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

                                   FORM 10-KSB

[X] ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
1934

                    For the fiscal year ended: July 31, 2006

[_] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
OF 1934

                 For the transition period from _____ to ______

                        Commission File Number 000-49972

                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                 (Name of small business issuer in its charter)


                   Colorado                    84-1579760
 -------------------------------------------------------------------------------
           (State of incorporation) (IRS Employer Identification No.)



     The Green House, Beechwood Business Park North,
                   Inverness, Scotland                         IV2 3BL
     -------------------------------------------------        ----------
        (Address of principal executive offices)              (Zip Code)

                 Issuer's telephone number: 011 44-1463-667-347

                                   Copies to:
                               Richard A. Friedman
                       Sichenzia Ross Friedman Ference LLP
                     1065 Avenue of the Americas, 21st Floor
                               New York, NY 10018

      Securities registered under Section 12 (b) of the Exchange Act: NONE

         Securities registered under Section 12 (g) of the Exchange Act:
                     Common Stock, par value $.001 per share
                    ----------------------------------------

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X] -

State the issuer's revenues for the most recent fiscal year: $1,271,130

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified date within the past 60 days.

As of November 7, 2006: $2,006,426

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest  practicable  date:  58,178,467 shares of common stock,
$.001 par value per share, as of November 7, 2006.

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
<PAGE>

                                TABLE OF CONTENTS
                                -----------------
                                                                            Page
                                                                            ----
            RECENT FINANCINGS

                                     PART I

Item 1.     DESCRIPTION OF BUSINESS...........................................2
Item 2.     DESCRIPTION OF PROPERTY..........................................19
Item 3.     LEGAL PROCEEDINGS................................................19
Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............19


                                     PART II

Item 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........20
Item 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........22
Item 7.     FINANCIAL STATEMENTS.............................................F-1
Item 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE..............................30
Item 8A.    CONTROLS AND PROCEDURES..........................................30


                                    PART III

Item 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
            PERSONS; COMPLIANCE WITH SECTION 16(b) OF THE EXCHANGE ACT.......30
Item 10.    EXECUTIVE COMPENSATION...........................................31
Item 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT.......................................................32
Item 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................34
Item 13.    EXHIBITS AND REPORTS ON FORM 8-K.................................35
Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES...........................38

SIGNATURES  .................................................................39


                                       2
<PAGE>
Recent Developments

Issuance of Secured  Subordinated  Convertible  Notes to Triumph  Small Cap Fund
inc.

On November 29, 2006,  the Company issued two secured  subordinated  convertible
notes to  Triumph  Small Cap Fund Inc.  ("Triumph")  in an  aggregate  principal
amount of  $440,000.  The first note,  in a principal  amount of  $275,000,  was
issued in  consideration  of prior cash advances made to the Company by Triumph.
The second note, in a principal amount of $165,000, was issued in exchange for a
secured  convertible note previously issued to Triumph.  The notes bear interest
at the rate of 8% per  annum  and  mature  on April  30,  2008.  The  notes  are
convertible, at Triumph's option, into shares of the Company's common stock at a
conversion price of $0.05 per share, subject to a 9.99% conversion restriction.



Amendment to Westek Loan Agreement

On November 13, 2006, In Veritas  Medical  Diagnostics,  Inc. and Westek Limited
entered into an amendment (the  "Amendment")  to the Loan Agreement  dated as of
June,  2004 (the "Loan").  Pursuant to the  Amendment,  the maturity date of the
Loan has been extended to March 31, 2008, and the Loan will bear interest at the
rate of 10% beginning in October  2006.  The Loan has an  outstanding  principal
balance of $1,800,000.  Graham  Cooper,  the Company's  Chairman,  President and
Chief Executive Officer, is the principal stockholder of Westek Limited.

Termination, Settlement, and Forbearance Agreement

On October 19, 2006,  the Company  entered into a Termination,  Settlement,  and
Forbearance  Agreement effective as of October 16 (the "Settlement  Agreement"),
with Cornell Capital Partners LP ("Cornell") and Montgomery Equity Partners Ltd.
("Montgomery"),  an affiliated fund of Cornell. The Settlement Agreement relates
to a Standby Equity Distribution  Agreement (the "Distribution  Agreement") with
Cornell and a Securities  Purchase  Agreement  (the "Purchase  Agreement")  with
Montgomery entered into on September 7, 2005.

The  Distribution  Agreement with Cornell  provided for the sale and issuance to
Cornell of up to  $10,000,000  of Common  Stock over a period of up to 24 months
after the  signing of the  Distribution  Agreement.  In  addition as part of the
commitment fee  arrangements  the Company issued 472,000 shares of the Company's
common stock to Cornell.

The Purchase  Agreement with Montgomery  provided for the sale by the Company to
Montgomery of its 18% secured convertible  debentures in the aggregate principal
amount of $750,000 (the  "Debentures")  of which $300,000 was funded.  Under the
Purchase  Agreement,  the Company also issued to Montgomery  three-year warrants
(the "Warrants") to purchase 350,000 shares of Common Stock at $0.001 per share.
As further  security for its  obligations  under the Purchase  Agreement and the
Accredited  Investor  Purchase  Agreement,  the  Company  deposited  into escrow
25,685,000  shares (the "Escrow  Shares") of common stock. The Escrow Shares are
deemed issued but not outstanding.

Subsequent to the  completion of the Standby Equity  Distribution  Agreement and
the sale of the 18% secured  convertible  debentures  pursuant to the Securities
Purchase  Agreement  in  September  2005,  the  Company  prepared  and  filed  a
registration  statement on Form SB-2 (File No.  333-128321)  with the Securities
and Exchange Commission for the purpose of registering the securities underlying
such  financing  transactions.  In connection  therewith,  the Company  received
comments from the Commission  indicating that, in the  Commission's  view, based
upon the  structure  of the  transactions,  the  Company  may not  register  the
securities  sold in the financing  transactions.  On March 6, 2006,  the Company
withdrew the registration statement on Form SB-2 (File No. 333-128321) by filing
a Form R-W with the  Commission.  As a result,  the Company has not been able to
draw down any further amounts under the Debenture.  In addition,  because of the
failure  to  complete  the  entire  financing  transaction  contemplated  in the
September  2005  financing,  the  Company has been  unable to pay  interest  and
principal payments on the Debentures.

                                       3
<PAGE>
Pursuant  to the  Settlement  Agreement,  the  parties  agreed to the  following
principal terms:

o    The Company shall pay Montgomery an aggregate of $348,000.00  (the "Funds")
     which  represents  all amounts owed by the Company to Montgomery  under the
     Debenture  as of  the  date  hereof  including  outstanding  principal  and
     interest. The Company shall pay the Funds to Montgomery monthly at the rate
     of  $29,000.00  ("Monthly  Payment")  per  calendar  month,  with the first
     payment  being due and  payable on November  15,  2006 and each  subsequent
     payment being due and payable on the first business day of each  subsequent
     month until the Funds are repaid in full.
o    Montgomery  shall  continue  to  have  valid,   enforceable  and  perfected
     first-priority  liens upon and security  interests in the Pledged  Property
     and  the  Pledged  Shares  (each  as  defined  in  the  Purchase  Agreement
     transaction documents).
o    The Company  and  Montgomery  agree that during the term of the  Settlement
     Agreement,  the  Debenture  shall not bear any interest  and no  liquidated
     damages shall accrue under any of the financing documents.
o    The  Conversion  Price  (as set  forth in the  Debenture)  in effect on any
     Conversion  Date (as set  forth in the  Debenture)  from and after the date
     hereof shall be adjusted to equal $0.05, which may be subsequently adjusted
     pursuant to the other terms of the Debenture.
o    Montgomery  shall  retain  the  Warrants  issued  in  accordance  with  the
     Securities Purchase Agreement.
o    The Company and Cornell agree to terminate the  Distribution  Agreement and
     related transaction  documents.  Cornell shall retain the 472,000 shares of
     the Company's common stock.



Royalty Participation Agreements

On May 5,  2006,  we  completed  the sale of a  percentage  of future  royalties
pursuant to a royalty participation  agreement with The Rubin Family Irrevocable
Stock Trust.

The royalties to be paid pursuant to the royalty  participation  agreements  are
derived from the Patent License  Agreement with Inverness  Medical  Innovations,
Inc. (the "IMI Agreement")  pursuant to which the Company will receive royalties
from the  sale of a  Prothrombin  blood  clotting  measuring  device  (the  "IMI
Royalties).  The IMI  Agreement is further  described in the  "Organization  and
Basis of Presentation" section of these financial statements.

Pursuant to the royalty  participation  agreements  described above, the Company
received  gross  proceeds  of  $450,000  in  exchange  for 10% of the future IMI
Royalties received by the Company, subject to the terms and conditions set forth
in the royalty  participation  agreements (the "Royalty Payments").  The Royalty
Payments  shall be paid to The Rubin  Family  Irrevocable  Stock Trust within 15
days of the end of the month in which the Company receives future IMI Royalties.
The Company has the option to terminate the royalty participation  agreements at
any time, without penalty, by making a lump sum payment to the Investor equal to
300% of the funds received from the Investors  pursuant to the Agreement,  being
$1,350,000.In  certain  circumstances,  where  payments to the  investors do not
reach defined threshold  levels,  the investors have the option to convert their
right to future  payments under the agreements into a three year interest baring
term  loan  (carrying  interest  at 4% over  prime)  with a  maturity  value  of
$1,350,000.  The earliest  possible date that this  contingent loan could become
payable, in the worst case scenario, would be December 31, 2010.

                                       4
<PAGE>
                                     PART I

Item 1. DESCRIPTION OF BUSINESS

General Overview

In Veritas Medical Diagnostics, Inc. (formerly In Vivo Medical Diagnostics, Inc.
and Sports  Information and Publishing  Corp.) (the "Company") is engaged in the
development  of medical  devices with  `near-patient'  (e.g..  point of care and
continuous   monitoring)  testing  applications  based  upon  our  expertise  in
engineering and medicine and our intellectual property.

History

The Company was originally  incorporated  under the laws of Colorado on November
7, 2003 under the name Sports  Information  Publishing  Corp.  ("SIPC")  for the
purpose of engaging in sports prognostication.

On July 30, 2004,  the security  holders of Hall Effect Medical  Products,  Inc.
consummated the  transactions  contemplated  by a share exchange  agreement (the
"Share  Exchange  Agreement"),  dated as of June 30,  2004,  by and among Sports
Information and Publishing Corp.,  Michael D. Tanner,  HEMP Trustees Limited, as
the corporate trustee of the HEMP Employment  Benefit Trust, John Fuller,  Brian
Cameron,  Westek  Limited,  and the  security  holders  of Hall  Effect  Medical
Products,  Inc. As a result of the exchange,  Hall Effect Medical Products, Inc.
became our wholly owned subsidiary ("In Vivo DE").

Thereafter,  the parties to the Share Exchange  agreed to amend the terms of the
agreement  to correct  certain  information  regarding  (i) the number of shares
issued in connection with the  transactions  contemplated by the agreement,  and
(ii) the  capitalization  of the Company both before and after the  transactions
contemplated by the agreement.

Pursuant to the Share Exchange, as amended, the Company:

o issued to the  former  holders  of  8,000,000  shares of In Vivo DE  preferred
stock, an aggregate of 34,343,662 shares of our 4% voting redeemable convertible
preferred stock (the "4% Preferred Stock");

o issued  to the  former  holders  of  shares  of In Vivo DE  common  stock,  an
aggregate of 38,636,453 shares of our common stock;

o issued 1,636,233  additional shares of our common stock to holders of $467,495
of promissory  notes ($450,000 of which was converted by July 31, 2004),  issued
by In Vivo DE's wholly owned  subsidiaries,  Hall Effect  Technologies  Ltd. and
Jopejo Ltd., in exchange for the cancellation of such notes; and

o agreed  to cause  the  resignation  of all  current  members  of our  board of
directors and appoint new directors as  designated  by certain  shareholders  or
affiliates of In Vivo DE.

Each full share of the Company's 4% Preferred  Stock is  convertible at any time
after October 31, 2005, at the option of the holder,  into one full share of our
common  stock.  The  shares  of 4%  Preferred  Stock  vote,  together  with  our
outstanding  common stock on an "as converted"  basis, at any regular or special
meeting of our stockholders  called for the purpose of electing directors of our
company or to vote on any other  matter  requiring  shareholder  approval  under
Colorado corporate law.

                                       5
<PAGE>
In Vivo DE was subsequently  merged into the parent Company.  Effective April 8,
2005, the Company changed its name from In Vivo Medical Diagnostics,  Inc. to In
Veritas Medical Diagnostics, Inc.

Our Subsidiaries

We have two wholly owned  subsidiaries,  IVMD(UK) Ltd.  ("IVMD(UK)")  and Jopejo
Ltd.  ("Jopejo"),  both of which are incorporated  under the laws of England and
Wales and based in Inverness, Scotland.

IVMD(UK),  formerly  Hall Effect  Technologies  Ltd ("HET")  built a platform of
patents  from  which  to  exploit  unique   commercial   applications  from  the
application of magnetic and other sensing technologies..  HET's operations were,
historically,  funded in part from development  contracts and government grants,
with a majority of funding  provided by Westek Ltd. The controlling  interest of
Jopejo  Ltd.,  a  biotech  research  company   utilizing   similar   development
techniques,  was purchased by Abacus Trust Company Limited and the operations of
the companies merged to achieve development savings.

Our Business

In Veritas  Medical  Diagnostics  Inc ("IVMD")  specializes in the field of near
patient medical diagnostics,  also known as "point of care". We develop products
to address conditions  affecting large numbers of the population which are aimed
at transforming  their lives,  quality of treatment and  significantly  reducing
healthcare  costs We focus on creating  point of care devices or systems for the
minimally-invasive  monitoring  of patients  which are  designed to be accurate,
cost   effective,   easy  to  use,  and  portable  This  requires  an  in  depth
understanding  of both medical  science and  engineering  and we have created an
expert,  multidisciplinary  technical team to address  this...  Our products are
designed to bring diagnosis into patients' hands.


The first  product to use our  technology,  a  prothrombin  monitor for patients
prescribed  warfarin,  has recently been taken up by a major diagnostics company
and we anticipate  them taking it to market in 2007. This device is used for the
measurement  of  coagulation  of blood in patients at risk of heart  disease and
stroke. This is a critical  measurement for millions of patients worldwide which
enables them to manage drug dosage at home, and can reduce downstream effects of
these diseases by up to 30%. (source : Roche Diagnostics).

The product  pipeline is  described  in detail  below;  it includes a sensitive,
economic  immunoassay  platform  for point of care,  a digital  strip reader for
immunoassay,  a home use  monitor to predict  the onset of labour and a low cost
magnetic scanner being developed for tissue visualization.

We actively  protect our  intellectual  property and have filed thirteen  patent
applications to date.

Most diagnostic approaches in point of care rely on combining the specificity of
biology with chemistry to produce a visible signal.  The fundamental  premise of
our business is to bring the application of a particular field of physics called
the Hall Effect , to this interface. In particular we have world class expertise
in the measurement of magnetic  fields in human samples.  We also have extensive
experience in engineering medical devices into hand-held applications,  in strip
measurement  technology and in minimally invasive and non- invasive  measurement
techniques.  The  technical  team at IVMD  includes  scientists,  engineers  and
clinicians and we have forged a highly competent multidisciplinary team to allow
us to address complex diagnostic needs with a high degree of innovation.

                                       6
<PAGE>
Because our core strength is in product  development,  we generally partner with
large international medical device companies  ("Commercial  Partners") to ensure
that our  products  properly  address  market  needs and to provide an effective
route to  market . For each  product  or group of  products  we seek  Commercial
Partners  who  can  work  with  us in one or  more  of the  following  areas  as
appropriate (a)  identification of the market  opportunity;  (b) contribution to
the research and development program; and (c) manufacture or distribution of the
end  product.  The extent of  involvement  in each of these areas will vary from
product to product.

Recently we have  entered  into the  development  of new devices and  techniques
which could provide us with the  opportunity  in the future to develop  products
that could generate  direct revenue for the company.  For the sale of devices we
would  seek  distribution  agreements  and  OEM  manufacturing  to  establish  a
commercial  product line. Our Board has experience  members who have implemented
such agreements in other businesses that they have developed.

In  addition  to  Commercial  Partners we also  partner  with  higher  education
establishments  in  specific  research  areas,  specifically  we have  two  PhD.
Research  programs running with Strathclyde  University in Glasgow,  Scotland to
further our research in non-invasive  analyte  measurement.  In the programme at
Strathclyde  we  are  specifically  studying  the  non-invasive  measurement  of
glucose.  This is a  complex  and  challenging  arena  for  medicine  with  many
companies competing in the race to develop a truly non-invasive  glucose system.
However we are  determined  to fully  utilize  the  expertise  available  in our
Strathclyde  collaboration  to understand the fundamental  issues of the problem
and we are  optimistic  that we can  develop  new  approaches  in this  field In
addition we have  secured  capital  investment  from the UK  government  via the
Inverness and Nairn Enterprise Regional Development Board which has taken equity
and guaranteed a program to provide partial funding for three major  development
programs


Intellectual Property and Product Development

We have applied for thirteen  patents,  three of which have been granted.  These
patents  cover the  generic  and  specific  applications  for our  products  and
technology.   We  are  currently  working  on  a  number  of  additional  patent
applications in related areas.  Patent protection and management is an important
part of our business model.

                                       7
<PAGE>
Commercial Contracts

In November  2002 we entered into a long term  development  contract and license
agreement  for  our  prothrombin  blood  clotting  measurement  technology  with
Inverness Medical Innovations,  Inc (IMA - Amex) ("IMI"), located in Boston, MA.
The development contract contributed over $3 million,  over a three year period.
Under our arrangements with IMI, we have agreed to assign certain of our patents
and grant certain  licenses to them for the use of our technology to produce and
market a prothrombin blood clotting measuring device for which we will receive a
stream of future cash payments  equal to 2% of all net sales of such device.  We
understand  that we  should  expect  to start to  receive  payments  under  this
arrangement in early 2007.


Product Descriptions

The table set forth below briefly describes our key products, their applications
and advantages over current technology and products.

<TABLE>
<CAPTION>
------------------------------ ---------------------- ------------------------ ------------------------
          Technology                  Product           Key Applications/            Advantage
                                                               Market
------------------------------ ---------------------- ------------------------ ------------------------
<S>               <C>                   <C>                   <C>                       <C>
          Blood analyte        Prothrombin blood      Minimally-invasive,      Small, cheap device
          measurement          clotting measuring     accurate and safe,       with rapid measurement
                               device                 characteristic           using world leading
                                                      measuring device for     blood sample size
                                                      heart attack and
                                                      Stroke sufferers

         PRODUCT COMPLETE AND ABOUT TO BE RELEASED TO GLOBAL MARKETS
------------------------------ ---------------------- ------------------------ ------------------------

          Fetal heart rate     Consumer and           Reliable at-home and     Small, external
          monitor              professional  medical  professional-medical     device. Reliable
                               fetal well being       heart rate monitor for   detection and
                               monitor                unborn babies            continuous signal
                                                                               display.  Ease of use.
                                                                               Current  professional
                                                                               medical devices are
                                                                               unreliable.  No device
                                                                               capable of untrained use
                                                                               exists. Device  can be
                                                                               produced at significantly
                                                                               less  cost than current
                                                                               in-market devices.


    IN DEVELOPMENT
------------------------------ ---------------------- ------------------------ ------------------------


                                       8
<PAGE>
------------------------------ ---------------------- ------------------------ ------------------------
          Technology                  Product           Key Applications/            Advantage
                                                                          Market
------------------------------ ---------------------- ------------------------ ------------------------
          Labor predictor      Predictor of labor     Accurate prediction of   High negative and
                               Onset                  onset of labor from 6    positive predictive
                                                      weeks out.  Consumer     success. Ease of use.
                                                      device for maternity     No competition exists
                                                      planning                 either in professional
                                                      In hospital,             medical or consumer markets
                                                      professional care for
                                                      mothers identified
                                                      at-risk for pre-term
                                                      delivery.

    IN DEVELOPMENT - Ready for licensing / extended clinical trials
------------------------------ ---------------------- ------------------------ ------------------------
          Blood analyte        Biomarker monitor      Accurate measurement     Highly sensitive, very
          measurement                                 using very low blood     low cost in comparison to
                                                      Volume of a number of    any competitive system.
                                                      Biomarkers including     Multiple measurements
                                                      Heart attack, HIV,       with one blood sample
                                                      Cholesterol and cancer

    IN DEVELOPMENT - Assay platform available at demonstration level

------------------------------ ---------------------- ------------------------ ------------------------

          Blood analyte        Blood glucose monitor  Non-invasive, accurate   Small, inexpensive
          measurement                                 and safe, glucose (and   device with rapid
                                                      other) concentration
                                                      continuous bulk
    IN RESEARCH                                       measuring device
                                                      measurement
------------------------------ ---------------------- ------------------------ ------------------------







          Medical imaging      Digital scanning       Non-invasive, safe,      Small and portable,
                               machine                high quality             cheap, continuous
    IN RESEARCH                                       alternative to 2D        display.  No ionizing
                                                      X-ray scanning           radiation.
------------------------------ ---------------------- ------------------------ ------------------------

          Bone density         Osteoporosis detection Non-invasive instant     No ionizing
          monitor              and monitoring device  display of bone          radiation.  Cheap and
    IN RESEARCH                                       mineral density for      accurate
                                                      osteoporosis patients
------------------------------ ---------------------- ------------------------ ------------------------

------------------------------ ---------------------- ------------------------ ------------------------

Technology                     Product                Key Application/market    Advantage
------------------------------ ---------------------- ------------------------ ------------------------
Hand held digital              Digital read out of    All YES / NO immunoassay  Eco friendly and
strip reader                   Immunoassay strip      applications              low cost
                               results
------------------------------ ---------------------- ------------------------ ------------------------
</TABLE>
IN FINAL STAGES OF DEVELOPMENT


                                       9
<PAGE>
IN FINAL STAGES OF DEVELOPMENT


The advantages of our technology can be summarized as follows:

o our  devices  represent  the  transfer  of known  technology  from  physics to
medicine;

o our  technology  can measure  non-invasively  or with very low  analyte/sample
size;

o the magnetic fields applied to human use are benign and safe;

o our  devices  can  be  produced  and  sold  at a much  lower  cost  than  most
competitive products;

o our devices give 'next generation' technical superiority by:

o operating from direct current to high alternating current frequencies;

o measuring very low levels of displacement; and

o working with low level magnetic fields


Scientific Platform

The Hall Effect and Magnetic Systems

We  have  unique   expertise   with  the  Hall  Effect  as  applied  to  medical
applications.  The Hall Effect is a physical  principle  that was  discovered in
1875, but whose  applications  were not fully utilized until the introduction of
modern high sensitivity and custom-made semiconductors and contemporary computer
processing power.

The  definition of the Hall Effect is the  generation  of an electric  potential
perpendicular  to both an electric  current flowing along a conducting  material
and an external  magnetic field applied at right angles to the plane  containing
the current and Hall field.

We  have  pioneered  the  use  of  Hall  Effect  devices  in  highly   sensitive
proportional measurement,  exploiting their ability to measure to extremely high
levels of accuracy in many environments.  We have combined this basic technology
with magnetic system design and digital signal processing to create non-invasive
measurement  systems  which can  characterize  compounds  and  measure  bulk and
concentration at a molecular level.

Advanced Electronics and Signal Management

In developing these very accurate measuring  devices,  we have built substantial
knowledge and intellectual property around the acquisition and processing of low
and ultra-low level electrical signals,  with particular attention to techniques
for noise  cancellation,  compensatory  processes  for  extraneous  signals  and
temperature  effects.  In particular,  these  techniques have significant use in
fetal monitoring  applications where low-level  electrical signals acquired from
the patient can be effectively processed, enabling novel and valuable diagnosis.

These advantages combine to produce opportunities for the measurement of medical
conditions  either  never  before  measured  or  in  so  effective  a  way  that
near-patient  monitoring previously greatly demanded but technically impossible,
can now be a cost-effective reality.

                                       10
<PAGE>
Intellectual Property

We believe that our science and  capability is unique.  In view of the low level
of published  research and patent activity around these measurement  principles,
to our  knowledge,  no  other  company  or  group  has  attempted  to use  these
techniques for these levels of measurement to develop product applications.  Our
intellectual property is based upon our ability:

o to work at an appropriate physical level to specify magnetic systems

o to develop high  sensitivity  Hall Effect devices using Molecular Beam Epitaxy
(manufacturing) techniques;

o  to  use  the  Hall  Effect  in  high   precision   proportional   measurement
applications;

o to provide  advanced signal  processing and control  techniques to extract low
level signals in biological systems; and

o to establish  techniques for measuring  low-level  effects with high levels of
precision.

In all cases, we own the intellectual  property associated with our products and
applications. In addition to our issued patents and pending patent applications,
we are in the  process of filing for several  additional  patents at both a core
principle and application levels.

Our thirteen core patents and patent applications consist of the following:


 Patents                        Pending                              Granted
----------------------------    ----------------------------------   -----------
Blood Coagulation (Unipath)     China, European Patent, Japan, US
PCT/GB2004/02401
----------------------------    ----------------------------------   -----------
Blood Coagulation               China, Europe, Japan, US
PCT/GB2005/002427
----------------------------    ----------------------------------   -----------
Blood Coagulation (low volume)  China, Europe, Japan, US
PCT/GB2006/000964
----------------------------    ----------------------------------   -----------
Magnetic Scanner                China, Europe, Japan, US             Europe
PCT/GB01/01136
----------------------------    ----------------------------------   -----------
Skin Sensor                     China, Europe, Japan, US
PCT/GB2006/000931
----------------------------    ----------------------------------   -----------
Labour Prediction (updated      First filing
software)
UK0605950.5
----------------------------    ----------------------------------   -----------
Blood Monitor                   China, European Patent, Japan, US    China
(Susceptibility)
PCT/GB02/01953
----------------------------    ----------------------------------   -----------
Heart Monitor                   China, European Patent, Japan, US
PCT/GB2002/005692
----------------------------    ----------------------------------   -----------
Labor Prediction                European Patent, Japan               United
PCT/GB02/04880                                                       Kingdom, US
---------------------------     ----------------------------------   -----------
Magnetic Separation             First Filing
(Immunoassay)
PCT/GB2005/002427
---------------------------     ----------------------------------   -----------
Medical electrode               China, European Patent, Japan, US
PCT/GB02/005693
---------------------------     ----------------------------------   -----------
Immunoassay - measurement of     First Filing
Presence and concentration
Of compounds in fluids
Supercedes Magnetic
Seperation
UK0615738.2
---------------------------     ----------------------------------   -----------
Hand Held Digital Strip Reader
Assay reading                    First Filing
Apparatus and method
Ref: UK0619585.3
Yes / No magnetic immunoassay
---------------------------     ----------------------------------   -----------


                                       11
<PAGE>
* European Patent

Path from Research to Products

Most advanced in  development  is the  prothrombin  measuring  device,  which is
complete and is being  prepared for mass market by our commercial  partners,  as
described above.

Our fetal monitoring  applications are  technologically the second most advanced
in our medical device portfolio as we enter the second phase of clinical trials.
To support the direction of our product development in line with our strategy of
keeping  the  application  focused on the end user,  we have  already  conducted
market  research in clinics in both the US and the UK. These have  substantiated
the end product  portfolio and given critical insights into the potential issues
related to the ultimate  marketing of the  products.  We have a product for home
use in labour predication which is available for likening or extended trials.

We have  recently  completed  the  first  stage  of  product  design  for an new
immunoassay  platform based on strip  technology and the sensitive  detection of
magnetic particle labels, made possible by our know how in Hall Effect sensors.

We have  embarked on  discussions  with a number of companies  for a new digital
immunoassay reader which has minimal electronic components and is solar powered.
The first application of this is likely to be in Digital Pregnancy Tests but the
platform is available for the reading of any threshold immunoassay.


Although  a  significant  number  of  other  product   opportunities  are  under
consideration for magnetic susceptibility and dielectric dissipative measurement
systems  (and  we  believe   substantially   more  are  undoubtedly  yet  to  be
considered), the focus of our ongoing development research has been to establish
a core  platform  with  specific  emphasis on  non-invasive  measurement  of the
glucose content of blood.

Initial Commercialization Strategy

The prothrombin measurement device and the fetal monitoring devices utilize much
of the core science and technology that applies to the applications in research.

The  nature  of the  commercial  contracts  for  these  two  products  is  quite
different. For the prothrombin measurement device we are essentially providing a
front-end measuring system for a product that has been independently  developed,
produced and marketed by IMI. In the case of the fetal  monitoring  devices,  we
have produced  semi-engineered  prototypes  for clinical  trials Our  commercial
strategy for these devices is to have the devices  produced and assembled for us
in China  and  contract  with  partners  that can  assist  us in  marketing  and
distributing  the  products.  We  intend to rely on our  distribution  partner's
experience  and  contacts  with the  end-users  on issues of  product  features,
functions and  performance  criteria.  We are also in discussions  with a second
commercial  partner  who would take the  product  into the US,  Europe and other
world markets.  These arrangements only cover the consumer range of products and
further partnerships are being sought for professional medical devices.

We are in discussion  with  interested  parties on the possibility of taking the
digital  reader  technology  for  immunoassay  direct to the  market to create a
revenue stream with a selected immunoassay parameter.

                                       12
<PAGE>
Products

Prothrombin Blood Coagulation Time Measuring Device

The prothrombin  time (PT) is one of the most important  laboratory  measures to
determine  the  functionality  of the blood  coagulation  system.  It is used in
patient care to diagnose diseases of coagulation, assess the risk of bleeding in
patients undergoing  operative  procedures,  monitor patients being treated with
oral anticoagulant  (coumadin) therapy,  and evaluate liver function.  The PT is
performed  by  measuring  the clotting  time of  platelet-poor  plasma after the
addition of calcium  and  thromboplastin,  a  combination  of tissue  factor and
phospholipid.

Both of the techniques in development,  magnetic  susceptibility  and dielectric
dissipation,  can more  easily be  applied to  measuring  in-vitro  rather  than
in-vivo  analytes.  The  principles  of  measurement  remain the same.  For this
specific  application  however,  we are developing  the magnetic  susceptibility
method  as we  have  ascertained  that  this  gives  us the  most  accurate  and
repeatable measurement of clotting time and also the best grounds for a suite of
unchallengeable patents.

As in the current  practice in diabetic glucose  monitoring,  we extract a small
drop of blood from a finger  and place it on a strip.  The prime  advantages  in
using our PT measurement system over current devices are twofold:  (a) cost, and
(b) the fact that our device only  requires  less than 3  microliters  of blood,
significantly  less invasive than the 20  microliters  of blood  required by the
only  comparable  systems.  This makes it virtually  painless in  comparison  to
competitive  products  and  makes it more  likely to be used  frequently,  hence
reducing the downstream cost of care for patients.

Market for PT Monitors

During  the last few years PT  monitors  have been  increasingly  proposed  as a
substitute for  conventional  laboratory  systems to control oral  anticoagulant
treatment.  The  distinct  advantage  is  that  they  can be  used  for  patient
self-testing. Their use in combination with computer programs designed to adjust
the dosage is predicted to open a new era in oral  anticoagulant  monitoring and
all parties involved will benefit from such a revolution.

Physicians in charge  (specialists  and general  practitioners)  will be able to
handle the  increasing  numbers of patients on oral  anticoagulants.  Laboratory
workers now engaged in lengthy  routines  will now be available for other tasks.
Health  services  groups and  organizations  may save a  considerable  amount of
economic   resources   now  spent  in  the   management   of  patients  on  oral
anticoagulants. Patients themselves will benefit by spending less time attending
overcrowded waiting rooms.

An estimated 17 million people  worldwide die of  cardiovascular  diseases every
year,  particularly heart attacks and strokes (Source:  WHO). The total European
market  revenues in 2004 is  estimated to be 150 million euro and is expected to
increase to 375  million  euro in 2009 with  marked  increases  in point of care
testing and  decreases in laboratory  testing and sample size forecast  (Source:
Frost & Sullivan)

The current  benchmark PT monitor is the CoaguChek system marketed by Roche. Our
patents in the PT monitors  include both the  configuration  of the  measurement
apparatus and the detail of the strip design. The principal advantages of our PT
Monitor over the CoaguChek system are shown in the table below.



Feature            CoaguChek                      IVMD
------------------ ------------------------------ ------------------------------
Pain of use        Inhibitive                     Micro-lance - `pin-prick'
------------------ ------------------------------ ------------------------------
Blood volume       20 microliters                 <3 microliters
------------------ ------------------------------ ------------------------------
Ease of use        Complex & error prone process  Easy simple process
------------------ ------------------------------ ------------------------------
Size of device     Desk top                       Hand-held; mobile phone
------------------ ------------------------------ ------------------------------
Cost of device     $1,295                          <$30
------------------ ------------------------------ ------------------------------
Cost of strip      $4.83                           <0.50c
------------------ ------------------------------ ------------------------------

                                       13
<PAGE>

Fetal Monitoring Devices

We are currently  completing  development of two  interlinked  fetal  monitoring
devices - fetal heart  monitoring  and the prediction of labor onset (POLO) Both
have had two phases of clinical trials conducted in Leeds, England.

Fetal  heart rate is the most  reliable  measure of fetal  well-being  and is an
important  part of antenatal and  intrapartum  care.  Currently  physicians  and
midwives  use  auscultation  - merely  listening  through  a  trumpet - or small
ultrasound devices that detect the fetal heart through the Doppler effect.  Both
methods are unreliable  and do not give accurate  diagnostic  capability.  Labor
onset (palpation of tightenings and contractions) is currently estimated through
observation  of uterine  activity by the mother,  the  general  practitioner  or
midwife.  Again there is little predictive  accuracy in these methods and, while
there are interventions to manage prematurity,  their application follows no key
rules and is often subjective.

There  are  a  number  of  diagnostic,  specialist,  hospital-based  systems  in
development but these are costly,  expert-centered  and not highly successful in
negative and positive prediction of labor onset.

There are no methods  available or in  development  for home,  unskilled  use by
mothers-to-be  for listening to their developing  baby's heartbeat or predicting
the onset of their labor.

Through  developing a practical  application from a recently  published piece of
science  regarding  myometrial  activity,  we have  created  devices  capable of
extracting low-level electrical signals from the uterus.

These are acquired from electrodes  placed on the surface of the abdomen and, by
using in-house developed algorithms can demonstrate birth onset windows from two
weeks in advance.  In addition,  the fetal heart rate can be extracted  from the
resulting algorithms and an instant display of fetal well being given.

The second stage of clinical trials which has been completed has proven that the
device can generate a 7 to 14 day initial warning of labour onset, followed by a
3 to 6 day final  indication.  This was achieved in normal  spontaneous  births.
This is in line with market requirements obtained during market research clinics

Additionally  the device has been  trialed in  vetinary  applications  with high
value  animals  where  it has been  found to  provide  highly  accurate  two day
prediction of onset of labour opening up additional potential  opportunities for
the product.


Market for Fetal Monitoring Devices

There  are  600,000  births  in the UK  each  year,  4,000,000  in the US and an
estimated  4,000,000 in the  countries of the rest of the world in which we have
patents  granted or pending,  excluding  China. In  consideration  of the market
size,  socio-demographics  play a key  role  in  estimating  the  potential  for
'over-the-counter'  device  sales while health care  'cost-of-quality'  plays an
important factor in professional  medical devices - particularly with respect to
the care of the 15% of  mothers  who are  currently  considered  'at  risk'  for
premature  delivery.  These factors have been taken into account when developing
the  market  research  clinics  we have  held in the UK and US.  We have not yet
studied detailed market  socio-demographics  to determine the size of the market
for our products in China.

Our Suite of Fetal Monitoring Products

A suite of  products  are  envisioned  with  linked  styling  and  progressively
increasing levels of diagnostic and data storage capability to cater to both `at
home' and maternity ward use.

A further  element in the product suite is the  inclusion of disposable  contact
pads which are used with the predictor and professional medical products.  These
are uniquely keyed to the machines and provide an important revenue generator.

Ultimately  this product will enable a  significant  advance in near patient and
remote care through  software  which is easily  downloadable  and  transmissible
using conventional communications media.

                                       14
<PAGE>
Products - In Research

Minimally invasive Biomarker Analysis products - Immunoassay

These products use advanced magnetic  techniques to look for biomarkers in blood
samples. Generally these are in very low volume, and require high sensitivity to
accurately  provide  diagnosis.  By a process of  magnetically  "tagging"  these
biomarkers,  their  measurement  can be  substantially  amplified  to  provide a
sensitive,   Point  of  Care,   diagnostic   tool.  We  have  just  completed  a
demonstration version of our magnetic detection technology for a strip-based and
hand-held quantitative immunoassay device and will be actively seeking licensing
agreements for this platform in 2006-2007.

The market for Immunoassay

The In Vitro Diagnostics  market in the USA was worth on its own $11.9billion in
2002 and this  represents  35-40% of world market.  These are mainly  laboratory
tests as there are few Point of Care devices available.  The market is served by
30 key companies but is dominated by the larger  suppliers  E.g.  Roche Holding,
J&J, Abbott Labs, Beckman Coulter, Becton Dickinson, Bayer, Dade Behring

Within this  market,  the  Immunoassay  segment is estimated at c60% with 80% of
sales to top 10 manufacturers.

Market growth estimates are based around 10-15% pa to 2009 in four major
segments:

- Influenza antigen
- Prostate-specific antigen
- Hepatitis C virus antigen
- Myocardial marker

By  creating  a  fast,   sensitive,   low  cost  immunoassay  device  the  rapid
trauma/paramedic  diagnosis  of  heart  conditions  alone  would  allow  earlier
interventions and significantly lower downstream  healthcare costs with improved
patient outcomes.

Non-Invasive Blood Analyte Measurement Products

Two  methodologies  are in  development  which can,  either in  isolation  or in
combination, identify and measure analytes within a fluid or suspension.

The first technique, `magnetic susceptibility',  subjects the sample, in-vivo or
in-vitro,  to a  known  magnetic  field.  As all  substances,  whether  para  or
diamagnetic,  are  susceptible  to the field by virtue of the ions and electrons
within the molecule,  they are displaced by varying amounts.  By introducing our
developed  magnetic  systems and circuitry,  this  displacement  can be measured
using sensitive,  but conventional,  Hall Effect devices and appropriate  signal
analysis software (again unique to HET).

The  second  technique,  `dielectric  dissipation',  quantifies  the  dielectric
properties  and in  particular,  the loss factors of the subject  analyte at the
resonance frequency of the molecule.  By determining the energy loss, or quality
factor, of the analyte its  concentration in fluid can be determined.  Where the
resonant  frequency of different analytes is very similar a known magnetic field
can be introduced to displace the molecules  and  differentiate  their  resonant
frequencies.

                                       15
<PAGE>
Our  work  in  this  area  has  focused  on the  non-invasive,  continuous  bulk
measurement of the glucose content of blood.

The Market for Glucose Measuring Devices

Worldwide  annual sales of  self-monitoring  glucose products for diabetics were
estimated  to  have  totaled  $5  billion  in  2003  and  are  forecast  to grow
approximately 10% compounded annually (Source:  Abbott Laboratories).  Worldwide
there are estimated to be currently 175.0 million diabetics, forecast to rise to
366 million by 2030 as diagnosis  improves and lifestyles  become more sedentary
(Source: WHO). Primary diabetes care costs are a significant factor but indirect
costs are a more substantial burden to healthcare services as diabetes is one of
the most  prevalent  causes of  blindness,  kidney  disease,  nerve  disease and
amputations, heart disease and stroke.

A typical  diabetic in the developed  world consumes  between $320 and $1,120 of
resource and  materials  per annum.  Management  of the  condition may require a
sample of blood to be drawn several times every day - an often painful process.

Currently,  the supply of glucose testing  equipment is dominated by Johnson and
Johnson, Roche Diagnostics, Abbott Medicines and Bayer Diagnostics with combined
sales of 87% of disposable  strips.  The US market  reached $2.6 billion in 2002
with an estimated compound annual growth rate (2002-2005) of 13.1%. Therefore it
is key to improve glucose meter technologies to encourage frequent testing.

All the major players,  and some smaller  technology  companies,  are developing
technologies to measure non-or  minimally-invasive.  Minimally  invasive methods
are based on either a correlation of  interstitial  fluid glucose  content or an
implant   able   glucose    biosensor.    Non-invasive    methods   use   linear
absorption/transmission  spectra of near infrared  light or the magneto  optical
rotator  effect.  Some are close to market  launch but all are costly,  sizeable
machines and none measure bulk readings or continuously.

Our Glucose Blood Monitoring product is being designed to be a pocket calculator
sized  device  with a small clip to attach to the ear lobe or finger to obtain a
reading.  The  advantages  are  that it will be  safe,  truly  non-invasive  and
accurately monitor and provide  continuous,  bulk trends in real time. It can be
produced very cheaply and provide  substantial  cost savings and health benefits
to users over time.

We believe that it will be capable of being offered to healthcare purchasers, in
consideration  of the benefits to health  authorities,  for a wholesale price of
$200.

We believe that the market  potential  for this product is huge, as reflected in
the statistics set forth below:

<TABLE>
<CAPTION>
                   No of            25 year         Memo:            Memo:            Target use       Target sales
                   diagnosed        predicted       Self             Self             within           volume by
                   diabetics        growth          monitoring       monitoring       diabetic         year 5
                   (`000)           (%)             market size      market           population at    (`000)*
                                                    ($m)             forecast
                                                                     year 5
                                                                     growth (%)
------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
<S>                <C>              <C>              <C>             <C>              <C>               <C>
UK                 1,440            27               154.4           16.0             1 in 15          96
------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
USA                10,300           47              1001.6           13.8             1 in 15          687
------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
W. Europe          7,100            35               982.4           16.0             1 in 25          355
------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
Other Regions**    30,400           32               639.2                            1 in 100         304
------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
India              22,900           150                                               1 in 200         115
------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
China              18,600           102                                               1 in 250         75
------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
Memo: World Total  154,400          94              2777.6           $6.4 billion
                                                                     by year 5
------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
</TABLE>

                                       16
<PAGE>
* Assumes  that the  product  will have a 5 year life  cycle and that sales will
peak at the target level

**  Countries  outside  of Europe  and the US where  patent  cover is pending or
granted

Other Potential Products

In addition to Glucose blood  monitoring,  our intellectual  property covers the
use of the  technology  for the measure and  monitoring  of any blood  analyte -
either one which occurs  naturally  or is  introduced  (i.e.,  through a drug or
carrier). Typical examples of minimally or non-invasive applications are:

o Oxygen - continuous oximetry
o Estrogen - fertility measurement
o Protein markers - for gene evaluation / modification programs
o Drugs
o Alcohol

Medical Imaging

Currently simple, two-dimensional imaging is carried out in hospitals and dental
practices using conventional X-ray techniques. This relies on the use of harmful
ionizing  radiation and operators,  and patients,  must take great care to avoid
damaging overexposure.

The magnetic susceptibilities of bone and blood rich tissue differ significantly
and  therefore  when part of a body is placed  between a magnetic  source and an
array of Hall devices differential  measurements can be taken to create an image
with  very high  resolution.  If a TFT  screen,  a device  similar  to a lap-top
computer,  is  utilized  with pixel  dedicated  Hall  Effect  chips then a small
portable,  and even flexible,  device can be created. This creates opportunities
for new and existing markets for low cost, high quality imaging.

In the UK the 355 hospital  trusts have anything from a single unit in a cottage
hospital to 15-20 X-ray rooms in a large  hospital.  Increasingly  hospitals are
using digitally  mastered  images to hold and network patient files.  Diagnostic
imaging  sales are on the  increase  both in the UK and the US with x-rays being
the largest growth sector.

US figures are shown in the table below.

<TABLE>
<CAPTION>
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
                    1999 $ million    % Market Share    2004 $ million    % Market Share    AAGR %
                                      1999                                2004              1999-2004
<S>                      <C>                  <C>              <C>                 <C>            <C>
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
X- ray and
digital X-ray       1923.5            47.3              2794.5            52.1              7.8
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
CT and ultrasound   1707.2                              2091.1                              4.1
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Nuclear medicine    401.7                               474.4                               3.4
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total               4033.4                              5360.0                              5.9
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>

                                       17
<PAGE>
The target for this  product is a variant of the  2-dimensional  imaging,  X-ray
market currently dominated by Philips,  Seimens and Toshiba. This device will be
substantially  cheaper with no harmful  effects,  require less user skill and be
more  compact to the point that a portable  unit is planned  for use in-situ for
trauma cases. In dentistry,  where different  manufacturers  compete, it will be
attractive  on cost and function as well as being  intrinsically  safer and more
user  friendly  and will be a direct  replacement  for the  current  intra-  and
pan-oral devices.

Bone Mineral Densitometry

Osteoporosis  affects  one in three  women and one in fifteen men in the western
world. As a health care issue it is becoming more prevalent as lifestyles become
more sedentary and diet less varied. In addition the  de-mineralization  of bone
in young  children  is becoming  an issue of  increasing  concern in the western
world, as diets are becoming less mineral rich - particularly in calcium.  There
are  further  complications  in  the  scanning  of  children  for  bone  mineral
deficiency as current  processes  require the child to lie perfectly still for a
number of minutes.

In conjunction  with a commercial  partner,  we are researching a variant of the
medical  imaging  technology  which also  utilizes  the  dielectric  dissipative
measuring   technique  to  detect  and  quantify   more   accurately   and  more
conveniently,  the onset and early stages of the disease.  We have filed patents
in this area for the application of our technology.

Two product streams are envisioned. The first is a hospital use device of a size
capable of performing whole body scans. The second is a hand-held device,  which
could scan a finger or vertebrae,  and give accurate and rapid  readouts of bone
mineral   levels.   Both  devices  would  give  an  instant  reading  against  a
patient-trend benchmark.

While we have yet to formally  conduct a market  review we  estimate  the market
value for  over-the-counter  devices alone to grow to in excess of $800 million*
per year by 2007.  A full study will be launched  when the concept  demonstrator
stage is reached.

Product Summary - Technologies and Applications Currently in Development

The  following  definitions  set forth the current stage of  development  of our
technology, in terms of the products we have proven as to concept,  functionally
demonstrated, produced prototypes, or are in actual volume production.

<TABLE>
<CAPTION>
Phase 1                 Phase 2               Phase 3             Phase 4                Phase 5
----------------------- --------------------- ------------------- ---------------------- --------------------
<S>                         <C>                    <C>                    <C>                  <C>
Concept Proving         Functional            Semi - engineered   Fully - engineered     Volume Production
                        demonstration         prototypes          prototypes
----------------------- --------------------- ------------------- ---------------------- --------------------
Bench and laboratory    Bench simulator       Batch production    As final production    For sale to market
to substantiate         which can             to finished         version used for
hypothesis              demonstrate           design using some   field trials in
                        capabilities          production          market
                                              materials and
                                              techniques
----------------------- --------------------- ------------------- ---------------------- --------------------
                                              3 and 4 may         run                    Tooling will start
                                              concurrently        depending on           in advance of...
                                              confidence          levels in
                                              materials and       production
                                              techniques
----------------------- --------------------- ------------------- ---------------------- --------------------
0+ 6 months             0+ 10 months          0+ 16 months        0+20 months            0+24 months
----------------------- --------------------- ------------------- ---------------------- --------------------
Capability:
----------------------- --------------------- ------------------- ---------------------- --------------------
IVMD  - current         IMDV + resource       Small consortium    Larger consortium      Current market
                                              Current market      Current market player  player
                                              player
----------------------- --------------------- ------------------- ---------------------- --------------------

                                       18
<PAGE>
The current product development status of our technology may be summarized as
follows:


Technology                   Product                    Key Applications                 Development Stage
---------------------------- -------------------------- -------------------------------- --------------------
1. Blood analyte             Fast, sensitive low cost   Cardiac, HIV, Drug diagnosis             2
                             Biomarker measurement      and measurement

2. Blood glucose monitor     Non-invasive, accurate     Routine measurement of glucose           1
                             Point of care              For self management
                                                        Of glucose

---------------------------- -------------------------- -------------------------------- --------------------
3. Digital Strip Reader      Low cost, hand held yes/no  various threshold assays                3
                             reader for immunoassay testing


4. BAM (minimally invasive)  Point of care blood        minimally invasive, monitoring           3
                                                        Of clinical conditions such
                                                        As coagulation time

---------------------------- -------------------------- -------------------------------- --------------------
5. Medical imaging           Professional medical       Non-invasive, safe, high -               3
                             scanner                    quality alternative to 2D X-
                             Portable imaging device    ray scanning
                             Dental imaging device
---------------------------- -------------------------- -------------------------------- --------------------
5. Medical imaging           Bone densitometry Professional medical Non-invasive                 2
                             and safe 1 densitometer measurement of onset and
                             OTC variant for home use status of osteoporosis
                             (esp. for female use)

---------------------------- -------------------------- -------------------------------- --------------------
7. Fetal heart rate monitor  Fetal heart monitor        Reliable at- home and                    3
                                                        professional medical heart
                                                        rate monitor for unborn babies

---------------------------- -------------------------- -------------------------------- --------------------
8. Labor predictor           Labor predictor-OTC        Accurate prediction of onset             3
                             Labor predictor-           of labor from 6 weeks out
                             professional medical
---------------------------- -------------------------- -------------------------------- --------------------
</TABLE>

PRODUCT DESIGN, PROTECTION, MANUFACTURING AND PRODUCTION

                                       19
<PAGE>
We have established the following relationships to enable us to develop, produce
and protect our product  applications and technologies to create our operational
platform:

o Chinese manufacturing - HET is active in manufacturing and assembling products
via a number of manufacturers in China,  particularly Hen Young Manufacturing in
the Don Guan province.

o Patent/IPR  management - HET uses Wilson Gun McCaw and  Novagraaf to construct
and manage its patent process.

UK Electronics is a low volume  electronic  prototyping  and  development  group
based in Manchester UK. They are used for all of the early production systems.

Scandinavian  Micro Biodevices  (SMB), is a Danish based precision  moulding and
coating  supplier  who  provides  technology  and  product  for our strip  based
systems.


Government Regulation

We are subject to government  laws and  regulations  governing  health,  safety,
working conditions,  employee relations, wrongful termination,  wages, taxes and
other matters applicable to businesses in general.

Personnel

We currently employ 7 staff members,  including directors,  laboratory personnel
and administrative personnel who are full time or commit most of their available
time to IVMD. In addition,  2 of our senior staff are engaged on a  substantial,
but part time basis.  All other staffing  requirements are filled by consultants
and outsourcing as required.

Seasonality

We do not  anticipate  that  our  business  will be  substantially  affected  by
seasonality.

Item 2. DESCRIPTION OF PROPERTY

Our research  and  executive  offices are located at The Green House,  Beechwood
Business Park North, Inverness,  Scotland IV2 3BL in 1,128 square feet of leased
space  under a lease with an  unaffiliated  third  party,  expiring on April 25,
2007, and with an annual rent of approximately $33,600.

Item 3. LEGAL PROCEEDINGS

We are not  currently  party to any legal  proceedings  required to be disclosed
herein.We have received a notice of default and demand for payment from a holder
of one of the secured  convertible notes we issued in September 2005. The demand
for  payment is in the amount of  $227,000.  We are in default  pursuant  to the
terms of the note for failure to make monthly  interest  payments since December
2005 and for failure to repay the note by the September 7, 2006 maturity date.


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There was no matter submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended July 31, 2006.

                                       20
<PAGE>
                                     PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common  stock has been  quoted on the OTC  Bulletin  Board  under the symbol
"IVME".  Prior to our name change from In Vivo Medical  Diagnostics,  Inc. to In
Veritas  Medical  Diagnostics,  Inc.,  our  common  stock was  quoted on the OTC
Bulletin  Board under the symbol  "IVVO.OB".  Prior to that we traded  under the
name Sports  Information  &  Publishing  Corporation  and were quoted  under the
symbol  "SIPC.OB".  Prior to July 14,  2004,  there was no  established  trading
market  for our  common  stock.  Our  common  stock is also  quoted  on both the
Frankfurt and Berlin Exchanges under the symbol "I7V". The following table shows
the reported high and low closing bid  quotations per share for our common stock
based on information provided by the OTC Bulletin Board.  Particularly since our
common stock is traded  infrequently,  such  over-the-counter  market quotations
reflect inter-dealer prices, without markup, markdown or commissions and may not
necessarily represent actual transactions or a liquid trading market.


 Quarter Ended           High           Low
------------------     ---------     ---------
October 31, 2004         3.20          1.80
------------------     ---------     ---------
January 31, 2005         2.25          0.92
------------------     ---------     ---------
April 30, 2005           1.27          0.63
------------------     ---------     ---------
July 31, 2005            0.81          0.34
------------------     ---------     ---------
October 31, 2005         0.28          0.13
------------------     ---------     ---------
January 31, 2006         0.13          0.03
------------------     ---------     ---------
April 30, 2006           0.14          0.065
------------------     ---------     ---------
July 31, 2006            0.15          0.07
------------------     ---------     ---------
October 30, 2006         0.011         0.045
------------------     ---------     ---------
January 31, 2006
(through November 9)     0.073         0.06


As of November 7 2006,  there were 58,178,467  shares of common stock issued and
outstanding.  Our transfer agent is Corporate Stock Transfer,  Denver, Colorado,
(303) 282-4800.

                                       21
<PAGE>
Number of Stockholders

As of November  9, 2006,  there were  approximately  98 holders of record of our
common stock.

Dividend Policy

Historically,  we have not paid any dividends to the holders of our common stock
and we do not expect to pay any such dividends in the  foreseeable  future as we
expect to retain our future  earnings for use in the  operation and expansion of
our business.

Recent Sales of Unregistered Securities

In the three month period ended July 31, 2006 the Company  issued the  following
unregistered shares of our common stock*:

-    In May, 2006 we issued  83,334  shares of common stock to UTEK  Corporation
     under the terms of a contract whereby UTEK provides services to the Company
     to enable it to identify and source complementary  intellectual property to
     enhance its own IP.

-    In May, 2006 we issued 875,000  shares of common stock to Sichenzia,  Ross,
     Friedman and Ference,  our attorney,  in  compensation  for legal  services
     rendered.

* All of the above  offerings  and sales were deemed to be exempt under rule 506
of Regulation D and Section 4(2) of the Securities  Act of 1933, as amended.  No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited  number of persons,  all of whom were
accredited  investors,  business  associates of In Veritas Medical  Diagnostics,
Inc. or executive officers of In Veritas Medical Diagnostics, Inc., and transfer
was restricted by In Veritas  Medical  Diagnostics,  Inc.in  accordance with the
requirements  of the Securities Act of 1933. In addition to  representations  by
the above-referenced  persons, we have made independent  determinations that all
of the above-referenced  persons were accredited or sophisticated investors, and
that they were  capable of analyzing  the merits and risks of their  investment,
and  that  they   understood  the  speculative   nature  of  their   investment.
Furthermore,  all of the  above-referenced  persons were provided with access to
our Securities and Exchange Commission filings.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following  discussion  should be read in conjunction  with our  consolidated
financial  statements and notes to those  statements.  In addition to historical
information,  the following  discussion and other parts of this quarterly report
contain forward-looking information that involves risks and uncertainties.

Overview

In Veritas Medical Diagnostics, Inc. (formerly In Vivo Medical Diagnostics, Inc.
and Sports  Information  and Publishing  Corp.) is engaged in the development of
lateral  applications  of novel  measurement  techniques in medical devices with
`near-patient' (i.e. point of care) testing applications.

We have  limited  assets  and  limited  revenues.  At July 31,  2006,  we had an
accumulated deficit from inception of $8,594,836.  As a result, our auditors, in
their report on our financial statement for the fiscal year ended July 31, 2006,
have  expressed  substantial  doubt  about our  ability to  continue  as a going
concern.

Results of Operations for the Fiscal Year Ended July 31, 2006 as Compared To the
Fiscal Year Ended July 31, 2006



                                       22
<PAGE>
Revenues

During the year ended July 31, 2006 we had sales of  $1,271,130,  as compared to
sales  of  $879,847  during  the  year  ended  July  31,  2005.  The  change  is
attributable  to  increased  revenue  earning  activity  under our  research and
development contract with IMI..

Research & Development Expenses

For  the  year  ended  July  31,  2006,  research  and  development  costs  were
$1,306,542,  as  compared to  $1,535,074for  the year ended July 31,  2005.  The
change is attributable to less outsourcing to subcontractors of our research and
development activity coupled with greater internal efficiency..

Depreciation Expenses

Depreciation  expenses  for the year ended July 31,  2006  totaled  $16,436,  as
compared  to  $27,928  for  the  year  ended  July  31,  2005.  This  change  is
insignificant,  reflecting  the fact that  investment  in fixed  assets  has not
altered materially from year to year.

General & Administrative Expenses

General and  administrative  expenses  for the year ended July 31, 2006  totaled
$414,606,  as compared to $465,481 for the year ended July 31, 2006.  The change
is due to greater efficiencies and improved cost control.

Officer's Salaries

Officer's salaries totaled $528,128 in the year ended July 31, 2006, as compared
to $617,000 in the year ended July 31, 2005. The change is attributable a change
in board composition to individuals who require less cash compensation,.

Stock Based Compensation

During the year ended July 31, 2006  $656,202 of our  expenses  were paid for by
way of stock  issuances for services  ("stock based  compensation").  During the
year ended July 31, 2005 stock based compensation  amounted to approximately the
same amount - $579,476

Stock Options Expense

Stock  option  expense  for the year  ended  July 31,  2006  totaled  $62,379 as
compared to $52,698 in the year ended July 31 2005.

Legal and Professional

Legal and Professional fees totaled $160,567_____ during the year ended July 31,
2006, from $630,460 in the year ended July 31, 2005. This was a result of better
in-house  processes and a reduced level of non routine  activity  requiring less
consultation with attorneys..

Net Income (Loss)

Our net loss before non  operating  income and  expenses for the year ended July
31, 2006 amounted to $959,060 a substantial reduction  (approximately half) from
$1,864,903  for the year  ended July 31,  2005.  Our net loss for the year ended
July 31, 2006 was  $1,688,262,  as compared to a net loss of $2,450,792  for the
year ended  July 31,  2005.  This  major  shift is  primarily  due to  increased
revenues and generally greater efficiency and cost control across the business.

                                       23
<PAGE>
Liquidity and Capital Resources

As of July 31, 2006, we had cash of $61,241_. Our current liabilities as of July
31, 2006 aggregated $2,539,898.  In order to implement our plan of operation and
commercialize  our  products,  we intend to secure  development  contracts  with
commercial  partners committed to launching products into global markets. We may
also seek outside debt and equity  financing to fund our continuing  operations,
to the  extent  that  such  funding  is  available  under  reasonable  terms and
conditions. Subsequent to July 31, 2006 we have continued to be actively engaged
in  raising  additional  loan and  equity  finance.  A full  description  of our
activities  and  their  current  status  is set out in note 10 to the  financial
statements.We  have  received a notice of default and demand for payment  from a
holder of one of the secured  convertible notes we issued in September 2005. The
demand for payment is in the amount of $227,000.  We are in default  pursuant to
the  terms of the note for  failure  to make  monthly  interest  payments  since
December  2005 and for  failure  to  repay  the note by the  September  7,  2006
maturity  date.We are also in default  pursuant to the terms of another  secured
convertible note issued on September 7 2005 , which has an outstanding principal
balance  and  accrued  interest  in the  amount of  $237,770.  We are in default
pursuant to the terms of the note for failure to make monthly interest  payments
since  December  2005 and for failure to repay the note by the September 7, 2006
maturity  date.  However,  we have not  received  a notice of  default  from the
holder.


Off Balance Sheet Arrangements

We do not have any off balance sheet  arrangements  as of July 31, 2006 or as of
the date of this report.

Recently Issued Accounting Pronouncements

Statement of Financial  Accounting  Standards No. 123 (revised 2004) Share-Based
Payment (SFAS 123R) establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services.  It also
addresses  transactions  in which an entity incurs  liabilities  in exchange for
goods or  services  that are  based on the  fair  value of the  entity's  equity
instruments or that may be settled by the issuance of those equity  instruments.
This  Statement  focuses  primarily on accounting for  transactions  in which an
entity obtains  employee  services in  share-based  payment  transactions.  This
Statement  does not change  the  accounting  guidance  for  share-based  payment
transactions  with parties  other than  employees  provided in Statement  123 as
originally issued and EITF Issue No. 96-18,  "Accounting for Equity  Instruments
That Are Issued to Other Than  Employees for Acquiring,  or in Conjunction  with
Selling,  Goods or Services." This Statement does not address the accounting for
employee share ownership plans, which are subject to AICPA Statement of Position
93-6,  Employers'  Accounting for Employee Stock Ownership Plans. The Company is
required to adopt SFAS 123R effective January 1, 2006. The standard provides for
a prospective application. Under this method, the Company will begin recognizing
compensation  cost for equity based  compensation for all new or modified grants
after the date of adoption. In addition, the Company will recognize the unvested
portion  of the grant  date fair value of awards  issued  prior to the  adoption
abased on the fair values  previously  calculated  for disclosure  purposes.  At
December 31, 2004, the Company had no unvested options.

In May 2003,  the  Financial  Accounting  Standards  Board  issued  Statement of
Financial Accounting Standard ("SFAS") No. 150, Accounting for Certain Financial
Instruments with  Characteristics  of both Liabilities and Equity.  SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument this is within its scope
as a liability.  Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial  instruments  entered into after May 31,
2003,  and otherwise is effective at the  beginning of the first interim  period
beginning  after June 15,  2003,  except for  mandatorily  redeemable  financial
instruments of nonpublic entities. For nonpublic entities, mandatorily financial
instruments  are subject to SFAS No. 150 for the first  period  beginning  after
December  15,  2003.  Adoption  of SFAS No.  150 will  require  us to report any
cumulative  redeemable  preferred  stock and any  cumulative  Class C redeemable
preferred stock outstanding at the time of adoption as a liability.

                                       24
<PAGE>
RISK FACTORS

An  investment  in our shares  involves a high degree of risk.  Before making an
investment decision, you should carefully consider all of the risks described in
this  prospectus.  If any of the risks  discussed  in this  prospectus  actually
occur,  our business,  financial  condition  and results of operations  could be
materially  and  adversely  affected.  If this were to happen,  the price of our
shares  could  decline  significantly  and  you may  lose  all or a part of your
investment.  The risk  factors  described  below  are not the only ones that may
affect us. Our forward-looking  statements in this prospectus are subject to the
following risks and  uncertainties.  Our actual results could differ  materially
from those anticipated by our forward-looking statements as a result of the risk
factors below. See "Forward-Looking Statements."

Risks Related to Our Business

We have not generated any revenues and may never achieve profitability.

We are a development stage company and, to date, have generated limited revenues
($3,571,807  since  inception).  From inception through July 31, 2006, we had an
accumulated  deficit of $8,775,370.  For the years ended July 31, 2006 and 2005,
we incurred net losses of $1,848,797  and  $2,450,792,  respectively.  We cannot
assure you that we can  achieve  or sustain  profitability  in the  future.  Our
operations   are  subject  to  the  risks  and   competition   inherent  in  the
establishment  of a business  enterprise.  There can be no assurance that future
operations  will be profitable.  Revenues and profits,  if any, will depend upon
various  factors,  including  whether  our  completed  products  achieve  market
acceptance  in the  volumes  that  we  anticipate  and  whether  future  product
development  can  be  completed  as  planned,  and  if it  will  achieve  market
acceptance.  We may not  achieve  our  business  objectives  and the  failure to
achieve  such goals  would have an adverse  impact on us.  These  matters  raise
substantial doubt about our ability to continue as a going concern.

Our auditors have included a going concern  qualification in their opinion which
may make it more difficult for us to raise capital.

Our auditors have qualified their opinion on our financial statements because of
concerns about our ability to continue as a going concern.  These concerns arise
from  the fact  that we have not  generated  sufficient  cash  flows to meet our
obligations and sustain our operations.  If we are unable to continue as a going
concern, you could lose your entire investment in us.

We will need significant additional capital, which we may be unable to obtain.

Our capital  requirements  in connection  with our  development  activities  and
transition  to  commercial   operations  have  been  and  will  continue  to  be
significant.  We have depended  upon the proceeds of sales of our  securities to
private  investors to cover our operating  losses.  We will require  substantial
additional  funds  to  continue   research,   development  and  testing  of  our
technologies and products,  to obtain intellectual  property protection relating
to  our  technologies  when  appropriate,  and to  manufacture  and  market  our
products.

We are a  development  stage  company  and may be unable to  develop  or license
commercially feasible products.

                                       25
<PAGE>
We are a  development  stage  company  and have not  generated  any  significant
revenues  from  commercial  operations.  Although we have  developed  functional
demonstration models for our fetal heart and prediction of labour onset, we have
not, as yet,  manufactured any fully-engineered  prototype models for commercial
demonstration.  We may not be able to produce effectively  functioning prototype
models or final products in commercial  quantities at acceptable  costs,  or, if
produced, we may not be able to successfully market the products, directly or in
conjunction with third parties.

Our future  revenues are dependent on  establishing  licenses,  joint venture or
distribution  arrangements with established  companies.  Our first product,  the
Prothombin  monitor is being  marketed by IMI and we have no control  over their
processes. Hence IMI may not deliver the anticipated revenues.

Our ability to generate revenue from the sale of our products will be dependent,
among other things,  upon our ability to enter into  licenses,  joint venture or
distribution  arrangements  with established  businesses with existing sales and
marketing  infrastructures.  Although we have entered into  agreements  with the
Unipath  division of Inverness  Medical  Innovations,  and are negotiating  with
several  other  companies,  we have only  generated  revenues  of some  $3.5M of
development and grant funding from these  companies and government  initiatives.
There can be no assurance that we will be able to generate  further  revenues or
profits under any such agreements,  if and when formalized.  In addition,  given
our early stage of development and limited capital resources, the terms demanded
by any prospective licensee or joint venture partner may not be attractive to us
or otherwise enable us to achieve our strategic objectives and goals

Our products may not gain market acceptance.

The products we are currently  developing utilize new technologies.  As with any
new technologies,  in order for us to be successful,  our technologies must gain
market  acceptance.  Since we  design  our  products  to  exploit  markets  that
presently  utilize or are  serviced by  products  from  competing  technologies,
meaningful commercial markets may not develop for our products.

We have limited manufacturing and marketing experience.

Achieving  marketing  acceptance for our technologies and proposed products will
require  substantial  marketing  efforts and expenditure of significant funds to
educate key original  equipment  manufacturers,  or OEMs, as to the  distinctive
characteristics  and anticipated  benefits of our products and technologies.  We
currently  have  limited  manufacturing  and  marketing  experience  and limited
financial,  personnel and other  resources to undertake the extensive  marketing
activities that are necessary to market our products and technologies.

The development of our products and technology is uncertain.

Our  development  efforts  are  subject to  unanticipated  delays,  expenses  or
technical or other problems, as well as the possible insufficiency of funding to
complete development. Our success will depend upon our products and technologies
meeting  acceptable  cost  and  performance  criteria,  and  upon  their  timely
introduction into the marketplace. All of our proposed products and technologies
may  never  be  successfully  developed,  and  even if  developed,  they may not
satisfactorily perform the functions for which they are designed.  Additionally,
these  products  may  not  meet  applicable  price  or  performance  objectives.
Unanticipated  technical  or other  problems  may accrue  which would  result in
increased costs or material delays in their development or commercialization.

Our products may contain defects.

Our  products  may contain  deficiencies  that  become  apparent  subsequent  to
widespread commercial use. Remedying such errors could delay our plans and cause
us to incur  additional  costs which would have a material adverse effect on our
financial position.

We depend on third party product design changes.

                                       26
<PAGE>
Our success  will depend upon our ability to make our products  compatible  with
the  products  of  third-party  manufacturers.  In  addition,  we will depend on
potential  customers  redesigning or otherwise modifying their products to fully
utilize our  products  and  technologies.  Our failure to make our  products and
technology compatible with products of third-party  manufacturers or the failure
of potential  customers to make  necessary  modifications  to or redesign  their
products to accommodate our products could have a material adverse effect on our
ability to sell or license our technologies and products.

We are operating in a highly competitive market.

The  development  and  marketing  of medical  products  and devices is extremely
competitive.  In many  cases  we will  compete  with  entrenched  multi-national
corporations,  such as Johnson &  Johnson,  Roche and  others,  all of whom have
similar products already being  manufactured  and sold.  Competitors  range from
development stage companies to major domestic and international companies,  most
of which have substantially  greater financial,  technical,  marketing and human
resource capabilities than we have, as well as established positions in markets,
name brand recognition, and established ties with OEMs. These or other companies
may succeed in developing  products or technologies that are more effective than
those being  developed by us or which would  render our products and  technology
obsolete or non-competitive in the marketplace.

Our patents and proprietary rights are difficult to protect.

Our  ability  to  compete  effectively  will  depend in part on our  ability  to
maintain the proprietary  nature of our technology and  manufacturing  processes
through a  combination  of patent and trade  secret  protection,  non-disclosure
agreements and other  arrangements.  We have  completed a substantial  amount of
invention disclosure documentation. Thus far, we have: three patents granted; we
have allowed five patents to lapse in non core areas;  abandoned one patent; and
we have ten patents pending.  We intend to continue to file patent  applications
covering our products  when and where  appropriate.  Such filings will be costly
and time  consuming.  Patents  may not issue  from  applications  and any issued
patents may not provide adequate  protection for our products or processes.  Our
competitors  may  independently   patent  technologies  that  are  substantially
equivalent or superior to our technology. In addition, competitors' products may
infringe upon our patents and the cost of protecting our rights relative to such
infringement  may be  prohibitive  thereby  undermining  our  ability to protect
products effectively.

Foreign countries may not provide adequate patent protection.

Patent  applications  filed in certain  foreign  countries  are subject to laws,
rules and procedures which differ from those of the United States and the United
Kingdom.  Foreign  patent  applications  filed by us related to United States or
United Kingdom patents may not be issued.  Furthermore,  some foreign  countries
provide  significantly  less  patent  protection  than the United  States or the
United  Kingdom.   We  could  incur   substantial   costs  in  defending  patent
infringement  suits  brought by others and in  prosecuting  patent  infringement
suits against third party infringers.

We depend on our key personnel.

The  development  and  marketing of our  technology  will be dependent  upon the
skills and  efforts of a small  group of  management  and  technical  personnel.
Losing the services of any of our key  personnel  could have a material  adverse
effect  on our  operations.  Furthermore,  recruiting  and  retaining  qualified
technical personnel to perform research,  development and technical support work
in the future will be critical to our success. We may not be able to continue to
recruit and retain skilled and experienced personnel.

                                       27
<PAGE>
We may not be able to manage growth and expansion effectively.

Rapid  growth  of  our  business  may   significantly   strain  our  management,
operational  and technical  resources.  If we are successful in obtaining  rapid
market  penetration  of our  products,  we will be required to  manufacture  and
deliver large volumes of quality  products to our customers on a timely basis at
a  reasonable  cost.  Our  strategy is that we will NOT  manufacture  but create
partnerships with manufacturers.  This could potentially strain our operational,
management and financial systems and controls.

Our  confidentiality  agreements  may  not  adequately  protect  our  unpatented
proprietary information.

We rely on  confidentiality  agreements  to protect our  unpatented  proprietary
information,   know-how  and  trade   secrets.   Our   competitors   may  either
independently  develop the same or similar  information  or obtain access to our
proprietary information. In addition, we may not prevail if we assert challenges
to  intellectual  property  rights  against third parties.  In this regard,  our
employees are required to enter into agreements  providing for  confidentiality,
the  assignment  of rights to inventions  made by them while  employed by us, as
well as for  non-competition and  non-solicitation  during their employment term
and one year  thereafter.  Our  employees may not comply with the terms of these
agreements.

We may become subject to risks inherent in  international  operations  including
currency exchange rate fluctuations and tariff regulations.

To the extent we in the future  sell or license  our  products  or  technologies
outside  the United  Kingdom,  we will be subject to the risks  associated  with
fluctuations  in  currency  exchange  rates.  We may also be  subject  to tariff
regulations and requirements for export licenses,  particularly  with respect to
the export of certain technologies (which licenses may on occasion be delayed or
difficult to obtain),  unexpected  changes in  regulatory  requirements,  longer
accounts  receivable   requirements,   difficulties  in  managing  international
operations,  potentially adverse tax consequences,  restrictions on repatriation
of earnings and the burdens of complying with a wide variety of foreign laws.

We maintain modest  insurance  coverage and therefore we could incur losses as a
result of an uninsured loss.

We maintain  theft and  casualty  insurance.  In  addition,  we maintain key man
insurance on the following two employees in the amount of $1,000,000  each: John
Fuller, a non-executive  officer. We also have United Kingdom employee liability
insurance that is compulsory for all United Kingdom companies.

The following risks relate principally to our common stock and its market value:

There is a limited  market for our common stock which may make it more difficult
for stockholders to dispose of their stock

Our common stock is quoted on the OTC Bulletin Board under the symbol  "IVME.OB.
Our common stock is also quoted on both the Frankfurt and Berlin Exchanges under
the symbol  "I7V".  There is a limited  trading  market  for our  common  stock.
Accordingly,  there can be no assurance as to the  liquidity of any markets that
may develop for our common stock,  the ability of holders of our common stock to
sell our common  stock,  or the prices at which  holders may be able to sell our
common stock.

Our stock price has been and may continue to be volatile

                                       28
<PAGE>
The market price of our common  stock is likely to be highly  volatile and could
fluctuate  widely in price in  response  to various  factors,  many of which are
beyond our control, including:

o  technological  innovations  or  new  products  and  services  by  us  or  our
competitors;
o additions or departures of key personnel;
o sales of our common stock
o our ability to integrate operations, technology, products and services;
o our ability to execute our business plan;
o operating results below expectations;
o loss of any strategic relationship;
o industry developments; o economic and other external factors; and
o period-to-period fluctuations in our financial results.

Because we have a limited  operating  history with no revenues to date,  you may
consider any one of these factors to be material.  Our stock price may fluctuate
widely as a result of any of the above listed factors.

In  addition,  the  securities  markets  have  from  time  to  time  experienced
significant  price and volume  fluctuations  that are unrelated to the operating
performance  of  particular  companies.   These  market  fluctuations  may  also
materially and adversely affect the market price of our common stock.

We have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common stock

We have never paid cash  dividends  on our  common  stock and do not  anticipate
paying cash dividends in the foreseeable future. The payment of dividends on our
common stock will depend on earnings, financial condition and other business and
economic  factors  affecting  it at such  time as the  board  of  directors  may
consider  relevant.  If we do not pay  dividends,  our common  stock may be less
valuable  because a return on your investment will only occur if its stock price
appreciates.

Our common stock is deemed to be penny stock with a limited trading market.

Our common stock is currently listed for trading on the OTC Bulletin Board which
is  generally  considered  to be a less  efficient  market than  markets such as
NASDAQ or other national exchanges, and which may cause difficulty in conducting
trades and difficulty in obtaining future financing. Further, our securities are
subject to the "penny  stock  rules"  adopted  pursuant to Section 15 (g) of the
Securities  Exchange Act of 1934,  as amended,  or Exchange Act. The penny stock
rules apply to non-NASDAQ companies whose common stock trades at less than $5.00
per share or which have tangible net worth of less than  $5,000,000  ($2,000,000
if the company has been operating for three or more years).  Such rules require,
among other  things,  that brokers who trade "penny stock" to persons other than
"established   customers"  complete  certain  documentation,   make  suitability
inquiries of investors and provide investors with certain information concerning
trading  in  the  security,  including  a risk  disclosure  document  and  quote
information under certain circumstances.  Many brokers have decided not to trade
"penny  stock"  because of the  requirements  of the penny stock rules and, as a
result,  the number of  broker-dealers  willing to act as market  makers in such
securities is limited.  In the event that we remain  subject to the "penny stock
rules" for any  significant  period,  there may develop an adverse impact on the
market,  if any, for our  securities.  Because our securities are subject to the
"penny stock  rules,"  investors  will find it more  difficult to dispose of our
securities.  Further,  for  companies  whose  securities  are  traded in the OTC
Bulletin Board, it is more difficult: (i) to obtain accurate quotations, (ii) to
obtain coverage for significant news events because major wire services, such as
the Dow Jones News Service,  generally do not publish press  releases about such
companies, and (iii) to obtain needed capital.

Item 7. FINANCIAL STATEMENTS

All financial information required by this Item is attached hereto beginning on
Page F-1.

                                       29
<PAGE>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.

                  (formerly In Vivo Medical Diagnostics, Inc.)

                        Consolidated Financial Statements

                             July 31, 2006 and 2005

     (with Report of Independent Registered Public Accounting Firm Thereon)

<TABLE>
<CAPTION>

                                                                                                       Page
                                                                                                     --------

<S>                                                                                                     <C>
Report of Independent Registered Public Accounting Firm.................................................F-2

Consolidated Balance Sheet at July 31, 2006.............................................................F-3

Consolidated Statements of Operations for the years
     ended July 31, 2006 and 2005 and for the period
     from March 26, 1997 (Inception) through July 31, 2006..............................................F-4

Consolidated Statements of Accumulated Other Comprehensive Loss for the years
     ended July 31, 2006 and 2005 and for the period
     from March 26, 1997 (Inception) through July 31, 2006..............................................F-5

Statement of Changes in Shareholders' Deficit for the period from
     March 26, 1997 (Inception) through July 31, 2006...................................................F-6/7

Consolidated Statements of Cash Flows for the years
     ended July 31, 2006 and 2005 and for the period
     from March 26, 1997 (Inception) through July 31, 2006..............................................F-8

Notes to Consolidated Financial Statements..............................................................F-9
</TABLE>

                                      F-1
<PAGE>

             Report of Independent Registered Public Accounting Firm

The Board of Directors

In Veritas  Medical  Diagnostics,  Inc.

We have  audited  the  accompanying  consolidated  balance  sheet of In  Veritas
Medical Diagnostics,  Inc. (a Colorado corporation) as of July 31, 2006, and the
related consolidated  statements of operations,  shareholders' deficit, and cash
flows for each of the years in the two-year  period ended July 31, 2006, and for
the  period  from  March 26,  1997  (inception)  through  July 31,  2006.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of In Vivo Medical
Diagnostics,  Inc. as of July 31, 2006, and the results of their  operations and
their cash  flows for each of the years in the  two-year  period  ended July 31,
2006 and for the period from March 27, 1997  (inception)  through July 31, 2006,
in  conformity  with  accounting  principles  generally  accepted  in the United
States.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue  as a going  concern.  As  discussed  in Note 1 to the  financial
statements,  the Company has incurred losses since inception and has deficits in
both working  capital and net capital at July 31, 2006. The Company is operating
at the forbearance of its creditors.  While  management has worked out repayment
plans with certain  creditors who have threatening  collection  activities,  the
funding  necessary  to fulfill  these  obligations  has not been  obtained.  The
Company is in default under the terms of its debt  obligations at July 31, 2006.
While management is attempting to restructure these debt obligations,  there can
be no assurance that all debt obligations will be restructured. In addition, the
Company  has  pre-sold  certain  royalty  rights  under  royalty   participation
agreements.  These  agreements  call for the Company to pay to investors up to a
maximum of  approximately  $1.7  million,  over five  years,  in respect of cash
advances  totaling  $450,000.  These factors raise  substantial  doubt about the
Company's ability to continue as a going concern.  Management's  plans regarding
those  matters are also  described in Notes 1. The  financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.

Cordovano and Honeck, LLP
Englewood, Colorado
November 29, 2006

                                      F-2
<PAGE>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                          (A Development Stage Company)
                           Consolidated Balance Sheet
                                 July 31, 2006

<TABLE>
<CAPTION>
 Assets
Current assets:
<S>                                                                                                              <C>
    Cash                                                                                                  $          61,241
    Accounts receivable                                                                                             198,511
    Prepaid expenses and other                                                                                       39,718
                                                                                                          -----------------
                 Total current assets                                                                               299,473
Property and equipment, net (Note 3)                                                                                 13,570
Intangible assets (Note 4)
    Patent costs                                                                                                     99,077
                                                                                                          -----------------

                                                                                                          $         412,117
                                                                                                          =================

                               Liabilities and Shareholders' Deficit

Current liabilities:
    Accounts payable                                                                                      $       1,002,436
    Accrued interest payable                                                                                        270,335
    Accrued liabilities                                                                                             429,484
    Current portion of Notes Payable (Note 10)                                                                      639,446
    Indebtedness to related parties (Note 2)                                                                        198,200
                                                                                                          -----------------
                 Total current liabilities                                                                        2,539,901

Long-term debt:
    Notes Payable, net of current portion (Note 10)                                                                 207,054
    Royalty Participation Agreement advances (Note 10)                                                              479,000
    Notes payable, related party (net of discount) (Note 2)                                                       1,783,440
                                                                                                          -----------------
                 Total liabilities                                                                                5,009,395
                                                                                                          -----------------

Shareholders' deficit:
    Preferred stock, $.001 par value, 50,000,000 shares authorized (aggregate
      liquidation preference of $34,343,662)
      Series A Preferred stock, 34,343,662 shares issued and outstanding                                             34,343
    (Note 5)
    34,343 Common stock, $.001 par value, 500,000,000 shares authorized,
      55,928,457 shares issued and outstanding (Note 6)                                                              81,658
      81,613,457 shares issued but not outstanding (Note 10)
    Stock issued as security for convertible debentues (Note 10)                                                 (3,339,050)
    Additional paid-in capital                                                                                    7,830,122
    Accumulated other comprehensive loss- foreign currency adjustment                                              (448,978)
    Deficit accumulated during the development stage                                                             (8,755,370)
                                                                                                          -----------------

                 Total shareholders' deficit                                                                     (4,597,275)
                                                                                                          -----------------

                                                                                                          $         412,117
                                                                                                          =================
</TABLE>

                                      F-3
<PAGE>

                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                          (A Development Stage Company)
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                                       March 26, 1997
                                                                                                         (Inception)
                                                                        Years Ended                        Through
                                                                          July 31,                         July 31,
                                                         ------------------------------------------
                                                                2006                  2005                  2006
                                                         -------------------   --------------------  --------------------

Net sales and gross revenues:
<S>                                                             <C>                   <C>                   <C>
    Net sales...                                         $         1,271,130   $            879,847  $          3,571,807
    Cost of sales...                                                      --                  4,580               242,097
                                                         -------------------   --------------------  --------------------

                   Gross profit...                                 1,271,130                875,267             3,329,710
                                                         -------------------   --------------------  --------------------

Operating expenses:
    Research and development......                                 1,306,542              1,535,074             4,989,721
    Legal and professional......                                     160,567                630,460               985,060
    Stock options expense (Note 6).........                           62,379                 52,698               115,077
    Selling and marketing                                            286,097                 56,457               342,554
    General and administrative...                                    414,605                465,481             4,858,862
                                                         -------------------   --------------------  --------------------

                                                                   2,230,190              2,740,170            11,291,274
                                                         -------------------   --------------------  --------------------

       Loss before other income...                                  (959,060)            (1,864,903)           (7,961,564)

Nonoperating income (expense):
    UK government grant (Note 1).......                               96,502                194,896               291,398
    Interest expense.......                                         (428,215)              (230,542)             (658,757)
    Loan Finance issue costs                                        (307,360)              (400,919)             (708,279)
    Costs of aborted financings                                     (113,400)                    --              (113,400)
    Compensation payment to former director                         (135,000)                    --              (135,000)
    Gain (loss) on foreign exchange.......                             2,264               (130,115)              132,378
    Gain (loss) from extinguishments of debt...                           --                (19,209)              662,610
                                                         -------------------   --------------------  --------------------


       Loss before income taxes...                                (1,848,797)            (2,450,792)           (8,755,370)

    Income tax provision...                                               --                     --                    --
                                                         -------------------   --------------------  --------------------

                   Net loss...                           $        (1,848,797)  $         (2,450,792) $         (8,775,370)
                                                         ===================   ====================  ====================

Basic and diluted loss per share...                      $             (0.03)  $              (0.05)
                                                         ===================   ====================

Loss per share available to common shareholders...      $             (0.03)  $              (0.05)
                                                         ===================   ====================
Weighted average common shares outstanding...                     55,094,879             52,541,994
                                                         ===================   ====================
</TABLE>

                                      F-4
<PAGE>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                          (A Development Stage Company)
         Consolidated Statements of Accumulated Other Comprehensive Loss

<TABLE>
<CAPTION>
                                                                                                       March 26, 1997
                                                                                                         (Inception)
                                                                      Years Ended                          Through
                                                                        July 31,                           July 31,
                                                         ------------------------------------------
                                                                2006                  2005                   2006
                                                         -------------------   --------------------  --------------------

<S>                                                             <C>                   <C>                   <C>
Net loss...                                              $        (1,848,797)  $         (2,450,792) $         (8,755,370)

Other comprehensive loss, net of tax:
    Cumulative translation adjustment...                             (79,486)               274,643              (448,978)
                                                         -------------------   --------------------  --------------------

                   Comprehensive loss...                 $        (1,928,283)  $         (2,176,149) $         (9,204,348)
                                                         ===================   ====================  ====================
</TABLE>

                                      F-5
<PAGE>

                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                          (A Development Stage Company)
           Consolidated Statement of Changes in Shareholders' Deficit

<TABLE>
<CAPTION>
                                       Preferred Stock
                                          Series A           Series B         Common Stock                  Additional
                                                                                 Shares                      paid-in   Stock issued
                                     Shares   Par Value  Shares   Par Value  Issued  Outstanding Par Value   capital    as security

<S>                                    <C>        <C>      <C>        <C>        <C>       <C>        <C>       <C>         <C>
Balance, March 26, 1997                   --     $   --       --  $     --          --        --     $   --   $     --     $     --
October 2000, sale of stock,
   ($0.0035/share)                 4,366,377      4,366       --        --          --                          10,874
December 2001, sale of stock,
   ($0.0035/share)                 6,545,703      6,546       --        --          --                          16,301
October 2001, sale of stock,
   ($0.0202/share)                23,431,582     23,432       --        --          --        --         --    448,906

Foreign currency
   translation adjustment                 --         --       --        --          --        --         --         --
Net loss                                  --         --       --        --          --        --         --         --
                                  ----------  --------- -------- ---------   ---------  --------  ---------  ---------  -----------
Balance, July 31, 2001            34,343,662     34,344                             --        --         --    476,081           --

Foreign currency
   translation adjustment                 --         --       --        --          --         --        --         --
Net loss                                  --         --       --        --          --         --        --         --
                                  ----------  --------- -------- ---------   ---------  --------  ---------  ---------  -----------
Balance, July 31, 2002            34,343,662     34,344       --        --          --         --        --    476,081           --

Foreign currency
   translation adjustment                 --         --       --        --          --         --        --         --
Net loss...                               --         --       --        --          --         --        --         --
                                  ----------  --------- -------- ---------   ---------  --------  ---------  ---------  -----------
Balance, July 31, 2003            34,343,662     34,344       --        --          --         --        --    476,081           --

Merger with HEMP (Note 8)                 --         --       --        --  38,397,164 38,397,164    38,397    (29,397)
   July 2004, merger with
   SIPC                                   --         --       --        --  10,550,000 10,550,000    10,550    (10,688)
   July 2004, issuance
   of common stock for bridge
   loans, ($0.2750/share)                 --         --       --        --   1,636,233  1,636,233     1,636    448,364
July 2004, issuance of common
   stock for services,
   ($0.4093/share)                        --         --       --        --     239,289    239,289       239     97,702
Foreign currency
   translation adjustment                 --         --       --        --          --         --        --         --
Reclassification of debt
   forgiveness
   by Westek (Notes 2 and 9)              --         --       --        --          --         --        --  2,030,298

Net loss                                  --         --       --        --          --         --        --         --
                                  ----------  --------- -------- ---------   ---------  --------  ---------  ---------  -----------
Balance, July 31, 2004            34,343,662     34,344       --        --  50,822,686 50,822,686   $50,822 $3,012,360  $        --

August 2004, additional paid
   in capital from bridge loans
   exchanged for shares                   --         --       --        --          --         --        --     17,495

                                                                                    --         --        --     (6,000)
Conversion of Preferred Stock
   into Debenture                         --         --       --        --     694,550    694,550       695    427,695
December 2004, issuance of
   stock for interest on bridge
   loan                                   --         --       --        --      60,096     60,096       60      76,100
March 2005, issuance of stock for
   services                               --         --       --        --     100,000    100,000      100      62,880
April 2005, issuance of stock
   warrants for services                  --         --       --        --          --         --       --      17,295
April 2005, sale of preferred
   Series B stock net of $97,995
   offering costs ($.001 par),
   ($0.65/share)                          --         --  617,692       618          --         --       --     302,887
April 2005, issuance of stock for
   debt forgiveness                       --         --  246,152       246          --         --       --     159,754
June 2005, issuance of stock
   options for services                   --         --       --        --          --         --       --      35,403
Reversal of conversion of
   convertible preferred shares   (1,301,178)    (1,301)      --        --   1,301,178  1,301,178    1,301          --
July 2005, issuance of stock
   for services                           --         --       --        --     120,000     120,000     120      35,288
July 2005, issuance of stock
   for conversion of debt                 --         --       --        --   1,162,791   1,162,791   1,163     278,047
Foreign currency translation
   adjustment                             --         --       --        --          --          --      --          --
Net loss                                  --         --       --        --          --          --      --          --
                                  ----------  --------- -------- ---------  ----------  ---------- -------  ----------  -----------
Balance July 31, 2005             33,042,484     33,043  863,844       864  54,261,301  54,261,301 $54,261   4,419,204           --

Conversion of common stock into
   debentures (Note 10)                   --         -- (863,844)     (864)         --          --      --    (555,636)          --
Conversion of preferred stock
   into common stock               1,301,178      1,301       --        --  (1,301,178) (1,301,178) (1,301)         --           --
Shares issued as security for
   convertible debtures
   (Notes 5 and 10)                       --         --       --        --  25,685,000          --  25,685   3,313,365   (3,339,050)
Stock Issued for services
   (August 2005)                          --         --       --        --      28,000      28,000      28       3,612           --
Stock Issued for services
   (August 2005)                          --         --       --        --     427,000     427,000     472      60,888           --
Stock Issued for services
   (September 2005)                       --         --       --        --     805,000     805,000     805     132,020           --
Stock Issued for services
   (September, 2005)                      --         --       --        --     750,000     750,000     750     254,250           --
Stock Issued for services
   (May 2006)                             --         --       --        --     875,000     875,000     875      86,625           --
Stock Issued for services
   (June 2006)                            --         --       --        --      83,334      83,334      83       8,251           --
Foreign currency translation
   adjustment                             --         --       --        --          --          --      --          --           --

January, 2006, Issuance of
   stock options for services             --         --       --        --          --          --      --      62,379
 September 2005 issuance of stock
 warrants in connection with
 financing                                --         --       --        --          --          --      --      45,164           --
Net loss                                  --         --       --        --          --          --      --          --           --

                                  ----------  --------- -------- ---------  ----------  ---------- -------  ----------  -----------
Balance July 31, 2006             34,343,662    $34,344        0     $   0  81,613,457  55,928,457 $81,658  $7,830,122  $(3,339,050)
                                  ==========  ========= ======== =========  ==========  ========== =======  ==========  ===========
</TABLE>
(1) Drop




                                     F-6
<PAGE>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                          (A Development Stage Company)
           Consolidated Statement of Changes in Shareholders' Deficit
                                  (Continued)


                                         Deficit
                                       Accumulated
                                         During        Other
                                      Development   Comprehensive
                                          Stage          Loss        Total


Balance, March 26, 1997                        --     $   --        $   --
October 2000, sale of stock,
   ($0.0035/share)                             --         --        15,240
December 2001, sale of stock,
   ($0.0035/share)                             --         --        22,847
October 2001, sale of stock,
   ($0.0202/share)                             --         --       472,338
Foreign currency
   translation adjustment                      --     21,203        21,203
Net loss                               (1,350,829)        --    (1,350,829)
                                        ---------  ---------     ---------
Balance, July 31, 2001                 (1,350,829)    21,203      (819,201)

Foreign currency
   translation adjustment                      --   (140,377)     (140,377)
Net loss                               (1,007,362)        --    (1,007,362)
                                        ---------  ---------     ---------
Balance, July 31, 2002                 (2,358,191)  (119,174)   (1,966,940)

Foreign currency
   translation adjustment                      --   (185,391)     (185,391)
Net loss                               (1,080,619)        --    (1,080,619)
                                        ---------  ---------     ---------
Balance, July 31, 2003                 (3,438,810)  (304,565)   (3,232,950)


Merger with HEMP (Note 8)                      --         --         9,000
July 2004, merger with
   SIPC                                        --         --          (138)
July 2004, issuance
   of common stock for bridge
   loans, ($0.2750/share)                      --         --       450,000
July 2004, issuance of common
   stock for services,
   ($0.4093/share)                             --         --        97,941
Foreign currency
   translation adjustment                      --   (339,750)     (339,570)
Reclassification of debt
   forgiveness
   by Westek (Notes 2 and 9)                   --         --     2,030,298

Net loss                               (1,016,972)        --    (1,016,972)
                                        ---------  ---------     ---------


Balance, July 31, 2004                 (4,455,782)  (644,135)   (2,002,391)

                                               --         --        (6,000)
August 2004, additional paid
   in capital from bridge loans
   exchanged for shares                        --         --        17,495
Conversion of Preferred Stock
   into Debenture                              --         --       428,390
December 2004, issuance of
   stock for interest on bridge
   loan                                        --         --        76,160
March 2005, issuance of stock for
   services                                    --         --        62,980
April 2005, issuance of stock
   warrants for services                       --         --        17,295
April 2005, sale of preferred
   Series B stock net of $97,995
   offering costs ($.001 par),
   ($0.65/share)                               --         --       303,505
April 2005, issuance of stock for
   debt forgiveness                            --         --       160,000
June 2005, issuance of stock
   options for services                        --         --        35,403
Reversal of conversion of
   convertible preferred shares                --         --            --
July 2005, issuance of stock
   for services                                --         --        35,408
July 2005, issuance of stock
   for conversion of debt                      --         --       279,210
Foreign currency translation
   adjustment                                  --    274,643       274,643
Net loss                               (2,450,792)        --    (1,848,797)
                                        ---------  ---------     ---------
Balance July 31, 2005                 $(6,906,574) $(369,492)   (2,768,694)

Conversion of common stock into
   debentures (Note 10)                        --         --      (556,500)
Conversion of preferred stock
   into common stock                           --         --            --
Shares issued as security for
   convertible debtures
   (Notes 5 and 10)                            --         --            --
Stock Issued for services
   (August 2005)                               --         --         3,640
Stock Issued for services
   (August 2005)                               --         --        61,360
Stock Issued for services
   (September 2005)                            --         --       132,825
Stock Issued for services
   (September, 2005)                           --         --       255,000
Stock Issued for services
   (May 2006)                                  --         --        87,500
Stock Issued for services
   (June 2006)                                 --         --         8,334
Foreign currency translation
   adjustment                                  --    (79,486)      (79,486)
January, 2006, Issuance of
   stock options for services                  --         --        62,379
 September 2006 issuance of stock
 warrants in connection with
 financing                                     --         --        45,164
Net loss                               (1,848,797)        --    (1,848,797)
                                        ---------  ---------     ---------
Balance July 31, 2006                  (8,755,371) $(448,978)  $(4,597,275)
                                        =========  =========     =========


                                      F-7

<PAGE>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                          (A Development Stage Company)
                      Consolidated Statement of Cash Flows
                                 July 31, 2006
<TABLE>
<CAPTION>
                                                                                                                March 26, 1997
                                                                                                                  (Inception)
                                                                                        Years Ended                 Through
                                                                                          July 31,                 July 31,
                                                                               ------------------------------
                                                                                    2006             2005            2006
                                                                               ---------------   ------------   -------------

Cash flows from operating activities:
<S>                                                                                <C>               <C>            <C>
    Net loss                                                                   $    (1,848,797)  $ (2,450,792)  $  (8,755,371)
    Adjustments to reconcile net loss to net cash
      used by operating activities:
        Depreciation and amortization                                                   16,436         27,928        151,534
        Intercompany interest income                                                    98,000        144,382        242,382
        Interest imputed on royalty participation
          agreement                                                                     29,000                        29,000
        Stock issued for compensation and services                                     656,202        579,476      1,235,678
        Stock issued for interest                                                           --         86,160         86,160
        Gain (loss) on debt forgiveness                                                     --         19,209       (662,610)
        Changes in operating assets and liabilities:
            Receivables                                                               (166,999)       197,006       (220,438)
            Prepaid expenses and other current assets                                   29,275        (23,167)       (17,468)
            Accounts payable                                                           250,137        281,253        962,793
            Accrued liabilities and payables                                           140,514        377,748        691,196
            Accounts payable (related party)                                           178,192        (56,458)       121,734
            Other                                                                      (24,516)        75,820         45,304
                                                                               ---------------   ------------   ------------
                 Net cash used in
                   operating activities                                               (642,556)      (741,435)    (6,090,106)
                                                                               ---------------   ------------   ------------

Cash flows from investing activities:
    Acquisition of patents (net)                                                       (38,339)       (60,739)       (99,078)
    Acquisition of equipment                                                                --        (16,642)      (151,209)
                                                                               ---------------   ------------   ------------
                 Net cash used in
                   investing activities                                                (38,339)       (77,381)      (250,287)
                                                                               ---------------   ------------   ------------

Cash flows from financing activities:
    Advances from affiliates                                                                --        (41,195)     4,378,963
    Repayments of advances from affiliates                                                  --             --       (728,426)
    Advances from related parties                                                           --         (5,445)        83,050
    Proceeds from issuance of preferred stock                                               --        303,505        813,930
    Discount on notes payable                                                               --        144,382        144,382
    Proceeds from Royalty Participation Agreement                                      450,000             --        450,000
    Proceeds from issuance of notes payable                                            300,000        375,000      1,262,495
    Repayment of notes payable                                                         (10,000)            --        (10,000)
                 Net cash used in
                                                                               ---------------   ------------   ------------
                    financing activities                                               740,000        776,247      6,394,394
                                                                               ---------------   ------------   ------------

Effect on cash from foreign currency translation                                           121         (1,607)         7,240

                 Net change in cash and
                   cash equivalents                                                     59,226        (44,176)        61,241

Cash and cash equivalents:
    Beginning of period                                                                  2,015         46,191             --
                                                                               ---------------   ------------   ------------

    End of period                                                              $        61,241   $      2,015   $     61,241
                                                                               ===============   ============   ============

Supplemental disclosure of cash flow information: Cash paid during the year for:
      Income taxes                                                             $            --  $          --   $         --
                                                                               ===============    ===========   ============
      Interest                                                                 $            --  $          --   $         --
                                                                               ===============    ===========   ============

Non-cash financing activities:
    Conversion of note payable to common stock                                 $            --    $   250,000   $    700,000
    Conversion of interest to common stock                                                  --         86,160         86,160
    Stock-based compensation                                                           656,202        579,476      1,235,678
                                                                               ---------------    -----------   ------------
                                                                               $       656,202    $   915,636   $  2,021,838
                                                                               ===============  =============   ============
</TABLE>


                                      F-8

<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


Note 1:  Summary of Significant Accounting Policies

Organization and Basis of Presentation

Background

Effective July 31, 2004, Hall Effect Medical Products, Inc. ("HEMP"), a Delaware
corporation, merged with Sports Information Publishing Corp. ("SIPC"), which was
incorporated  under the laws of Colorado on November 7, 2003.  Subsequent to the
merger SIPC changed its name to In Vivo Medical  Diagnostics,  Inc. and later In
Veritas Medical Diagnostics, Inc. ("IVMD" "we" "us" or "our")

SIPC was  originally  incorporated  for the  purpose of  engaging  in the sports
industry.  In 2002,  SIPC  filed a Form  SB-2  registration  statement  with the
Securities  and  Exchange  Commission  relating  to  the  registration  of up to
1,000,000  previously  issued  shares  of  common  stock at a price of $0.15 per
share. The SEC declared the offering effective in August 2003.

We are a "Development-stage  Enterprise" located in Inverness,  Scotland. We are
developing  medical  diagnostic  products  for personal  and  professional  use.
Certain of our products under  development are based on technology that utilizes
the Hall  Effect,  discovered  more than a hundred  years ago,  for which we are
developing  practical  applications.  Prior to the  merger,  we were funded by a
private UK company,  Westek  Limited,  and Abacus Trust Company  Limited was our
majority shareholder.

Shares of our  common  stock  trade in the Over the  Counter  ("OTCBB")  market.
Because  of the  nature of the  OTCBB  market  there was only a limited  trading
market for our stock  during the  periods  presented.  For  similar  reasons the
quoted  price of our stock was  inevitably  subject to  considerable  short term
volatility.

Principles of consolidation

Our consolidated  financial  statements include our accounts and the accounts of
our two wholly owned foreign  subsidiaries;  IVMD UK Limited ("IVMD") and Jopejo
Limited ("Jopejo"), both UK companies. The assets and liabilities of our foreign
subsidiaries  have been  translated  at the exchange  rate in effect at July 31,
2006 and July 31, 2005 (as appropriate) with the related translation adjustments
reported as a separate component of shareholders'  deficit.  Operating statement
accounts have been translated at the average  exchange rate in effect during the
period   presented.   All  significant   intercompany   transactions  have  been
eliminated.

Basis of presentation - Going Concern

We are a development stage company whose first commercial product is expected to
be launched into mass markets in the year ended July 31, 2007, with further
products to follow.

Our research and  development  activities  are conducted in Inverness,  Scotland
through our subsidiaries: IVMD UK Limited and Jopejo Limited.  Development-stage
activities  include  raising  capital,  obtaining  financing,  medical  products
research and development and administrative  matters. We routinely raise capital
through stock sales and debt issuances, as part of our ongoing corporate finance
function, to fund our product development  activities and working capital needs.
In this  connection,  as explained in Note 10, we raised new finance of $275,000
subsequent  to July 31, 2007 and we are  currently in  discussions  with several
potential  investors to raise further finance. We expect that financings through
the Capital Markets will continue to be a natural function of our business until
such time as our product sale and royalty income reaches a level that enables us
to be self sustaining and profitable. There can, of course, be no assurance that
we will become  profitable or that finance will continue to be made available to
us from the capital markets or private investors.

We also obtain  cash in the form of UK  government  grants that are  designed to
support  employment and enterprise and from  commercial  partners who contribute


                                      F-9
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


towards certain  development  projects (such as IMI,  described  below). We have
recently  received an offer of further short term UK Government grant funding of
some $250,000.

In due course,  we expect our primary  revenue to consist of royalties  received
from  commercial  partners  in respect  of the  commercial  exploitation  of our
products,  once developed and successfully  taken to market. In this connection,
as explained  below,  our first product has been launched onto the market and we
expect to start to receive  royalty  revenue from this  product  during the year
ended July 31,  2007.  As explained  in Note 10 we secured  cash  advances  from
investors  during  the year ended July 31,  2006 in the  amount of  $450,000  in
return for an obligation to pay those investors 10% of our future royalty income
on this product.  As future  royalty  income  streams start to flow this type of
financing  may become  available as a further  alternative  route to finance our
ongoing activities, in addition to those described above.

During the years ended July 31, 2005 and July 31, 2006 we recorded revenues from
billings made under a Research and Development  Contract with Inverness  Medical
Innovations (IMI), dated November 2002, amounting to $1,271,130. Under the terms
of this contract (and a related  Patent  License  Agreement,  both  subsequently
amended throughout the contract field work) we jointly developed,  with IMI, the
technology  underlying a new product (a prothrombin  measurement device which is
used for the  measurement  of  coagulation of blood in patients at risk of heart
disease and stroke) ("The PT Product").  In July 31, 2006 our involvement in the
development of this product was finished and we anticipate that the product will
be launched  into the global  markets in 2007.  The product is to be sold by IMI
and we have no influence over the marketing and sales  process.  Under the terms
of our agreements with IMI we are entitled to two types of revenue  stream:  (a)
billings to IMI for our development  work during the product  development  phase
("Development  Revenues")  and (b) the  receipt  of 2% of all  future  net sales
proceeds arising from the sale of The PT Product ("Royalty Income"). Development
Revenues  ceased with the  completion  of the  development  of The PT Product in
July,  2006.  Royalty  Income will start to be earned as sales of The PT Product
commence.  The commencement of the sale of this product will mark our moving out
of being a "Development-stage Enterprise".

We continue to develop other hand held and portable  products  which are focused
on (a)  the  measurement  and  detection  of  pregnancy  and  labor  and (b) the
detection of diseases and medical conditions using magnetic detection techniques
applied to tissue and blood.

Inherent   in  our   Development-stage   Enterprise   are   various   risks  and
uncertainties,  including our limited operating  history,  historical  operating
losses,  dependence upon strategic alliances,  and market acceptance of the Hall
Effect  technology.  Our ability to generate  future  Royalty  Revenues  will be
dependent  upon the  success of The PT Product in the market and our  ability to
enter into licenses,  joint ventures or distribution agreements with established
businesses with existing sales and marketing structures for future products that
we may develop. Our future success will be dependent upon our ability to develop
and provide new  medical  devices  that meet  customers  changing  requirements,
including  the  effective  use of the Hall  Effect  technology,  to  continue to
enhance our current products under development,  and to influence and respond to
emerging  industry  standards  and other  technological  changes on a timely and
cost-effective basis.

In common with most Development-stage  entities we have incurred losses (largely
represented by research and development  expenditures and supporting general and
administrative  costs) since inception and we have a net capital deficit at July
31, 2006 ($4,597,275).  We also had substantial net current  liabilities at July
31, 2006  ($2,240,428).  These factors,  among others,  raise  substantial doubt
about our ability to continue as a going concern.  As explained  above, in 2004,
we merged with a public  shell  company.  This merger  provides us with  limited
access to the  capital  markets  via the OTCBB.  Since the merger we have raised
capital  by virtue of our OTCBB  quote;  we plan to  continue  to raise  capital
through public or private stock offerings to finance our development  activities


                                      F-10
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


and ultimately,  to achieve  profitability.  We are currently in discussion with
several potential investors,  however, there can be no assurance that we will be
successful in our efforts to raise capital or to become a profitable company.

As explained in Note 10 and 2 we have Notes Payable outstanding at July 31, 2006
amounting  to $846,500 and  $1,800,000.  These notes were in default at July 31,
2007 or  became  payable  shortly  after  July 31,  2006,  however.  As  further
explained in Note 10, the majority (in aggregate $2,240,000) of these Notes have
been restructured  since July 31, 2006 thereby  rectifying the default condition
and, whilst there can be no assurance, we are in discussions with the other Note
holders with a view to restructuring the remaining debt.

As  further  explained  in Note 10,  during the year  ended  July 31,  2006,  we
received  advances  of $450,000  from  investors  under a Royalty  Participation
Agreement.  Under the terms of this Agreement those  investors are entitled,  in
consideration of the advance,  to receive 10% of future royalties  received from
the future sale of the PT product  (referred to above) in  perpetuity,  although
the Company has the right to buy-out the investors for  $1,350,000 at its option
at any time. In certain circumstances,  if minimum future royalty thresholds are
not met, the Investors  have the right to convert their rights to receive future
royalty participation  receipts into a three year term loan (with interest at 4%
over Prime) in the principal  amount of  $1,350,000,  although this amount would
not become  payable  until,  at the earliest,  December 31, 2010.  More detailed
information on this advance is set out in Note 10.


Use of Estimates

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

In  assessing  the  underlying  rate of interest that is inherit in the Royalty
Participation Agreements referred to in note 10, we have had to make assumptions
about the  future  amount and  timing of  royalty  receipts  from our PT Product
(described  above).  We  believe  that  we  have  chosen  assumptions  that  are
conservative and state the underlying rate of interest prudently,  however it is
impossible  to be certain  about future  events and actual  future  events could
result in a lower or a higher underlying interest rate arising.


Cash and Cash Equivalents

We consider all highly  liquid  securities  with  original  maturities  of three
months  or  less  when  acquired  to be  cash  equivalents.  There  were no cash
equivalents at July 31, 2006.

Accounts Receivable

All accounts  receivables  were due from one customer and have been collected in
full subsequent to July 31, 2006.

Property and Equipment

Property and equipment are stated at cost.  Depreciation is calculated using the
straight-line  method over the  estimated  useful  lives of the related  assets,
generally ranging from three to five years. Property and equipment under capital
leases  are  stated at the  present  value of  minimum  lease  payments  and are
amortized using the  straight-line  method over the shorter of the lease term or
the estimated useful lives of the assets.  Leasehold  improvements are amortized
using the straight-line  method over the estimated useful lives of the assets or
the term of the lease, whichever is shorter.

Patent Costs

The legal,  professional and registration costs involved in registering  patents
which are  important  to our product  development  program are  capitalized  and
written off on a straight line basis over the lesser of the estimated commercial
life or legal life of the underlying  patents,  on a patent by patent basis.  We

                                      F-11
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


adopted this  accounting  policy for the first time in the balance sheet at July
31, 2005 since we  previously  judged that the costs were  immaterial.  Prior to
July 31, 2005, we expensed patent costs as incurred.

Capitalized  costs are  expensed if patents are not granted and they are written
off if and  when a patent  becomes  of no  commercial  value  due to  technology
advancement or for commercial reasons.

Impairment of Long-Lived Assets

In accordance with Statement of Financial  Accounting  Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived  Assets, we evaluate our
long-lived  assets,  including  related  intangibles,  of identifiable  business
activities for impairment when events or changes in circumstances  indicate,  in
management's  judgment,  that  the  carrying  value  of such  assets  may not be
recoverable.  The  determination of whether  impairment has occurred is based on
management's  estimate of  undiscounted  future cash flows  attributable  to the
assets as  compared  to the  carrying  value of the assets.  If  impairment  has
occurred, estimating the fair value for the assets and recording a provision for
loss if the carrying  value is greater than fair value  determine  the amount of
the  impairment  recognized.  For assets  identified  to be  disposed  of in the
future,  the carrying  value of these assets is compared to the  estimated  fair
value less the cost to sell to determine if  impairment  is required.  Until the
assets are  disposed  of, an  estimate of the fair value is  re-determined  when
related events or circumstances change.

When  determining  whether  impairment  of  one  of our  long-lived  assets  has
occurred, we must estimate the undiscounted cash flows attributable to the asset
or asset group.  Our estimate of cash flows is based on a commercial  evaluation
of the likely cash flows based on market  research and our in-house  projections
any  significant  variance  in any of the above  assumptions  or  factors  could
materially affect our cash flows, which could require us to record an impairment
of an asset.

No impairment  charges were  recognized  during each of the years ended July 31,
2006 and 2005.


Deferred Offering Costs

Costs incurred in connection  with proposed common stock offerings that straddle
the year end are  deferred  in the  accompanying  financial  statements  and are
offset  against the proceeds from the offering or written off against  earnings,
if the offering is unsuccessful, as appropriate, in future periods.


Income Taxes

We account for income  taxes under the  provisions  of  Statement  of  Financial
Accounting  Standards No. 109,  Accounting for Income Taxes (SFAS 109). SFAS 109
requires  recognition  of deferred tax  liabilities  and assets for the expected
future tax  consequences  of events  that have been  included  in the  financial
statements  or tax returns.  Under this method,  deferred  tax  liabilities  and
assets are determined  based on the difference  between the financial  statement
and tax bases of assets and  liabilities  using  enacted tax rates in effect for
the year in which the differences are expected to reverse.


Revenue Recognition

Our revenue has been generated through billings made under development  projects
with commercial  partners further described in "Basis of Preparation"  above. We
recognize such revenue based on the terms of the underlying  agreement.  We also
receive  grants from UK  government  for job creation and economic  development.
These are credited to "non operating income" when received.


                                      F-12
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


Financial Instruments and Concentration of Credit Risk

At July 31, 2005 and July 31, 2006, the fair value of our financial  instruments
approximate  their  carrying  value  based on their  terms and  interest  rates.
Substantially all of our trade receivables were from one customer as of July 31,
2005 and July 31, 2006.


Stock based Compensation

We  account  for  stock-based  compensation   arrangements  in  accordance  with
Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based  Compensation,"  which permits entities to recognize as expense over
the  vesting  period  the fair  value of all  stock-based  awards on the date of
grant.  Alternatively,  SFAS No. 123 allows  entities  to  continue to apply the
provisions of Accounting  Principle Board ("APB") Opinion No. 25 and provide pro
forma net earnings (loss) disclosures for employee stock option grants as if the
fair-value-based  method  defined  in SFAS  No.  123 had been  applied.  We have
elected to  continue to apply the  provisions  of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.


Foreign Currency Translation

Our  assets and  liabilities,  which have the  British  Pound as its  functional
currency,  are  translated  into United States  Dollars at the foreign  currency
exchange rate in effect at the applicable  reporting date, and the statements of
operations  are  translated at the average rates in effect during the applicable
period.  The  resulting  cumulative  translation  adjustment  is  recorded  as a
separate component of Other Comprehensive Income.


Research and Development Costs

Research and development costs are expensed as incurred.


Earnings (Loss) per Share

Basic net income or loss per share is  computed  by  dividing  the net income or
loss  available to common  shareholders  (the  numerator)  for the period by the
weighted average number of common shares  outstanding (the  denominator)  during
the period. The computation of diluted earnings is similar to basic earnings per
share,  except  that the  denominator  is  increased  to  include  the number of
additional  common  shares  that  would  have been  outstanding  if  potentially
dilutive common shares had been issued.

                                      F-13
<PAGE>
At July 31, 2006, there was no variance between basic and diluted loss per share
as the securities in our capital  structure are  antidilutive.  At July 31, 2006
the company (i) had granted  certain  options and warrants over its common stock
(which are  described  in note 7), (ii) had issued  certain loan notes which are
convertible at the holders option into common stock (see note 10), and (iii) had
issued  convertible  preferred  stock which is also  convertible  at the holders
option into common  stock (see note 5). In the event that all of the  conversion
rights  underlying (i), (ii) and (iii) above were exercised at July 31, 2006 the
total  number of issued and  outstanding  shares of common stock would have been
$108,557,632.

Future Accounting Pronouncements

SFAS No. 123(R),  "Share-Based  Payment," replaces SFAS No. 123, "Accounting for
Stock-Based  Compensation,"  and supersedes APB Opinion No. 25,  "Accounting for
Stock Issued to Employees." This statement  requires that the compensation  cost
relating to  share-based  payment  transactions  be  recognized in the financial
statements. The Company is required to apply this statement in the first interim
period that begins after  December 15, 2005.  The adoption of SFAS No. 123(R) is
expected to have an impact on the Company's financial statements,  which has yet
to be determined.

SFAS No. 153,  "Exchanges of  Nonmonetary  Assets" - an amendment of APB Opinion
No. 29, is  effective  for fiscal  years  beginning  after June 15,  2005.  This
statement  addresses  the  measurement  of  exchange of  nonmonetary  assets and
eliminates the exception from fair-value  measurement for nonmonetary  exchanges
of  similar  productive  assets  in  paragraph  21(b)  of APB  Opinion  No.  29,
"Accounting for Nonmonetary Transactions," and replaces it with an exception for
exchanges that do not have commercial substance. The adoption of SFAS No. 153 is
expected to have no impact on the Company's financial statements.

FIN No. 46(R) revised FIN No. 46, "Consolidation of Variable Interest Entities,"
requiring the consolidation by a business of variable interest entities in which
it is the primary beneficiary. The adoption of FIN No. 46 did not have an impact
on the Company's financial statements.

The Emerging  Issues Task Force  ("EITF")  reached  consensus on Issue No. 03-1,
"The Meaning of  Other-Than-Temporary  Impairment and Its Application to Certain
Investments"  ("EITF  03-1")  which  provides  guidance on  determining  when an
investment  is  considered  impaired,  whether  that  impairment  is other  than
temporary and the  measurement  of an impairment  loss. The FASB issued FSP EITF
03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, 'The Meaning
of Other-Than-Temporary Impairment and Its Applications to Certain Investments'"
("FSP")  which delays the effective  date for the  measurement  and  recognition
criteria contained in EITF 03-1 until final application  guidance is issued. The
Company does not expect the adoption of this consensus or FSP to have a material
impact on its financial statements.

The EITF reached a consensus on Issue No. 04-8, "The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share" ("EITF 04-8"), which addresses
when the dilutive effect of contingently convertible debt instruments should be
included in diluted earnings (loss) per share. EITF 04-8 is effective for
reporting periods ending after December 15, 2004. The adoption of EITF 04-8 did
not have an impact on diluted earnings (loss) per share.

Note 2:  Related Party Transactions

We purchased  services from related parties in the normal course of business and
on an arm's length basis  totaling  $305,788 and $120,492  during the year ended
July 31, 2006 and 2005, respectively.  As of July 31, 2006, $198,200 was payable
to related parties and is shown separately in the balance sheet. Related Parties
from whom we  purchases  services  during the year  ended July 31,  2006 were as
follows:


                                      F-14
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


-------------------------------- ------------------- -------------------
Related Party                    Purchases year      Purchases year
                                 ended   July   31,  ended
                                 2006                July 31, 2005
-------------------------------- ------------------- -------------------
Westek Ltd                       $23,301             $23,301
-------------------------------- ------------------- -------------------
The ARM Partnership              $175,042            $29,792

-------------------------------- ------------------- -------------------
Sound Alert Technology Ltd       $119,352            $81,643
-------------------------------- ------------------- -------------------
AWY Ltd                          $25,801             $24,926
-------------------------------- ------------------- -------------------
                                 $305,788            $159,662
-------------------------------- ------------------- -------------------

Westek Ltd., AWY Ltd. and Sound Alert Technology Ltd. are Companies Incorporated
in England and Wales in which Graham Cooper,  our President and Chief  Executive
Officer  is a  material  shareholder.  The  ARM  Partnership  is  a  partnership
established under the laws of England and Wales of which Martin Thorp, our Chief
Financial Officer, is the Managing Partner.

Westek Ltd provides  book-keeping  services to the UK subsidiaries of IVMD Inc.;
Sound Alert Technology Ltd. provides outsourced  technology  consulting services
to Jopejo Ltd.;  AWY Ltd is Graham  Cooper's  service  Company  through which he
provides his executive  services to the Group; and The ARM Partnership  provides
CFO, Corporate Financial Advisory and Project,  Financial Controller and various
administrative services on an outsourced basis to the Group.

The Officers of the Company received compensation for their services as officers
as follows:
<TABLE>
<CAPTION>
----------------------------------------- ---------------------------------------- ----------------- ------------------
<S>                                                           <C>                          <C>               <C>
Officers name                             Title                                    Compensation      Compensation
                                                                                   Year ended        Year ended
                                                                                   July 31, 2006     July 31, 2005
----------------------------------------- ---------------------------------------- ----------------- ------------------
Graham Cooper                             : President   and   Chief   Executive    $27,000           $27,000
                                          Officer from June, 2006 and Chairman
----------------------------------------- ---------------------------------------- ----------------- ------------------
John Fuller                               Resigned   as   President   and   Chief  $225,000          $270,000
                                          Executive  Officer,  June 2006, remains
                                          as a Director.)
----------------------------------------- ---------------------------------------- ----------------- ------------------
Martin Thorp                              Chief Financial Officer                  $96.128           $50,000
----------------------------------------- ---------------------------------------- ----------------- ------------------
Brian Cameron                             Resigned  as  Chief  Operating  Officer  $180,000          $270,000
                                          and as a Director in May, 2006
----------------------------------------- ---------------------------------------- ----------------- ------------------
</TABLE>

With effect from May 9, 2006 Brian Cameron  resigned as a member of the Board of
Directors,  as Chief Operating Officer and as an employee of The Company and its
subsidiaries.  There was no  disagreement  between the  Company and Mr.  Cameron
which led to his  resignation.  Under the terms of his  contract  Mr Cameron was
entitled to receive the sum of  (pound)75,000  ($142,000) which is being paid to
him  by  installments.The   company  is  in  arrears  in  its  agreed  repayment
installments  to Mr Cameron in the amount of $18,000,  although  this  agreement
enables the company to reschedule  installments in certain circumstances,  which
currently prevail..

Both John Fuller and Brian  Cameron  agreed to defer part of their salary during
the year ended July 31, 2006 in order to assist the Companies cash flow.


                                      F-15
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


At July 31, 2006 the aggregate amount of indebtedness to directors in respect of
undrawn  remuneration  and  compensation  amounted to  $307,125.  This amount is
included in Accounts Payable in the Balance Sheet.

In July  2004,  Westek  agreed to  release  us from  $2,030,298  of  accumulated
advances  in  exchange  for  a non  interest-bearing  promissory  note  totaling
$1,800,000 (The "Promissory Note"). We reflected a capital contribution totaling
$2,030,298 in the  accompanying  financial  statements.  The promissory note was
payable in full by September  30, 2006.  As of July 31, 2006, we are indebted to
Westek in the amount of $1,783,440,  net of discount of $16,560. On November 13,
2006 we reached  agreement with Westek to amend the terms of the Promissory Note
such that its  maturity  date is  extended  until  March 31, 2008 and it carries
interest at 10% p.a. which is payable quarterly in arrears. Unpaid interest may,
at the option of Westek,  be converted into shares of the Companies common Stock
at a price of $0.05 per share. Although the maturity date on the Promissory Note
was  September  30,  2006,  the  amount  payable  is  classified  as a Long Term
Liability in the balance sheet in  recognition  of the fact that The  Promissory
Note has been subsequently restructured to extend its maturity date to March 31,
2008.


Note 3:  Property and Equipment

Major classes of property and equipment as of July 31, 2006 are listed below:


Furniture and fixtures.....................$ 16,478
Office equipment...........................  89,570
Plant and equipment........................  17,747
                                           --------
                                            123,795
Less: accumulated depreciation............  110,225
                                           --------
                                           $ 13,570
                                           ========


Depreciation  expense  was  $16,436 and $27,558 for the years ended July 31 2006
and 2005, respectively.

Note 4 Intangible Assets - Patent Costs

Changes in  Intangible  assets - Patent  Costs for the years ended July 31, 2005
and July 31, 2006 were as follows:

                                                       Years ended
                                                         July, 31
                                             -------------------------------
                                                  2006             2005
                                             -------------------------------
Cost - start of year                         $       60,739    $          0
Costs incurred during the year                       48,148          60,739
Amortization                                              0               0
Retirements                                           (9810)              0
                                             ---------------   -------------
Cost - end of year                           $       99,077    $      60739
                                             ===============   =============

                                      F-16
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


No  amortization  is recorded in the years ended July 31, 2006 and July  31,2005
because the economic life of the underlying  patents is expected to be less than
their legal life and the company has jet to derive  revenue from the  commercial
applications  of the underlying  patents.  When such revenue starts to be earned
the cost of the  underlying  patents  will be  amortized  over  their  estimated
economic life.

Note 5: Preferred Stock

We are authorized to issue 50,000,000 shares of preferred stock.

4% Convertible Preferred Stock

As of July 31,  2006,  the Company had  34,343,662  shares of Series A 4% voting
redeemable  convertible  preferred stock outstanding.  Such shares pay an annual
dividend of 4% and are  convertible at any time at the option of the holder into
Common Stock at the rate of one share Common Stock for each outstanding share of
Series A Preferred Stock commencing October 30, 2005,  provided the Common Stock
have  traded at a price of $3.00 per share for at least 30  consecutive  trading
days,  and at any time after  January  30,  2006.  Holders of Series A Preferred
Stock have  priority over all of the shares of In Veritas  Medical  Diagnostics,
Inc. on liquidation or sale at the rate of $1.00 per share. Holders are entitled
to vote on all matters as to which  Common  Stock  shareholders  are entitled to
vote.

The  aggregate and  per-share  amounts of  arrearages  in  cumulative  preferred
dividends on the Series A Preferred  Shares  through July 31, 2006,  are $22,070
and $0.001, respectively.


Note 6:  Common Stock

We are authorized to issue 100,000,000  shares of common stock. At July 31, 2006
we had 55,928,457  shares of common stock which were issued and outstanding.  We
had a further 25,685,000 shares which were issued but treated as not outstanding
since they are held in escrow as  security  against our  indebtedness  under our
September  2005  financing  (see Note 10) and will be  released  from escrow and
cancelled upon the repayment of the debenture.

We issued the  following  shares of common stock for  services  during the years
ended July 31, 2006 and 2005, respectively:


                                      F-17
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                               July 31, 2006                       July 31, 2005
                                                     ----------------------------------   ---------------------------------
                                                          Number           Fair Value          Number         Fair Value
                                                         of Shares         of Shares          of Shares       of Shares
                Employee/Consultant                      Issued            Issued             Issued            Issued
                                                     ----------------  ----------------   ---------------   ---------------
<S>                                                        <C>               <C>                 <C>               <C>
Robert Knowles                                                     -                 -             5,550                 -
David Kagel                                                        -                 -           429,000           261,690
Randall Lanham                                                     -                 -           125,000            76,250
Martin E. Janis                                                    -                 -           145,000            56,457
David Barnes                                                       -                 -           100,000            67,000
Sichenzia Ross Friedman & Ference, LLP                     1,680,000           220,325           100,000            62,979
Raymond Viscovitch                                                 -                 -             5,000             1,201
Cormac Glenn                                                       -                 -             5,000             1,201
Cornell Capital Partners LLC                                 472,000            61,360
Monitor Capital Inc                                           28,000             3,640
CLX and Associates Inc                                       750,000           255,000
UTEK Corporation                                              83,334             8,334
                                                     ----------------  ----------------   ---------------   ---------------
                                                           3,013,334   $       548,659           914,550    $      526,778
                                                     ================  ================   ===============   ===============
</TABLE>
Prior to the merger,  we valued the shares of common stock based on the value of
the  services.  After the merger,  we valued the shares of common stock based on
the quoted market price of the stock.

We issued the  following  shares of common stock for debt during the years ended
July 31, 2006 and 2005, respectively:
<TABLE>
<CAPTION>
                                                         July 31, 2006                       July 31, 2005
                                               --------------------------------  ---------------------------------
                                                  Number          Fair Value          Number         Fair Value
                                                 of Shares         of Shares         of Shares       of Shares
                    Note Holder                  Issued            Issued            Issued            Issued
                                               --------------  ----------------  ----------------  ---------------
<S>                                                 <C>              <C>                <C>                <C>
Inverness & Nairn Enterprise                                -                 -            61,233           17,495
NITE Capital LP (interest)                                  -                 -            60,096           76,160
NITE Capital LP (principal and interest)                    -                 -         1,162,791          279,209
                                               --------------  ----------------  ----------------  ---------------
                                                               $              -         1,284,120  $       372,864
                                               ==============  ================  ================  ===============
</TABLE>

Prior to the merger, we valued the shares of common stock based on the amount of
debt converted.  After the merger, we valued shares of common stock based on the
quoted market price of the stock.

Note 7:  Stock Options

Stock Options - Employees


                                      F-18
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


During May 2004, the Company granted  9,659,000  common stock options equally to
two officers with an exercise  price of $1.00 per share.  The  Company's  common
stock had not traded market value on the date of grant.  The market value of the
stock  was  determined  to be $1.00  per share  based on  estimates  made by the
directors  at that  time.  The value of these  options  as of July 31,  2005 was
$.-0-.  3,219,666 options vest on May 26, 2006, an additional  3,219,666 options
vest on May 26,  2007,  and the final  3,219,668  options  vest on May 26, 2008.
During the year ended July 31, 2006 one of the officers resigned and his options
consequently  lapsed.  In  addition,  the terms of the option  grant  included a
provision  whereby the options would only vest if performance  criteria had been
met by the vesting date. The performance  criteria had not been met at the first
vesting date (May 26. 2006) and therefore those options that were due to vest on
that date have been canceled.  Therefore of the original  options granted in May
2004 3,219,667 remain  outstanding,  half of these will vest on May 26, 2007 and
the other half will vest on May 26, 2008,  both subject to performance  criteria
being met.

The Company adopted and reserved  21,434,788 shares of Common Stock for issuance
under its 2005 Stock  Incentive  Plan.  Under the plan,  options  may be granted
which are intended to qualify as Incentive  Stock  Options  under Section 422 of
the Internal  Revenue Code of 1986 or options  which are not intended to qualify
as Incentive  Stock Options  under  Section 422 of the Internal  Revenue Code of
1986.

The 2005 Stock  Incentive Plan and the right of  participants  to make purchases
thereunder  are intended to qualify as an "employee  stock  purchase plan" under
Section 423 of the  Internal  Revenue Code of 1986,  as amended.  The 2005 Stock
Incentive  Plan is not a  qualified  deferred  compensation  plan under  Section
401(a) of the Internal  Revenue Code and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").

On June 1, 2005, the Company issued 400,000  options to its employees  under the
plan,  with an exercise  price of $0.55 per share.  The market  price on June 1,
2005 was also $0.55 per share.  One  employee  who was  granted  options in this
round has  subsequently  left the companies  employment and the options (10,000)
have lapsed.

On January 3, 2006 the Company issued 375,000 options to its employees under the
plan with an exercise  price of $0.10.  The market  price on January 3, 2006 was
also $0.10.

Subsequent  to July 31, 2006, on October 10, 2006 the Company  issued  5,500,000
options to its employees  under the plan with an exercise  price of $0.065.  The
market price on January 3, 2006 was also $0.065.

No options have yet been exercised by any employees.

Pro forma information regarding net income and earnings per share is required by
SFAS 123 as if the Company had accounted for its granted stock options under the
fair value  method of that  Statement.  The fair value for the  options  granted
during the fiscal year ended July 31, 2005 and July 31,  2006 was  estimated  at
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
following assumptions:

For options issued in May 2004:

Risk-free interest rate..........................2.25%
Dividend yield...................................0.00%
Volatility factor................................0.00%
Weighted average expected life.................5.years

                                      F-19
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


For options issued in June 2005:

Risk-free interest rate..........................4.35%
Dividend yield...................................0.00%
Volatility factor...............................88.00%
Weighted average expected life.................5.years

For options issued in January 2006:

Risk-free interest rate..........................3.87%
Dividend yield...................................0.00%
Volatility factor...............................55.10%
Weighted average expected life.................5.years

The  Black-Scholes  options  valuation model was developed for use in estimating
the fair value of traded  options,  which have no vesting  restrictions  and are
fully  transferable.  In addition,  option valuation models require the input of
highly  subjective  assumptions  including the expected stock price  volatility.
Because the Company's stock options have characteristics significantly different
from  those of traded  options,  and  because  changes in the  subjective  input
assumptions  can  materially  affect the fair value  estimate,  in  management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its stock options.  Although the above options were
determined to have $-0- fair value,  the Company has presented the pro forma net
loss and pro forma basic and diluted loss per common share using the assumptions
noted above.

                                                   For The Years Ended
                                                         July 31,
                                            -----------------------------------
                                                  2006              2005
                                            -----------------  ----------------
Net loss, as reported.......................$      (1,848,797) $     (2,483,429)
                                            =================  ================

Pro forma net loss..........................$      (1,958,103) $     (2,483,429)
                                            =================  ================

Basic and diluted net loss per common
   share, as reported.......................$           (0.03) $          (0.05)
                                            =================  ================

Pro forma basic and diluted net loss
   per common share.........................$           (0.04) $          (0.05)
                                            =================  ================
Stock Options - Non-employees

On June 1, 2005,  the Company  committed to grant to two  non-employees  250,000
options to purchase its Common  Stock.  The options  carry an exercise  price of
$0.55 per share.  100,000 options vested July 1, 2005, 50,000 options vested May
16,  2006,  and 100,000  options  vested July 1, 2006.  No options have yet been
exercised. The Company's common stock's traded market value on the date of grant
was $0.55.  The fair value for the options  granted during the fiscal year ended
July 31,  2005 and July 31,  2006 was  estimated  at the date of grant using the
Black-Scholes  option-pricing model with the following assumptions. The weighted
average  exercise price and weighted  average fair value of these warrants as of

                                      F-20
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


June 1,  2005 were  $0.55  and  $0.29,  respectively.  The fair  value for these
options for  accounting  purposes  was  estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions

Risk-free interest rate..............................4.35%
Dividend yield.......................................0.00%
Volatility factor...................................88.00%
Weighted average expected life.....................5.years


On January 3, 2006, the Company committed to grant to two non-employees  250,000
options to purchase its Common  Stock.  The options  carry an exercise  price of
$0.10 per share.  100,000 options vested July 1, 2005, 50,000 options vested May
16,  2006,  and 100,000  options  vested July 1, 2006.  No options have yet been
exercised.

The Company's common stock's traded market value on the date of grant was $0.10.
The weighted  average  exercise  price and weighted  average fair value of these
warrants as of April 11, 2005 were $0.10 and $0.07, respectively.

The fair value for these  options for  accounting  purposes was estimated at the
date of grant using the  Black-Scholes  option-pricing  model with the following
assumptions.

Risk-free interest rate..............................3.87%
Dividend yield.......................................0.00%
Volatility factor...................................55.10%
Weighted average expected life.....................5.Years

Subsequent to July 31, 2006, on October 10, 2006, the Company committed to grant
to two  non-employees  10,515,000  options to  purchase  its Common  Stock.  The
options carry an exercise  price of $0.065 per share.  These options vest on the
following dates:

----------------------------- -------------------------
Vesting Date                  Number of options
----------------------------- -------------------------
October 10, 2006              2,500,000
----------------------------- -------------------------
December 31, 2006             150,000
----------------------------- -------------------------
September 30, 2007            3,015,000
----------------------------- -------------------------
September 30, 2008            2,500,000
----------------------------- -------------------------
September 30, 2010            1,850,000
----------------------------- -------------------------

Stock Warrants

On April 11, 2005, the Company granted to its former  financial  representative,
Westor Capital Group, Inc.,  warrants to purchase 61,769 shares of the Company's
common stock.  The warrants carry an exercise price of $1.50 per share,  vest on
the date of grant and  expire  on April  15,  2008.  No  warrants  have yet been
exercised.

The Company's common stock's traded market value on the date of grant was $1.01.
The weighted  average  exercise  price and weighted  average fair value of these
warrants as of April 11, 2005 were $1.50 and $0.29, respectively.


                                      F-21
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


The fair value for these  warrants was  estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate..............................4.35%
Dividend yield.......................................0.00%
Volatility factor...................................55.10%
Weighted average expected life.....................5.Years

On September 7, 2005,  the Company  granted to  Montgomery  Equity  Partners Ltd
warrants to purchase  380,000 shares of the Company's common stock in connection
with the  September  7, 2005  financing  (see Note 10).  The  warrants  carry an
exercise  price of $0.001  per  share,  vest on the date of grant and  expire on
September 7, 2008.

The Company's common stock's traded market value on the date of grant was $0.13.
The weighted  average  exercise  price and weighted  average fair value of these
warrants as of September 7, 2005 were $0.001 and $0.129, respectively.

The fair value for these  warrants was  estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate..............................4.00%
Dividend yield.......................................0.00%
Volatility factor..................................132.00%
Weighted average expected life......................1.Year


Summary of Stock Options and Warrants outstanding
--------------------------------------------------

The following schedule summarizes the changes in the Company's outstanding stock
awards:


                                     Options Outstanding       Weighted Average
                                   -------------------------   -----------------
                                   Number of   Exercise Price   Exercise Price
                                    Shares      Per Share        Per Share
                                  ----------   ------------     ------------
Balance at July 31, 2005          10,370,769    $0.55-$1.50           $ 1.00
   Awards Granted (employees)        725,000          $0.10           $ 0.10
   Awards granted (Montgomery)       350,000         $0.001           $ 0.00
   Awards exercised                        -                          $    -
   Awards cancelled/expired       (6,449,333)         $0.00           $ 1.00
                                  ----------                    ------------
Balance at July 31, 2006           4,996,436    $.001-$1.50           $ 0.75
                                  ----------                    ------------

Note 8:  Income Taxes

A reconciliation of U.K. statutory income tax rate to the effective rate follows
for the years ended July 31, 2005 and 2006:


                                                       Years Ended
                                                         July 30,
                                            --------------------------------
                                                 2006              2005
                                            ---------------   --------------
U.K. statutory federal
rate........................................         30.00%           30.00%
Net operating loss for which no tax
        benefit is currently available.....         (30.00%)         (30.00%)
                                            ---------------   --------------
                                                      0.00%            0.00%
                                            ===============   ==============



                                      F-22
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements



At July 31, 2006, deferred U. K. income taxes were $-0-. U.K. pretax losses were
approximately $1,200,000 and $600,000 respectively, for the years ended July 31,
2005 and 2006, subject to agreement with the UK Revenue authorities

At July  31,  2006  and July  31(,)  2005,  we had a net  operating  tax  losses
available for  carryfoward  and offset against future taxable profits arising in
the UK of approximately $5.6 million and $5.0 million respectively.

Note 9:  Acquisitions

July 22, 2004

On July 22, 2004, Jopejo Limited and IVMD UK, Inc. and HEMP entered into a share
purchase  agreement  whereby  HEMP  purchased  100  percent  of the  issued  and
outstanding  preferred  and ordinary  shares of both Jopejo  Limited and IVMD UK
Limited  (formerly  Hall Effect  Technologies  Limited) for 8,000,000  shares of
convertible  Series A  preferred  stock,  $0.001 par value.  HEMP also agreed to
become a co-obligor of approximately $1.8 million in debt obligations to Westek.
As part of the acquisition, HEMP issued 3,000,000 shares of common stock to HEMP
TL, an employee  benefit plan valued at $3,000 by the Board of Directors  and an
addition  6,000,000  shares of common stock to certain  individuals for services
valued at $6,000 by the Board of Directors.

As a result of these  transactions,  Jopejo  limited  and IVMD UK,  Inc.  became
wholly owned subsidiaries of HEMP.

July 30, 2004

On July 30, 2004, HEMP exchanged 100 percent of its outstanding shares of common
stock  for  38,397,164  shares  of the  common  stock  and  100  percent  of its
outstanding  shares of preferred stock for 34,363,662  shares of preferred stock
of SIPC.  This  acquisition  has been treated as a  recapitalization  of HEMP, a
Delaware  corporation,  with SIPC the legal  surviving  entity.  Since SIPC has,
prior to the recapitalization,  minimal assets (consisting primarily of cash and
trade payables) and no operations,  the  recapitalization has been accounted for
as the sale of  10,550,000  shares of HEMP  common  stock for the net  assets of
SIPC. Costs of the transaction have been charged to the period.

Note 10: Finance raisings

April 2005, Financing

On April 15, 2005, we completed the sale of 863,845  units (the  "Units"),  each
Unit  consisting of one share of Series B 5% Convertible  Preferred  Stock,  one
warrant to purchase one share of the Company's common stock ("Stock  Warrants"),
and one warrant to purchase an additional  unit ("Unit  Warrants").  Such shares
paid an annual dividend of 5% and were  convertible at any time at the option of
the holder  into  Common  Stock at the rate of one share  Common  Stock for each
outstanding  share of Series B Preferred  Stock  commencing  April 15, 2005. The
Stock Warrants were  exercisable  from April 15, 2005 until April 15, 2008 at an


                                      F-23
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


exercise price of $1.50 per share, subject to adjustment. The Unit Warrants were
exercisable for a period of 180 days from the effective date of the registration
statement at an exercise  price of $0.65 per unit,  subject to  adjustment.  All
preferential  amounts to be paid to the holders of Series B Preferred Stock were
to have been be paid on a pari-passu basis with any  preferential  amounts to be
paid to the  holders of our Series A  Preferred  Stock,  and prior to the common
stock. As explained below the Units were subsequently exchanged for Notes issued
under the September, 2005 Financing.

September 2005 Financing

On September 7, 2005,  the Company  entered into a Standby  Equity  Distribution
Agreement  (the  "Distribution  Agreement")  with  Cornell  Capital  Partners LP
("Cornell")  providing for the sale and issuance to Cornell of up to $10,000,000
of  Common  Stock  over a period of up to 24 months  after  the  signing  of the
Distribution Agreement. Under the Distribution Agreement, the Company would have
been able to sell to Cornell up to $500,000  in shares of its common  stock (the
"Common  Stock")  once every five  trading  days at a price of 97% of the lowest
closing bid price (as  reported by Bloomberg  L.P.),  of the Common Stock on the
principal  market  where the  Common  Stock is traded  for the five  consecutive
trading  days  following a notice by the Company to Cornell of its  intention to
sell shares.


Also on  September  7, 2005,  the Company  entered  into a  Securities  Purchase
Agreement (the  "Purchase  Agreement")  with  Montgomery  Equity  Partners Ltd..
("Montgomery"),  an  affiliated  fund of Cornell,  providing for the sale by the
Company to Montgomery of its 18% secured convertible debentures in the aggregate
principal amount of $750,000 (the  "Debentures") of which $300,000 was funded on
September 7, 2005;  $200,000 was to have been funded two business  days prior to
the Company's completion of its audited financial statements for the fiscal year
ended July 31, 2005, and;  $250,000 was to have been funded within five business
days of the date the  Registration  Statement is declared  effective by the SEC.
Under the Purchase Agreement,  the Company also issued to Montgomery  three-year
warrants (the  "Warrants") to purchase  350,000 shares of Common Stock at $0.001
per share.

In addition to the  foregoing,  the Company  entered into a Securities  Purchase
Agreement (the "Accredited Investor Purchase Agreement") with the investors (the
"Accredited  Investors")  in its  April  2005  financing  pursuant  to which the
Accredited  Investors  agreed to exchange the securities  that they purchased in
such  financing  for an aggregate of $556,500  principal  amount of  Debentures.
Specifically,  the  Accredited  Investors  agreed to  exchange an  aggregate  of
863,845 units (the "Units"), as well as a warrant to purchase an additional Unit
for an aggregate of $556,500 principal amount of Debentures.

The  Debentures  matured  on the  first  anniversary  of the  date  of  issuance
(September  7. 2006) and bear  interest at the annual  rate of 18% in cash.  The
Company was required to make monthly interest payments  commencing on October 7,
2005, and to make monthly principal payments commencing on March 7, 2006.

Holders have the right to convert, at any time, the principal amount outstanding
under the  Debentures  into shares of Common  Stock,  at a conversion  price per
share equal to $0.144,  subject to adjustment.  Upon  three-business day advance
written notice,  the Company may redeem the Debentures,  in whole or in part. In
the event that the  closing  bid price of the Common  Stock on the date that the
Company  provides advance written notice of redemption or on the date redemption
is made exceeds the  conversion  price then in effect,  the  redemption  will be
calculated at 112% of the Debentures' face value.

As further  security for its obligations  under the above mentioned  facilities,
the Company has deposited into escrow 25,685,000  shares of common stock,  these
shares are deemed issued but not outstanding.


                                      F-24
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


Subsequent to the  completion of the Standby Equity  Distribution  Agreement and
the sale of the 18% secured  convertible  debentures  pursuant to the Securities
Purchase  Agreement  in  September  2005,  the  Company  prepared  and  filed  a
registration  statement on Form SB-2 with the Securities and Exchange Commission
for  the  purpose  of  registering  the  securities  underlying  such  financing
transactions.  In connection  therewith,  the Company has received comments from
the  Commission  indicating  that,  in the  Commission's  view,  based  upon the
structure of the transactions,  the Company may not register the securities sold
in the financing  transactions.  On March 6, 2006, we withdrew the  registration
statement  on Form  SB-2  (File  No.  333-128321)  by filing a Form R-W with the
Commission.  As a result, the Company has not been able to draw down any further
amounts  under the Debenture and is in  discussions  with the various  potential
investors regarding raising alternative financing.  No assurance can be given as
to when, or if, these possible alternative financings will be completed.  In the
meanwhile,  because of the failure to complete the entire financing  transaction
envisaged in the September  2005  financing,  the Company has been unable to pay
interest  and  principal  payments  on the  debentures  drawn  down  under  this
financing.

On October 19, 2006,  the Company  entered into a Termination,  Settlement,  and
Forbearance  Agreement effective as of October 16 (the "Settlement  Agreement"),
with  Cornell  and  Montgomery.   The  Settlement   Agreement   relates  to  the
Distribution  Agreement  and the Purchase  Agreement  and included the following
principal terms:

     o    The  Company  shall pay  Montgomery  an  aggregate  of  $348,000  (the
          "Funds")  which   represents  all  amounts  owed  by  the  Company  to
          Montgomery  under the  Debenture  as of  October  19,  2006  including
          outstanding principal and interest. The Company shall pay the Funds to
          Montgomery  monthly at the rate of  $29,000  ("Monthly  Payment")  per
          calendar  month,  with the  first  payment  being due and  payable  on
          November 15, 2006 and each subsequent payment being due and payable on
          the first  business day of each  subsequent  month until the Funds are
          repaid in full.
     o    Montgomery  shall  continue to have valid,  enforceable  and perfected
          first-priority  liens  upon  and  security  interests  in the  Pledged
          Property  and the  Pledged  Shares  (each as defined  in the  Purchase
          Agreement transaction documents).
     o    The  Company  and  Montgomery  agree  that  during  the  term  of  the
          Settlement Agreement, the Debenture shall not bear any interest and no
          liquidated damages shall accrue under any of the financing documents.
     o    The Conversion  Price (as set forth in the Debenture) in effect on any
          Conversion  Date (as set  forth in the  Debenture)  from and after the
          date  hereof  shall  be  adjusted  to  equal   $0.05,   which  may  be
          subsequently adjusted pursuant to the other terms of the Debenture.
     o    Montgomery  shall retain the Warrants  issued in  accordance  with the
          Securities  Purchase  Agreement.
     o    The Company and Cornell agree to terminate the Distribution  Agreement
          and related transaction documents.

On November 29 , 2006, the Company issued two secured  subordinated  convertible
notes to  Triumph  Small Cap Fund L.P.  ("Triumph")  in an  aggregate  principal
amount of  $440,000.  The first note,  in a principal  amount of  $275,000,  was


                                      F-25
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


issued  in  consideration  of cash  advances  made  to the  Company  by  Triumph
subsequent to July 31, 2006. The second note, in a principal amount of $165,000,
was issued in  exchange  for a secured  convertible  note  previously  issued to
Triumph under the terms of the April, 2005 Financing. The notes bear interest at
the  rate  of 8% per  annum  and  mature  on  April  30,  2008.  The  notes  are
convertible, at Triumph's option, into shares of the Company's common stock at a
conversion price of $0.05 per share, subject to a 9.99% conversion restriction.

The Company is in discussions with the holders of the remaining  Debentures (who
are the Accredited  Investors  from its April,  2005  financing)  with a view to
restructuring those debentures on terms to be agreed.

May - July 2006 Financings

On May 5,  2006,  we  completed  the sale of a  percentage  of future  royalties
pursuant to a Royalty  Participation  Agreement (the "Agreement") with The Rubin
Family  Irrevocable  Stock  Trust.  The  royalties  to be paid  pursuant  to the
Agreement are derived from the Patent License  Agreement with Inverness  Medical
Innovations,  Inc.  (the "IMI  Agreement")  pursuant to which the  Company  will
receive royalties from the sale of a Prothrombin blood clotting measuring device
(the  "IMI   Royalties).   The  IMI  Agreement  is  further   described  in  the
"Organization and Basis of Presentation"  section of these financial statements.
Subsequently the Company entered into a similar  agreement with Triumph Research
Partners  LLP in  respect of further  advances  made to us during  June and July
2006.

Pursuant to these royalty  participation  agreements,  the Company  received the
aggregate  sum of  $450,000  in  exchange  for 10% of the future  IMI  Royalties
received by the Company,  subject to the terms and  conditions  set forth in the
Agreement (the "Royalty  Payments").  The Royalty  Payments shall be paid to The
Rubin Family  Irrevocable  Stock Trust and Triumph  Research  Partners LLP ("The
Investors") within 15 days of the end of the month in which the Company receives
future IMI  Royalties.  The Company has the option to terminate the Agreement at
any time,  without penalty,  by making a lump sum payment to the Investors equal
to 300% of the funds  received  from the  Investors  pursuant to the  Agreement,
being  $1,350,000.  If no Royalty payments are made to the Investors by December
31, 2007, or if $450,000 of Royalty  payments are not made by December 31, 2008,
the  Investors  shall have the right to convert the  advances  made into a three
year note with a face value of  $1,350,000  accruing  interest at 4% above prime
and  repayable  in one  bullet  at the  end of the  term.  In  addition,  if the
aggregate  payments made to the Investors under Agreements prior to December 31,
2007 are less than  $450,000 and  provided  that the Company has raised at least
$3,000,000 in the form of new equity finance,  we are obliged to make an advance
payment to the Investors (on account of future amounts payable to them) equal to
the  difference  between  $450,000  and the  aggregate  payments  made  prior to
December  31,  2007  (capped at the amount by which the equity  funding  exceeds
$3,000,000).


Subsequent Financings

As  described  more fully above,  on November 14, 2006 The Company  received new
advances from Triumph amounting in aggregate to $275,000 and it has replaced its
prior  borrowings  from Triumph  (which were in default at July 31, 2007) with a
new note in the  amount of  $165,000  (representing  the  principal  and  unpaid
interest amounts at November 13, 2006.

In addition:

o    As more fully described above, on October 19, 2006 the Company replaced its
     borrowings  from  Montgomery  Equity Capital Ltd. (which were in default at
     July 31, 2007) with a new note  (comprised  of the  principal  plus accrued
     interest  due on the  old  note at  October  19,  2006)  in the  amount  of
     $348,000;
o    On  November  14,  2006 the terms of our  $1,800,000  Promissory  Note with
     Westek Ltd were amended to address default  conditions that had arisen,  as
     described in Note 2;
o    The Company is in  negotiation  with its other  debenture  holders aimed at
     regularizing  other defaults  (described in Note 12) and we continue in our
     ongoing  efforts  to raise new  finance  to  support  the cash needs of our
     ongoing activities. There is no assurance that we will be successful in our
     efforts to raise capital or to renegotiate  the terms of the Notes that are
     in default; or to become a profitable company.


                                      F-26
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


Presentation in the Financial Statements
----------------------------------------

Accounting for the Royalty Participation Agreement (May - July, 2006 Financings)
--------------------------------------------------------------------------------

We have  accounted for these  transactions  in  accordance  with EITF 1988 Issue
88-18 as Debt and have  classified  them as Long Term Debt on the balance sheet.
We have  calculated  the  maximum  effective  rate of  interest  underlying  the
Agreement at 37% p.a. by taking the what we consider to be the most prudent view
of the possible cash payments  required to relinquish our obligations  under the
Agreement  (and  therefore  effectively  repay the  advances)  and computing the
inherent  interest rate within that future cash payment stream.  Interest on the
amount  advanced is included in interest  expense and added to the amount of the
Debt shown in the balance sheet.  As payments are made to the Investors the Debt
will be reduced  accordingly and the estimated  underlying  interest rate may be
amended in the light of better information in the future.

The following table shows the treatment of the Royalty  Participation  Agreement
Advances in the Financial Statements at July 31, 2006.

Total Amount Advanced in the year ended July 31, 2007           $  450,000
Interest Imputed on Loan for the year ended July 31, 2007       $   29,000
                                                                ----------
Amount included under Long Term Debt                            $  479,000
                                                                ==========

Accounting for September, 2005 Financing
----------------------------------------

The Principal  amount of unpaid Loan Notes at July 31, 2006 is shown  separately
on the balance sheet as Notes Payable.  The total is classified within Long-term
debt on the balance  sheet,  or, in the case of the amounts which fall due to be
paid before July 31, 2007,  within  Current  Liabilities  as Current  Portion of
Notes  Payable.  In  determining  which amounts are  classified as long term and
which are  classified as current we have taken account of  restructurings  which
took place after July 31, 2007, described above.

The following table shows the composition  and  classification  of the Principal
amounts of Notes Payable in the balance sheet at July 31, 2006:

                                      F-27
<PAGE>
                                     Amount Maturing During     Total Principal
                                     the year ended July 31       Outstanding
                                        2007*         2008*       July 31, 2006

Montgomery Capital Partners          $   222,946    $   67,054    $  290,000
Triumph Small Cap Fund               $         0    $  140,000    $  140,000
Other Accredited Investors in the    $   416,500    $        0    $  416,500
  April 2004 Financing (see above)
                                     -----------    ----------    ----------
Notes Payable                        $   639,446    $  207,054    $  846,500
                                     ===========    ==========    ==========

* Classified within Current Liabilities
** Classified within Long Term Debt

All accrued  interest  payable  under these Notes Payable is included in Current
Liabilities under Accrued Interest Payable.


Note 11: Defaults upon Senior Securities

As  explained  in Note 10,  the  Company  has been  unable to pay  interest  and
principal repayments when due under the terms of its September,  2005 financing.
As of July 31, 2006, the arrears of due but unpaid  interest was $92,121 and the
arrears of unpaid but due principal were $487,200.  As further explained in Note
10, the Company  reached  agreement  subsequent to July 31, 2006 to  restructure
$440,000 of the principal  value of the Debentures  (out of a total of $865,000)
causing  that  element of the default to become  regularized.  The Company is in
discussion  with the remaining  debenture  holders with a view to  restructuring
those and correcting the related defaults.


                                      F-28
<PAGE>


Item  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

Not applicable.

Item 8A. CONTROLS AND PROCEDURES


(a)  Evaluation  of  Disclosure  Controls and  Procedures:  As of the end of the
period covered by this report, we conducted an evaluation, under the supervision
and with the  participation  of our Chief Executive  Officer and Chief Financial
Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e)
and Rule 15d-15(e) of the Exchange Act). Based upon this  evaluation,  our Chief
Executive  Officer and Chief Financial Officer concluded that the our disclosure
controls and procedures are effective to ensure that information  required to be
disclosed  by us in the reports that we file or submit under the Exchange Act is
recorded, processed,  summarized and reported, within the time periods specified
in the  Commission's  rules and forms.  There was no  significant  change in our
internal  controls or in other  factors  that could  significantly  affect these
controls subsequent to the date of the evaluation.


(b)  Limitations  on  Effectiveness  of  Disclosure   Controls  and  Procedures:
Disclosure   controls  and  procedures  cannot  provide  absolute  assurance  of
achieving financial reporting objectives because of their inherent  limitations.
Disclosure  controls and procedures is a process that involves  human  diligence
and  compliance  and is subject to lapses in judgment and  breakdowns  resulting
from human failures. Disclosure controls and procedures also can be circumvented
by collusion or improper management override. Because of such limitations, there
is a risk that  material  misstatements  may not be  prevented  or detected on a
timely basis by disclosure  controls and  procedures.  However,  these  inherent
limitations are known features of the financial reporting process. Therefore, it
is  possible  to design  into the  process  safeguards  to  reduce,  though  not
eliminate, this risk.


                                    PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors and Executive Officers

The following table sets forth current information regarding our executive
officers, senior managers and directors:



Name                           Age  Positions

Graham Cooper...............   58   Chairman, President, Chief Executive
                                     Officer

Martin Thorp................   54   Chief Financial Officer and Director

John Fuller.................   45   Director


                                       30
<PAGE>
John Fuller has been director since July 2001 and served as our President, Chief
Executive  Officer from July 2001 until June 2006. Mr. Fuller  received his B.S.
in Mechanical  Engineering from Southampton University and a Masters of Business
Administration from Warwick University.

Martin  Thorp has been our Chief  Financial  Officer and a Director  since April
2005.   From  2002  through  2005,  Mr.  Thorp  had  been  involved  in  various
entrepreneurial  activities  including,  the  establishment  of Biz-Bud  Ltd., a
private company which provides outsourcing solutions for the small and mid-sized
enterprises  ("SMEs") across the entire business support spectrum;  developing a
consulting  capability  for SMEs;  acting as a  consultant  to an  international
corporate finance and strategic advisory boutique; serving as strategic advisory
non-executive board member of Grant Thornton;  and serving in various short term
consulting and interim management positions. From 1996 to 2002, Mr. Thorp served
as Global Managing Partner,  Corporate  Finance for Arthur Andersen,  London and
New York.  Mr. Thorp  graduated  with first class honors from the  University of
Kent at  Canterbury  (UK) in  Accounting  and Business  Finance.  Mr. Thorp is a
Fellow of the  Institute  of  Chartered  Accountants  in England and Wales and a
member of the Securities Institute (in the UK).

Graham Cooper has been our Chairman since January 2000. In June 2006, Mr. Cooper
was appointed as our President and Chief  Executive  Officer.  For the past five
years,  Mr.  Graham  Cooper has been the  principal  stockholder  of  Westek,  a
computer trading company located in Manchester,  England. Westek was the initial
primary  financing  source to HET and is a business  "angel" to other technology
development stage companies.

Audit Committee

We do not have a separately designated standing audit committee.

Code of Ethics

We have adopted our Code of Ethics and Business Conduct for Officers,  Directors
and Employees that applies to all of our officers,  directors and employees. The
Code of Ethics was filed with the Annual Report on Form 10-KSB dated February 3,
2005.

Compliance with Section 16(a) of the Exchange Act

Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended (the "1934
Act") requires  officers and directors of a company with  securities  registered
pursuant to Section 12 of the 1934 Act, and persons who own more than 10% of the
registered  class  of such  company's  equity  securities,  to file  reports  of
ownership and changes in ownership with the  Securities and Exchange  Commission
(the "SEC"). Officers,  directors and greater than 10% stockholders are required
by SEC  regulation  to furnish  the subject  company  with copies of all Section
16(a) forms filed. To our knowledge,  the following Forms 3 and 4 required to be
filed during the fiscal year ended July 31, 2006 were not filed  timely:  Martin
Thorp Form 3 filed on August 4, 2006.

                                       31
<PAGE>
Item 10. Executive Compensation

The following  table sets forth the cash  compensation  (including cash bonuses)
paid or accrued by us for our years  ended July 31,  2006,  2005 and 2004 to (i)
our Chief Executive Officer and (ii) our four most highly compensated  officers,
other than our Chief  Executive  Officer,  whose total  annual  salary and bonus
exceeded $100,000.

<TABLE>
<CAPTION>
                                                          Summary Compensation Table


                                                        Annual                  Long-term
                                                     Compensation             Compensation
                                                ----------------------- --------------------------
                                                                           Awards       Payouts
                                                                        -------------- -----------
                                                                         Securities
                                                                         Underlying       LTIP        All Other
                                       Fiscal     Salary       Bonus      Options/      Payouts      Compensation
Name and Principal Position             Year        ($)         ($)       SARs (#)        ($)            ($)
<S>                                       <C>        <C>        <C>        <C>            <C>            <C>
------------------------------------- --------- ------------ ---------- -------------- ----------- -----------------
                                                                           Note 4                      Note 5
Graham Cooper
Chairman, President & CEO (1)           2006        27,000       0                          0                 0
                                        2005        27,000       0                          0                 0
                                        2004        27,000       0                          0                 0

John Fuller                             2006       225,000       0                          0                 0
Director (2)                            2005       270,000       0                          0                 0
(Former President and CEO)              2004       270,000       0       4,829,500          0                 0

Brian Cameron                           2006       180,000       0                          0           135,000
Former Chief Operation Officer (4)      2005       270,000       0                          0                 0
                                        2004       270,000       0       4,829,500          0                 0

</TABLE>

(1) Mr. Cooper was appointed President and Chief Executive Officer in June, 2006
and was previously (and still remains) the Chairman of the Board of directors

(2) Mr. Fuller resigned as President and Chief Executive  Officer of the Company
in June, 2006. He remains a director of the Company.

(3) Mr. Cameron  resigned as a Director and as the Chief  Operations  Officer in
May, 2006.

(4) Stock options shown in this table  represent  options to purchase  shares of
the Company's common stock.

o    The options awards shown in 2004 were granted to Mr. Fuller and Mr. Cameron
     under the terms of their  respective  employment  contracts.  Those options
     were subject to certain  performance  criteria  being met by the Company by
     the  date  that  those  options  vest.  The  options  vest in  three  equal
     installments of 1,609,833. in May 2006, 2007 and 2008. At the first vesting
     date the  performance  criteria  had not been met and  those  options  have
     therefore  lapsed. In addition when Mr. Cameron resigned all of the options
     referred to above lapsed.

                                       32
<PAGE>
(5) Mr.  Cameron  resigned as a director in May 2006 and, under the terms of his
employment contract, was entitled to compensation,  which is the amount shown in
the column headed "all other compensation" above.

(7) Directors are generally paid in pounds sterling.  For the purposes of dollar
presentation  and  comparability  between  years  the  amounts  shown  above are
translated at the average rate in effect for the year ended July 31, 2006.

Options Grants in Last Fiscal Year

The following table sets forth  information with respect to grants of options to
purchase  our  common  stock  under our 2005  Incentive  Stock Plan to the named
executive officers during the fiscal year ended July 31, 2006.


<TABLE>
<CAPTION>
                                                                 Percent of Total
                                                                    options/SARs
                                        Number of Securities        Granted
                                         Underlying Options/  to Employees
Name                                         SARs Granted         in Fiscal Year      Excerise Price       Expiration
<S>                                              <C>                   <C>                   <C>                <C>
--------------------------------------   ---------------------  -------------------  ---------------     ------------
                                                  (#)                                     ($/Sh)
Martin Thorp                                    150,000             21%                    0.55         January 1, 2012
</TABLE>

Aggregate Option Exercises In Last Fiscal Year and Fiscal Year End Option Values

The  following  table sets forth with  respect to the named  executive  officers
information with respect to options exercised,  unexercised options and year-end
option  values in each case with  respect to options to  purchase  shares of our
common stock.

<TABLE>
<CAPTION>
                                                       Number of Securities Underlying    Value of  In The
                                                       Unexercised Options at July          Money Options At
                                                                   31, 2006                   July 31, 2006(1)
                                                       -------------------------------    ----------------------------
                                  Shares Value
                             Acquired on   Realized                      Unexercisable   Exercisable    Unexercisable
           Name              Exercise (#)     ($)      Exercisable (#)        (#)            (#)             (#)
---------------------------  ------------  --------    ---------------   -------------   -----------    -------------
<S>                             <C>          <C>           <C>              <C>               <C>           <C>
John Fuller                     0            0             6,439,437        3,219,667         0             0

Brian Cameron                   0            0             6,439,437                0         0             0

Martin Thorp                    0            0                50,000          150,000         0             0
</TABLE>

The  exercisable  options  owned by Mr.  Fuller and Mr.  Cameron  are options to
acquire shares held by the Hall Effect Medical Products Employee Benefit Trust.

                                       33
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following  table  indicates  beneficial  ownership of our common stock as of
November,  2006 by each person or entity  known by us to  beneficially  own more
than 5% of the  outstanding  shares of our common  stock;  each of our executive
officers and  directors;  and all of our  executive  officers and directors as a
group. Unless otherwise  indicated,  the address of each beneficial owner listed
below is c/o The Green House, Beechwood Business Park North, Inverness, Scotland
IV2 3BL.


<TABLE>
<CAPTION>
      Name of Beneficial Owner              Number of Shares            Class of Stock       Percentage Outstanding (1)
                                           Beneficially Owned
<S>                                                <C>                         <C>                      <C>
------------------------------------- ------------------------------ ---------------------- --------------------------
Abacus Trust Company Limited (2)               19,328,381               Preferred Stock                33.2%
Unit 2, Taurus Park
Europa Boulevard
Warrington WA5 7YT
England
------------------------------------- ------------------------------ ---------------------- --------------------------

Rodney Philip Jackson                           6,392,695               Preferred Stock                10.9%
The Green House
Beechwood Business Park North
Inverness, Scotland IV2 3BL
------------------------------------- ------------------------------ ---------------------- --------------------------
HEMP Trustees Limited                          12,878,873                Common Stock                  22.1%
10 Foster Lane
London, England
EC2V 6HR
------------------------------------- ------------------------------ ---------------------- --------------------------
Rubin Family Irrevocable Stock                  4,674,541                Common Stock                   8.0%
Trust (3)
25 Highland Boulevard
Dix Hills, New York 11730
------------------------------------- ------------------------------ ---------------------- --------------------------
John Fuller (4)                                 6,537,487                Common Stock                  11.2%
Easter Shian, Glen Quaich
Amulree, Perthshire
PH8 0DB
Scotland
------------------------------------- ------------------------------ ---------------------- --------------------------
Brian Cameron (5)                               6,513,335                Common Stock                  11.1%
Campbell Cairns, Craigellachie
Aberlour, Banffshire
Scotland
------------------------------------- ------------------------------ ---------------------- --------------------------
Graham Cooper  (2)                                      0                Common Stock                    *
Rock Cottage
Finsthwaite
Cumbria
United Kingdom
LA12 8BH
------------------------------------- ------------------------------ ---------------------- --------------------------
Martin E. Thorp (6)                             2,200,000                Common Stock                   3.7%
31 Vogan's Mill Wharf
17 Mill Street,
St Savior's Dock
Tower Bridge
London SE1 2BZ7
------------------------------------- ------------------------------ ---------------------- --------------------------
All directors and executive                    11,859,154               Common stock                   20.3%
officers as a group (5 persons)
------------------------------------- ------------------------------ ---------------------- --------------------------
</TABLE>

* less than 1%

                                       34
<PAGE>
(1) Applicable percentage ownership is based on 58,178,467shares of common stock
outstanding  as of November  7, 2006.  Beneficial  ownership  is  determined  in
accordance  with  the  rules  of the  Securities  and  Exchange  Commission  and
generally  includes  voting or  investment  power with  respect  to  securities.
Options to acquire  shares of common  stock that are  currently  exercisable  or
exercisable  within 60 days of  November  7, 2006 are deemed to be  beneficially
owned by the person  holding such  securities  for the purpose of computing  the
percentage of ownership of such person,  but are not treated as outstanding  for
the purpose of computing the percentage ownership of any other person.

(2) Consists of shares of 4% voting  preferred  stock,  convertible  on or after
October 31, 2005 into  19,328,381  shares of common stock.  Abacus Trust Company
Limited  is acting as trustee  for the Westek  Limited  Employee  Trust.  Graham
Cooper, our President and Chief Executive Officer is a beneficiary of the Westek
Limited Employee Trust.

(3) Excludes an  aggregate  of 2,785,310  shares of common stock owned by Andrew
Rubin,  Lynda  Rubin and Lisa Diaz,  the  children of Robert M. Rubin and by the
grandchild of Robert M. Rubin, the settlor of the Rubin Family Irrevocable Stock
Trust. Mr. Rubin disclaims  beneficial interest in the shares owned by the Rubin
Family Irrevocable Stock Trust or by his children and grandchild.

(4) Consists of (i) 6,439,437  shares held by the Hall Effect  Medical  Products
Employee  Benefit  Trust as to which Mr.  Fuller holds  options to purchase (ii)
98,050 shares  issued to Mr.  Fuller in  consideration  of his  cancellation  of
certain  obligations  owed to him by HET and  Jopejo.  Mr.  Fullers  other share
options which were granted on or before  November 7, 2006 but which have not yet
vested  (options  over an aggregate of  5,219,666)  have been excluded from this
table

(5) Consists of (i) 6,439,436  shares held by the Hall Effect  Medical  Products
Employee  Benefit Trust as to which Mr.  Cameron holds options to purchase,  and
(ii) 73,899 shares issued to Mr. Cameron in consideration of his cancellation of
certain obligations owed to him by HET and Jopejo.

(6) This does not include  options to acquire  5,850,000  shares  granted before
November 7, 2006 but which have not yet vested.yet .

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Graham Cooper, our Chairman,  President and Chief Executive Officer, is also the
Chairman and principal stockholder of Westek Limited, a creditor of the Company.

In July 2004, Westek agreed to release the Company from $2,030,298 of previously
accumulated  advances  in exchange  for a  noninterest-bearing  promissory  note
totalling  $1,800,000.  The Company  reflected a capital  contribution  totaling
$2,030,298 in its financial  statements at that time.  The  promissory  note was
payable in full by September 30, 2006.  Under the terms of the note, the Company
is obligated to make  repayments of the principal  amount earlier than September
30,  2006 out of any equity or equity type  financings  made before that date by
applying an agreed percentage of the aggregate net proceeds from any such equity
or  equity-type  financings.  The agreed  percentage  is 56% of any net proceeds
which exceed $2,000,000 (up to $3,000,000) and 25% of all net proceeds in excess
of  $3,000,000.  As of July 31,  2007,  the Company is indebted to Westek in the
amount of $1,783,440, net of discount of $16,560.

On November 13, 2006, the Company and Westek  Limited  entered into an amendment
(the "Amendment") to the Loan Agreement dated as of June, 2004.  Pursuant to the
Amendment,  the maturity  date of the Loan has been  extended to March 31, 2008,
and the Loan will bear  interest at the rate of 10%  beginning in October  2007.
The Loan has an outstanding  principal  balance of $1,800,000 as of November 13,
2006..

Graham Cooper, the Company's Chairman, President and Chief Executive Officer, is
the principal stockholder of Westek Limited.

                                       35
<PAGE>
Item 13. EXHIBITS

(a) Exhibits

Exhibit
Number                                  Description
--------------------------------------------------------------------------------
2.1       Share  Purchase  Agreement,  dated as of June 30,  2004,  among Sports
          Information  and  Publishing  Corp.,  Michael  Tanner,  HEMP  Trustees
          Limited  (as the  corporate  trustee  of the  HEMP  Employees  Benefit
          Trust), John Fuller,  Brian Cameron,  Westek Limited and other holders
          of securities of In Veritas Medical Diagnostics, Inc. (as incorporated
          by  reference  to Form 8-K,  filed with the  Securities  and  Exchange
          Commission on August 10, 2004).

2.2       Amendment No. 1 to Share Exchange Agreement,  effective as of July 31,
          2004,  among  Sports  Information  and  Publishing  Corp.,  Michael D.
          Tanner,  HEMP Trustees  Limited (as the corporate  trustee of the HEMP
          Employees Benefit Trust), John Fuller,  Brian Cameron,  Westek Limited
          and the other holders of  securities  of In Vivo Medical  Diagnostics,
          Inc.  (formerly  Hall Effect  Medical  Products) (as  incorporated  by
          reference  to Form  8-K/A,  filed  with the  Securities  and  Exchange
          Commission on February 3, 2005).

3.1       Articles of Incorporation  (as incorporated by reference to Form SB-2,
          filed with the  Securities  and  Exchange  Commission  on January  24,
          2002).

3.2       Articles of Amendment of Articles of  Incorporation,  dated as of July
          22, 2004 (as  incorporated  by reference to the Annual  Report on Form
          10-KSB,  filed with the Securities and Exchange Commission on February
          3, 2005).

3.3       Articles  of  Amendment  of  Articles  of  Incorporation,  dated as of
          September 20, 2004.

3.4       By-Laws (as  incorporated  by reference  to Form SB-2,  filed with the
          Securities and Exchange Commission on January 24, 2002).





10.1      Employment Agreement among Hall Effect Technologies Limited, a company
          registered in England,  Jonathan Andrew Fuller and Hall Effect Medical
          Products Inc., a Delaware  corporation.  (as incorporated by reference
          to the Annual  Report on Form 10-KSB,  filed with the  Securities  and
          Exchange Commission on February 3, 2005).

10.2      Employment Agreement among Hall Effect Technologies Limited, a company
          registered in England,  Brian Cameron and Hall Effect Medical Products
          Inc., a Delaware  corporation.  (as  incorporated  by reference to the
          Annual Report on Form 10-KSB,  filed with the  Securities and Exchange
          Commission on February 3, 2005).

10.3      Research  and  Development  Agreement  dated July 1, 2002 between Hall
          Effect Technologies  Limited and Unipath Limited.  (as incorporated by
          reference to the Amended  Annual Report on Form  10-KSB/A,  filed with
          the Securities and Exchange Commission on August 15, 2005).

10.4      Patent Licence  Agreement  dated September 1, 2002 between Hall Effect
          Technologies   Limited  and  Unipath  Limited.   (as  incorporated  by
          reference to the Amended  Annual Report on Form  10-KSB/A,  filed with
          the Securities and Exchange Commission on August 15, 2005).

                                       36
<PAGE>
10.5      Subscription  Agreement,  dated December 22, 2004 by and among In Vivo
          Medical Diagnostics,  Inc. and NITE Capital,  L.P. (as incorporated by
          reference  to  Form  8-K,  filed  with  the  Securities  and  Exchange
          Commission on December 29, 2004).

10.6      Registration Rights Agreement, dated December 22, 2004 by and among In
          Vivo Medical Diagnostics, Inc. and NITE Capital, L.P. (as incorporated
          by  reference  to Form 8-K,  filed with the  Securities  and  Exchange
          Commission on December 29, 2004).

10.7      Form  of  8%  Promissory  Note  issued  to  NITE  Capital,   L.P.  (as
          incorporated  by reference to Form 8-K,  filed with the Securities and
          Exchange Commission on December 29, 2004).

10.8      Certificate of the Powers, Designations, Preferences and Rights of the
          Series B Preferred  Stock (As  incorporated  by  reference to Form 8-K
          filed with the Securities and Exchange Commission on April 21, 2005).

10.9      Form of  Subscription  Agreement - April 2005  private  placement  (As
          incorporated  by reference to Form 8-K filed with the  Securities  and
          Exchange Commission on April 21, 2005).

10.10     Form of Common Stock Purchase  Warrant - April 2005 private  placement
          (As  incorporated  by reference to Form 8-K filed with the  Securities
          and Exchange Commission on April 21, 2005).

10.11     Form of Unit Warrant - April 2005 private  placement (As  incorporated
          by  reference  to Form 8-K  filed  with the  Securities  and  Exchange
          Commission on April 21, 2005).

10.12     Form of Registration  Rights Agreement - April 2005 private  placement
          (As  incorporated  by reference to Form 8-K filed with the  Securities
          and Exchange Commission on April 21, 2005).

10.13     Secured Convertible  Debenture issued to Montgomery dated September 7,
          2005 (as incorporated by reference to the Company's  Current Report on
          Form  8-K,  filed  with the  Securities  and  Exchange  Commission  on
          September 13, 2005).

10.14     Warrant issued to Montgomery  dated September 7, 2005 (as incorporated
          by reference to the Company's  Current  Report on Form 8-K, filed with
          the Securities and Exchange Commission on September 13, 2005).

10.15     Form of Convertible Debenture dated September 7, 2005 (as incorporated
          by reference to the Company's  Current  Report on Form 8-K, filed with
          the Securities and Exchange Commission on September 13, 2005).




10.16     Investor  Registration Rights Agreement dated September 7, 2005 by and
          between the Company and  Montgomery (as  incorporated  by reference to
          the Company's  Current  Report on Form 8-K,  filed with the Securities
          and Exchange Commission on September 13, 2005).

10.17     Pledge and Escrow  Agreement  dated September 7, 2005 by and among the
          Company,   Montgomery   and  David   Gonzalez  as  escrow   agent  (as
          incorporated by reference to the Company's Current Report on Form 8-K,
          filed with the  Securities  and Exchange  Commission  on September 13,
          2005).

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<PAGE>
10.18     Securities  Purchase  Agreement dated September 7, 2005 by and between
          the  Company and  Montgomery  (as  incorporated  by  reference  to the
          Company's  Current  Report on Form 8-K,  filed with the Securities and
          Exchange Commission on September 13, 2005).

10.19     Security  Agreement dated September 7, 2005 by and between the Company
          and Montgomery (as incorporated by reference to the Company's  Current
          Report on Form 8-K, filed with the Securities and Exchange  Commission
          on September 13, 2005).

10.20     Standby Equity  Distribution  Agreement dated September 7, 2005 by and
          between the Company and Cornell (as  incorporated  by reference to the
          Company's  Current  Report on Form 8-K,  filed with the Securities and
          Exchange Commission on September 13, 2005).

10.21     Registration  Rights  Agreement dated September 7, 2005 by and between
          the and Cornell (as incorporated by reference to the Company's Current
          Report on Form 8-K, filed with the Securities and Exchange  Commission
          on September 13, 2005).

10.22     Placement  Agent  Agreement dated September 7, 2005 by and between the
          Company and Monitor Capital, Inc. (as incorporated by reference to the
          Company's  Current  Report on Form 8-K,  filed with the Securities and
          Exchange Commission on September 13, 2005).

10.23     Intercreditor  Agreement  dated  September  7,  2005 by and  among the
          Company, Montgomery and the investors identified in Schedule I thereto
          (as incorporated by reference to the Company's  Current Report on Form
          8-K, filed with the  Securities  and Exchange  Commission on September
          13, 2005).

10.24     Investor  Registration Rights Agreement dated September 7, 2005 by and
          between  the  Company  and  the  investors   identified   thereto  (as
          incorporated by reference to the Company's Current Report on Form 8-K,
          filed with the  Securities  and Exchange  Commission  on September 13,
          2005).

10.25     Securities  Purchase  Agreement dated September 7, 2005 by and between
          the Company and the investors  identified  thereto (as incorporated by
          reference to the Company's  Current Report on Form 8-K, filed with the
          Securities and Exchange Commission on September 13, 2005).

10.26     Security  Agreement dated September 7, 2005 by and between the Company
          and the investors  identified thereto (as incorporated by reference to
          the Company's  Current  Report on Form 8-K,  filed with the Securities
          and Exchange Commission on September 13, 2005).

10.27     Royalty  Participation  Agreement  dated May 3, 2006 by and between In
          Veritas  Medical  Diagnostics,  Inc. and The Rubin Family  Irrevocable
          Stock Trust (as  incorporated  by reference to the  Company's  Current
          Report on Form 8-K filed with the Securities  and Exchange  Commission
          on May 11, 2006.

10.28     Termination,  Settlement and  Forbearance  Agreement dated October 19,
          2006 between In Veritas Medical Diagnostics,  Inc.,  Montgomery Equity
          Partners Ltd. and Cornell  Capital  Partners L.P. (as  incorporated by
          reference to the Company's  Current Report on Form 8- K filed with the
          Securities and Exchange Commission on October 25 2006.

10.28     Amendment  No.  1  to  Loan  Agreement   between  In  Veritas  Medical
          Diagnostics, Inc. and Triumph Small Cap Fund, Inc. (as incorporated by
          reference  to the  Form  8-K  filed  with the  Securities  &  Exchange
          Commission on November 21, 2006)

10.29     Purchase  Agreement between In Veritas Medical  Diagnostics,  Inc. and
          Triumph Small Cap Fund, Inc.

10.30     Exchange  Agreement between In Veritas Medical  Diagnostics,  Inc. and
          Triumph Small Cap Fund, Inc.

10.31     Form of 8% Secured Subordinated Convertible Debenture

10.32     Subordinated   Security   Agreement   between   In   Veritas   Medical
          Diagnostics, Inc. and Triumph Small Cap Fund, Inc

14.1      Code of Ethics  and  Business  Conduct  for  Officers,  Directors  and
          Employees.  (as incorporated by reference to the Annual Report on Form
          10-KSB,  filed with the Securities and Exchange Commission on February
          3, 2005).

21        List of  Subsidiaries  (as  incorporated  by  reference  to the Annual
          Report  on  Form  10-KSB,  filed  with  the  Securities  and  Exchange
          Commission on February 3, 2005).

31.1      Certification by Graham Cooper, President and Chief Executive Officer,
          pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2      Certification by Martin Thorp,  Chief Financial  Officer,  pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002.

32.1      Certification by Graham Cooper, President and Chief Executive Officer,
          pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2      Certification by Martin Thorp,  Chief Financial  Officer,  pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002.

                                       38
<PAGE>
Item 14. Principal Accounting Fees and Services

Audit fees

The aggregate fees billed for professional  services rendered by our independent
auditors  for the audit of our  financial  statements,  for the  reviews  of the
financial  statements included in our annual report on Form 10KSB, and for other
services normally provided in connection with statutory filings were $42,823 and
$29,497 for the years ended July 31, 2006 and July 31, 2005, respectively.

Audit-Related Fees

No  audit-related  fees were incurred for the years ended July 31, 2006 and July
31, 2005.

Tax Fees

The aggregate fees billed for professional  services rendered by our independent
auditors for tax compliance, tax advice, and tax planning were $2,700 and $1,800
for the years ended July 31, 2006 and July 31, 2005. The services for which such
fees were paid consisted of filing tax returns of group companies.

All Other Fees

We did not  incur  any fees for  other  professional  services  rendered  by our
independent auditors during the years ended July 31, 2006 and July 31, 2005.

                                       39
<PAGE>
                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                       IN VERITAS MEDICAL DIAGNOSTICS INC.





Dated:   December 1, 2006           By:  /s/ Graham Cooper
                                        ------------------
                                        Graham Cooper
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)



Dated:   December 1, 2006           By:  /s/ Martin Thorp
                                        -----------------
                                        Martin Thorp
                                        Chief Financial Officer
                                        (Principal Financial and Accounting
                                        Officer)




PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN  SIGNED BY THE  FOLLOWING  PERSONS IN THE  CAPACITIES  AND ON THE DATES
INDICATED:

            NAME                      TITLE                            DATE
--------------------------------------------------------------------------------

/s/ Graham Cooper              President, Chief Executive      December 1, 2006
---------------                Officer and Chairman
Graham Cooper                  (Principal Executive Officer)


/s/ Martin Thorp               Chief Financial Officer         December 1, 2006
----------------               and Director
Martin Thorp                   (Principal Financial and
                               Accounting Officer)

/s/
----------------               Director
John Fuller





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