June 1, 2011 - 12:16 EDT
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Applied Visual Sciences Update of Ongoing Business Activities
Applied Visual Sciences Update of Ongoing Business Activities

Dear Valued Shareholder,

I recognize that the decline in the APVS share price, on extremely small trading volumes, has caused you a great deal of consternation, and I assure you that I share in your concern. The current share price is neither indicative of the business development opportunities or revenue prospects currently being pursued nor does it reflect current product development activities. I remain adamant in my belief that success is within our foreseeable future.

Before providing you with an update on the company's ongoing business activities, I would like to express my sincere thanks to those individuals who looked beyond the share price, understood the near-term potential of the Company, and backed their belief with a financial investment in APVS, as well as many of you that continue to hold your APVS investment. I also want to extend my utmost gratitude to the Company's employees, who continue to financially sacrifice and persevere through the Company's working capital challenges, yet remain dedicated, energetic and productive.

South Africa

Many of you have expressed your concerns over the South African clinical trial performance of Signature Mapping TBDx. Universally the biggest concern has been the protracted duration of the clinical trial. While there have been 'bumps in the road' outside of our control that have prolonged the completion of the clinical trial, at no time have any of those been associated with the performance of TBDx. As with any new healthcare product or cutting-edge technology, the scrutiny of the scientific community demands that we demonstrate evidence-based science grounded in sound peer-reviewed research. Conducting the clinical trial thoroughly, and in accordance with established standards, will eliminate international challenges to the presented data and diminish speculation about the technology's performance. We currently have employees in South Africa and we are very close to the culmination of the clinical trial. While the timeline has expanded, the performance of TBDx has remained consistent with our expectations, based on our considerable prior internal testing.

In parallel with the clinical trials marketing and sales efforts are underway in South Africa. An initial TBDx system has been purchased, with installation and training in progress at the NHLS re-check laboratory in Johannesburg. Potentially, within the next sixty days, an additional TBDx system or two could be purchased to handle the large volume of slides processed by the re-check program. In addition, we anticipate receiving an order for one TBDx system, to be placed in Braamfontein Hospital, as part of the South African Government's technology evaluation program. The system would be used initially in a 30-day evaluation program to determine workflow adjustments and potential deployment strategies, such as centralized versus decentralized slide processing. Results of the workflow evaluation will determine the size of the initial order.

Our collaborative research partner, Aurum, has submitted a grant request to a U.S.-based healthcare funding agency to purchase five TBDx systems as a part of a larger proposal to outfit mobile vans with full laboratories. The mobile vans are intended to treat patients in the most rural areas of South Africa. We expect verbal notification in June with final written notification and funding in the August-September timeframe.

Upon completion of the clinical trial and deployment by NHLS, our sales agent in South Africa will commence sales efforts to all of the remaining Sub-Saharan African countries and private laboratory systems.

India TBDxV System

Our R&D efforts have remained very active while awaiting the completion of the clinical trial in South Africa. Significant new technological approaches have been developed that have resulted in new visualization applications and a derivate TBDx product TBDxV. TBDxV assists microscopists in decision-making on the most difficult of cases through the application of visualization tools and digital imagery to enhance diagnostic accuracy. The new tools are applicable to the visualization of both Auramine-O and Ziehl-Neelsen (ZN) staining processes.

Our research staff has also solved what many experts have explained to be the most difficult challenges in working with ZN slides: the elimination of the need for oil immersion and the ability to digitally focus and acquire images. The combination of the newly created suite of visualization tools, with the ability to acquire and display high-quality digital images of ZN slides, has allowed us to introduce the new TBDxV product in India.

It has only been 30 days since the launch of TBDxV and our sales agent in India Mr. Anoop Kaul has already generated tremendous interest among the Federal and State health agencies within India. To-date, Mr. Kaul has received soft commitments for more than twenty systems, as well as firm commitments for five systems. We are diligently working on completing the contracts, establishing a banking relationship in India, and providing technical support for his efforts.

The imbedded base we are establishing for TBDxV will form the initial market for the TBDx automated ZN detection product, when completed and available. Establishing a reference base in India is extremely important as most of the world relies on ZN staining as opposed to Auramine-O. China, Indonesia, and other Southeast Asia countries are being targeted for both the TBDxV and the TBDx ZN products.

Wellcome Trust

The Wellcome Trust grant program, Affordable Healthcare in India Initiative, discussed in previous updates is taking longer than expected, but I'm pleased to inform you that the process is moving towards a successful conclusion. All indications from our Indian agent, as well as our Indian partner -- The Institute for Tuberculosis and Respiratory Diseases -- point positively towards submission of final contract documents and oral presentation. We anticipate this will result in approximately $2.5 million in grant funding to transfer our existing automated detection technology from Auramine-O to ZN with an August contract award and funding commencement in October 2011.

Business Collaboration - Breast Cancer Detection Products

Over the past three years, when research time was available, we have worked on the development of a suite of breast cancer detection applications for mammography and ultrasound modalities. These applications include sophisticated visualization capabilities, lesion quantification processes, and the automated detection and characterization of breast cancer lesions. All of these breast cancer detection applications have reached a technical readiness stage whereby, in less than 180-days, we could commence clinical trials and submission of an FDA application. A major hurdle to the advancement of these technologies has been the availability of working capital to complete the necessary work, clinical trials, and FDA process.

We have been pursuing a business partner to advance this initiative for the better part of a year. Our efforts have led us to a potential business partner. The parties have recently exchanged comments on a Letter of Intent that would create a jointly-owned Company to finalize the product development and establish product marketing and sales. The potential business partner brings working capital, domain knowledge expert radiologists, market awareness, and a sales force. Completion of negotiations and formation of this business entity could potentially be completed by yearend.

Product Branding

Over the past year we have been actively promoting the Company and its products. We have submitted articles for publication, and have been published in technology and medical journals. We have presented at various conferences and participated as invited guests at U.S. Government technology symposiums. We have reached out to the international infectious disease diagnostic community and have made numerous presentations to agencies such as NIH and NIAID. Promoting the value of our products has led to a number of parties interested in developing grant proposals to expand the scope of the technology to other infectious diseases. We will pursue these opportunities, as well as any new opportunities we uncover.

PinPoint

We have been actively involved in three wide ranging U.S. Government proposals. We have teamed on two of the proposals with large, well-known defense contractors and a federally funded research laboratory. The teamed proposals were submitted to the Department of Defense and the U.S. Navy, while the third project was a direct submission to the Department of Homeland Security, Science and Technology Directorate. On each of the projects we have received extremely positive feedback and interest. Unfortunately, all three projects have been deferred due to the Federal Continuing Budget Resolution and operational uncertainties within the funding agencies. At this point in time, we have no sense that any of these projects will be funded this fiscal year or until the next budget cycle.

In closing, we feel our technology is much more valuable than the market is recognizing and we know it is incumbent upon us to generate revenue to realize the vast potential and shareholder value. We have built a growing base of support from governments that need our technology and business partners that believe in our technology, and we are within sight of seeing these relationships come to fruition. As the leader of the Company, I can assure you that we will continue to execute timely on those matters we can control and we will manage, to the extent possible, those matters outside our control. There is no doubt we will be successful, the stakes are too high and we've come too far and sacrificed too much to settle for anything less.

I encourage you to follow our business developments on our Executive Blog, Facebook, and Twitter. You can connect to each of those media via our website at www.appliedvs.com. Your continued support is very much appreciated. The future for APVS is now, and from my perspective it's very positive. I am firmly committed to reversing the direction of the share price and to regaining your unconditional support and belief in APVS.

Sincerely,
Michael W. Trudnak
Chief Executive Officer

Safe Harbor statement under the Private Securities Litigation Reform Act of 1995:
Statements in this news release looking forward in time involve risks and uncertainties, including the risks associated with the effect of changing economic conditions, capital raising activities, trends in the markets, variations in the company's cash flow, competition, business development efforts, technology availability and cost of materials and other risk factors. Factors that could cause actual results to differ materially are discussed in the Company's most recent filings with the Securities and Exchange Commission.

CONTACT:

For Applied Visual Sciences:
Michael Trudnak
+1 703-464-5495

For Public Relations:
Julie Shepherd of Accentuate PR
+1 815-479-1833