**UNITED STATES**SECURITIES ANDEXCHANGE COMMISSION

**Washington,D.C. 20549**

**FORM 10-QSB**
| **(Mark One)** |
|----------------|
| ** **     |   |   |
| **ý**     | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **FOR THE  QUARTERLY PERIOD ENDED JUNE 30, 2006** |
|           |   |   |
|           |   | **OR** |
| ** **     | ** ** | ** ** |
| **o**          | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **For the  transition period from                         to                      ** |

 

**COMMISSIONFILE NUMBER 0-22743**

**iVOW, INC.**

(Exact name ofregistrant as specified in its charter)

| **DELAWARE**                     |   | **94-3184035**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

 

**11455 EL CAMINO REAL,SUITE 140**

**SAN DIEGO, CA 92130**

(Address ofprincipal executive offices)

**(858) 703-2820**

(Registrant’stelephone number, including area code)

INDICATEBY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TOBE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANTWAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILINGREQUIREMENTS FOR THE PAST 90 DAYS:

|            | **(1)** | **Yes****ý** | **No****o** | ** ** |
|------------|---------|-------------------|-------------|------------|
| ** ** |    | ** **        |        | ** ** |
| ** ** | **(2)** | **Yes****ý** | **No****o** | ** ** |

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
|  | Yes  o   No  ý |
|--|--------------------------------------------------------|

 

As of July 31, 2006there were 3,474,865 shares of $.01 par value common stock outstanding.
| Transitional Small Business Disclosure Format | Yes  o   No  ý |
|-----------------------------------------------|--------------------------------------------------------|

 

 

----

iVOW, INC. ANDSUBSIDIARY

FORM 10-QSB

TABLE OF CONTENTS
| PART 1.    FINANCIAL INFORMATION |                                                                                                                                    |
|-------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
|                                            |                                                                                                                                    |   |
| Item 1.                                         | Financial  Statements (unaudited)                                                                                                       |   |
|                                            |                                                                                                                                    |   |
|                                            | Condensed Consolidated  Balance Sheets as of June 30, 2006 and December 31, 2005                                              |   |
|                                            | Condensed Consolidated  Statements of Operations and Comprehensive Loss for the three and six months  ended June 30, 2006 and 2005 |   |
|                                            | Condensed  Consolidated Statement of Stockholders’ Equity for the six months ended  June 30, 2006                             |   |
|                                            | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30,  2006 and 2005                                  |   |
|                                            | Notes to  Condensed Consolidated Financial Statements                                                                                   |   |
|                                            |                                                                                                                                    |   |
| Item 2.                                         | Management’s  Discussion and Analysis or Plan of Operation                                                                         |   |
|                                            |                                                                                                                                    |   |
| Item 3.                                         | Controls and  Procedures                                                                                                                |   |
|                                            |                                                                                                                                    |   |
| PART II.   OTHER INFORMATION          |                                                                                                                                    |
|                                            |                                                                                                                                    |   |
| Item 1.                                         | Legal Proceedings                                                                                                                       |   |
|                                            |                                                                                                                                    |   |
| Item 2.                                         | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                            |   |
|                                            |                                                                                                                                    |   |
| Item 3.                                         | Defaults  Upon Senior Securities                                                                                                        |   |
|                                            |                                                                                                                                    |   |
| Item 4.                                         | Submission  of Matters to a Vote of Security Holders                                                                                    |   |
|                                            |                                                                                                                                    |   |
| Item 5.                                         | Other Information                                                                                                                       |   |
|                                            |                                                                                                                                    |   |
| Item 6.                                         | Exhibits                                                                                                                                |   |
|                                            |                                                                                                                                    |   |
| SIGNATURES                                      |                                                                                                                                    |

 

2

----

PART I.  FINANCIAL INFORMATION

## Item 1.    FinancialStatements (Unaudited)

iVOW, Inc.and Subsidiary

Condensed Consolidated Balance Sheets
| ** **                                                                                                                           | ** ** | **June 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                           | ** ** | **(unaudited)**             | ** ** | ** **                      | ** ** |
| ASSETS                                                                                                                               |       |                        |       |                            |       |
| Current assets:                                                                                                                      |       |                        |       |                            |       |
| Cash and cash  equivalents                                                                                                           |       | $                           | 1,616,797  |                            | $          | 851,315 |   |
| Restricted cash                                                                                                                      |       | —                      |       | 358,444                         |       |
| Accounts  receivable, net                                                                                                            |       | 295,655                     |       | 159,115                         |       |
| Inventories                                                                                                                          |       | 84,409                      |       | 43,493                          |       |
| Prepaid  insurance                                                                                                                   |       | 43,463                      |       | 160,170                         |       |
| Other current  assets                                                                                                                |       | 69,468                      |       | 121,210                         |       |
| Total current assets                                                                                                                 |       | 2,109,792                   |       | 1,693,747                       |       |
| Property and equipment,  net                                                                                                         |       | 250,073                     |       | 252,880                         |       |
| Investment in  marketable equity securities of Viking Systems, Inc., available for sale                                              |       | 661,600                     |       | 661,600                         |       |
| Other assets                                                                                                                         |       | 39,697                      |       | 31,414                          |       |
| Goodwill                                                                                                                             |       | 1,064,046                   |       | 915,116                         |       |
| Amortizable intangible  assets, net                                                                                                  |       | 158,983                     |       | 193,051                         |       |
| Total assets                                                                                                                         |       | $                           | 4,284,191  |                            | $          | 3,747,808 |   |
|                                                                                                                                 |       |                        |       |                            |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                           |       |                        |       |                            |       |
| Current liabilities:                                                                                                                 |       |                        |       |                            |       |
| Accounts payable                                                                                                                     |       | $                           | 488,231    |                            | $          | 216,951 |   |
| Current portion  of capital lease obligations                                                                                        |       | —                      |       | 5,803                           |       |
| Short-term bank  borrowings                                                                                                          |       | —                      |       | 316,621                         |       |
| Short-term notes                                                                                                                     |       | 6,614                       |       | 103,845                         |       |
| Accrued  compensation                                                                                                                |       | 291,597                     |       | 254,522                         |       |
| Deferred revenue                                                                                                                     |       | 256,953                     |       | 177,325                         |       |
| Current portion  of deferred rent                                                                                                    |       | 20,868                      |       | 26,497                          |       |
| Accrued  liabilities                                                                                                                 |       | 54,142                      |       | 114,532                         |       |
| Total current  liabilities                                                                                                           |       | 1,118,405                   |       | 1,216,096                       |       |
| Note payable                                                                                                                         |       | 19,754                      |       | 22,071                          |       |
| Long-term portion of  deferred rent                                                                                                  |       | 35,192                      |       | 30,321                          |       |
| Total liabilities                                                                                                                    |       | 1,173,351                   |       | 1,268,488                       |       |
|                                                                                                                                 |       |                        |       |                            |       |
| Commitments and  contingencies                                                                                                       |       |                        |       |                            |       |
|                                                                                                                                 |       |                        |       |                            |       |
| Stockholders’ equity:                                                                                                           |       |                        |       |                            |       |
| Preferred stock, $.01  par value:                                                                                                    |       |                        |       |                            |       |
| Authorized  shares – 5,000,000; issued and outstanding shares - 0                                                               |       | —                      |       | —                          |       |
| Common stock, $.01 par  value:                                                                                                       |       |                        |       |                            |       |
| Authorized  shares – 70,000,000; issued and outstanding shares - 3,474,865 at June 30,  2006 and 2,303,469 at December 31, 2005 |       | 34,749                      |       | 23,035                          |       |
| Additional  paid-in capital                                                                                                          |       | 78,348,298                  |       | 76,241,906                      |       |
| Accumulated  other comprehensive income                                                                                              |       | 628,520                     |       | 628,520                         |       |
| Accumulated  deficit                                                                                                                 |       | (75,900,727                 | )          | (74,414,141                     | )          |
| Total stockholders’  equity                                                                                                     |       | 3,110,840                   |       | 2,479,320                       |       |
| Total liabilities and stockholders’ equity                                                                                      |       | $                           | 4,284,191  |                            | $          | 3,747,808 |   |

 

Note: The balancesheet at December 31, 2005 has been derived from the audited financialstatements at that date but does not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates of America for complete financial statements.

See accompanyingnotes to Condensed Consolidated Financial Statements.

3

----

iVOW, Inc. andSubsidiary

CondensedConsolidated Statements of Operations and Comprehensive Loss

(Unaudited)
| ** **                                                                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues                                                                           |       | $                                               | 746,110    |                                          | $          | 252,916 |   | $ | 1,350,181 |   | $ | 492,597 |   |
| Cost and  expenses:                                                                |       |                                            |       |                                          |       |   |   |   |   |
| Cost of revenues                                                                   |       | 576,574                                         |       | 237,431                                       |       | 1,150,328 |   | 523,028 |   |
| Product development                                                                |       | 2,136                                           |       | 22,956                                        |       | 4,408 |   | 100,403 |   |
| Sales and marketing                                                                |       | 270,147                                         |       | 216,076                                       |       | 553,656 |   | 488,794 |   |
| General and administrative                                                         |       | 638,927                                         |       | 394,478                                       |       | 1,281,327 |   | 966,253 |   |
| Total costs and  expenses                                                          |       | 1,487,784                                       |       | 870,941                                       |       | 2,989,719 |   | 2,078,478 |   |
|                                                                               |       |                                            |       |                                          |       |   |   |   |   |
| Loss from  operations                                                              |       | (741,674                                        | )          | (618,025                                      | )          | (1,639,538 | ) | (1,585,881 | ) |
| Other income,  net                                                                 |       | 2,426                                           |       | 4,490                                         |       | 2,952 |   | 10,212 |   |
| Loss from  continuing operations                                                   |       | (739,248                                        | )          | (613,535                                      | )          | (1,636,586 | ) | (1,575,669 | ) |
| Gain from  discontinued operations                                                 |       | 150,000                                         |       | 128,588                                       |       | 150,000 |   | 132,644 |   |
| Net loss                                                                           |       | (589,248                                        | )          | (484,947                                      | )          | (1,486,586 | ) | (1,443,025 | ) |
| Accretion of  dividends on preferred stock                                         |       | —                                          |       | (29,362                                       | )          | — |   | (35,237 | ) |
|                                                                               |       |                                            |       |                                          |       |   |   |   |   |
| Net loss  applicable to common stockholders                                        |       | $                                               | (589,248   | )                                             | $          | (514,309 | ) | $ | (1,486,586 | ) | $ | (1,478,262 | ) |
|                                                                               |       |                                            |       |                                          |       |   |   |   |   |
| Other  comprehensive loss:                                                         |       |                                            |       |                                          |       |   |   |   |   |
| Net loss                                                                           |       | $                                               | (589,248   | )                                             | $          | (484,947 | ) | $ | (1,486,586 | ) | $ | (1,443,025 | ) |
| Unrealized loss  on available-for-sale securities                                  |       | —                                          |       | (330,800                                      | )          | — |   | (479,660 | ) |
| Total  comprehensive loss                                                          |       | $                                               | (589,248   | )                                             | $          | (815,747 | ) | $ | (1,486,586 | ) | $ | (1,922,685 | ) |
|                                                                               |       |                                            |       |                                          |       |   |   |   |   |
| Income (loss)  per common share basic and diluted:                                 |       |                                            |       |                                          |       |   |   |   |   |
| Continuing  operations                                                             |       | $                                               | (0.27      | )                                             | $          | (0.58 | ) | $ | (0.63 | ) | $ | (1.46 | ) |
| Discontinued  operations                                                           |       | 0.06                                            |       | 0.12                                          |       | 0.06 |   | 0.12 |   |
| Net loss per  common share applicable to common stockholders                       |       | $                                               | (0.21      | )                                             | $          | (0.46 | ) | $ | (0.57 | ) | $ | (1.34 | ) |
|                                                                               |       |                                            |       |                                          |       |   |   |   |   |
| Weighted average shares  used in computing basic and diluted loss per common share |       | 2,741,056                                       |       | 1,106,235                                     |       | 2,599,191 |   | 1,104,917 |   |

 

See accompanyingnotes to Condensed Consolidated Financial Statements.

4

----

iVOW, Inc.and Subsidiary

Condensed Consolidated Statement of Stockholders’Equity

Six Months Ended June 30, 2006

(Unaudited)
| ** **                                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** **  | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|-------------------|------------|-----------------|------------|-------------|------------|------------|------------|
| ** **                                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional**    | ** ** | **other**       | ** ** | ** **  | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | **Common stock** | ** ** | **paid-in** | ** ** | **comprehensive** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
| ** **                                                                       | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **capital**       | ** ** | **income**      | ** ** | **deficit** | ** ** | **Total**  | ** ** |
|                                                                             |       |                  |       |        |       |              |       |            |       |        |       |       |       |
| Balance at  December 31, 2005                                                    |       | 2,303,469             |       | $           | 23,035     |              | $          | 76,241,906      |       | $           | 628,520    |       | $          | (74,414,141 | ) | $ | 2,479,320 |   |
|                                                                             |       |                  |       |        |       |              |       |            |       |        |       |       |       |
| Issuance of  stock for purchase of Sound Health Solutions, Inc.                  |       | 64,194                |       | 642         |       | 148,288           |       |            |       |        |       | 148,930    |       |
| Stock-based  compensation                                                        |       |                  |       |        |       | 77,414            |       |            |       |        |       | 77,414     |       |
| Issuance of  stock and warrants through private placement, net of issuance costs |       | 290,000               |       | 2,900       |       | 791,829           |       |            |       |        |       | 794,729    |       |
| Exercise of  warrants through exchange program, net of issuance costs            |       | 804,918               |       | 8,049       |       | 1,053,571         |       |            |       |        |       | 1,061,620  |       |
| Other exercise  of warrants                                                      |       | 8,333                 |       | 84          |       | 24,917            |       |            |       |        |       | 25,001     |       |
| Issuance of  stock under employee stock purchase plan                            |       | 3,951                 |       | 39          |       | 10,373            |       |            |       |        |       | 10,412     |       |
| Net loss                                                                         |       |                  |       |        |       |              |       |            |       | (1,486,586  | )          | (1,486,586 | )          |
|                                                                             |       |                  |       |        |       |              |       |            |       |        |       |       |       |
| Balance at June 30,  2006                                                        |       | 3,474,865             |       | $           | 34,749     |              | $          | 78,348,298      |       | $           | 628,520    |       | $          | (75,900,727 | ) | $ | 3,110,840 |   |

 

See accompanyingnotes to Condensed Consolidated Financial Statements.

5

----

iVOW, Inc. andSubsidiary

CondensedConsolidated Statements of Cash Flows

(Unaudited)
| ** **                                                                                               | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                               | ** ** | **June 30,**              | ** ** |
| ** **                                                                                               | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| **OPERATING  ACTIVITIES**                                                                                | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net loss from  continuing operations                                                                     |       | $                              | (1,636,586 | ) | $ | (1,575,669 | ) |
|                                                                                                     |       |                           |       |   |   |
| Adjustments to  reconcile net loss from continuing operations to net cash used in operating  activities: |       |                           |       |   |   |
| Gain from discontinued operations                                                                        |       | 150,000                        |       | 132,644 |   |
| Depreciation and amortization                                                                            |       | 84,772                         |       | 28,590 |   |
| Loss on sale of property and equipment                                                                   |       | 1,039                          |       | — |   |
| Stock based compensation                                                                                 |       | 77,414                         |       | 5,748 |   |
| Changes in operating assets and liabilities:                                                             |       |                           |       |   |   |
| Accounts receivable                                                                                      |       | (136,540                       | )          | 61,460 |   |
| Inventories                                                                                              |       | (40,916                        | )          | (52,438 | ) |
| Prepaid insurance                                                                                        |       | 116,707                        |       | 145,015 |   |
| Other assets                                                                                             |       | 43,459                         |       | (96,828 | ) |
| Accounts payable                                                                                         |       | 271,280                        |       | (44,777 | ) |
| Accrued compensation                                                                                     |       | 37,075                         |       | (24,500 | ) |
| Deferred revenue                                                                                         |       | 79,628                         |       | 6,250 |   |
| Other liabilities                                                                                        |       | (61,148                        | )          | 7,664 |   |
| Net cash used in  operating activities                                                                   |       | (1,013,816                     | )          | (1,406,841 | ) |
| ** **                                                                                               | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **INVESTING  ACTIVITIES**                                                                                | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                                                     |       | (50,611                        | )          | (9,266 | ) |
| Proceeds from  the sale of property and equipment                                                        |       | 1,675                          |       | — |   |
| Restricted cash                                                                                          |       | 358,444                        |       | — |   |
| Proceeds from  the sale of business                                                                      |       | —                         |       | 188,797 |   |
| Net cash  provided by investing activities                                                               |       | 309,508                        |       | 179,531 |   |
|                                                                                                     |       |                           |       |   |   |
| **FINANCING  ACTIVITIES**                                                                                | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Issuance of  common stock, net                                                                           |       | 1,891,762                      |       | 22,431 |   |
| Payment on  short-term notes                                                                             |       | (99,548                        | )          | (108,630 | ) |
| Payments on  short-term bank borrowings                                                                  |       | (316,621                       | )          | — |   |
| Payments on  capital leases                                                                              |       | (5,803                         | )          | (12,470 | ) |
| Net cash  provided by (used in) financing activities                                                     |       | 1,469,790                      |       | (98,669 | ) |
|                                                                                                     |       |                           |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                                    |       | 765,482                        |       | (1,325,979 | ) |
| Cash and cash equivalents  at beginning of period                                                        |       | 851,315                        |       | 1,969,561 |   |
| Cash and cash  equivalents at end of period                                                              |       | $                              | 1,616,797  |   | $ | 643,582 |   |
|                                                                                                     |       |                           |       |   |   |
| Non-cash  transactions:                                                                                  |       |                           |       |   |   |
| Common shares issued for acquistion                                                                      |       | $                              | 148,930    |   | $ | — |   |
| Accretion of cumulative dividends on preferred stock                                                     |       | —                         |       | (35,237 | ) |
| Conversion of Series A preferred stock to common  stock                                                  |       | —                         |       | 84,125 |   |
| Supplementary  cash flow information:                                                                    |       |                           |       |   |   |
| Interest paid                                                                                            |       | $                              | 12,787     |   | $ | 3,236 |   |

 

See accompanyingnotes to Condensed Consolidated Financial Statements.

6

----

iVOW, INC. ANDSUBSIDIARY

Notes to Condensed Consolidated Financial Statements

June 30, 2006

(UNAUDITED)

### 1.             Basisof Presentation

iVOW, Inc.,is incorporated under the laws of the State of Delaware. Collectively, with itssubsidiary Sound Health Solutions, Inc., the terms “we,” “us,” “our,” andthe “Company” refer to iVOW, Inc. as a combined entity, except where notedor where the context makes clear the reference is only to iVOW, Inc. orSound Health Solutions, Inc.

Theaudited financial statements of iVOW, Inc. (the “Company”) and the notesthereto included in our Annual Report on Form 10-KSB for the year endedDecember 31, 2005 previously filed with the Securities and ExchangeCommission (“SEC”), contain additional information about us, our operations,and our financial statements and accounting practices, and should be read inconjunction with this quarterly report on Form 10-QSB. The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim financial statements, pursuant to the rules andregulations of the SEC, and certain information and footnote disclosuresnormally contained in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have beencondensed or omitted, unless significant changes have taken place since the endof the most recent fiscal year.

Ouraccompanying unaudited consolidated financial statements reflect alladjustments of a normal recurring nature, which are, in the opinion ofmanagement, necessary for a fair presentation of the financial position,results of operations and cash flows for all periods presented. The interimfinancial information contained herein is not necessarily indicative of resultsfor any future interim periods or for the full fiscal year endingDecember 31, 2006.

InFebruary 2005, our subsidiary, VOW Solutions, Inc. (“VOW”), wasmerged with Vista Medical Technologies, Inc. as part of the namechange to iVOW, Inc. (“iVOW”). In November 2005, iVOW acquired SoundHealth Solutions, Inc. (“SHS”); a Seattle-based healthcare providerspecializing in the multidisciplinary medical treatment of obesity as awholly-owned subsidiary (see Note 8). The condensed consolidated financialstatements for 2006 and 2005 include the accounts of our wholly-ownedsubsidiaries, VOW prior to the merger and SHS from the date of acquisition.Significant intercompany accounts and transactions have been eliminated.

OnJuly 19, 2005, the stockholders of the Company voted to grant authority tothe Board to file an amendment to the Company’s Second Restated Certificate ofIncorporation to effect, at the discretion of the Board, a reverse stock splitof the issued and outstanding shares of common stock in a ratio for such splitthat is not less than 1:2 nor greater than 1:10. On October 6, 2005, theBoard acted on its authority to effect the split of all shares of common stockissued and outstanding at a rate of 1:10. As a result of the split, all shareinformation in the accompanying condensed consolidated financial statements andthese notes have been retroactively adjusted.

We incurred netlosses and negative net cash flows from operating activities in 2005 and 2004and in the first two quarters of 2006, and at June 30, 2006, had anaccumulated deficit of $75.9 million. At June 30, 2006, we had cash andcash equivalents of approximately $1,617,000. We believe that our cash and cashequivalents, together with anticipated 2006 net revenues, royalties andinterest income, may not be sufficient to meet our anticipated capitalrequirements through June 30, 2007. These factors raise substantial doubtabout our ability to continue as a going concern. As a result, we will need toraise additional funds.  Should we beunable to raise sufficient funds, we may be required to curtail ouroperating plans and possibly relinquish rights to portions of our intellectualproperty or products. In addition, increases in expenses and delays in signingnew management and consulting contracts may adversely impact our cashposition and require further cost reductions. No assurance can be given that wewill be able to operate profitably on a consistent basis, or at all, in thefuture. The accompanying condensed consolidated financial statements have beenprepared on a going concern basis, which contemplates the realization of assetsand the satisfaction of liabilities in the normal course of business. Thecondensed consolidated financial statements do not include any adjustmentsrelating to the recoverability and classification of assets or the amounts andclassification of liabilities that might be necessary should we be unable tocontinue as a going concern.

### 2.             DiscontinuedOperations

OnApril 15, 2004, we sold our Visualization Technology business unit toViking Systems, Inc. (“Viking”) under an Asset Purchase Agreement (the “AssetPurchase Agreement”) signed on December 22, 2003. As part of thesale, we also entered into a license agreement with Viking that will pay usroyalties over the five year period that began April 15, 2004 based onsales of the acquired products of the Visualization Technology business withminimum royalty payments during the five year period as follows: first year $150,000,years two through four $300,000 and year five $375,000 with a maximum

7

----

aggregate royaltyof $4,500,000 over the five year period. Through June 30, 2006, we havereceived the first year minimum royalty payment of $150,000 and $150,000representing the first half of the second year minimum royalty payments. Wewill maintain ownership rights to all intellectual property and product rightsunder the license agreement with Viking until the minimum royalty obligationshave been satisfied, at which time we will transfer such ownership rights toViking. We recognize gain from discontinued operations as royalty payments arereceived.

3.             Investmentin equity securities of Viking Systems, Inc.

Thecost and fair value of Viking’s securities are as follows:
|                                            | ** ** | ** ** | ** ** | **June 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|
| **Corporate Equity Securities:** | ** ** | **Cost**   | ** ** | **Unrealized  Gain**        | ** ** | **Fair Value**             | ** ** | **Unrealized  Gain** | ** ** | **Fair Value** | ** ** |
| Viking  Systems, Inc.                 |       | $          | 33,080     |                        | $          | 628,520                         |       | $ | 661,600 |   | $ | 628,520 |   | $ | 661,600 |   |
|                                            |            |            |            |                             |            |                                 |            |  |  |  |  |  |  |  |  |  |

 

### 4.             Inventories

Inventoriesare stated at lower of cost (determined on a first-in, first-out basis) ormarket and consist of vitamin finished goods.

### 5.             LossPer Share

Basicnet loss per share is calculated based on the weighted average number of commonshares outstanding during each period. Diluted net loss per share incorporatesthe dilutive effect of potentially dilutive shares of common stock, includingshares attributable to stock options, warrants and other convertiblesecurities. Potentially dilutive shares of common stock have been excluded fromthe calculation of weighted average number of diluted common shares, as theireffect would be antidilutive for all periods presented. For the purpose ofdetermining basic and diluted net loss per share, dividends accreted onpreviously outstanding preferred stock redemption have been added to the netloss to arrive at net loss applicable to common stockholders. For the three andsix month periods ended June 30,2006, potentially dilutive shares of common stock that have been excluded fromthe calculation of the weighted average number of diluted common shares were1,306,663 shares, comprised of 45,607 holdback shares associated with the SHSacquisition, warrants to purchase 738,017 shares and options to purchase up to523,039 shares of common stock outstanding as of June 30, 2006. For the threeand six month period ended June 30,2005, potentially dilutive shares of common stock that have been excluded fromthe calculation of the weighted average number of diluted common shares were584,911 shares, comprised of warrants to purchase 375,174 shares, 82,644 sharesissuable on conversion of preferred shares and options to purchase up to127,093 shares of common stock outstanding as of June 30, 2005.

6.             Share-basedcompensation

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedrevised Statement of Financial Accounting Standards No. 123, “Share-BasedPayment,” (“FAS 123R”) which establishes accounting for share-based awardsexchanged for employee services and requires companies to expense the estimatedfair value of these awards over the requisite employee service period. UnderFAS 123R, share-based compensation cost is measured at the grant date, based onthe estimated fair value of the award, and is recognized as expense over theemployee’s requisite service period. The Company has no awards with market orperformance conditions. The Company adopted the provisions of FAS 123R onJanuary 1, 2006, the first day of the Company’s fiscal year 2006, usingthe modified prospective transition method, which provides for certain changesto the method for valuing share-based compensation. Prior to the adoption ofFAS 123R, we used the intrinsic value method to account for stock optionsgranted to employees and made no charges against earnings with respect to thoseoptions at the date of grant since our employee and director options hadexercise prices that were equal to the market price. In accordance with themodified prospective transition method, the Company’s consolidated financialstatements for prior periods have not been restated to reflect, and do notinclude, the impact of FAS 123R. Instead, new awards and awards that wereoutstanding on the effective date and are subsequently modified or cancelledwill be valued under the provisions given by FAS 123R. Estimated compensationexpense for awards outstanding at the effective date will be recognized overthe remaining service period using the compensation cost calculated for proforma disclosure purposes based on the fair value of the awards under FASBStatement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”).

FAS123R requires us to estimate forfeitures at the time of grant and revise thoseestimates in subsequent periods if actual forfeitures differ from thoseestimates. We use management expectations to estimate forfeitures and recordshare-based compensation expense only for those awards that are expected tovest. For purposes of calculating pro forma information that was required underFAS 123 for periods prior to fiscal 2006, we accounted for forfeitures as theyoccurred.

8

----

Inapplying FAS 123R, we estimate the fair value of options granted using theBlack-Scholes option valuation model. We estimate the volatility of our commonstock at the date of grant based on our historical volatility rate, consistentwith FAS 123R and Securities and Exchange Commission Staff Accounting BulletinNo. 107 (“SAB 107”). We estimated the expected term consistent with thesimplified method identified in SAB 107 for share-based awards granted duringthe six months ended June 30, 2006. We elected to use the simplified method aswe changed the estimated contractual life for share-based awards from ten tosix and one quarter years starting in the quarter ended March 31, 2006.The simplified method calculates the expected term as the average of thevesting and contractual terms of the award. Previously, under FAS 123, weestimated the expected term based on just the vesting period. The risk-freeinterest rate assumption is based on observed interest rates appropriate forthe term of our employee options. We use historical data to estimatepre-vesting option forfeitures and record share-based compensation expense onlyfor those awards that are expected to vest. The post-vesting forfeiture rate is based on management expectationsfrom historical information and current market expectations. For optionsgranted, we amortize the fair value on a straight-line basis over the vestingperiod of the options.

InFebruary 1997, we adopted the 1997 Stock Option Plan/Stock Issuance Plan(the “1997 Plan”). In July 2005, at the annual meeting of thestockholders, we received approval to increase the aggregate number of sharesof common stock available for issuance under our 1997 Plan from 259,250 to400,000, to extend the life of the plan an additional ten years and provide forthe automatic replenishment of shares available for issuance under the 1997Plan.  Effective as of eachJanuary 1 for the life of the 1997 Plan, the maximum number of shares ofthe Company’s common stock reserved for issuance under the Plan shall becumulatively increased by the lesser of (i) 2% of the number of theCompany’s shares of common stock issued and outstanding on the precedingDecember 31, (ii) 1,500,000 shares or (iii) a number of sharesset by the Company’s board of directors. As a result, on January 1, 2006,the number of shares of common stock available for issuance under our 1997 Planincreased to 446,000 shares. In June 2006, at the annual meeting of thestockholders, we received approval to increase the aggregate number of sharesof common stock available for issuance under the 1997 Plan from 446,000 to646,000.  At June 30, 2006, we hadoptions for 91,706 shares available for grant. Options granted by us generallyvest over three to five years and are exercisable from the date of grant for aperiod of ten years.

Thefollowing are the weighted average assumptions (annualized percentages) used inapplying the Black-Scholes valuation model for the six months endedJune 30, 2006:
| Expected dividend yield       |   | None      |   |
|-------------------------------|--------|-----------|--------|
| Expected  volatility          |   | 112-126%  |   |
| Risk-free  interest rate      |   | 1.1%-6.5% |   |
| Expected life  (years)        |   | 1-6.25    |   |
| Post-vesting  forfeiture rate |   | 57%       |   |

 

Totalestimated share-based compensation expense related to the 1997 Plan recognizedfor the three and six months ended June 30, 2006 was allocated as follows:
| ** **                                                | ** ** | **Three Months Ended  June 30, 2006** | ** ** | **Six Months Ended  June 30, 2006** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Cost of revenue                                           |       | $                                                         | 7,075      |                                                    | $          | 13,648 |   |
| Sales and  marketing                                      |       | 2,589                                                     |       | 5,550                                                   |       |
| General and  administrative                               |       | 35,328                                                    |       | 58,190                                                  |       |
| Total  share-based compensation expense                   |       | $                                                         | 44,992     |                                                    | $          | 77,388 |   |
|                                                      |       |                                                      |       |                                                    |       |
| Total  share-based compensation expense per common share: |       |                                                      |       |                                                    |       |
| Basic and  diluted                                        |       | $                                                         | 0.02       |                                                    | $          | 0.03 |   |

 

AtJune 30, 2006, total unrecognized estimated compensation for future serviceperiods was $531,000 which is expected to be recognized over a weighed averageperiod of 2.9 years.

Priorto adopting FAS 123R, we followed the disclosure-only alternative afforded byFAS 123 and recorded estimated compensation expense for employee stock optionsfor pro forma purposes only based on FAS 123. However, FAS 123 did not change the requirement to account forstock-based compensation to non-employees using the fair value methodprescribed by FAS 123.

Priorto adopting FAS 123R, we applied the principles of Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) andrelated interpretations in accounting for our employee stock optioncompensation plans in our historical financial statements. Under APB No. 25,compensation expense was measured using the intrinsic value method as thedifference, if any, between the option exercise price and the fair value of

9

----

our common stockat the date of grant.  We havehistorically granted options to employees and directors at exercise pricesequal to the fair value of the Company’s common stock. Accordingly, nocompensation expense had been recognized in our historical financial statementsfor our employee stock-based compensation plans in periods prior toJanuary 1, 2006.

Had compensation costsfor stock options issued to employees and directors been determined based onthe estimated fair value at the grant dates as calculated in accordance withFAS 123 using the Black-Scholes option pricing model and amortized over thevesting period, our reported net loss and basic and diluted net loss per commonshare for the three and six months ended June 30, 2005 would have been adjustedto the pro forma amounts indicated below:

 
|                                                                      | ** ** | **Three Months Ended  June 30, 2005** | ** ** | **Six Months Ended  June 30, 2005** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Net loss  applicable to common stockholders:                         |       |                                                      |       |                                                    |       |
| As reported                                                          |       | $                                                         | (514,309   | )                                                       | $          | (1,478,262 | ) |
| Pro forma  compensation expense using fair value method              |       | (80,908                                                   | )          | (146,943                                                | )          |
| Pro forma net  loss                                                  |       | $                                                         | (595,217   | )                                                       | $          | (1,625,205 | ) |
|                                                                 |       |                                                      |       |                                                    |       |
| Basic and  diluted loss per share applicable to common stockholders: |       |                                                      |       |                                                    |       |
| As reported                                                          |       | $                                                         | (0.46      | )                                                       | $          | (1.34 | ) |
| Pro forma                                                            |       | $                                                         | (0.54      | )                                                       | $          | (1.47 | ) |

 

The followingtable summarizes stock option activity under the 1997 Plan during the sixmonths ended June 30, 2006:
| ** **                                     | ** ** | **Number of  Shares** | ** ** | **Exercise Price per  Share** | ** ** | **Weighted  Average  Exercise  Price  per Share** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|------------------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|--------------------------------------------------------|------------|---------------------------------|------------|
| Options  outstanding at December 31, 2005 |       | 174,481                    |       | $2.32 - $575.00                         |       | $                                                      | 11.86      |                            |       |   |
| Granted                                        |       | 383,239                    |       | $2.61 - $5.64                           |       | $                                                      | 2.88       |                            |       |   |
| Exercised                                      |       | —                     |       |                                    |       |                                                   |       |                            |       |
| Canceled                                       |       | (34,681                    | )          | $4.20 - $40.00                          |       | 6.82                                                   |       |                            |       |
|                                           |       |                       |       |                                    |       |                                                   |       |                            |       |
| Options  outstanding at June 30, 2006          |       | 523,039                    |       | $2.32 - $575.00                         |       | $                                                      | 5.62       |                            | $          | 0 |   |
| Options exercisable                            |       | 68,605                     |       | $2.61 - $575.00                         |       | $                                                      | 19.23      |                            | $          | 0 |   |

 

1997 EmployeeStock Purchase Plan

InFebruary 1997, we adopted the 1997 Employee Stock Purchase Plan (the “PurchasePlan”), which permits our eligible employees to purchase shares of commonstock, at semi-annual intervals, through periodic payroll deductions. Payrolldeductions may not exceed 10% of the participant’s base salary, and thepurchase price per share will not be less than 85% of the lower of the fairmarket value of the common stock at either the beginning or the end of thesemi-annual intervals. In July 2005, at the annual meeting of thestockholders, we received approval to increase the aggregate number of sharesof common stock available for issuance under our 1997 Employee Stock PurchasePlan from 15,000 to 30,000 and to extend the term of the plan for an additionalten years. There were 12,926 shares available for issuance at June 30,2006. Total recognized estimated compensation cost related to the Purchase Planfor the three and six months ended June 30, 2006 was $777 and $3,526,respectively.

7.             Stockholders’ Equity

Financings

On February 13, 2006, we issued 64,194shares valued at $148,930 relating to a portion of the holdbackshares associated with the SHS acquisition (see Note 8).  Upon issuance of the stock, the value ofgoodwill was increased by $148,930.

OnFebruary 22, 2006, we completed a private placement of the Company’scommon stock and warrants in which we sold 290,000 units at a purchase price of$3.18 per unit. Each unit consisted of one share of common stock and a warrantto purchase one-half share of the Company’s common stock. The warrants have anexercise price of $3.18 per share and have a five-year term. The privateplacement resulted in gross proceeds of $922,200. The placement agent receiveda selling commission equal to 8% of the gross proceeds ($74,008), along with anexpense allotment of $25,000. The placement agent also received a warrant topurchase 23,200 units. This warrant has an exercise price of $3.18 per unit andhas a five-year term.

10

----

Warrants

On June22, 2006, we completed a warrant exchange program (the “Offer to Exchange”)applicable to all warrants then outstanding for shares of our common stock thatwere originally exercisable at $3.00 to $19.70 per share.  The purpose of the Offer to Exchange was toraise funds to support the Company’s operations by providing the holders of theoutstanding warrants with the opportunity to obtain an exchanged warrant, andencouraging the participating holders to exercise the exchanged warrants bysignificantly reducing the exercise price to $1.40 to $3.50 per share andshortening the exercise period of the exchanged warrants to ten days.  The Company issued a total of 851,212exchanged warrants, of which 804,918 were exercised generating proceeds of$1,061,620 net of $68,015 of issuance costs. The remaining 46,294 exchanged warrants were not exercised and as aresult these warrants were canceled.

Thefollowing table summarizes warrant activity during the six months ended June 30,2006:
|                                        | ** ** | **Number of** | ** ** |
|----------------------------------------|------------|---------------|------------|
| ** **                             | ** ** | **Shares**    | ** ** |
| Balance at  January 1, 2006            |       | 1,417,762     |       |
| Issued as part  of a private placement |       | 179,800       |       |
| Exercised  through exchange program    |       | (804,918      | )          |
| Other exercises                        |       | (8,333        | )          |
| Canceled                               |       | (46,294       | )          |
| Balance at June  30, 2006              |       | 738,017       |       |

 

8.             Acquisition of SoundHealth Solutions, Inc.

OnNovember 1, 2005, the Company purchased the business and substantially allassets of SHS and, accordingly, the results of operations of SHS have beenincluded in the accompanying consolidated financial statements from that date.Under the terms of the merger Agreement, iVOW paid the SHS stockholders$125,500 in cash, assumed $317,000 of liabilities of SHS and agreed to issue upto 294,278 shares of common stock (the “Merger Shares”) to the SHSstockholders, of which 184,477 shares with a fair value of $427,987 (based onthe closing price of the Company’s stock on November 1, 2005) were issuedas of the closing and the remaining 109,801 shares with a fair value of$254,738 were effectively being held in escrow (the “Holdback Shares”) subjectto release based on the resolution of the determination of the actualliabilities of SHS and other contingencies set forth in the MergerAgreement.  In February 2006, 64,194Holdback Shares were issued resulting in an increase to goodwill of $148,930based on the fair value of those shares on November 1, 2005.

iVOWhas a repurchase right for up to 71,128 of the Merger Shares to the extent thatSHS fails to achieve certain revenue and net income targets in 2006 and 2007.SHS offers a platform from which to integrate clinical, medical andsurgical weight loss programs into a seamless disease management strategy forobesity. The Company anticipates that expansion of the SHS model will generatemarket opportunities for the iVOW Surgical Centers and, depending on how themarket opportunity evolves, other affiliated bariatric centers.

Assumingthe acquisition had taken place on January 1, 2005, unaudited revenuewould have been approximately $618,000 and $1,328,000, while unaudited lossfrom continuing operations would have been $641,000 and $1,638,000 for thethree and six months ended June 30, 2005, respectively. The unaudited basicloss per common share from continuing operations for the three and six monthsended June 30, 2005 would have been ($0.58) and ($1.48), respectively.

**Item 2.  Management’s Discussionand Analysis or Plan of Operation**

THIS QUARTERLY REPORT MAY CONTAIN PREDICTIONS, ESTIMATES AND OTHERFORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES,INCLUDING THOSE DISCUSSED BELOW AT “RISKS AND UNCERTAINTIES.”  WHILE THIS OUTLOOK REPRESENTS OUR CURRENTJUDGMENT ON THE FUTURE DIRECTION OF OUR BUSINESS, SUCH RISKS AND UNCERTAINTIESCOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FUTURE PERFORMANCESUGGESTED BELOW. WE UNDERTAKE NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS OFANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS ORCIRCUMSTANCES ARISING AFTER THE DATE OF THIS QUARTERLY REPORT. THE FOLLOWINGDISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIALSTATEMENTS AND THE NOTES THERETO INCLUDED IN ITEM 1 OF THIS QUARTERLY REPORT ONFORM 10-QSB AND OUR 2005 ANNUAL REPORT ON FORM 10-KSB AS AMENDED,FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

11

----

**Overview of our business**

OurCompany, iVOW, Inc., formerly Vista Medical Technologies, Inc., wasfounded in 1993 primarily to develop advanced visualization technologies forcomplex minimally invasive surgical procedures. It was through the applicationof this technology in laparoscopic gastric bypass surgery that we subsequentlydeveloped a suite of consulting products and services for the initiation,operation and management of obesity surgery programs. Starting in early 2003,our Visualization Technology business, located in Westborough, Massachusetts,and our Obesity Surgery Management Services business unit, located in Carlsbad,California, functioned as individual business units. In April 2004, wesold the Visualization Technology business to concentrate on the obesitysurgery services market. We changed our name to iVOW, Inc. inFebruary 2005, after merging our wholly-owned subsidiary VOWSolutions, Inc., to align our corporate name with the brand name of ourchronic and morbid obesity disease management business, which is now ourexclusive focus.

Weoriginally began offering training and consulting services to the obesitysurgery market in 2001. As a result of the disposition of our VisualizationTechnology business, we are now a pure play company in the bariatric market. Wedevelop and market products and services for the bariatric surgery market.Bariatrics is the medical science of weight reduction and nutrition; bariatricsurgery, a specialized area of general surgery, is focused on surgical weight reductionsolutions for the very severely or morbidly obese. We are focused onimplementing disease management strategies for the control of chronic andsevere obesity. Our vision is to enable healthcare providers and organizationsin the ongoing evolution of the highest standards of treatment and services tooptimize the quality of life for chronic and morbidly obese patients. Ourmission is to deliver the leading management portfolio of services and productsfor the clinical and business development of continually successful medical andsurgical programs for the treatment of chronic and morbid obesity.

iVOW acquired SoundHealth Solutions, Inc. (“SHS”), a Seattle-based healthcare providerspecializing in the multidisciplinary medical treatment of obesity, as awholly-owned subsidiary. SHS has pioneered the development of multidisciplinarymedically anchored weight loss programs since 1998. Through a pilot programwith Microsoft Corporation, SHS has produced what we consider to be the bestvalidated, statistically significant data on multidisciplinary medicallyanchored weight loss programs in the country. In the summer of 2005, Microsoftand Premera Blue Cross of Washington received a national award for innovationin obesity management from the National Institute of Health Care Management,which prominently featured the program designed by SHS and its two physicianco-founders, Drs. Francis Gough and Teresa Girolami.

 

We anticipate that theaddition of SHS to iVOW will improve and expand our business model. Prior toour acquisition of SHS, our business model focused principally upon workingwith hospitals and surgeons to provide consultations on a fee-for-service basisor to operate their bariatric surgical programs for a management fee, while thehospitals and surgeons held the contracts with insurance providers and otherthird-party payors and employers. Under that model, even if the volume ofpatients increased, our revenue did not. In contrast, SHS, through its“owner-operator” model, contracts directly with employers, payors and unions tofacilitate weight loss programs on a direct per patient basis, thus generatingincremental revenue as patient volume increases. While we intend to focus oncapitalizing upon SHS’s owner-operator model, we also will continue to pursuestrategic outsourced management opportunities. We now have two platforms onwhich to grow our business: the employer/payor medically anchored platform andthe hospital/provider surgically anchored platform.

 

Insurance providers andother third-party payors consistently require medical or other documentedweight loss management failure or attempts prior to approving patients forbariatric surgery. Such requirements are developing into a de facto gatingphenomenon for bariatric surgery. As a result, we believe that organizationsthat offer non-surgical weight loss programs will not only have the opportunityto succeed but also could potentially impact, where patients receive bariatricsurgery.

 

We believe that SHSoffers a platform from which to integrate clinical, medical and surgical weightloss programs into a seamless disease management strategy for obesity. Weanticipate that expansion of our SHS model will generate market opportunitiesfor our iVOW Surgical Centers and, depending on how the market opportunityevolves, other affiliated bariatric centers.

 

Patient demand for aneffective and proven surgical solution to the chronic health conditions causedby morbid obesity has accelerated the number of surgical procedures performedfrom approximately 16,000 a decade ago to approximately 170,000 in 2005,according to the American Society for Bariatric Surgery. The number of patientsthat underwent bariatric surgery in 2005 represents less than one (1) percentof the total population with a body mass index (BMI) that qualifies for theprocedure. An additional 45 million Americans are obese, and many meet BMIqualification criteria for our SHS model. We believe that, by building upon theexpertise, market position and relationships developed in our combined businesslines described above, we now have the foundation to become a leading providerof (i) disease-specific program management in bariatric clinical, medical andsurgical care and (ii) a commensurately expanded suite of related consultingservices.

12

----

Our business model is todevelop a network of bariatric disease management centers that we directly ownor operate based upon our current SHS model as well as to outsource managementthrough both our historical iVOW Surgical Center model and new SHS outsourcedmodel, which are able to provide patients with all necessary clinical, medicaland surgical services. As owner/operator of our current SHS modeled centers wewill have full administrative control and contract directly with insuranceproviders and other third-party payors. As manager of the outsourced program wewill coordinate all the administrative and marketing functions on behalf of ourclients and provide patient services, particularly in assessing whether thereis a suitable clinical alternative to surgery, as well as in assuring thefulfillment of payor mandated pre-surgical weight loss management requirementsand appropriate long-term post operative care and monitoring of patients. Ourrevenue model is based upon a monthly management fee for our outsourced managedprograms, a per-patient fee for our SHS owner-operator program, andfee-for-service for our consulting business.

 

Weintend to develop the iVOW brand name with the iVOW Sound Health tag line toprovide a national identity for our programs. We believe that the centralizedprovision of certain services to our own centers as well as to our managedclients, for example, the processing of medical insurance approval, informationtechnology support and contracting, will benefit our internal expensemanagement structure and increase our appeal to customers. Additionally, wewill continue to develop and expand our consulting services as described aboveto include SHS products that complement the historical iVOW products, targetedat those clients that do not require a complete management package but thatneed specific assistance with individual components of their bariatricclinical, medical or surgical programs. We hope that such efforts willencourage our market branding as well as cultivate a pipeline vehicle for ourcenters.

Our goal is to become theleading disease management and consulting company focused on chronic and morbidobesity. Our initial focus was on the severely obese patient with gastricbypass surgery as the solution. We have expanded our focus to include thechronically obese through our SHS multidisciplinary medically anchored weightmanagement platform. It is these singular and combined platforms upon which wehope to expand service to new obesity therapies as they are developed. We arecurrently aggressively integrating our SHS bariatric medical model into ouriVOW surgical protocols to fulfill the pre-operative weight managementrequisites of employers and payors, the long term care of post-surgicalpatients and the treatment of obese patients who either are not qualified forsurgery or prefer a non-surgical alternative treatment modality.

 

**SignificantEvents**

On June22, 2006, we completed a warrant exchange program (the “Offer to Exchange”)applicable to all warrants then outstanding for shares of our common stock thatwere originally exercisable at $3.00 to $19.70 per share. The purpose of theOffer to Exchange was to raise funds to support the Company’s operations byproviding the holders of the outstanding warrants with the opportunity toobtain an exchanged warrant, and encouraging the participating holders toexercise the exchanged warrants by significantly reducing the exercise price to$1.40 to $3.50 per share and shortening the exercise period of the exchangedwarrants to ten days.  The Company issueda total of 851,212 exchanged warrants, of which 804,918 were exercisedgenerating proceeds of $1,061,620 net of $68,015 of issuance costs.  The remaining 46,294 exchanged warrants werenot exercised and as a result these warrants were canceled.

**ReverseStock Split**

OnJuly 19, 2005, at its Annual Meeting of Stockholders, iVOW’s stockholdersapproved to effect a reverse split of the Company’s outstanding shares ofcommon stock in a ratio of not less than one-for-two or greater thanone-for-ten (the “Reverse Split”). On October 6, 2005, iVOW’s Board ofDirectors set the exact ratio of the Reverse Split at one-for-ten and theReverse Split was effective as of October 11, 2005.

Allreferences to common share and per-share data for all periods presented havebeen adjusted to give effect to the Reverse Split.

**CriticalAccounting Policies**

Thepreparation of financial statements and related disclosures in conformity withaccounting principles generally accepted in the United States of Americarequires management to make judgments, assumptions and estimates that affectthe amounts reported in our condensed financial statements and the accompanyingnotes. The amounts of assets and liabilities reported in our balance sheets andthe amounts of revenues and expenses reported for each of our fiscal periodsare affected by estimates and assumptions which are used for, but not limitedto, accounting for product returns, allowance for doubtful accounts,inventories, income taxes, accounting for stock options and accounting forgoodwill. Actual results could differ from these estimates.

13

----

**RevenueRecognition**

Revenuegenerated from our disease state management of morbid obesity business isrecognized (i) with regard to management services, upon completion of theservice period and (ii) with regard to training services or otherconsulting services, upon completion of the related training or consultingcomponent, provided that a contract exists, there are no uncertaintiesregarding customer acceptance, the sales price is fixed or determinable andcollectibility is reasonably assured. Any payments received in advance ofcompletion of the service are recorded as deferred revenue. Sales of vitaminsare similarly recognized upon shipment provided that a purchase order has beenreceived, there are no uncertainties regarding customer acceptance, the salesprice is fixed or determinable and collectibility is reasonably assured.Revenues from SHS services are recognized based on a straight-line amortizationfor the life of the service contract provided that there are no uncertaintiesregarding customer acceptance, the sale price is fixed or determinable andcollectibility is reasonably assured.

Salesreturns are estimated based on our historical experience and management’sexpectations and are recorded at the time product revenue is recognized.

**Share-based Payments**

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedrevised Statement of Financial Accounting Standards No. 123, “Share-BasedPayment,” (“FAS 123R”) which establishes accounting for share-based awardsexchanged for employee services and requires companies to expense the estimatedfair value of these awards over the requisite employee service period. UnderFAS 123R, share-based compensation cost is measured at the grant date, based onthe estimated fair value of the award, and is recognized as expense over theemployee’s requisite service period. The Company has no awards with market orperformance conditions. The Company adopted the provisions of FAS 123R onJanuary 1, 2006, the first day of the Company’s fiscal year 2006, usingthe modified prospective transition method, which provides for certain changesto the method for valuing share-based compensation. Prior to the adoption ofFAS 123R, we used the intrinsic value method to account for stock optionsgranted to employees and made no charges against earnings with respect to thoseoptions at the date of grant since our employee and director options hadexercise prices that were equal to the market price. In accordance with themodified prospective transition method, the Company’s consolidated financialstatements for prior periods have not been restated to reflect, and do notinclude, the impact of FAS 123R. Instead, new awards and awards that wereoutstanding on the effective date and are subsequently modified or cancelledwill be valued under the provisions given by FAS 123R. Estimated compensationexpense for awards outstanding at the effective date will be recognized overthe remaining service period using the compensation cost calculated for proforma disclosure purposes based on the fair value of the awards under FASBStatement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”).

FAS123R requires us to estimate forfeitures at the time of grant and revise thoseestimates in subsequent periods if actual forfeitures differ from thoseestimates. We use management expectations to estimate forfeitures and recordshare-based compensation expense only for those awards that are expected tovest. For purposes of calculating pro forma information that was required underFAS 123 for periods prior to fiscal 2006, we accounted for forfeitures as theyoccurred.

Inapplying FAS 123R, we estimate the fair value of options granted using theBlack-Scholes option valuation model. We estimate the volatility of our commonstock at the date of grant based on our historical volatility rate, consistentwith FAS 123R and Securities and Exchange Commission Staff Accounting BulletinNo. 107 (“SAB 107”). We estimated the expected term consistent with thesimplified method identified in SAB 107 for share-based awards granted duringthe six months ended June 30, 2006. We elected to use the simplified method aswe changed the contractual life for share-based awards from ten to six and onequarter years starting in the quarter ended March 31, 2006. The simplifiedmethod calculates the expected term as the average of the vesting and contractualterms of the award. Previously, under FAS 123, we estimated the expected termbased on just the vesting period. The risk-free interest rate assumption isbased on observed interest rates appropriate for the term of our employeeoptions. We use historical data to estimate pre-vesting option forfeitures andrecord share-based compensation expense only for those awards that are expectedto vest.  The post-vesting forfeiturerate is based on management expectations from historical information andcurrent market expectations. For options granted, we amortize the fair value ona straight-line basis over the vesting period of the options.

**Ourresults of operations for three months and six months ended June 30, 2006versus three months and six month ended June 30, 2005**

Revenues.Management and consulting services, product sales and contract revenue for thethree and six months ended June 30, 2006 were $746,000 and $1,350,000,respectively, compared to $253,000 and $493,000 for the same periods endedJune 30, 2005.  $665,000 of theincrease in revenue for the six month period was associated with our newsubsidiary, SHS, acquired in November 2005. Management revenue increased$138,000 from having three iVOW centers for the six month period ending in June2006 compared to two iVOW centers for the first quarter in 2005 and a thirdcenter coming

14

----

online in thesecond quarter of 2005. While vitamin sales decreased $4,000 in the quarter, itis up $7,000 for the six month period. The $48,000 increase in consulting over the six month period is due toour blueprint product and training product. In the quarter, we delivered two blueprints plus completed a trainingprogram.

|                                                             | ** ** | **Three Months**       | ** ** | **Six Months**         | ** ** |
|-------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                  | ** ** | **Ended**                   | ** ** | **Ended**                   | ** ** |
| **Increase (decrease) over prior year** | ** ** | **June 30, 2006** | ** ** | **June 30, 2006** | ** ** |
| SHS                                                         |       | $                           | 340,000    |                        | $          | 665,000 |   |
| Management fees                                             |       | 52,000                      |       | 138,000                     |       |
| Vitamins                                                    |       | (4,000                      | )          | 7,000                       |       |
| Consulting                                                  |       | 105,000                     |       | 48,000                      |       |
|                                                        |       | $                           | 493,000    |                        | $          | 858,000 |   |

 

Costof revenues. Our cost of revenues includes fully burdened costs associated withgenerating management and consulting services revenues along with the fullyburdened cost of our vitamin sales. Costs of revenues for the three andsix-months ended June 30, 2006 were $577,000 and $1,150,000, respectively,compared to $237,000 and $523,000 for the three and six-months ended June 30,2006.  The increases were primarily dueto the costs associated with the services provided by SHS.  Gross margins improved to 23% and 15%compared to 6% and -6% for the three and six month periods ended June 30, 2006and 2005, respectively.  As revenueincreases, we anticipate margins to continue improving as a portion of our costof revenues is a fixed component.

Productdevelopment. Product development expenses were $2,000 and $4,000 for the threeand six-months ended June 30, 2006, respectively, compared to $23,000 and$100,000 for the three and six-months ended June 30, 2005, respectively.  This $96,000 decrease for the six months wasprimarily related to a reduction in staff time being invested in thedevelopment of training programs due to staff reductions that took effect atthe end of March 2005 and the completion of the training programs thatwere under development.

Salesand marketing expenses. Sales and marketing expenses were $270,000 and $554,000for the three and six-months ended June 30, 2006, respectively, comparedto $216,000 and $489,000 for the three and six-months ended June 30, 2005,respectively.  The $54,000 and $65,000increase for the three and six months ended June 30, 2006, respectively, versusthe same period last year is mainly due to advertising promoting our existingiVOW Centers.

Generaland administrative expenses. General and administrative expenses were $639,000and $1,281,000 for the three and six-months ended June 30, 2006,respectively, compared to $394,000 and $966,000 for the three and six-monthsended June 30, 2005, respectively.  Ofthe $245,000 increase in the quarter, $118,000 was from SHS and $35,000 wasfrom employee compensation expense associated with the implementation of FAS123R.  The remaining increase in thequarter was mainly due to accounting, legal and public company expensesassociated with the Company’s annual shareholder meeting.  The $315,000 increase for the six-monthsended June 30, 2006 was primarily composed of (i) $254,000 from SHS; (ii)$140,000 from accounting, legal and public company expenses; and (iii) $58,000from employee compensation expense associated with the implementation of FAS123R with the offset mainly due to a reduction in salaries.

Other income andexpense.  For the three and six-monthsended June 30, 2006, we had other income, net of expense, of $2,000 and $3,000respectively, compared to $4,000 and $10,000 for the same period last year.  The decrease for the six-months was primarilyrelated to interest expense associated with short-term borrowings associatedwith the SHS acquisition.

Discontinuedoperations.  In the latest quarter werecognized $150,000 in income from the gain on the sale of our technologybusiness. The gain on the sale is the result of having collected half of the2006 minimum royalty payment from Viking Systems, Inc. in the six monthsended June 30, 2006.

**Liquidityand capital resources**

Netcash used in operating activities for the six months ended June 30, 2006was $1,014,000 compared to net cash used of $1,407,000 for the correspondingsix month period in 2005. The $393,000 decrease in net cash used in operatingactivities during the 2006 period is primarily attributable to an $128,000increase in non-cash expenses (stock-based compensation and depreciation andamortization), and a $271,000 increase in accounts payable in 2006 and a$45,000 decrease in 2005.

Netcash provided by investing activities was $310,000 versus $180,000 for the sixmonths ended June 30, 2006 and 2005, respectively. The difference was primarilyattributable to restricted cash becoming unrestricted due to the payoff of theshort-term bank borrowings related to the acquisition of SHS.

Netcash provided by financing activities was $1,470,000 for the six-months endedJune 30, 2006, compared to net

15

----

cash used infinancing activities of $99,000 for the same period in 2005. The increase wasmainly attributable to a private placement financing that resulted in netproceeds of $795,000 in February 2006 and a warrant exchange financingthat took place in June 2006 with net proceeds of $1,062,000.  This was offset by $317,000 used to pay offshort-term bank borrowings related to the purchase of SHS.

Weincurred net losses and negative net cash flows from operating activities in2005, 2004 and in the two quarters of 2006 and at June 30, 2006, had anaccumulated deficit of $75.9 million. At June 30, 2006, we had cash andcash equivalents of $1,617,000. We believe that our cash and cash equivalents,together with anticipated 2006 net revenues and interest income, may notbe sufficient to meet our anticipated capital requirements through at leastDecember 31, 2006. These factors raise substantial doubt about ourability to continue as a going concern. As a result, we will need to raiseadditional funds.  However, there can beno assurance that the requisite fundings will be consummated in the necessarytime frame or on terms acceptable to us. Should we be unable to raisesufficient funds, we may be required to curtail our operating plans andpossibly relinquish rights to portions of our technology or products. Inaddition, increases in expenses or delays in product developmentmay adversely impact our cash position and require further costreductions. No assurance can be given that we will be able to operateprofitably on a consistent basis, or at all, in the future.

**RISKFACTORS**

*Investment in our Common Stockinvolves a substantial degree of risk and should be regarded as speculative. Asa result, the purchase of our Common Stock should be considered only by personswho can reasonably afford to lose their entire investment. Before you elect toparticipate in the Offer to Exchange, you should carefully consider the riskand uncertainties described below in addition to the other information in thisOffer to Exchange and other information incorporated herein by reference.Additional risks and uncertainties of which we are unaware or which wecurrently believe are immaterial could also materially adversely affect ourbusiness, financial condition or results of operations. In any case, thetrading price of our Common Stock could decline, and you could lose all orpart of your investment.*

**RisksRelated to our Business and Industry**

**We needto raise additional funds to support our operations. These funds may notbe available on acceptable terms, if at all, and we may be forced to ceaseour operations.**

We incurred net lossesand negative net cash flows from operating activities in 2004 and 2005 and inthe first six months of 2006, and at June 30, 2006, had an accumulateddeficit of $75.9 million. At June 30, 2006, we had cash and cashequivalents of $1,617,000.  We believethat our cash and cash equivalents, together with anticipated 2006 and 2007product revenues and interest income, might not be sufficient to meet ouranticipated capital requirements after February 2007. These factors raisesubstantial doubt about our ability to continue as a going concern. We need toraise additional funds to support our operations. Any future fundingtransaction may require us to relinquish rights to some of ourintellectual property or products, and will be dilutive to our existingstockholders. We cannot guarantee that we will be able to complete any such transactionor secure additional funds on a timely basis, or at all, and we cannot assurethat such transaction will be on reasonable terms. In addition, increases inexpenses and delays in signing new management and consulting contracts mayadversely impact our cash position and require further cost reductions. If weare unable to secure additional capital, we may be unable to sustainoperations through or beyondFebruary 2007, and you may lose your entire investment in our company.

We expect that the cashflows produced by our business will be unpredictable in the near term, and weexpect to continue to experience operating losses for the foreseeable future,which increases our need for significant additional funding. The amount ofadditional capital that we need to raise will depend on many factors,including:

·                                          theextent to which the iVOW Surgical Centers and other services gain marketacceptance;

·                                          theextent to which our Sound Health Solutions (“SHS”) Centers and other servicescan be effectively and economically replicated;

·                                          thespeed with which we can execute our business plan, including our sales andmarketing activities and the costs to establish iVOW Surgical Centers;

·                                          thespeed with which we can execute our business plan, including our sales andmarketing activities and the costs to establish Sound Health Solutions modeledcenters;

·                                          theper patient revenue available via the SHS model;

·                                          thelevels of reimbursement for procedures performed; and

·                                          theextent of competition.

16

----

**Ourcommon stock may be subject to delisting from the Nasdaq Capital Marketbecause we fail to maintain compliance with continued listing criteria.**

The quantitativestandards for continued listing on the Nasdaq Capital Market requires a companyto maintain a bid price for its stock of $1.00 per share and maintain astockholders’ equity of at least $2,500,000 (or satisfy alternativerequirements). Failure to comply with these requirements subjects a company todelisting proceedings. We have twice over the past 3 years been subjected to delistingproceedings from Nasdaq for failure to meet the minimum stockholders’ equityrequirement. Each time we eventually regained compliance by raising additionaloperating capital.

As of December 31,2005, our stockholders’ equity dropped below the $2,500,000 threshold to$2,479,320. As a result of the financings we completed in February and June2006, our stockholders’ equity was greater than $2,500,000 as of March 31 andJune 30, 2006. We cannot assure you that we will be able to maintain ourstockholders’ equity above $2,500,000 or maintain our stock price above $1.00per share. In addition, we received 1,654,000 shares of common stock of VikingSystems, Inc. (“Viking”) in connection with the sale of our VisualizationTechnology business. We valued those shares at a total of $661,600 as of June30, 2006 based on the trading price of the shares of Viking common stock atthat date. Viking’s common stock is thinly traded and sales of even smallnumbers of shares can significantly affect the trading price. Because of this,the trading price of Viking’s common stock is likely to fluctuate substantiallyover time, and this will affect the value we ascribe to our shares. Asignificant drop in the trading price of Viking’s common stock would negativelyaffect our financial position and, specifically, our stockholders’ equitybalance. Any reduction in our stockholders’ equity associated with a drop inthe trading price of Viking common stock could subject us to delistingproceedings by Nasdaq.

If we are unable to complywith Nasdaq’s continued listing requirements, our securities will be delistedfrom the Nasdaq Capital Market. The delisting of our common stock from theNasdaq Capital Market may materially impair our stockholders’ ability tobuy and sell shares of our common stock and could have an adverse effect on themarket price of, and the efficiency of the trading market for, our commonstock. In addition, the delisting of our common stock could significantlyimpair our ability to raise capital should we desire to do so in the future.

**We have ahistory of losses and may never become profitable.**

Since our formation inJuly 1993, and as of June 30, 2006, we have incurred cumulative netlosses of $75.9 million. Specifically, we incurred net losses applicable to commonstockholders of, $3.9 million in 2004 and $2.5 million in 2005 and $1.5 millionin the first six months of 2006. We expect to incur losses for the next severalquarters as we continue to implement our business plan. However, wemay never achieve or sustain profitability in the future. Even if weachieve profitability, we may not be able to sustain it on an ongoingbasis.

**Ourfuture financial results will fluctuate significantly.**

As a result of ourlimited operating history and the short period of time during which we havefocused on the provision of obesity surgery management services, we cannotpredict our future revenues or operating results. We expect our future revenuesand operating results to fluctuate unpredictably due to a combination of factors,including the potential costs of establishing additional iVOW Surgical Centersand SHS Centers.

Our future operatingexpenses are expected to increase in future periods as we intend to establishiVOW Surgical Centers and SHS Centers, expand our sales and marketingoperations, expand our service capabilities, improve our internal operating andfinancial systems, and continue to comply with the stringent requirements ofthe Sarbanes-Oxley Act of 2002. In addition, our operating expenses are basedon our expectations of future revenues, and are relatively fixed in the shortterm. We may be unable to adjust spending quickly enough to offset anyunexpected revenue shortfall. If we have a shortfall in revenues in relation toour expenses, or if our expenses increase before our revenues do, then ourbusiness for a particular period would be materially adversely affected.

Because of all of thesefactors and the other risks discussed in this section, we believe that ourquarterly and annual revenues, expenses and operating results likely will varysignificantly in the future. If this occurs, any or all of the followingmay result:

·                                          themarket trading price of our common stock may fluctuate, negativelyimpacting the ability of stockholders to buy and sell our shares at consistentprices;

·                                          wemay have difficulty raising funds in the future at prices that areacceptable to us and our stockholders; and

·                                          investorsmay be less willing to purchase our shares for lack of consistentoperating results.

17

----

**Thelicense fees Viking owes us may not exceed the minimum royalty amounts.**

As part of the saleof our Visualization Technology business unit to Viking, we entered a licenseagreement with Viking under which Viking agreed to pay us royalty payments overthe next five years based on sales from this business unit, with minimumroyalty payments during the five-year period. Viking paid us the minimumroyalty payments of $150,000 for the first year of the license and $150,000representing the first half of the second year minimum royalty payments. Vikingis a relatively new company, and there is no assurance that it will besuccessful in selling a significant number of products based on theVisualization Technology business. As a result, there can be no assurance thatViking will owe us more than the minimum royalty payments set forth in thelicense agreement. Additionally, if Viking’s business does not succeed, itmay not have sufficient funds in the future to pay us the minimum royaltyamounts owed to us under the license agreement.

**Ourliquidity and capital requirements will be difficult to predict.**

Our liquidity and capitalrequirements will depend upon other numerous factors, including the following:

·                                          theextent to which our products and services gain market acceptance;

·                                          costsassociated with establishing marketing, and operating our obesity relatedprograms and disease state management business, including the iVOW Centers;

·                                          thetiming and costs of product and services introductions;

·                                          theextent of our ongoing product and service development programs; and

·                                          thecosts of developing marketing and distribution capabilities for our consumerproducts.

Even if we are successfulin raising additional funds, circumstances, including slow rate of marketacceptance of our services or our inability to efficiently manage ouroperations, would accelerate our use of proceeds from any offering we might doand require us to seek additional funds to support our operating requirements.

**As acompany, we have limited experience in the management of health care servicesbusinesses.**

Over the past two yearswe have tested our ability to run outsourced programs through the threeprograms we currently operate. In addition, the co-founders of SHS bring overseven years of experience as owner-operators of SHS Centers. Nonetheless, wehave only a limited direct as well as indirect operating history upon which anevaluation of our prospects can be based. In addition, the bariatric surgicalmanagement market is relatively new and is evolving rapidly, which can causechanges in the way clients react to the services offered. We have yet to provethat our management model is appropriate for the market we are addressing. Tobe successful, it is crucial that we develop strong affiliations withemployers, payors, hospitals and providers, and we have as yet limitedly provenour ability to do so. We have established only three significant operatingagreements with hospitals to date and operate only two SHS Centers. Tosuccessfully implement our business plan, we must establish many more suchrelationships.

Prior to the favorableruling by Centers for Medicare & Medicaid Services (“CMS”) inFebruary 2006, we believe our business had been adversely impacted bychanges in reimbursement and uncertainty concerning CMS’s decision on whetherto provide coverage for gastric bypass surgery. Doctors, hospitals, surgicalpractices and those companies that support the obesity surgery market willadapt their businesses to the evolving reimbursement and payor policies. Webelieve that for many of these parties CMS’s affirmative decision on thecoverage of gastric bypass surgery is a critical step in their businessanalysis. However, since CMS only recently announced its decision, it is tooearly to determine what impact this decision will have on our business.

Also, we must respond tocompetitive developments and attract, retain and motivate experienced staff.There can be no assurance that we will be successful in addressing those marketconditions or in implementing our business strategy. There can be no assurancethat we will be able to achieve or sustain revenue growth or profitability.

**OnNovember 1, 2005, we acquired SHS as a wholly-owned subsidiary. Wemay not realize the expected benefits of the acquisition because ofintegration and other challenges, which could adversely affect our business.**

We have limitedexperience in acquisition activities and integrating the operations,technologies, products, services and personnel of iVOW and SHS may be acomplex, time consuming and expensive process that could significantly disruptthe business of the combined company. Employees and management of each of iVOWand SHS have played a key role in creating each company and the integration ofthese two companies will alter prior relationships and may affectproductivity. If we fail to successfully meet the challenges involved inintegration or otherwise fail to realize any of the anticipated benefits of theacquisition, then the results of operations of the combined company could beseriously harmed. Realizing the benefits

18

----

of the acquisition, ifany, will depend in part on the successful integration of products,services, operations and personnel. We may not successfully integrate theoperations of SHS and iVOW in a timely manner, or at all, and the combinedcompany may not realize the anticipated benefits of the acquisition to theextent, or in the timeframe, anticipated. The anticipated benefits of theacquisition are based on projections and assumptions, including successfulintegration, not actual experience. In addition to the integration risksdiscussed above, the combined company’s ability to realize those benefits couldbe adversely effected by practical or legal constraints on its ability tocombine operations.

**Ourrevenue model related to the iVOW Surgical Centers relies on the provision ofservices and we have no ownership stake in the iVOW Surgical Centers.**

Our business modelincludes the ownership and operation of our SHS Centers as well as theprovision of management services to owners of medical and surgical programsthrough our iVOW Surgical Center program. With respect to our iVOW SurgicalCenter program, we will not have an ownership interest in the iVOW SurgicalCenters, which will make it more difficult to sustain revenues from theseCenters. We will not enjoy directly increased revenue based on theprofitability or increased value of particular iVOW Surgical Centers and,without an ownership interest in the iVOW Surgical Centers, we are subject toall the risks of any service provider; our services could be terminated at theend of any contract period for such centers.

**Roll-outof our iVOW Surgical Centers and our SHS Centers depends on our entering intoagreements with employers, payors, hospitals and physicians; the time to concludethese agreements may be extended and thereby delay or prevent theimplementation of our strategy.**

We plan to set up ouriVOW Surgical Centers and SHS Centers in conjunction with employers, payors,hospitals and surgeons. There can be no assurance that we will be able tonegotiate the establishment of these Centers in a timely manner or on termssatisfactory to us, if at all. Our experience to date is limited to threeexisting management contracts for iVOW Surgical Centers and two SHS Centers. Weare in active negotiation for other iVOW Surgical Centers and SHS Centers;however, we cannot accurately predict the time and expense involved in thesenegotiations, and any unexpected delays could negatively impact the executionof our strategic plan. Any inability to timely establish additional iVOWSurgical Centers and SHS Centers will harm our cash position and increase ourneed to raise additional capital.

**We needto increase market awareness and acceptance of our new business model.**

To our company’sknowledge, the comprehensive services offered by our new iVOW business modelhave not been available to date on a national level. While we have previouslysupplied clinical training and consulting services to various clients, we haveonly recently begun to promote our program management services and have juststarted to promote our owner operator model. As a result, employers, payors andproviders of bariatric clinical services are not yet generally aware of theservices we offer. In order to accomplish our strategic and business plans, wewill have to quickly and effectively increase market awareness of ourmanagement model and the iVOW brand name, and convince employers, payors,doctors, hospitals and patients of the benefits of these services. Among otherthings, this will require that we:

·                                          increaseawareness of our complete service offering;

·                                          strengthenour brand name to increase visibility;

·                                          continueto upgrade and expand our services;

·                                          increaseawareness of the availability of surgery as a means of treating morbid obesity;and

·                                          increaseawareness of the availability of our multidisciplinary medically anchoredweight management program as a means of treating chronic and morbid obesity.

We cannot assure you thatwe will be able to accomplish these objectives with the limited operatingcapital we currently have available, if at all.

**Afterestablishing iVOW Surgical Centers and SHS Centers, we must continue to proveour value proposition.**

In order to successfullynegotiate and complete agreements with employers, payors, doctors and hospitalsto establish iVOW Surgical Centers and SHS Centers, we will need to presentthem with their anticipated return on investment (ROI), our projected revenuesand operational metrics. We cannot assure you that our projections will proveaccurate or that we will be able to provide the anticipated metrics. Ourprojections are based on limited input and operational history and failure tomeet such projections will negatively impact our relationships with employers,payors, doctors and hospitals and our ability to attract additional business.

19

----

**Theprovision of health care services is subject to considerable regulation bystate and federal agencies, including regulations under HIPAA and Stark.**

Our iVOW Surgical Centersand SHS Centers will need to comply with many laws and regulations, both stateand federal, which govern the provision of health care services. If they failto comply with any such laws and regulations, then the penalties involved couldbe serious, time-consuming for management and expensive. Inexperience in healthcare services could contribute to an inadvertent breach of laws or regulations.

There are numerousfederal and state regulations addressing patient information privacy andsecurity concerns. In particular, the federal regulations issued under theHealth Insurance Portability and Accountability Act of 1996, or HIPAA, containprovisions that:

·                                          protectindividual privacy by limiting the uses and disclosures of patient information;

·                                          requirethe implementation of security safeguards to ensure the confidentiality,integrity and availability of individually identifiable health information inelectronic form; and

·                                          prescribespecific transaction formats and data code sets for certain electronictransactions.

Compliance with theseregulations is costly and requires our management to spend substantial time andresources when working with our clients. We are unable to estimate the totalfinancial impact of our continuing compliance with HIPAA requirements or of anyfuture changes in these requirements.

In addition, the federalStark Law restricts referrals by physicians of Medicare, Medicaid and othergovernment-program patients to providers of a broad range of designated healthservices with which they have ownership or certain other financialarrangements. Many states have adopted legislative proposals to prohibit thepayment or receipt of remuneration for the referral of patients and physicianself-referrals, regardless of the source of the payment for the care. Theselaws and regulations are extremely complex, and little judicial or regulatoryinterpretation exists. If the activities of a client of ours or other entitywith which we have a business relationship were found to constitute a violationof anti-referral laws, and we were found to have knowingly participated in suchactivities, we could be subject to sanction or liability under such law.

**Weoperate in a competitive market; new technologies, procedures, orpharmaceuticals could eventually radically change the modality of treatment ofmorbid obesity and negatively impact the economics of our obesity surgerybusiness.**

The market for productsand services that address morbid obesity is attractive and thereforecompetitive and new offerings and technologies are in development by severalcompanies. For example, we are aware of developments, primarily involvingstimulation or balloon technology, which may come to the market in thenext several years. These devices would be implanted in a relatively simpleendoscopic procedure. These alternatives may prove to be more effective,less risky and/or cheaper than gastric bypass. If this turns out to be thecase, our ability to generate revenues from the surgical model will benegatively affected. Also, many pharmaceutical companies are researching drugtherapies for combating obesity. If they prove successful in finding a moreeffective solution for morbid obesity, then demand for a surgical option islikely to decline substantially. We cannot guarantee that we will competesuccessfully against our current or potential competitors, especially anypharmaceutical companies with significantly greater financial resources orbrand name recognition.

**We expectto compete with other companies that have the same objectives as us.**

There are a few companieswhich intend to provide services to the morbid obesity market; while theirbusiness model is not identical to ours, the end result is likely to be that wewill compete with each other in offering consulting and program managementservices. Three of these companies, to our knowledge, include bariatricsurgeons in their management or ownership. This may prove to be anadvantage over us in gaining access to potential clients because we do not havebariatric surgeons on our staff. Other companies have only a partial serviceoffering, which may allow them, because of lower overhead, to operate intheir niche at a price advantage to full-service companies such as ours. In anycase, we expect that the market will continue to be attractive and that newentrants are likely.

**If wefail to retain our key personnel and hire, train and retain additionalqualified and experienced employees, we may not be able to competeeffectively, or expand our consulting business and the number of Centers asplanned, both of which could result in reduced revenues.**

Our future success willdepend to a large extent on retaining our core operating management team andrecruiting sufficient qualified employees to manage and staff our Centers.There is likely to be a competitive labor market for such staff and there is noassurance that we will be able to attract and retain an adequate number ofsuitable employees. If we are unable to do

20

----

this, then wemay not be able to operate and expand our Centers as planned, whichmay reduce our revenues.

To be successful, we muststrengthen awareness of our services through our marketing efforts and throughestablishment of additional iVOW Surgical Centers and SHS Centers. We have alimited marketing and business development force through which the efforts willbe conducted, and we will rely heavily on each of these individuals. We cannotassure you that we will be able to attract and retain sufficient qualifiedpersonnel.

Our current key employeesare Michael H. Owens, M.D., Chief Executive Officer and President; Richard M.Gomberg, Vice President of Finance and Chief Financial Officer; Joann Harper,Vice President, Program Development and Implementation,; Mary Pat Finn, VicePresident of Sales; Mary Lou Walen, Associate Vice President, CustomerRelations; and Aimee Johnston, Associate Vice President, Marketing ManagementServices. Key employees of our wholly-owned subsidiary SHS are Steve Morton,Ph.D., Assistant Vice President, Behavioral Services; Jeannette Beatty, Managerof Nutrition; and Pamela Adkins, Manager, Exercise and Testing. We also haveentered into long-term consulting engagements with the co-founders of SHS,Dr. Frances Gough and Dr. Teresa Girolami. We do not maintain keypersonnel life insurance policies on any of these individuals. All of ouremployees and consultants may terminate their relationships with us at anytime, with or without cause, and with or without notice.

**If we arenot able to attract and retain key doctors to participate in our advisoryboard, it may adversely affect our ability to develop our products andservices and expand our business.**

Members of our clinicaladvisory board consult with us exclusively but are free to consult with othernon-competing companies and are employed elsewhere on a full-time basis. As aresult, they only spend a limited amount of time on our business. Although wehave entered into consulting agreements, including confidentiality provisionswith each of the members of our clinical advisory board, the consulting andconfidentiality agreements between us and each of the members of our clinicaladvisory board may be terminated or breached.

**Ourfailure to effectively manage our growth could have a material adverse effecton our business.**

Growth in our businesswill place a significant strain on our management systems and resources. Wehave only recently begun to focus on providing management services, and we havehired persons with appropriate skills. However, these people have notpreviously worked together, and it will take time and effort to developefficient working processes and relationships. We will need to continue toimprove our operational and financial systems and managerial controls andprocedures, and we will need to continue to expand, train and manage ourworkforce. We are a small company with limited resources, so we lack theability to increase our capacity to provide services prior to assurances thatthose services will be paid for by customers. As a result, each new managementcontract will require significant operational efforts as we hire personnel tostaff the new project. We will have to maintain close coordination among ourtechnical, accounting, finance, marketing and sales departments.

**RisksRelated to the Securities Markets, Ownership of our Common Stock and the Offer**

**Futuresales of our common stock in the public market could cause our stock price tofall.**

In the warrant exchangeprogram we completed on June 22, 2006, we issued 804,918 shares of commonstock.  In the private placementfinancing we completed on February 23, 2006, we issued 290,000 shares ofcommon stock and warrants to purchase 144,998 shares of common stock. We alsoissued a warrant to purchase 23,200 shares of common stock and a warrant topurchase 11,600 shares of common stock to our selling agent, Dawson JamesSecurities. In the private placement financing we completed on July 26,2005, we issued 833,328 shares of common stock and warrants to purchase 833,328shares of common stock. We also issued a warrant to purchase 41,666 shares ofcommon stock and a warrant to purchase 41,666 shares of common stock to ourselling agent, Dawson James Securities. In connection with the privateplacement, we issued 177,252 shares of common stock and warrants to purchase124,608 shares of common stock in exchange for the 826,447 outstanding sharesof Series A preferred stock (the “Series A exchange”). In total, weissued 1,010,580 shares of common stock and warrants to purchase 1,041,268shares of common stock in the July 2005 private placement and theSeries A exchange.

As of July 31, 2006we had 3,474,865 shares of outstanding common stock. As part of the abovetransactions, we have filed registration statements for the July 26, 2005and February 23, 2006 financings.

In addition, the sharesof common stock issued in the warrant exchange program of the Exchange Warrantsas part of the Offer to Exchange (see Note 7) are freely tradeable. Salesof these shares of common stock, or the perception that such sales might occur,could cause the market price of our common stock to decline.

21

----

**There isa limited market for our common stock and therefore investors may not beable to liquidate their investment in the foreseeable future, if at all.**

There is a limited marketfor our common stock even though it is publicly quoted, and the market is notexpected to increase significantly in the foreseeable future. For example, weonly have approximately 190 stockholders of record and the average dailytrading volume in our stock is approximately 4,500 shares. The limited tradingmarket for our common stock may cause fluctuations in the market value ofour common stock to be exaggerated, leading to price volatility in excess ofthat which would occur in a more active trading market. The lack of an activetrading market in our stock may also cause investors to be unable to sellall of their desired shares of common stock on short notice and the sale of alarge number of shares at one time could temporarily depress the market price.An investment in our company is highly speculative, and an investor should beable to withstand a total loss of the investment.

**Our stockprice could continue to be volatile and your investment in our common stockcould suffer a decline in value, adversely affecting our ability to raiseadditional capital.**

The market prices and tradingvolumes for securities of emerging companies, like ours, have historically beenhighly volatile and have experienced significant fluctuations unrelated to theoperating performance. The market price of our common stock has historicallybeen highly volatile. For example, between June 2005 and July 2006,the trading price of our common stock ranged from $1.14 to $6.00. The tradingprice of our common stock may continue to be significantly affected byfactors such as:

·                                          actualor anticipated fluctuations in our operating results,

·                                          ourability to remain listed on Nasdaq,

·                                          changesin financial estimates by securities analysts,

·                                          announcementsof technological innovations,

·                                          newproducts or new contracts by us or our competitors,

·                                          regulatoryannouncements,

·                                          developmentswith respect to patents or proprietary rights,

·                                          conditionsand trends in the medical device and other technology industries,

·                                          adoptionof new accounting standards affecting the health services and diseasemanagement industries, and

·                                          generalmarket conditions.

In addition, the stockmarket has from time to time experienced significant price and volumefluctuations that have particularly affected the market prices for shares ofearly stage companies. These broad market fluctuations may adverselyaffect the market price of our common stock. In the past, following periods ofvolatility in the market price of a particular company’s securities, securitiesclass action litigation has often been brought against that company. Suchlitigation, if brought against us, could result in substantial costs and adiversion of management’s attention and resources.

**We intendto issue additional shares of our equity securities in the future to raisefunds to support our operations.**

We intend to seek toraise additional capital through the sale of our equity or other securities tosupport our financial needs. Potential investors should be aware that anysecurity issuance may result in reduction of the book value or marketprice, if any, of the outstanding shares of common stock. If we issue anyadditional shares of common stock or preferred stock, such issuance will reducethe proportionate ownership and voting power of each other stockholder.Further, any new issuance of shares may result in a change of control ofour management or the Company.

**Anti-takeoverprovisions in our organizational documents and Delaware law may discourageor prevent a change of control, even if an acquisition would be beneficial toour stockholders, which could affect our stock price adversely and preventattempts by our stockholders to replace or remove our current management.**

Our certificate ofincorporation and bylaws contain provisions that could delay or prevent achange of control of our company or changes in our board of directors that ourstockholders might consider favorable. Some of these provisions:

22

----

·                                          authorizethe issuance of preferred stock which can be created and issued by the board ofdirectors without prior stockholder approval, with rights senior to those ofthe common stock;

·                                          providefor a classified board of directors, with each director serving a staggeredthree-year term;

·                                          prohibitour stockholders from filling board vacancies, calling special stockholdermeetings, or taking action by written consent;

·                                          prohibitingour stockholders from making certain changes to our restated certificate ofincorporation or restated bylaws except with 66 2/3% stockholder approval; and

·                                          requireadvance written notice of stockholder proposals and director nominations.

In addition, we aresubject to the provisions of Section 203 of the Delaware GeneralCorporation Law, which may prohibit certain business combinations withstockholders owning 15% or more of our outstanding voting stock. These andother provisions in our certificate of incorporation, bylaws and Delaware lawcould make it more difficult for stockholders or potential acquirers to obtaincontrol of our board of directors or initiate actions that are opposed by ourthen-current board of directors, including delay or impede a merger, tenderoffer, or proxy contest involving our company. Any delay or prevention of achange of control transaction or changes in our board of directors could causethe market price of our common stock to decline.

**RisksRelated to our Intellectual Property and Potential Litigation**

**We dependon our intellectual property for the establishment and operation of our iVOWSurgical Centers and SHS Centers.**

We rely on a combinationof trade secrets, know-how and confidentiality restrictions for the establishmentand operation of our iVOW Surgical Centers and SHS Centers. Despite theseprecautions, it may be possible for unauthorized parties to copy ourintellectual property or otherwise obtain and use information that we regard asproprietary. We do not have any patent protection for our business, andexisting intellectual property laws provide only limited protection. We haveexpended significant efforts devising the types of products and services wewill offer and the manner in which these will be delivered. Our ability tomaintain the secrecy and confidentiality of our trade secrets and internalknowledge is crucial to the success of our business. Any failure to do so maynegatively impact our prospects. We also may not be able to detectunauthorized use and take appropriate steps to enforce our intellectualproperty rights.

**Wemay be subject to product liability claims and have limited insurancecoverage.**

We face an inherent andsignificant business risk of exposure to product liability claims in the eventthat the use of our products, which were sold by us prior to the sale of theVisualization Technology business, results in personal injury or death. Also,in the event that any of those products proves to be defective, we may berequired to recall or redesign such products. Product liability insurance isexpensive and in the future may not be available to us on acceptableterms, if at all. A successful product liability claim or series of claimsbrought against us in excess of our insurance coverage would negatively impactour business.

**If we areunable to protect our intellectual property related to the technologytransferred to Viking, we may be unable to prevent other companies fromusing such technology in competitive products.**

We maintain ownership ofthe technology transferred to Viking in connection with the sale of ourVisualization Technology business in April 2004. In the event Viking doesnot make the required royalty payments to us, their rights in the technologywill be terminated. In such case, we will be able to continue to commercializethat technology. To the extent we decide to incorporate that technology intoour business, our future success will depend, in part, on our ability tocontinue developing patentable products, enforcing our patents and obtainingpatent protection for our products both in the United States and in othercountries. The patent positions of medical device companies, however, aregenerally uncertain and involve complex legal and factual questions. Patentsmay never issue from any patent applications owned by or licensed to us.Even if patents do issue, the claims allowed may not be sufficiently broadto protect our technology. In addition, issued patents owned by or licensed tous may be challenged, invalidated or circumvented, or the rights grantedthereunder may not provide us with competitive advantages. Further, themedical device industry has been characterized by extensive litigationregarding patents and other intellectual property rights. Litigation, whichwould result in substantial expense, may be necessary to enforce any patentsissued or licensed to us and/or to determine the scope and validity ofproprietary rights of third parties or whether our products, processes orprocedures infringe any such third-party proprietary rights. In addition topatents, we rely on unpatented trade secrets to protect our business and ourproprietary technology. Others may independently develop or otherwiseacquire the same or substantially equivalent plans or technologies or otherwisegain access to our proprietary

23

----

technology or discloseour plans or technology. It is difficult to protect rights to unpatented ideas,plans or proprietary technology. Third parties may obtain patent rights tothese unpatented trade secrets, which patent rights could be used to assertclaims against us. We also rely on confidentiality agreements with ourcollaborators, employees, advisors, vendors and consultants to protect ourproprietary technology. These agreements may be breached, we may nothave adequate remedies for any breach and our trade secrets may otherwisebecome known or be independently developed by competitors. In addition, ouragreements with employees and consultants require disclosure of ideas,developments, discoveries or inventions conceived during employment orconsulting, as the case may be, and assignment to us of proprietary rightsto such matters related to our business and technology. The extent to whichefforts by others will result in patents and the effect on us of the issuance ofsuch patents is unknown.

**Item 3.Controls and Procedures**

(a)            Evaluation ofdisclosure controls and procedures

Asrequired by the Securities and Exchange Commission Rule 13a-15(b), wecarried out an evaluation, under the supervision and with participation of ourmanagement, including our chief executive officer and chief financial officer,of the effectiveness of our disclosure controls and procedures as of the end ofthe period covered by this report. Based on the foregoing, our executiveofficer and chief financial officer concluded that as of the end ofJune 30, 2006, our disclosure controls and procedures were effective.

(b)           Changes in internal controls of our financial reporting

Therehas been no change in our internal control over financial reporting during ourmost recent fiscal quarter that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

# **PART II.                OTHER INFORMATION**

## Item 1.             LegalProceedings

None.

Item 2.             UnregisteredSales of Equity Securities and Use of Proceeds

None.

## Item 3.             Defaultsupon Senior Securities

None.

## Item 4.             Submissionof Matters to a Vote of Security Holders

*AnnualMeeting of Stockholders*

At our2006 Annual Meeting of Stockholders, held on June 2, 2006, stockholders votedto elect the director nominees, George B. DeHuff, James D. Durham and MichaelH. Owens, M.D., as Class II directors to serve for a term of three years, oruntil their respective successors are dully elected and qualified.  The number of votes for, against/abstainedand the broker non-votes for the director nominees were as follows:
|                        | ** ** | **Number of Shares** | ** ** |
|------------------------|------------|--------------------------------|------------|
| ** **             | ** ** | ** **                     | ** ** | **Voted Against/** | ** ** | **Broker** | ** ** |
| ** **             | ** ** | **Vote For**              | ** ** | **Abstain** | ** ** | **Non-Votes** | ** ** |
| George B. DeHuff       |       | 2,208,199                      |       | 51,844 |   | 0 |   |
| James D. Durham        |       | 2,206,664                      |       | 53,379 |   | 0 |   |
| Michael H. Owens, M.D. |       | 2,195,861                      |       | 64,182 |   | 0 |   |

 

JohnR. Lyon and William J. Nydam, whose terms as directors of our company expire atour 2007 Annual Meeting of Stockholders, and Scott R. Pancoast and C. FredToney whose terms as directors of our company expire at our 2008 Annual Meetingof Stockholders, will continue to serve as directors of our company until theirrespective terms expire or until their respective successor has been electedand qualified.

At the2006 Annual Meeting, our stockholders approved each of the following actions asset forth below:

24

----

 
| ** **                                                                                                                                                                                                                                                                          | ** ** | **Number of Shares** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                          | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** | ** ** |
| ** **                                                                                                                                                                                                                                                                          | ** ** | **Vote For**              | ** ** | **Voted Against** | ** ** | **Abstentions** | ** ** | **Non-Votes** | ** ** |
| 1. Approved the  issuance of shares of our common stock representing more than 20% of the  outstanding shares at a discount to the market price in connection with a  warrant exchange.                                                                                             |       | 1,536,268                      |       | 77,058 |   | 105,975 |   | 540,742 |   |
| 2. Approved the  issuance of shares of our common stock that may represent more than 20% of  the outstanding shares in connection with a private placement.                                                                                                                         |       | 1,536,203                      |       | 77,123 |   | 105,975 |   | 540,742 |   |
| 3. Approved an  amendment to the 1997 Stock Option/Stock Issuance Plan (the “Plan”) to  increase the number of shares available for issuance under the Plan and to  provide for an increase in the number of our shares issued under the automatic  option grant program. |       | 1,613,141                      |       | 96,195 |   | 9,965 |   | 540,742 |   |
| 4. Ratified the  selection of J.H. Cohn LLP as our independent registered public accounting  firm for fiscal year 2006.                                                                                                                                                             |       | 2,229,847                      |       | 20,841 |   | 9,355 |   | 0 |   |

 

## Item 5.             OtherInformation

None.

## Item 6.             Exhibitsand Reports on Form 8-K

(a)           Exhibits
| NUMBER  EXHIBIT | ** ** | **DESCRIPTION**                                                                                                                                      |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                 |
| 3.1(1)          |       | Second Restated Certificate of Incorporation                                                                                                         |
| 3.2(3)          |       | Certificate of Amendment of Second Restated  Certificate of Incorporation                                                                            |
| 3.3(6)          |       | Certificate of Amendment of Second Restated  Certificate of Incorporation                                                                            |
| 3.4(2)          |       | Restated Bylaws.                                                                                                                                     |
| 4.1(2)          |       | Form of certificate for common stock.                                                                                                           |
| 4.2(7)          |       | Form of Warrant February 2004 Financing                                                                                                    |
| 4.3(4)          |       | Form of Warrant May 2004 Financing                                                                                                         |
| 4.4(4)          |       | Form of Selling Agent’s Warrant May 2004  Financing                                                                                   |
| 4.5(5)          |       | Form of Warrant 2005 Financing                                                                                                                  |
| 4.6(5)          |       | Form of Selling Agent’s Warrant 2005 Financing                                                                                             |
| 4.7(7)          |       | Form of Warrant February 2006 Financing                                                                                                    |
| 4.8(7)          |       | Form of Selling Agent’s Warrant 2006 Financing                                                                                             |
| 10.1(7)         |       | Sublease Agreement, dated January 12, 2006,  between us and Insurance Company of the West                                                       |
| 10.2(7)         |       | Form of Subscription Agreement  February 2006 Financing                                                                                    |
| 31.1*           |       | Certification of Principal Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         |
| 31.2*           |       | Certification of Principal Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         |
| 32.1*           |       | Certification of Principal Executive Officer  pursuant to 18 U.S.C. 1350, as adapted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
| 32.2*           |       | Certification of Principal Financial Officer  pursuant to 18 U.S.C. 1350, as adapted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

----

(1)           Incorporatedby reference to our Form 10-K/A, filed on September 10, 1998.

(2)           Incorporatedby reference to our Registration Statement on Form S-1, as amended, filedon July 2, 1997.

(3)           Incorporatedby reference to our Form 10-Q, filed November 14, 2001.

(4)           Incorporatedby reference to our Form 8-K, filed May 26, 2004.

(5)           Incorporatedby reference to our Form 10-QSB filed on August 15, 2005, as amended.

(6)           Incorporatedby reference to our Form 10-QSB filed on May 16, 2005.

(7)           Incorporatedby reference to our Form 10-KSB, filed March 31, 2006.

*              Filedherewith

(b)           Reportson Form 8-K

None.

25

----

#### **SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                             |   | iVOW, INC.                                                                                                                     |
|-----------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|                        |   |                                                                                                                                |
|                        |   |                                                                                                                                |
| Date:August 11,  2006  |   | /s/  Michael H. Owens                                                                                                               |   |
|                        |   | Michael H. Owens, M.D.  President, Chief Executive Officer and  Director                                                            |
|                        |   |                                                                                                                                |
| Date: August 11,  2006 |   | /s/  Richard M. Gomberg                                                                                                             |   |
|                        |   | Richard M. Gomberg  Vice President of Finance,  Chief Financial Officer and Secretary  (Principal financial and accounting officer) |
|                             |        |                                                                                                                                     |  |  |

 

26

----