure to attract and maintain a significant customer base would have a
      detrimental effect on our business, operating results and financial condition.
Our
      future growth will be harmed if we are unsuccessful in developing and
      maintaining good relationships with marketing and distribution
      entities.
Our
      business strategy may in the future be dependent on our ability to develop
      relationships with marketing and distribution entities such as CROs, and medical
      technology companies that allow us to increase our throughput capacity,
      specifically for conducting Phase III clinical trials. These entities recommend
      our services to our clients, provide us with referrals and help us build
      presence in the market. These relationships require a significant amount of
      time
      to develop. Currently, we have established a limited number of these
      relationships. We must expand current relationships and establish new
      relationships to grow our business in accordance with our business plan. We
      may
      not be able to identify, establish, expand and maintain good relationships
      with
      quality distribution entities. Additionally, it is uncertain that such
      relationships will fully support and recommend our services. Our failure to
      identify, establish, expand and maintain good relationships with quality
      marketing and distribution entities would have a material and adverse effect
      on
      our business.
20
We
      are dependent on our strategic alliance with Pfizer until we can diversify
      our
      customer base, and a significant portion of our resources are required to
      maintain this alliance.
While
      we
      continue to pursue a broad range of customers, our agreement with Pfizer will
      require us to devote a substantial portion of our business efforts to this
      strategic alliance. We currently project that Pfizer projects will represent
      approximately 70% of our revenue in 2005. We anticipate that our revenues from
      Pfizer will continue to grow, however, the relative percentage of the Pfizer
      business will decline as we continue to broaden our customer base. Therefore,
      at
      present, our results will depend heavily on our strategic alliance with Pfizer
      and the delivery of our services to Pfizer. Additionally, Pfizer may terminate
      its contractual relationship with us for any or no reason on 30 days' advance
      notice. A decision by Pfizer to discontinue or limit our relationship could
      have
      a material adverse impact on our business.
The
      majority of the contracts we have with customers are cancelable for any reason
      by giving 30 days' advance notice.
Our
      customers typically engage us to perform services for them on a
      project-by-project basis and are required by us to enter into a written
      contractual agreement for the work, labor and services to be performed.
      Generally, our project contracts are terminable by the customer for any or
      no
      reason on 30 days' advance notice to us. If a number of our customers were to
      exercise cancellation rights, our business and operating results would be
      materially and adversely affected.
Our
      operating results will be harmed if we are unable to manage and sustain our
      growth.
Our
      business is unproven on a large scale and actual operating margins may be less
      than expected. If we are unable to scale our capacity efficiently, we may fail
      to achieve expected operating margins, which would have a material and adverse
      effect on our operating results.
Our
      products and services may become obsolete if we do not effectively respond
      to
      rapid technological change on a timely basis.
Our
      services are new and our business model is evolving. Our services depend on
      the
      needs of our customers and their desire to utilize image-based biomarkers in
      drug development, new medical device development and clinical diagnosis and
      treatment. Since the image-based biomarker industry is characterized by evolving
      technologies, uncertain technology and limited availability of standards, we
      must respond to new research findings and technological changes affecting our
      customers and alliance partners. We may not be successful in developing and
      marketing, on a timely and cost-effective basis, new or modified products and
      services, which respond to technological changes, evolving customer requirements
      and competition. If we are unsuccessful in this regard, our business and
      operating results could be materially and adversely affected.
If
      we fail to recruit and retain qualified senior management and other key
      personnel, we will not be able to execute our business
      plan.
Our
      business plan requires us to hire a number of qualified personnel, as well
      as
      retain our current key management employees. The industry is characterized
      by
      heavy reliance on luminaries and opinion leaders in the therapeutic areas.
      We
      must, therefore, attract leading medical and engineering talent both as
      full-time employees and as collaborators, to be able to execute our business
      strategy. Presently, our key senior management and key employees are: Dr. Saara
      Totterman, Chief Medical Officer, Dr. Jose Tamez-Pena, Chief Technology Officer,
      and Dr. Edward Ashton, Vice President of Product Development.
We
      have
      not entered into employment agreements with any members of our key senior
      management team, although our agreements with some of these members contain
      confidentiality and non-competition provisions. The loss of the services of
      one
      or more of our senior managers could impair our ability to execute our business
      plan, which could hinder the development of products and services and materially
      and adversely affect our business and results of operation.
21
If
      we fail to protect our intellectual property, our current competitive strengths
      could be eroded and we could lose customers, market share and
      revenues.
Our
      viability will depend on our ability to develop and maintain the proprietary
      aspects of our technology to distinguish our service from our competitors'
      products and services. To protect our proprietary technology, we rely primarily
      on a combination of confidentiality procedures, copyright, trademark and patent
      laws.
We
      hold
      United
States
patents
      which begin to expire in November 2018 and end in October 2022. We have a number
      of foreign filings pending, or issued, which cover the technology that is the
      subject of our United States patents. We also have a number of pending United
      States patent applications with corresponding foreign filings. In addition,
      we
      are developing a number of new innovations for which we intend to file patent
      applications. No assurance can be given that any of these patents will afford
      meaningful protection against a competitor or that any patent application will
      be issued. Patent applications filed in foreign countries are subject to laws,
      rules, regulations and procedures that differ from those of the United States,
      and thus there can be no assurance that foreign patent applications related
      to
      United States patents will issue. If these foreign patent applications issue,
      some foreign countries provide significantly less patent protection than the
      United States. In addition, our contractual relationships, including our
      strategic alliance with Pfizer, gives proprietary rights, including ownership
      rights, in proprietary technology to parties other than us. The status of
      patents involves complex legal and factual questions and the breadth of claims
      issued is uncertain. Accordingly, there can be no assurance that our patents,
      and any patents that may be issued to us in the future, will afford protection
      against competitors with similar technology. No assurance can be given that
      patents issued to us will not be infringed upon or designed around by others
      or
      that others will not obtain patents that we would need to license or design
      around. If others' existing or future patents containing broad claims are upheld
      by the courts, the holders of such patents could require companies, including
      us, to obtain licenses or else to design around those patents. If we are found
      to be infringing third-party patents, there can be no assurance that any
      necessary licenses would be available on reasonable terms, if at
      all.
Despite
      our efforts to protect our proprietary rights, unauthorized parties may attempt
      to copy aspects of our products and services or obtain and use information
      that
      we regard as proprietary. Unauthorized use of our proprietary technology could
      harm our business. Litigation to protect our intellectual property rights can
      be
      costly and time-consuming to prosecute, and there can be no assurance that
      we
      will be able to enforce our rights or prevent other parties from developing
      similar technology or designing around our intellectual property.
Although
      we believe that our products and services do not and will not infringe upon
      the
      patents or violate the proprietary rights of others, it is possible such
      infringement or violation has occurred or may occur which could have a material
      adverse effect on our business.
Our
      business is heavily reliant upon patented and patentable systems and methods
      used in our image-based biomarker solutions and related intellectual property.
      In the event that products and services we sell are deemed to infringe upon
      the
      patents or proprietary rights of others, we could be required to modify our
      products and services or obtain a license for the manufacture and/or sale of
      such products and services. In such event, there can be no assurance that we
      would be able to do so in a timely manner, upon acceptable terms and conditions,
      or at all, and the failure to do any of the foregoing could have a material
      adverse effect upon our business. Moreover, there can be no assurance that
      we
      will have the financial or other resources necessary to enforce or defend a
      patent infringement or proprietary rights violation action. In addition, if
      our
      products and services or proposed products and services are deemed to infringe
      or likely to infringe upon the patents or proprietary rights of others, we
      could
      be subject to injunctive relief and, under certain circumstances, become liable
      for damages, which could also have a material adverse effect on our
      business.
We
      are subject to numerous pharmaceutical, medical device and healthcare industry
      regulations, which could adversely affect the nature and extent of the products
      and services we offer.
Many
      aspects of the pharmaceutical, medical device and healthcare industry are
      subject to regulation at the federal level. From time to time, the regulatory
      entities that have jurisdiction over the industry adopt new or modified
      regulations or take other actions as a result of their own regulatory processes
      or as directed by other governmental bodies. This changing regulatory
      environment could adversely affect the nature and extent of the services we
      are
      able to offer.
To
      date,
      our sales have been limited to those uses not requiring FDA clearance or
      approval. To significantly expand our business, we would need to obtain FDA
      clearance or approval before marketing our products. There can be no assurance
      that such clearance or approval would be granted or that it would be granted
      in
      a timely manner. Our inability to obtain the requisite clearance or approval
      from the FDA may have a significant adverse financial impact on our operations
      and financial viability. To effectively market our products to physicians as
      a
      diagnostic and treatment aid, we would also need to obtain appropriate coverage
      and favorable reimbursement from third-party payors, such as Medicare. There
      can
      be no assurance that appropriate coverage would be granted or that reimbursement
      levels or conditions of coverage would be adequate to ensure acceptance among
      physicians.
22
We
      may in the future experience competition from academic sites and imaging
      CRO's.
Competition
      in the development of image-based biomarker technologies is expected to become
      more intense. Competitors range from university-based research and development
      projects to development stage companies and major domestic and international
      companies. Many of these entities have financial, technical, marketing, sales,
      distribution and other resources significantly greater than ours. There can
      be
      no assurance that we can continue to develop our biomaker technologies or that
      present or future competitors will not develop technologies that render our
      image-based biomaker technology obsolete or less marketable or that we will
      be
      able to introduce new products and product enhancements that are competitive
      with other products marketed by industry participants.
The
      trading price of our stock may be adversly affected if we are not able to
      expand.
Our
      future plans are based on the assumption that we will derive from the use of
      our
      technology in diagnostic products. We have also assumed that we would be able
      to
      fund the development and growth of this part of our business from, in part,
      our
      existing and projected revenue from pharmaceutical clinical trials. Before
      we
      can expand our business, will need significant further development and marketing
      of our technology for use in diagnostic products. We have not, at this time,
      identified all of the development and marketing requirements for this
      application of our technology. If we are unable to generate the necessary funds
      for this development and marketing and our expansion, we may be required to
      seek
      additional capital to fund these activities. In addition, if our plans or
      assumptions with respect to our business change or prove to be inaccurate,
      we
      may be required to use part or all of the net proceeds we received in the
      private placement to fund such expenses and/or seek additional capital. This
      will depend on a number of factors, including, but not limited to:
·
our
                ability to successfully market our
                products;
·
the
                growth and size of the image-based biomarker technology
                industry;
·
the
                market acceptance of our products and services; and
·
our
                ability to manage and sustain the growth of our
                business.
If
      we
      need to raise additional capital, it may not be available on acceptable terms,
      or at all. Our failure to obtain required capital would have a material adverse
      effect on our business. If we issue additional equity securities in the future,
      you could experience dilution or a reduction in priority of your
      securities.
There
      has been no active public market for our securities.
There
      has
      been no active public market for our stock to date. An active public market
      for
      our common stock may not develop or be sustained.
The
      market price of our common stock may fluctuate
      significantly.
The
      market price of our common stock may fluctuate significantly in response to
      factors, some of which are beyond our control, such as product liability claims
      or other litigation; the announcement of new products or product enhancements
      by
      us or its competitors; developments concerning intellectual property rights
      and
      regulatory approvals; quarterly variations in our competitors' results of
      operations; changes in earnings estimates or recommendations by securities
      analysts; developments in our industry; and general market conditions and other
      factors, including factors unrelated to our own operating
      performance.
23
Because
      we became public through a "reverse public offering," we may not be able to
      attract the attention of major brokerage firms.
Additional
      risks are associated with becoming public through a "reverse public offering."
      Securities analysts of major brokerage firms may not provide coverage of us
      since there is no incentive to brokerage firms to recommend the purchase of
      our
      common stock. No assurance can be given that brokerage firms will want to
      conduct any secondary public offerings on behalf of us in the
      future.
Our
      common stock may be considered a "penny stock" and may be difficult to
      sell.
The
      SEC
      has adopted regulations which generally define "penny stock" to be an equity
      security that has a market or exercise price of less than $5.00 per share,
      subject to specific exemptions. The market price of our common stock may drop
      below $5.00 per share and therefore may be designated as a "penny stock"
      according to SEC rules. This designation requires any broker or dealer selling
      these securities to disclose certain information concerning the transaction,
      obtain a written agreement from the purchaser and determine that the purchaser
      is reasonably suitable to purchase the securities. These rules may restrict
      the
      ability of brokers or dealers to sell our common stock and may affect the
      ability of our shareholders to sell their shares. In addition, since our common
      stock is currently quoted on the OTC Bulletin Board, our shareholders may find
      it difficult to obtain accurate quotations of our common stock and may
      experience a lack of buyers to purchase such stock or a lack of market makers
      to
      support the stock price.
A
      significant number of the shares of our common stock are eligible for sale,
      and
      their sale could depress the market price of the our common
      stock.
Sales
      of
      a significant number of shares of our common stock in the public market could
      harm the market price of our common stock. In the exchange transaction, we
      issued 17,326,571 shares of our common stock and agreed to issue 2,872,480
      shares pursuant to VirtualScopics options and warrants we assumed. Of the shares
      issued in the transaction, 16,050,914 shares are subject to lock-up agreements
      and over 90% shares issuable pursuant to options and warrants
      are
      subject to lock-up agreements. These lock-up agreements provide for periodic
      releases of the shares following the first anniversary and through the fourth
      anniversary of the exchange transaction. We issued 4,084.488 shares of our
      series A preferred stock in the private placement which are convertible into
      1,633,795 shares of our common stock. In the private placement, we also issued
      warrants for the purchase of up to an aggregate of 816,898 shares of common
      stock to investors and additional warrants to purchase 163,380 shares to the
      placement agent and its subagents. All of the securities issued in the exchange
      transaction and the private placement are restricted under federal securities
      laws. These shares will generally be eligible for sale under SEC Rule 144.
      In
      general, SEC Rule 144 provides that a person who has held restricted shares
      for
      a period of one year may, upon filing with the SEC of a notification on Form
      144, sell into the market common stock in an amount equal to the greater of
      1%
      of the outstanding shares or the average weekly number of shares sold in the
      last four weeks prior to such sale. Such sales may be repeated once each three
      months, and any of the restricted shares may be sold by a non-affiliate after
      they have been held two years. In addition, the shares of common stock issuable
      upon conversion of our series A preferred stock and exercise of the warrants
      issued in connection with the private placement, however, are entitled to be
      included in a shelf registration statement that we are required to file with
      the
      SEC on or before May 2, 2006 pursuant to agreed upon terms We also expect in
      the
      future to file a registration statement on Form S-8 to register the sale of
      shares issued pursuant to the assumed VirtualScopics options. Sales of our
      common stock either pursuant to Rule 144 or the a registration statement may
      have a depressive effect on the market for the shares of our common
      stock.
Our
      principal stockholders have significant voting power and may take actions that
      may not be in the best interests of other
      stockholders.
Our
      officers, directors, principal stockholders and their affiliates control
      approximately 73.4% of our voting securities. If these stockholders act
      together, they will be able to exert significant control over our management
      and
      affairs requiring stockholder approval, including approval of significant
      corporate transactions. This concentration of ownership may have the effect
      of
      delaying or preventing a change in control and might adversely affect the market
      price of our common stock. This concentration of ownership may not be in the
      best interests of all our stockholders.
We
      do not anticipate paying dividends in the foreseeable future, and the lack
      of
      dividends may have a negative effect on the stock
      price.
We
      currently intend to retain our future earnings to support operations and to
      finance expansion and, therefore, do not anticipate paying any cash dividends
      on
      our capital stock in the foreseeable future.
24
Cautionary
      Language Regarding Forward-Looking Statements and Industry
      Data
This
      report contains "forward-looking statements" within the meaning of the Private
      Securities Litigation Reform Act of 1995 that involve risks and uncertainties,
      many of which are beyond our control. Our actual results could differ materially
      and adversely from those anticipated in such forward-looking statements as
      a
      result of certain factors, including those set forth below and elsewhere in
      this
      report. Important factors that may cause actual results to differ from
      anticipated results include, but are not limited to, for example:
·
adverse
                economic conditions;
·
inability
                to raise sufficient additional capital to operate our
                business;
·
unexpected
                costs, lower than expected sales and revenues, and operating
                defects;
·
adverse
                results of any legal proceedings;
·
the
                volatility of our operating results and financial
                condition;
·
inability
                to attract or retain qualified senior management personnel, including
                sales and marketing, and scientific personnel;
                and
·
other
                specific risks that may be referred to in this
                report.
All
      statements, other than statements of historical facts, included in this report
      regarding our strategy, future operations, financial position, estimated revenue
      or losses, projected costs, prospects and plans and objectives of management
      are
      forward-looking statements. When used in this report, the words
"will,""may,""believe,""anticipate,""intend,""estimate,""expect,""project,""plan,""could,""would"
      and similar expressions are intended to identify forward-looking statements,
      although not all forward-looking statements contain such identifying words.
      All
      forward-looking statements speak only as of the date of this report. We do
      not
      undertake any obligation to update any forward-looking statements or other
      information contained herein. Potential investors should not place undue
      reliance on these forward-looking statements. Although we believe that our
      plans, intentions and expectations reflected in or suggested by the
      forward-looking statements in this report are reasonable, we cannot assure
      our
      stockholders or potential investors that these plans, intentions or expectations
      will be achieved. We disclose important factors that could cause our actual
      results to differ materially from its expectations under "Cautionary Statements"
      and elsewhere in this report. These cautionary statements qualify all
      forward-looking statements attributable to the company or persons acting on
      its
      behalf.
Information
      regarding market and industry statistics contained in this report is included
      based on information available to us that we believe is accurate. It is
      generally based on academic and other publications that are not produced for
      purposes of securities offerings or economic analysis. We have not reviewed
      or
      included data from all sources, and we cannot assure our stockholders or
      potential investors of the accuracy or completeness of the data included in
      this
      report. Forecasts and other forward-looking information obtained from these
      sources are subject to the same qualifications and the additional uncertainties
      accompanying any estimates of future market size, revenue and market acceptance
      of products and services. We have no obligation to update forward-looking
      information to reflect actual results or changes in assumptions or other factors
      that could affect those statements. See "Cautionary Statements" for a more
      detailed discussion of uncertainties and risks that may have an impact on future
      results.
Management's
      Discussion and Analysis or Plan of Operation
The
      following discussion should be read in conjunction with VirtualScopics'
      statement of financial position, and related statements of operations, changes
      in members' equity and cash flow as of and for the six months ended June 30,
      2005 (unaudited) and June 30, 2004 (unaudited) and the years ended December
      31,
      2004 and December 31, 2003, included elsewhere in this report. This discussion
      contains forward-looking statements, the accuracy of which involves risks and
      uncertainties. Our actual results could differ materially from those anticipated
      in the forward-looking statements for many reasons including, but not limited
      to, those discussed in "Cautionary Statements" and elsewhere in this report. We
      disclaim any obligation to update information contained in any forward-looking
      statements.
25
Overview
In
      July
      2000, VirtualScopics was formed after being spun out of the University of
      Rochester. In June 2002, VirtualScopics purchased the underlying technology
      and
      patents created by VirtualScopics' founders from the University. VirtualScopics
      owns all rights to the patents underlying its technology. See "Certain
      Relationships and Related Transactions-Acquisition of Intellectual Property
      from
      University of Rochester." Since VirtualScopics' inception, VirtualScopics'
      principal activities have consisted of:
·
research
                and development;
·
hiring
                technical, sales and other
                personnel;
·
business
                development of customer and strategic relationships;
                and
·
raising
                capital.
We
      derive
      revenue primarily through our image processing services. Revenues are recognized
      as the MRI and CT images that we process are quantified and delivered to our
      customers.
In
      2001,
      we earned revenue of $88,053 through image processing services mostly for
      Pfizer. In 2002, we generated revenue of $950,785. This increase over 2001
      reflected the increase in our business development activities. During 2002,
      we
      significantly expanded our contract services with Pfizer and earned revenue
      on
      15 new projects, as well as expanded our customer base with two new customers.
      Those contracts provided for nearly $2,800,000 in total payments.
We
      have
      found that our customers value the ability to better understand the efficacy
      profile of their compounds. To date, all customers have expressed interest
      in
      expanding their service agreements with us. We have also submitted proposals
      and
      bids for a number of other contracts. However, there can be no assurance that
      we
      will secure contracts from these efforts or that any such contracts or any
      of
      its existing contracts will not be cancelled on 30 days' advance notice by a
      customer.
Results
      of Operations
The
      following table sets forth selected consolidated operating results for each
      of
      the last two fiscal years and for each of the six months periods indicated,
      presented as a percentage of net sales:
26
For
                  the Year Ended
For
                  the Six Months Ended
Dec.
                  31,
2004
Dec.
                  31,
2003
June
                  30,
2005
June
                  30,
2004
($
                  in thousands)
(unaudited)
Statement
                  of Operations Data:
Revenue
$
2,516
$
3,013
$
1,690
$
1,364
Gross
                  profit
952
1,516
582
552
Operating
                  expenses
Research
                  and development
1,239
694
487
490
Sales
                  and marketing
496
541
270
252
General
                  and administrative
1,566
1,375
892
611
Loss
                  from operations
(2,349
)
(1,094
)
(1,067
)
(801
)
Interest
                  (expense)/income, net
(2
)
14
2
1
Net
                  loss
(2,351
)
(1,080
)
(1,065
)
(800
)
Results
      of Operations Six Months Ended June 30, 2005 Compared to Six Months Ended June
      30, 2004
Revenue
We
      had
      revenues of approximately $1.7 million for the first half of 2005. Through
      June
      30, 2005, we performed work for seven new customers and signed 19 new projects
      which provide for total payments of more than $3.6 million over the next 18
      months. The majority of the projects represent pre-clinical, Phase I and Phase
      II studies.
Our
      revenues for the first half of 2004 totaled approximately $1.4 million. The
      2005
      increase is attributable to a new cardiovascular project in February 2005.
      The
      project is expected to be for approximately 6 months and result in total
      billings of approximately $800,000.
Gross
      Profit
We
      had a
      gross profit of $582,000 for the six months ended June 30, 2005 compared to
      $552,000 for the comparable period in 2004. Our gross profit margin decreased
      as
      a percentage of revenue to approximately 34% for the six months ended June
      30,
      2005 compared to approximately 40% for the comparable period in 2004. This
      decrease is attributable to the product mix of our services as well as the
      hiring of two software developers and an image technician at the end of 2004
      in
      order to handle the anticipated increase in sales.
Operating
      Expenses
We
      had
      operating expenses for the first half of 2005 of $1,649,000, which consisted
      primarily of service costs related to revenues (image analysis, project
      management and radiology) and research and development costs which consisted
      mainly of algorithm development and software development on existing and new
      projects. General and administrative costs largely represent management and
      consulting services, as well as legal costs. This is an increase of
      approximately $296,000 over operating expenses for the same period of 2004.
      This
      increase is attributable to the increased amortization of approximately $80,000
      related to the right to use asset as well as hiring of a CEO in June 2004,
      prior
      to that time our Chief Operating Officer was the acting
      CEO.
Interest
      (Expense)/Income, net
Interest
      income for the six months ended June 30, 2005 was $14,013 comprised of interest
      derived on the company's operating and savings accounts, compared to interest
      income of $17,714 in the same period in 2004. The lower interest income in
      2005
      compared to 2004 resulted from the lower average cash balance in 2005. This
      interest income was partially offset by interest expense of $12,369, compared
      to
      interest expense in the same period in 2004 of $16,653. This interest expense
      was due to loans from certain VirtualScopics members.
27
Net
      Loss
Our
      net
      loss for the six months ended June 30, 2005 was approximately $1.1 million
      compared to a net loss of approximately $800,000 for the six months ended June
      30, 2004. The increase in our net loss over the prior period was primarily
      related to higher operating expenses.
Results
      of Operations Year Ended December 31, 2004 Compared to Year Ended December
      31,
      2003
Revenue
In
      2004,
      we had revenues of $2.5 million compared to 2003 revenue of $3.0 million. The
      $500,000 decline in 2004 was attributed to focus on compliance within the
      company to ensure compliance with FDA documentation standards. To date, we
      have
      been satisfactorily audited by five customers. The systems and processes that
      we
      use are compliant with Title 21, CFR Part 11. In 2004, we derived our revenues
      from the following activities: 64% from musculoskeletal projects, 13% from
      oncology services, 19% from consulting services, and 4% from neurology and
      sexual dysfunction services.
During
      2003, we brought on six new customers including Johnson & Johnson (DePuy).
      Our revenues for 2003 totaled $3.0 million, of which 77% was generated from
      Pfizer, 55% related to work performed for customers in musculoskeletal diseases,
      27% was derived in oncology studies, 11% was attributable to consulting services
      and 7% related to sexual dysfunction and neurology studies.
Gross
      Profit
Our
      gross
      profit for fiscal 2004 decreased to $952,000 compared to gross profit of $1.5
      million in 2003. This decline of approximately $564,000 was attributed to a
      decline in revenue over the prior period of approximately $500,000 and hiring
      of
      one image technician and two software developers in late 2004 in order to handle
      the increasing demands from customers.
Operating
      Expenses
The
      majority of our operating expenses are composed of salaries for our signal
      processing, software development and image analysis personnel. For the year
      ended December 31, 2004, as compared to the year ended December 31, 2003, total
      operating expenses increased from $2.6 million to $3.3 million. During this
      time, we added software developers, built out the image analysis operations
      staff, entered into collaboration agreements with leading physicians, invested
      in patenting our technology and hired additional personnel to strengthen our
      management team.
Interest
      (Expense)/Income, net
Interest
      income for the year ended December 31, 2004 was $27,440 comprised of interest
      derived on the company's operating and savings account, compared to interest
      income of $46,943 in the same period in 2003. 2004 interest income was offset
      by
      interest expense of $29,037, compared to interest expense in the same period
      in
      2003 of $32,721. This interest expense was primarily from loans from founders
      and the change was attributable to lower average principal balances to the
      loans.
Net
      Loss
We
      had a
      net loss approximately $2.4 million for 2004 compared to a net loss of
      approximately $1.1 million for 2003. This net loss was attributable to both
      our
      decrease in revenue and increase in operating expenses over 2003.
Liquidity
      and Capital Resources
Prior
      to
      the exchange transaction, VirtualScopics financed its operations through sales
      to customers, equity investments and loans by its founders, and by private
      placements of equity securities. The private placements included the issuance
      by
      VirtualScopics of series A preferred membership units in August 2001, which
      resulted in proceeds of $2.0 million, series B preferred membership units in
      June 2002, which resulted in proceeds of $2.5 million, and series C preferred
      membership units in December 2002, January 2003 and April 2003, which resulted
      in net proceeds of $4.5 million and the exercise of warrants by series A
      preferred unit holders in December 2004, which resulted in proceeds of $1.4
      million. All of these membership units were converted into shares of our common
      stock in the exchange transaction which closed on November 4, 2005.
28
On
      November 4, 2005, we closed on our private placement for the sale of 4,084.488
      shares of our newly issued series A convertible preferred stock. We received
      gross proceeds of $4,084,488 from the private placement. As of November 4,
      2005,
      including the cash proceeds from the private placement, we had approximately
      $3.6
million
      in cash and cash equivalents. We currently expect that existing cash and cash
      equivalents will be sufficient to fund operations for the next 12 months. If
      in
      the next 12 months our plans or assumptions change or prove to be inaccurate,
      we
      may be required to seek additional capital through public or private debt or
      equity financings. If we need to raise additional funds, we may not be able
      to
      do so on terms favorable to us, or at all. If we cannot raise sufficient funds
      on acceptable terms, we may have to curtail our level of expenditures and our
      rate of expansion.
Off
      Balance Sheet Arrangements
We
      have
      no off-balance sheet arrangements, other than the consulting agreements and
      operating leases (as described in "Contractual Obligations" below) that have or
      are reasonably likely to have a current or future effect that is material to
      investors on our financial condition, revenues or expenses, results of
      operations, liquidity, capital resources or capital expenditures.
Contractual
      Obligations
The
      following table summarizes our contractual obligations at December 31, 2004
      and
      the effects we expect such obligations to have on liquidity and cash flow in
      future periods.
Payments
                    Due by Period (in thousands)
Less
                    than
More
                    than
Total
1 Year
1-3 Years
3-5 Years
5 Years
Operating
                    Leases
$
241,080
$
179,788
$
61,292
$
—
—
Consulting
                    Agreements
(1)(2)
398,400
97,200
205,200
96,000
4,000/month
(1)
In
                connection with one of our consulting arrangement with Dr. Felix
                Eckstein,
                we also entered into a Services and Co-Marketing Agreement dated
                March 1,
                2004, in which we agreed to pay Chondrometrics GmbH, a German limited
                liability company, fees equal to 7% of gross revenues derived
                by
                us from certain services each year throughout the term of the agreement.
We
                are obligated to make minimum payments to Chondrometrics for the
                first
                three years of the agreement. As such we made a payment to Chondrometrics
                of $110,700 in 2004. In 2005, the minimum payment of $75,000 was
                made.
                Additionally, we are obligated to make a minimum payment of $60,000
                for
                the period ended March 31, 2007. The agreement terminates after three
                years unless terminated earlier pursuant to the agreement
for the
                12-month period ended March 31,
                2005.
(2)
We
                    are obligated to pay Kevin Parker a consulting fee of $4,000
                    per month
                    pursuant to our consulting agreement with him. The agreement
                    may be
                    terminated by either party upon 90 days, written notice. The
                    consulting
                    agreement payments set forth in the table do not include any
                    payments that
                    may be made to Mr. Parker more than 5 years from the date of
                    this
                    report.
Description
      of Property
In
      November 2003, VirtualScopics entered into a lease agreement for 12,258 square
      feet of office space at our corporate headquarters in Rochester, New York.
      The
      annual rent under the lease is approximately $184,000. The lease is for 30
      months ending in April 2006 and is renewable for an additional two-year term.
Security
      Ownership of Certain Beneficial Owners and Management
The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of November 7, 2005 by:
·
each
                person who is known by us to beneficially own 5% or more of our common
                stock;
·
each
                of our directors and executive officers;
                and
·
all
                of our directors and executive officers, as a
                group.
29
Name
Number
                of
Shares
Beneficially
Owned
(1)
Percentage
                of
Shares
Beneficially
Owned
(2)
5%
                or Greater Stockholders:
University
                of Rochester
(3)
4,641,975
19.4
%
Loeb
                Investors Company 147, LP
(4)
4,500,564
19.1
%
Dr.
                Jose Tamez-Pena
(5)
1,982,801
8.4
%
Pfizer
                Inc.
(6)
1,553,121
6.6
%
GE
                Healthcare
(7)
1,218,467
5.2
%
Directors
                and Executive Officers:
Robert
                Klimasewski
(4)(5)
39,442
*
Warren
                Bagatelle
(4)(5)
4,544,918
19.3
%
Molly
                Henderson, CPA
(5)
104,716
*
Dr.
                Saara Totterman
(5)
1,186,316
5.0
%
Sidney
                Knafel
(4)(5)
39,442
*
Directors
                and Executive Officers as a group (6 persons)
5,910,864
24.9
%
*
      Less
      than 1% of outstanding shares of common stock
(1)
Includes
                the conversion of all shares of series A preferred stock and the
                exercise
                of warrants to purchase common stock into common stock. Also includes
                options to purchase shares of VirtualScopics exercisable within sixty
                (60)
                days, which have been assumed by us. Each share of series A preferred
                stock is initially convertible into 400 shares of common stock at
                any
                time.
(2)
The
                calculation in this column is based upon 23,522,870 shares of common
                stock
                outstanding on November 7, 2005 (which assumes the conversion of
                all
                shares of series A preferred stock into common stock), plus the number
                of
                shares of common stock subject to outstanding options and warrants.
                The
                shares of common stock underlying such options and warrants are deemed
                outstanding for purposes of computing the percentage of the person
                holding
                such options but are not deemed outstanding for the purpose of computing
                the percentage of any other person.
(3)
Includes
                357,075 shares of common stock which may be purchased upon the exercise
                of
                an outstanding warrant. The address of the University of Rochester
                is
                Office of Technology Transfer, 610 Hylan Building, RC Box 270140,
                Rochester, NY 14627.
(4)
Mr.
                Bagatelle may be deemed to be the beneficial owner of the shares
                of common
                stock owned Loeb Investors Company 147, LP, a limited partnership
                in which
                he is a general partner. Messrs. Klimasewski and Knafel are limited
                partners in Loeb Investors Company 147, LP, and disclaim any beneficial
                ownership of such shares. The address for Loeb Investors Company
                147, LP
                is 61 Broadway, Suite 2400, New York, NY
                10006.
(5)
Presently
                reported ownership includes 15,871, 15,871, 104,746, 44,354,
                39,442 and 39,442 shares issuable under options exercisable
                within 60
                days of November 7, 2005 held by Drs. Totterman and Tamez-Pena, Ms.
                Henderson and Messrs. Bagatelle, Klimasewski and Knafel, respectively.
                The
                address of each is c/o VirtualScopics, Inc., 350 Linden Oaks, Rochester,
                NY, 14625.
(6)
The
                address of Pfizer, Inc. is 50 Pequot Ave., MS 6025-C4127, New London,
                Connecticut 06320.
(7)
Shares
                owned by GE Medical Systems, a Division of General Electric Company,
                with
                an address of 3000 North Grandview Blvd., Waukesha, Wisconsin
                53188.
Directors,
        Executive Officers, Promoters and Control Persons
The
        table
        below shows certain information about our directors and executive officers
        as of
        November 4, 2005:
Name
Age
Position
Robert
                  Klimasewski
62
Chief
                  Executive Officer and Director
Warren
                  Bagatelle
67
Chairman
                  of the Board and Director
Molly
                  Henderson, CPA
34
Chief
                  Financial Officer and Vice President of Finance
Dr.
                  Saara Totterman, M.D., Ph.D.
64
Director
Mark
                  Coburn
51
Director
Sidney
                  Knafel
72
Director
30
Robert
      Klimasewski
was
      named
      Chief Executive Officer of the company and was elected as a director of the
      company on November 4, 2005. He has served as Chief Executive Officer of
      VirtualScopics since June 2005 and has been a board member of VirtualScopics
      since its inception. Mr. Klimasewski served as President and Chief Executive
      Officer of Transcat, Inc. (formerly Transmation, Inc.), a publicly-held global
      distributor of professional grade test, measurement and calibration instruments,
      from 1994 to 1998, when he relinquished those titles and assumed the role of
      Chairman of the Board of Transcat. In 2002, Mr. Klimasewski stepped
      down as
      Chairman of the Board of Transcat and was re-appointed President and Chief
      Executive Officer. He served in those roles until 2004, when he retired. Mr.
      Klimasewski remains on Transcat's board of directors. He also was a co-founder
      of Burleigh Instruments Inc., a manufacturer of precision scientific
      instrumentation, which was sold in December 2000. He served for 18 years on
      the
      board of directors of Laser Power Corporation, a publicly-held company, until
      its sale in 2000. He currently serves on the board of directors of Lumetrics,
      Inc. and The University Technology Seed Fund. He is a member of the University
      of Rochester's Visiting Committee for the School of Engineering and Applied
      Science. Mr. Klimasewski holds B.S. and M.S. degrees in optical engineering
      from
      the University of Rochester
.
Warren
      Bagatelle
has
      served as a director of the company since November 4, 2005, as a director of
      VirtualScopics since August 2001, as Chairman of the Board of the company since
      November 4, 2005, and as the Chairman of the Board of VirtualScopics since
      August 2002. Mr. Bagatelle has been a managing director of Loeb Partners
      Corporation since 1988, where his responsibilities include all elements of
      corporate finance. Specific activities cover identifying, financing and
      monitoring investments in small and medium size companies, providing advisory
      services on mergers, acquisitions, divestitures and restructurings, and advising
      on, managing and co-managing public offerings. Loeb Partners is a full service
      investment banking firm based in New York City. Mr. Bagatelle is a general
      partner of Loeb Investors Company 147, L.P., one of VirtualScopics' former unit
      holders and one of our stockholders. Mr. Bagatelle is also a director of
      FuelCell Energy, Inc. and Electro Energy Inc., as well as several private
      companies. He received his M.B.A. degree from Rutgers University and his B.A.
      degree in economics from Union College
.
Molly
      Henderson, CPA
has
      served as Chief Financial Officer and Vice President of Finance of the company
      since November 4, 2005 and of VirtualScopics since May 2003. She served as
      VirtualScopics' Controller from October 2002 to May 2003. Ms. Henderson
      oversees all financial aspects of the company's operations. She has previously
      served as the Corporate Controller of Ultralife Batteries, Inc., a publicly-held
      provider of high performance lithium battery solutions. Ms. Henderson's
      primary functions at the company include providing strategic direction and
      overseeing all financial related matters, as well as overseeing and ensuring
      proper accounting standards of the company. Earlier in her career, she was
      a
      Manager in the audit division of PricewaterhouseCoopers LLP, and her clients
      included Bausch & Lomb, Inc., Frontier Communications, Topicana and FF
      Thompson Health System. Ms. Henderson received her M.B.A. and B.S. degrees
      from
      the State University of New York at Buffalo.
Dr.
      Saara Totterman, M.D., Ph.D.
has
      served as a director of the company since November 4, 2005. Dr. Totterman is
      one
      of VirtualScopics' founders, has served as the Chief Medical Officer and a
      director of VirtualScopics since its inception. She is responsible for both
      setting the strategic direction for the medical research that we undertake,
      as
      well as ensuring thorough medical oversight for all the clinical programs that
      the company conducts. Prior to founding VirtualScopics, she served as the
      director of the MR Center at the University of Rochester Medical Center having
      full responsibility for the operation of the center with profit and loss
      oversight for $35 million in annual revenues. Dr. Totterman is internationally
      recognized as an authority in musculoskeletal CT and MRI, having over 100
      publications in peer-reviewed journals and making over 120 presentations at
      international meetings. She has also contributed to the writing of 11 book
      chapters and is a reviewer for
Radiology
,
      the
      highest ranked radiological journal in the world, for which she has won several
      awards. Dr. Totterman's main research concentration has been MR imaging
      technology development and image segmentation, which have formed the foundation
      for its technology. She has extensive experience in multidisciplinary research,
      collaborating with engineering and physics scientists and is frequently sought
      out as an advisor to the pharmaceutical industry. She received her M.D. degree
      at the University of Oulu, Finland, her Ph.D. in medicine at the University
      of
      Bergen, Norway and her B.A. degree in medicine from the University of Oulu,
      Finland.
31
Mark
      Coburn
has
      served as a director of the company since November 4, 2005 and of VirtualScopics
      since December 2000. He is Associate Provost and Director of the Office of
      Technology Transfer at the University of Rochester. He is formerly the President
      of the Research Foundation of the University of Rochester, one of
      VirtualScopics' former unit holders and one of our shareholders. Earlier in his
      career, Mr. Coburn served as Deputy Director in the Contracts and Grants Office
      at the University of Southern California and Director/Patent Coordinator in
      the
      Office of Sponsored Projects at the University of California, Santa Cruz. Mr.
      Coburn has had professional affiliations serving as President of the Society
      of
      Research Administrators (SRA), Western Section and Co-Chair of the SRA
      International Annual Meeting. Mr. Coburn serves as a Director of RTek Medical
      Systems, LLC and is a member of the Association of University Technology
      Managers. Mr. Coburn holds a B.A. degree in zoology from Miami University (Ohio)
      and a M.S. degree in technology management from the Gradzio Graduate School
      of
      Business at Pepperdine University.
Sidney
      Knafel
has
      served as a director of the company since November 4, 2005 and of VirtualScopics
      since August 2001. Mr. Knafel is presently the managing partner of SRK
      Management Company, a private investment company. He also serves as Chairman
      of
      BioReliance Corporation, a biological testing company, and Chairman of Insight
      Communications Company, a cable communications company. Mr. Knafel is a director
      of IGENE Biotechnology, Inc. and General American Investors Company, Inc. as
      well as several private companies. He is a graduate of Harvard College and
      the
      Harvard Graduate School of Business Administration.
Director
      Compensation
We
      intend
      to pay each non-management director a participation fee of $500 for each regular
      and special meeting of our board of directors attended and to award each such
      director stock options granted under our 2004 Non-Statutory Stock Option Plan.
      VirtualScopics compensated its directors solely through options granted under
      its Long-Term Incentive Plan. Our board of directors will review director
      compensation annually and adjust it according to then current market conditions
      and good business practices.
2004
      Non-Statutory Stock Option Plan
Pursuant
      to the September 13, 2004 board of directors' approval and subsequent
      stockholder approval, we adopted our
2004
      Non-Statutory Stock Option Plan
(the
      "2004 Plan"). We have reserved for issuance up to 1,500,000 shares of our common
      stock for non-statutory stock options that may be granted under the 2004 Plan.
      Non-statutory stock options do not meet certain requirements of the Internal
      Revenue Service as compared to incentive stock options which meet the
      requirements of Section 422 of the Internal Revenue Code. Nonqualified options
      have two disadvantages compared to incentive stock options. One is that
      recipients have to report taxable income at the time that they exercise the
      option to buy stock, and the other is that the income is treated as
      compensation, which is taxed at higher rates than long-term capital gains.
      As of
      November 4, 2005, no options were outstanding under the 2004 Plan.
The
      purpose of the 2004 Plan is to provide directors, officers and employees of,
      as
      well as consultants, attorneys and advisors to,
the
      company
and its
      subsidiaries, if any, with additional incentives by increasing their ownership
      interest in
the
      company.
Directors,
      officers and other employees of
the
      company
and
      its
      subsidiaries are eligible to participate in the 2004 Plan. Options in the form
      of Non-Statutory Stock Options ("NSO") may also be granted to directors who
      are
      not employed by us and consultants, attorneys and advisors to us providing
      valuable services to us and our subsidiaries. In addition, individuals who
      have
      agreed to become an employee of, director of or an attorney, consultant or
      advisor to us and/or our subsidiaries are eligible for option grants,
      conditional in each case on actual employment, directorship or attorney, advisor
      and/or consultant status. The 2004 Plan provides for the issuance of NSO's
      only,
      which are not intended to qualify as "incentive stock options" within the
      meaning of Section 422 of the Internal Revenue Code, as amended. Further, NSO's
      have two disadvantages compared to ISO's in that recipients of NSOs must report
      taxable income at the time of NSO option exercise and income from NSO's is
      treated as compensation which is taxed at higher rates than long-term capital
      gains.
32
Our
      board
      of directors or a compensation committee (once established) will administer
      the
      Plan with the discretion generally to determine the terms of any option grant,
      including the number of option shares, exercise price, term, vesting schedule
      and the post-termination exercise period.  Notwithstanding this
      discretion (i) the term of any option may not exceed 10 years and (ii) an option
      will terminate as follows: (a) if such termination is on account of termination
      of employment for any reason other than death, without cause, such options
      shall
      terminate one year thereafter; (b) if such termination is on account of death,
      such options shall terminate 15 months thereafter; and (c) if such termination
      is for cause (as determined by the board of directors and/or compensation
      committee), such options shall terminate immediately. Unless otherwise
      determined by the board of directors or compensation committee, the exercise
      price per share of common stock subject to an option shall be equal to no less
      than 10% of the fair market value of the common stock on the date such option
      is
      granted. No NSO shall be assignable or otherwise transferable except by will
      or
      the laws of descent and distribution or except as permitted in accordance with
      SEC Release No. 33-7646 as effective April 7, 1999.
The
      2004
      Plan may be amended, altered, suspended, discontinued or terminated by the
      board
      of directors without further stockholder approval, unless such approval is
      required by law or regulation or under the rules of the stock exchange or
      automated quotation system on which the common stock is then listed or quoted.
      Thus, stockholder approval will not necessarily be required for amendments
      which
      might increase the cost of the 2004 Plan or broaden eligibility except that
      no
      amendment or alteration to the 2004 Plan shall be made without the approval
      of
      stockholders which:
·
would
                decrease the NSO price (except as provided in the 2004
                Plan),
·
change
                the classes of persons eligible to participate in the Plan,
·
extend
                the NSO period, or materially increase the benefits accruing to Plan
                participants,
·
materially
                modify Plan participation eligibility requirements,
                or
·
extend
                the expiration date of the Plan.
Unless
      otherwise indicated the Plan will remain in effect for a period of ten years
      from the date adopted unless terminated earlier by the board of directors except
      as to NSOs then outstanding, which shall remain in effect until they have
      expired or been exercised.
VirtualScopics,
      LLC 2005 Long Term Incentive Plan
At
      the
      time of the exchange transaction closed, VirtualScopics maintained the
      VirtualScopics LLC 2005 Long-Term Incentive Plan and the VirtualScopics, LLC
      2001 Long-Term Incentive Plan. The purpose of these plans was to allow
      VirtualScopics employees, directors, consultants and strategic partners to
      participate in VirtualScopics' growth and to generate an increased incentive for
      these persons to contribute to VirtualScopics' future success and prosperity and
      to focus on its growth. Employees, directors, consultants and strategic partners
      were all eligible to receive awards under the plans. The plans are administered
      by the board of directors of VirtualScopics. As of the closing of the
      VirtualScopics had outstanding under these plans options to purchase 2,568,422
      common units granted to employees and executives and options to purchase 210,000
      common units granted to directors at exercise prices ranging from $0.70 per
      unit
      to $2.25 per unit. On November 4, 2005, the board of directors of VirtualScopics
      resolved not to issue any more options under these plans. Pursuant to the
      Securities Exchange Agreement, we have agreed to issue shares of our common
      stock upon the exercise of these warrants and options in lieu of membership
      units previously issuable thereunder. Based upon the exchange ratio used for
      the
      exchange transaction, we are obligated upon the exercise of these options to
      issue 2,339,990 shares of our common stock
.
      We have
      reserved sufficient shares for these options.
33
Executive
      Compensation
ANNUAL
                  COMPENSATION
LONG-TERM
                  COMPENSATION
Number
                  of
Bonus
                  and
Restricted
Securities
Other
                  Annual
Stock
Underlying
All
                  Other
Name
                  and Principal
Year
Salary
Compensation
Award(s)
Options/SARs
Compensation
Position
Ended(1)
($)
($)
($)
(#)
($)
Robert
                  Klimasewski
2004
—
—
—
—
—
Director
                  and CEO (1)
2003
—
—
—
7,142
(3)
—
2002
—
—
—
—
—
Dr.
                  Saara Totterman
2004
216,058
18,900
—
—
—
Chief
                  Medical Officer
2003
209,998
—
—
23,805
(3)
—
2002
169,231
—
—
—
—
Edward
                  Schreyer (2)
2004
127,782
11,134
—
—
—
2003
123,714
—
—
23,806
(3)
—
2002
32,308
—
—
209,485
(3)
—
(1)
Mr.
                      Klimasewski was elected CEO of VirtualScopics in June 2005.
                      He will be
                      compensated by the company in stock options.
The
                      Board of Directors of the Company granted to Mr. Klimasewski
                      an option to
                      purchase 350,000 shares of our common stock at $2.50 per share
                      pursuant to
                      the terms of a new long-term incentive plan to be adopted by
                      the Company
                      subject to approval by the Company and
                      stockholders.
(2)
Mr.
                      Schreyer resigned his position at VirtualScopics in August
                      2004.
(3)
These
                      options were granted pursuant to VirtualScopics' long-term incentive
                      plans. Pursuant to the Securities Exchange Agreement, we have
                      agreed to
                      issue shares of our common stock upon the exercise of these
                      options in
                      lieu of VirtualScopics membership units previously issuable
                      thereunder.
                      Based upon the exchange ratio used for the exchange transaction,
                      we are
                      obligated upon the exercise of these options to issue the number
                      of shares
                      of our common stock set forth in the table to Mr. Klimasewski,
                      Dr.
                      Totterman and Mr. Schreyer, respectively.
Certain
      Relationships and Related Transactions
Consulting
      Services from Dr. Kevin Parker
Since
      his
      resignation as VirtualScopics' President and Chief Executive Officer in July
      2002, Dr. Kevin Parker has provided VirtualScopics with consulting and business
      advisory services, including advice in connection with VirtualScopics' patent
      filings. Under this arrangement VirtualScopics has paid Mr. Parker $4,000 per
      month for his services. We intend to continue this arrangement for the
      foreseeable future.
Pfizer
      Clinical Imaging and Services Agreement
Concurrently
      with Pfizer's equity investment in VirtualScopics in June 2002, VirtualScopics
      entered into a Clinical Imaging and Services Agreement with Pfizer. This
      agreement was renewed for a two-year period commencing August 2005. The
      agreement is intended to assist VirtualScopics in further developing and
      validating its image analysis software and image-based biomarkers through
      testing by Pfizer. The agreement may be extended for two additional one-year
      terms at the end of the current two-year term. Pfizer may terminate the
      agreement for any or no reason on 30 days' advance notice.
Acquisition
      of Intellectual Property from University of Rochester
In
      June
      2002, VirtualScopics completed the acquisition from the University of Rochester
      of the intellectual property that underpins our image analysis tools for $1.5
      million in cash and a warrant to purchase 375,000 VirtualScopics common units
      for $.70 per unit. VirtualScopics purchased all the University's right, title
      and interest in certain patents, provisional patent applications, patent
      applications and rights associated therewith relating to the systems and methods
      used in its image analysis tools. The warrant issued in the transaction was
      exercisable for ten years from the date of grant. The University assigned the
      warrant it purchased in the transaction to its affiliate, the Research
      Foundation of the University of Rochester. The Research Foundation owns
      4,500,000 shares of our common stock. Additionally, Mark Coburn, a director
      of
      the company and of VirtualScopics, is the former President of the Research
      Foundation and currently one of its directors. He is also Director of the
      University's Office of Technology Transfer, the office that administered the
      technology and negotiated the transaction on behalf of the University. Prior
      to
      the acquisition, VirtualScopics had an exclusive license to use this technology
      from the University of Rochester under a license agreement dated December 13,
      2000, and amended as of May 18, 2001. Under the terms of the warrant, the
      University of Rochester, is entitled to purchase 357,079 shares
of
      our
      common stock for $.70
.
34
Following
      the transaction, the University paid $90,000, net of taxes, to Dr. Saara
      Totterman, $90,000, net of taxes, to Dr. Kevin Parker, $30,000, net of taxes,
      to
      Dr. Edward Ashton, and $150,000, net of taxes, to Dr. Jose Tamez-Pena out of
      the
      proceeds the University received from the sale as payment for their services
      in
      developing the technology as employees of the University. In November 2002,
      VirtualScopics entered into agreements with these persons to loan to
      VirtualScopics the net proceeds they received from the University after taxes.
      Specifically, VirtualScopics issued promissory notes to these persons in the
      following amounts: Dr. Jose Tamez-Pena, $150,000; Dr. Kevin Parker, $90,000;
      Dr.
      Saara Totterman, $90,000; and Dr. Edward Ashton, $30,000. The unpaid principal
      and interest under the notes is paid quarterly ending on March 31, 2008 at
      an
      interest rate of 5.75% per year.
MRI
      Machine
In
      December 2002, VirtualScopics received an investment of $2,450,000 from GE
      Medical Systems for 1,088,889 of VirtualScopics' series C preferred units. These
      units were converted into shares of our common stock. Upon receipt of the
      proceeds of this investment, VirtualScopics purchased an MRI machine from this
      investor for $2,300,000. During 2003, the equipment was sold to the University
      of Rochester, a related party, for $2,300,000. As of December 31, 2003,
      VirtualScopics had received $1,000,000 of the payment from the University of
      Rochester with the remaining $250,000 to be received upon acceptance of the
      equipment. Additionally, VirtualScopics retained the right to use the machine
      exclusively one day a week for the next seven years. The advanced use of the
      equipment of $1,050,000 was recorded as a deferred asset on the balance sheet
      as
      of December 31, 2004 and will be amortized over the life of the agreement (seven
      years) once the equipment was accepted by VirtualScopics in April 2004. The
      equipment will be used by us for research and to broaden our ability to service
      our customers.
Matrix
      USA, LLC
Mr. Bagatelle,
      the Chairman of VirtualScopics, and his spouse currently hold non-controlling
      interests in Matrix USA, LLC, a registered broker-dealer. Matrix USA acted
      as
      sub-agent to our placement agent in the private placement we completed
      concurrently with the exchange transaction. As a result of these services,
      Matrix USA received commissions of $62,200 and four-year warrants to purchase
      31,100 shares of our common stock.
Redemption
      of Shares From Former President
Concurrent
      with the closing of the exchange transaction and the private placement, we
      redeemed 70,537,500 shares of our common stock from our former directors, Edward
      A. Sundberg and Lindsay Sundberg, for aggregate consideration of $200 and then
      cancelled those shares at the closing of the exchange transaction.
Former
      ConsultAmerica Transactions
Prior
      to
      the closing of the exchange transaction we operated out of office space located
      at 13070 Addison Rd., Roswell, GA  30075 provided to us by our former
      President at no cost. There was no written lease agreement.
During
      the years ended August 31, 2005 and 2004, substantially all of our revenue
      was
      associated with engagements with entities affiliated with our former President.
      The portion of proceeds attributable to us from these engagements was determined
      solely by our former President and was not the result of any independent
      negotiation. We have no commitments for future engagements with any of these
      entities.
Description
      of Securities
Units
Except
      for the warrants that were issued to our placement agent and sub-agents, we
      sold
      the series A preferred stock and warrants in the private placement as Units.
      Each Unit consists of one share of series A preferred stock and a warrant to
      purchase 200 shares of our common stock. The series A preferred stock and the
      warrants are detachable and separately transferable.
35
Series
      A Preferred Stock
General
We
      are
      authorized to issue 8,500 shares of series A preferred stock. Currently
      4,084.488 shares of series A preferred stock are outstanding. The following
      description of our series A Preferred Stock is qualified in its entirety by
      reference to the Certificate of Incorporation filed as Exhibit 3.1 to this
      report (by incorpopration by reference) and to our Certificate of Designation
      fixing the rights, powers and privileges of the series A preferred stock, a
      copy
      of which is filed as Exhibit 3.2 filed with this report.
Conversion
Holders
      of our series A preferred stock are entitled at any time to convert their shares
      of series A preferred stock into our common stock, without any further payment
      therefor. Each share of our series A preferred stock is initially convertible
      into 400 shares of our common stock. The number of shares of our common stock
      issuable upon conversion of our series A preferred stock is subject to
      adjustment upon the occurrence of certain events, including, among others,
      a
      stock split, reverse stock split or combination of our common stock; an issuance
      of common stock or our other securities as a dividend or distribution on our
      common stock; a reclassification, exchange or substitution of our common stock;
      a capital reorganization of us; and if we sell shares of our common stock,
      or
      any stock options, warrants, convertible securities or other rights to purchase
      or acquire shares of our common stock, subject to certain exceptions, below
      $2.50 per share.
Merger
Upon
      a
      merger or consolidation of the company with or into another company, or any
      transfer, sale or lease by us of substantially all of our common stock or
      assets, our series A preferred stock will be treated as common stock for all
      purposes, including the determination of any assets, property or stock to which
      holders of our series A preferred stock are entitled to receive, or into which
      our series A preferred stock is converted, by reason of the consummation of
      such
      merger, consolidation, sale or lease.
Voting
      Rights
Holders
      of our series A preferred stock are entitled to vote their shares on an
      as-converted to common stock basis, and shall vote together with the holders
      of
      our common stock, and not as a separate class. Holders of our series A preferred
      stock shall also have all voting rights to which they are entitled by Delaware
      law.
Liquidation
      Rights
In
      the
      event of any voluntary or involuntary liquidation, dissolution or winding-up
      of
      the company, holders of our series A preferred stock will be entitled to receive
      out of assets available for distribution to our shareholders, before any
      distribution is made to holders of our common stock, liquidating distributions
      in an amount equal to $1,000 per share or series A preferred stock. After
      payment of the full amount of the liquidating distributions to which the holders
      of the series A preferred stock are entitled, holders of the series A preferred
      stock will receive liquidating distributions pro rata with holders of our common
      stock, based on the number of shares of our common stock into which the series
      A
      preferred stock is convertible at the conversion rate then in effect.
Redemption
We
      may
      not redeem our series A preferred stock at any time.
Dividends
Holders
      of our series A preferred stock are not entitled to receive dividends.
Discussion
      of the terms of our series A Preferred Stock in this report is qualified
      entirely by reference to our Certificate of Designation attached to this report
      as Exhibit 3.2, which we filed with the Delaware Secretary of State on November
      4, 2005.
36
Common
      Stock
The
      holders of our common stock are entitled to one vote per share. Our Certificate
      of Incorporation does not provide for cumulative voting. The holders of our
      common stock are entitled to receive dividends, if any, as may be declared
      by
      our board of directors out of legally available funds on a pro-rata basis.
      The
      company, however, has not declared or paid dividends on its common stock and
      the
      current policy of our board of directors is to retain earnings, if any, for
      the
      operation and expansion of the company. Upon liquidation, dissolution or
      winding-up of the company, the holders of our common stock are entitled to
      share
      ratably in all assets of the company that are legally available for
      distribution, after payment of or provision for all liabilities and the
      liquidation preference of any outstanding series A preferred stock. The holders
      of our common stock have no preemptive, subscription, redemption or conversion
      rights.
Warrants
Each
      warrant issued to investors in the private placement entitles the holder thereof
      to purchase 200 shares of our common stock at the exercise price of $4.00 per
      share from the date of issuance until the fourth anniversary thereof. The
      warrants may not be redeemed by us at any time. If we issue any shares of our
      common stock or common stock equivalents for less than $2.50 per share, subject
      to certain exceptions, then the exercise price of each warrant will be adjusted
      to equal 160% of the price per share at which we issue our common stock or
      common stock equivalents. Additionally, the warrants contain provisions that
      protect the holders against dilution by adjustment of the purchase price in
      certain events, such as stock dividends, stock splits and other similar events.
Placement
      Agent Warrants
We
      issued
      warrants to our placement agent and its sub-agents for the purchase of up to
      163,380 shares of common stock. These warrants contain the same terms as those
      issued to investors in our private placement but have an exercise price of
      $2.50
      per share without any adjustment for future issuances of our common stock or
      common stock equivalents at a lower offering price and contain cashless exercise
      provisions. In addition, these warrants have registration rights that are the
      same as those granted to investors in the private placement.
None
      of
      our outstanding warrants confer upon holders any voting or any other rights
      as a
      stockholder of the company.
This
      description of the warrants in this report is qualified entirely by reference
      to
      the forms of the warrant attached to this report as Exhibits 4.1 and
      4.2.
Transfer
      Agent
The
      transfer agent for our common stock is Continental Stock Transfer, New York,
      New
      York. We act as our own transfer agent for the series A convertible preferred
      stock and the warrants.
Market
      Price of and Dividends on Common Equity and Related Stockholder
      Matters
Market
      Price of Common Stock
Immediately
      prior to the closing of the exchange transaction, our corporate name was
      ConsultAmerica, Inc. and our common stock was quoted on the OTC Bulletin Board
      under trading symbol "CSAA.OB." Concurrently with the exchange transaction we
      changed our name to VirtualScopics, Inc. and our trading symbol to "VSCP.OB."
      There, however, has been no active public market for our common stock, and
      an
      active public market may not develop or be sustained. As soon as practicable,
      and assuming we satisfy all necessary initial listing requirements, we intend
      to
      apply to list our common stock on the American Stock Exchange or the Nasdaq
      Capital Market. No assurance can be given that we will satisfy the initial
      listing requirements, or that our shares of common stock will ever be listed
      on
      those trading markets.
The
      Units, the series A preferred stock and the warrants will not be registered
      or
      listed for trading.
37
Dividends
      on Common Equity
The
      holders of our common stock are entitled to receive dividends, if any, as may
      be
      declared by our board of directors out of legally available funds on a pro-rata
      basis. The company, however, has not declared or paid dividends on its common
      stock and the current policy of our board of directors is to retain earnings,
      if
      any, for the operation and expansion of the company.
Legal
      Proceedings
Neither
      we nor VirtualScopics is currently a party to any pending or threatened
      litigation. In the summer of 2005, VirtualScopics' former chief executive
      officer and president made a demand for severance payments alleged by him to
      be
      due in connection with his termination in the approximate amount of $230,000
      and
      certain options. VirtualScopics believes the claim is without merit and intends
      to vigorously defend against the claim.
Indemnification
      of Directors and Officers
Our
      Certificate of Incorporation provides that no director of the company will
      be
      personally liable to the company or our stockholders for monetary damages for
      breach of fiduciary duty as a director, except for liability (i) for any breach
      of the director's duty of loyalty to the company or our stockholders, (ii) for
      acts or omissions not in good faith or which involve intentional misconduct
      or a
      knowing violation of law, (iii) under Section 174 of the General Corporation
      Law
      of the State of Delaware, or (iv) for any transaction from which the director
      derived an improper personal benefit.
VirtualScopics'
      operating agreement provides that VirtualScopics will indemnify, defend and
      hold
      harmless each member of its board of directors and each officer (and the heirs,
      beneficiaries and legal representatives of each of the foregoing) from and
      against any and all actual or alleged losses, claims, damages, liabilities,
      costs and/or expenses of any nature whatsoever, except if a judgment or other
      final adjudication adverse to a director and or officer establishes (i) that
      his
      acts were committed in bad faith or were the result of active and deliberate
      dishonesty and were material to the cause of action so adjudicated, or (ii)
      that
      he personally gained in fact a financial profit or other advantage to which
      he
      was not legally entitled.
The
      disclosure set forth under Item 9.01 of this report is incorporated by reference
      into this Item.
ITEM
      3.02 - UNREGISTERED SALES OF EQUITY SECURITIES
The
      Private Placement
Concurrently
      with the closing of the exchange transaction, we completed the sale of 4,084.488
      units in a private placement to accredited investors pursuant to the terms
      of a
      Confidential Private Placement Memorandum, dated October 3, 2005, as
      supplemented. Each unit consists of one share of our series A convertible
      preferred stock, par value $.001 per share, and a detachable, transferable
      warrant to purchase shares of our common stock, at a purchase price of $1,000
      per unit. Each share of series A preferred stock is initially convertible into
      400 shares of our common stock at any time. Each warrant entitles the holder
      to
      purchase 200 shares of our common stock at an exercise price of $4.00 per share
      through November 4, 2009. We received gross proceeds of $4,084,488 from the
      sale
      of these units.
The
      private placement was made solely to "accredited investors," as that term is
      defined in Regulation D under the Securities Act of 1933, as amended, or the
      Securities Act. None of the units, warrants or the series A preferred stock,
      or
      shares of our common stock underlying such securities were registered under
      the
      Securities Act, or the securities laws of any state, and were offered and sold
      in reliance on the exemption from registration afforded by Section 4(2) and
      Regulation D (Rule 506) under the Securities Act and corresponding provisions
      of
      state securities laws, which exempts transactions by an issuer not involving
      any
      public offering.
Brookshire
      Securities Corporation, or Brookshire, served as the lead placement agent in
      connection with the private placement. Brookshire received a cash fee in the
      aggregate of $130,689, and for the payment of $10.00, received four-year
      warrants to purchase 63,175 shares of our common stock at an exercise price
      of
      $2.50 per share on terms which are identical to those warrants included in
      the
      units except that they do not provide for an exercise price adjustment if there
      is a future offering of our common stock or common stock equivalents below
      $2.50
      per share and contain a cashless exercise provision. In addition, the warrants
      have registration rights that are the same as those afforded to investors in
      the
      private placement.
38
Sovereign
      Bancorp. served as advisor to VirtualScopics on the structuring and execution
      of
      the exchange transaction. In connection with the identification and structuring
      of the exchange transaction, and effective as of the closing of the exchange
      transaction, we paid to Sovereign Bancorp $133,869. Sovereign Bancorp, for
      the
      payment of $10.00, also received four-year warrants to purchase 69,104 shares
      of
      our common stock at an exercise price of $2.50 per share on terms which are
      identical to the warrants issued to Brookshire.
We
      also
      paid actual, reasonable and necessary out-of-pocket expenses incurred by the
      Brookshire and Sovereign Bancorp., including, but not limited to, legal,
      accounting, printing, delivery and travel costs, of $56,167.
Matrix
      USA, LLC, acted as a sub-agent in the private placement. Matrix received $62,200
      as commission and
,
      for the
      payment of $10.00, also received four-year warrants to purchase
31,100
shares
      of
      our common stock at an exercise price of $2.50 per share on terms which are
      identical to the warrants issued to Brookshire
.
The
      shares of our common stock and options to purchase our common stock issued
      to
      former holders of VirtualScopics common and preferred membership units, warrants
      and options in connection with the exchange transaction, and the shares of
      our
      series A preferred stock and warrants issued in the private placement, were
      exempt from registration under the Securities Act pursuant to Section 4(2)
      and/or Regulation D (Rule 506) thereof. We made this determination based on
      the
      representations of the persons obtaining such securities which included, in
      pertinent part, that such persons were "accredited investors" within the meaning
      of Rule 501 of Regulation D promulgated under the Securities Act, and that
      such
      persons were acquiring such securities for investment purposes for their own
      respective accounts and not as nominees or agents, and not with a view to the
      resale or distribution, and that each such persons understood such securities
      may not be sold or otherwise disposed of without registration under the
      Securities Act or an applicable exemption therefrom.
Thus,
      such securities may not be offered or sold in the United States absent
      registration or an applicable exemption from the registration requirements
      and
      certificates evidencing such shares contain a legend stating the
      same.
ITEM
      4.01 - CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On
      November 4, 2005, upon the closing of the exchange transaction, we terminated
      Most & Company, LLP, or Most, as our independent registered public
      accounting firm. Most audited our financial statements for the fiscal year
      ended
      August 31, 2005. The reason for the replacement of Most & Co., LLP was that,
      following the exchange transaction, the former members of VirtualScopics own
      a
      majority of the outstanding shares of our common stock. VirtualScopics is our
      primary business unit, and the current independent registered public accountants
      of VirtualScopics is the firm of Marcum & Kliegman LLP. We believe that it
      is in our best interest to have Marcum & Kliegman LLP continue to work with
      our business, and we therefore retained Marcum & Kliegman LLP as our new
      independent registered public accounting firm effective as of November 4, 2005.
      Marcum & Kliegman LLP is located at 655 Third Avenue, 16th Floor, New York,
      New York 10017.
The
      appointment of Marcum & Kliegman LLP was recommended and approved by our
      board of directors. During our two most recent fiscal years, and the subsequent
      interim periods, prior to June 30, 2005, we did not consult Marcum &
      Kliegman LLP regarding either: (i) the application of accounting principles
      to a
      specified transaction, completed or proposed, or the type of audit opinion
      that
      might be rendered on the Company's financial statements, or (ii) any matter that
      was either the subject of a disagreement as defined in Item 304(a)(1)(iv) of
      Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of
      Regulation S-K.
Most's
      report on our financial statements for the fiscal year ended August 31, 2005
      did
      not contain any adverse opinion or disclaimer of opinion and was not qualified
      as audit scope or accounting principles, however such year-end report did
      contain a modification paragraph that expressed substantial doubt about our
      ability to continue as a going concern.
During
      the most recent fiscal year ended August 31, 2005, (i) there were no
      disagreements between us and Most on any matter of accounting principles or
      practices, financial statement disclosure or auditing scope or procedure which,
      if not resolved to the satisfaction of Most, would have caused Most to make
      reference to the subject matter of the disagreement in connection with its
      reports and (ii) there were no "reportable events," as described in Item
      304(a)(1)(iv) of Regulation S-B of the Securities Exchange Act of 1934, as
      amended, or the Exchange Act. The decision to replace Most was not the result
      of
      any disagreement between us and Most on any matter of accounting principle
      or
      practice, financial statement disclosure or audit procedure. Our board of
      directors deemed it in our best interest to change independent auditors
      following the closing of the exchange transaction.
39
We
      furnished Most with a copy of this report prior to filing this report with
      the
      SEC. We also requested that Most furnish a letter addressed to the SEC stating
      whether it agrees with the statements made in this report. A copy of Most's
      letter to the SEC is filed with this report as Exhibit 16.1.
ITEM
      9.01 - FINANCIAL STATEMENTS AND EXHIBITS
(a)
Financial
      Statements of Businesses Acquired
The
      financial statements of VirtualScopics for the six months ended June 30, 2005
      and 2004 (unaudited) and for the years ended December 31, 2004 and December
      31,
      2003 are incorporated herein by reference to Exhibits 99.1, and 99.2 to this
      report.
(b)
Pro
      Forma Financial
Information
Our
      unaudited pro forma condensed combined financial statements as of and for the
      six months ended June 30, 2005 and the year ended December 31, 2004 are
      incorporated herein by reference to Exhibit 99.3 to this report, and are based
      on the historical financial statements of the company and VirtualScopics after
      giving effect to the exchange transaction. The unaudited pro forma combined
      condensed balance sheet as of June 30, 2005 is presented to give effect to
      the
      exchange transaction as if it occurred on January 1, 2005 and, due to different
      fiscal period-ends, combines the historical balance sheet of VirtualScopics
      at
      June 30, 2005 and the historical balance sheet of ConsultAmerica at August
      31,
      2005. The unaudited pro forma combined condensed statement of operations of
      VirtualScopics and the company for the six months ended June 30, 2005 and the
      year ended December 31, 2004 are presented as if the combination had taken
      place
      on January 1, 2005.
In
      accordance with Statement of Financial Accounting Standards No. 141, "Business
      Combinations" (SFAS 141), and the assumptions and adjustments described in the
      accompanying notes to the unaudited pro forma combined condensed financial
      statements, VirtualScopics is considered the accounting acquiror. Because
      VirtualScopics' owners as a group retained or received the larger portion of the
      voting rights in the combined entity and VirtualScopics' senior management
      represents a majority of the senior management of the combined entity,
      VirtualScopics was considered the acquiror for accounting purposes and will
      account for the exchange transaction as a reverse acquisition. The acquisition
      will be accounted for as the recapitalization of VirtualScopics since, at the
      time of the acquisition, we were an inactive shell company. Our fiscal year
      will
      end on December 31.
Reclassifications
      have been made to the company's historical financial statements to conform to
      VirtualScopics' historical financial statement presentation.
The
      unaudited pro forma combined condensed financial statements should be read
      in
      conjunction with "Management's Discussion and Analysis or Plan of Operation" set
      forth under Item 2.01 of this report, which disclosure is incorporated herein
      by
      reference, and the historical consolidated financial statements and accompanying
      notes of VirtualScopics and the company. The unaudited pro forma combined
      condensed financial statements are not intended to represent or be indicative
      of
      our consolidated results of operations or financial condition that would have
      been reported had the exchange transaction been completed as of the dates
      presented, and should not be taken as representative of the future consolidated
      results of operations or financial condition of the company.
(d)
Exhibits
The
      exhibits listed in the following Exhibit Index are filed as part of this
      report.
40
EXHIBIT
NO.
DESCRIPTION
2.1
Securities
                Exchange Agreement, dated November 4, 2005 among ConsultAmerica,
                Inc.,
                VirtualScopics, LLC and the controlling members of VirtualScopics
                LLC.
3.1
Certificate
                of Amendment to Certificate of Incorporation changing name of
                ConsultAmerica, Inc. to VirtualScopics, Inc. dated November 4,
                2005.
3.2
Certificate
                of Designations, Powers, Preferences and Other Rights and Qualifications
                of Series A Convertible Preferred Stock of VirtualScopics, Inc. dated
                November 4, 2005.
4.1
Form
                of VirtualScopics, Inc. Four-Year Warrant to Purchase Common Stock
                at
                $4.00 per share.
4.2
Form
                of VirtualScopics, Inc. Four-Year Warrant to Purchase Common Stock
                at
                $2.50 per share.
10.1
VirtualScopics,
                Inc. 2005 Long Term Incentive Plan.
10.2
Form
                of Lock-Up Agreement between VirtualScopics, LLC and certain of its
                former
                members.
10.3
Form
                of Lock-Up Agreement between VirtualScopics, LLC and its employees,
                director and certain of its former
                members.
10.4
Form
                of Private Placement Subscription Agreement to purchase units in
                VirtualScopics, Inc.
10.5
Placement
                Agency Agreement dated September 30, 2005 between Brookshire
                Securities Corporation and VirtualScopics,
                LLC.
10.6
Clinical
                Imaging Development and Services Agreement dated July 26, 2005 by
                and
                between VirtualScopics, LLC and Pfizer, Inc.
(1)
10.7
Sale
                of Intellectual Property Agreement dated April 5, 2002 by and between
                VirtualScopics, LLC and the University of Rochester, as amended by
                Amendment No. 1 dated May 24, 2002.
10.8
Lease
                dated October 1, 2003 by and between VirtualScopics, LLC and 350
                Linden
                Oaks, L.P.
10.9
Equipment
                Purchase Agreement dated December, 2003 by and between VirtualScopics,
                LLC
                and the University of Rochester Medical
                Center.
10.10
Determination
                of Intellectual Property Rights Agreement dated July 1, 2002 by and
                between VirtualScopics, LLC and the University of
                Rochester.
10.11
Consulting
                Agreement dated March 1, 2004 by and between VirtualScopics, LLC
                and Felix
                Eckstein.
10.12
Services
                and Co-Marketing Agreement dated March 1, 2004 by and between
                VirtualScopics, LLC and Chrondrometrics
                GmbH.
10.13
$30,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Edward Ashton.
10.14
$150,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Jose Tamez-Pena.
10.15
$90,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Kevin Parker.
10.16
$90,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Saara Totterman.
41
16.1
Letter
                  from Most & Co.
21.1
Subsidiaries
                of VirtualScopics, Inc.
99.1
Financial
                statements of VirtualScopics, LLC as of and for the years ended December
                31, 2004 and December 31, 2003.
99.2
Financial
                statements of VirtualScopics, LLC as of and for the six months ended
                June
                30, 2005 and 2004 (unaudited).
99.3
Unaudited
                pro forma condensed combined financial statements of VirtualScopics,
                Inc.,
                as of and for the six months ended June 30, 2005 and unaudited pro
                forma
                condensed combined Statement of Operations as of and for the year
                ended
                December 31, 2004 Statement of Operations for the six months ended
                June
                30, 2005.
(1)
Certain
                confidential information contained in the document has been omitted
                and
                filed separately with the Securities and Exchange Commission under
                an
                application for confidential treatment pursuant to Rule 24b-2 promulgated
                under the Securities Exchange Act of 1934, as
                amended.
42
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 hereunto
      duly authorized.
VIRTUALSCOPICS,
              INC.
Date:
              November __, 2005
By:
Name:
Title:
43
Exhibit
      Index
EXHIBIT
NO.
DESCRIPTION
2.1
Securities
                Exchange Agreement, dated November 4, 2005 among ConsultAmerica,
                Inc.,
                VirtualScopics, LLC and the controlling members of VirtualScopics
                LLC.
3.1
Certificate
                of Amendment to Certificate of Incorporation changing name of
                ConsultAmerica, Inc. to VirtualScopics, Inc. dated November 4,
                2005.
3.2
Certificate
                of Designations, Powers, Preferences and Other Rights and Qualifications
                of Series A Convertible Preferred Stock of VirtualScopics, Inc. dated
                November 4, 2005.
4.1
Form
                  of VirtualScopics, Inc. Four-Year Warrant to Purchase Common Stock
                  at
                  $4.00 per share.
4.2
Form
                  of VirtualScopics, Inc. Four-Year Warrant to Purchase Common Stock
                  at
                  $2.50 per share.
10.1
VirtualScopics,
                  Inc. 2005 Long Term Incentive
                  Plan.
10.2
Form
                  of Lock-Up Agreement between VirtualScopics, LLC and certain of
                  its former
                  members.
10.3
Form
                of Lock-Up Agreement between VirtualScopics, LLC and its employees,
                director and certain of its former
                members.
10.4
Form
                  of Private Placement Subscription Agreement to purchase units in
                  VirtualScopics, Inc.
10.5
Placement
                Agency Agreement dated September 30, 2005 between Brookshire Securities
                Corporation and VirtualScopics,
                LLC.
10.6
Clinical
                Imaging Development and Services Agreement dated July 26, 2005 by
                and
                between VirtualScopics, LLC and Pfizer, Inc.
(1)
10.7
Sale
                of Intellectual Property Agreement dated April 5, 2002 by and between
                VirtualScopics, LLC and the University of Rochester, as amended by
                Amendment No. 1 dated May 24, 2002.
10.8
Lease
                dated October 1, 2003 by and between VirtualScopics, LLC and 350
                Linden
                Oaks, L.P.
10.9
Equipment
                Purchase Agreement dated December, 2003 by and between VirtualScopics,
                LLC
                and the University of Rochester Medical
                Center.
10.10
Determination
                of Intellectual Property Rights Agreement dated July 1, 2002 by and
                between VirtualScopics, LLC and the University of
                Rochester.
10.11
Consulting
                Agreement dated March 1, 2004 by and between VirtualScopics, LLC
                and Felix
                Eckstein.
10.12
Services
                and Co-Marketing Agreement dated March 1, 2004 by and between
                VirtualScopics, LLC and Chrondrometrics
                GmbH.
10.13
$30,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Edward Ashton.
10.14
$150,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Jose Tamez-Pena.
44
10.15
$90,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Kevin Parker.
10.16
$90,000
                Promissory Note dated November 18, 2002 by VirtualScopics, LLC in
                favor of
                Saara Totterman.
16.1
Letter
                  from Most & Co.
21.1
Subsidiaries
                  of VirtualScopics, Inc.
99.1
Financial
                statements of VirtualScopics, LLC as of and for the years ended December
                31, 2004 and December 31, 2003.
99.2
Financial
                statements of VirtualScopics, LLC as of and for the six months ended
                June
                30, 2005 and 2004 (unaudited).
99.3
Unaudited
                pro forma condensed financial statements of VirtualScopics, Inc.,
                as of
                and for the six months ended June 30, 2005 and unaudited pro forma
                condensed combined Statement of Operations as of and for the year
                ended
                December 31, 2004 Statement of Operations for the six months ended
                June
                30, 2005.
(1)
Certain
                confidential information contained in the document has been omitted
                and
                filed separately with the Securities and Exchange Commission under
                an
                application for confidential treatment pursuant to Rule 24b-2 promulgated
                under the Securities Exchange Act of 1934, as
                amended.
45