##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-QSB
 
 September 30, 2006
 001-31608
 
 XCORPOREAL, INC.
  
 Delaware
    
    98-0349685(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification Number)
 11400 W. Olympic Blvd., Suite 200
Los Angeles, California 90064
 (310) 738-5138
 
 þ o
 o þ
  Class
Common Stock, $0.0001 par value
    
    Outstanding as of November 17, 2006
10,000,000 shares
 o þ




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##### 



INDEX
  
 PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsBalance Sheets at September 30, 2006 (unaudited) and December 31, 2005Statements of Operations (unaudited) for the three months ended September 30, 2006
and September 30, 2005Statement of Stockholders Equity (deficit) for the three months ended September 30, 2006Statements of Cash Flows (unaudited) for the three months ended September 30, 2006Notes to Financial StatementsItem 2. Managements Discussion and Analysis or Plan of OperationsItem 3. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSignaturesEXHIBIT 2.1EXHIBIT 3.1EXHIBIT 3.2EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 10.4EXHIBIT 31.1EXHIBIT 32.1
   
 2




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements.
 
 XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
INTERIM BALANCE SHEETS
(Unaudited)
 September 30, 2006
    
    
    December 31, 2005ASSETSOther Assets  Note 7
    
    $
    9,750,000
    
    
    $
    Total Assets
    
    $
    9,750,000
    
    
    $
    LIABILITIESCurrentBank overdraft
    
    
    
    
    
    
    12Accounts payable and accrued liabilities 
Note 6
    
    
    152,240
    
    
    
    18,318Due to related party  Note 6
    
    
    
    
    
    
    34,227Total Current Liabilities
    
    
    152,240
    
    
    
    52,557STOCKHOLDERS EQUITY (DEFICIENCY)Preferred
stock, $0.0001 par value, 10,000,000
shares authorized, none outstanding
    
    
    
    
    
    
    Common
stock, $0.0001 par value, 100,000,000
shares authorized, 3,820,000 and 10,000,000
outstanding on December 31, 2005 and September
30, 2006, respectively  Notes 2, 7, 9,
10 and 11
    
    
    1,000
    
    
    
    382Additional paid in capital
    
    
    9,819,620
    
    
    
    90,618Deficit accumulated during development stage
    
    
    (222,860
    )
    
    
    (143,557
    )Total Stockholders Equity (Deficiency)
    
    
    9,597,760
    
    
    
    (52,557
    )Total Liabilities & Stockholders Deficiency
    
    $
    9,750,000
    
    
    $
    
  3




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XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
 May 4, 2001 (DateThree Months ended
    
    
    Nine Months ended
    
    
    of Inception) toSeptember 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006ExpensesAccounting and
audit fees
    
    $
    3,079
    
    
    $
    1,837
    
    
    $
    7,672
    
    
    $
    6,780
    
    
    $
    46,737Administrative
services  Note 6
    
    
    
    
    
    
    1,500
    
    
    
    3,000
    
    
    
    4,500
    
    
    
    29,500Bank charges and
interest
    
    
    
    
    
    
    45
    
    
    
    111
    
    
    
    157
    
    
    
    1,176Consulting fees 
Note 9
    
    
    65,000
    
    
    
    
    
    
    
    65,000
    
    
    
    
    
    
    
    65,000Exploration costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    655
    
    
    
    1,747Incorporation costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    900Legal Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,206Mineral lease
advance royalty
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    28,615Office and
miscellaneous
    
    
    (535
    )
    
    
    750
    
    
    
    965
    
    
    
    2,250
    
    
    
    5,983Transfer agent and
listing fees
    
    
    (31
    )
    
    
    426
    
    
    
    2,555
    
    
    
    1,422
    
    
    
    10,096Loss before other item
    
    
    (67,513
    )
    
    
    (4,558
    )
    
    
    (79,303
    )
    
    
    (25,764
    )
    
    
    (222,960
    )Other Item
Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100Net Loss for the period
    
    $
    (67,513
    )
    
    $
    (4,558
    )
    
    $
    (79,303
    )
    
    $
    (25,764
    )
    
    $
    (222,860
    )Basic loss per share
    
    $
    (0.02
    )
    
    $
    (0.00
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )Weighted average
number of shares
outstanding
    
    
    4,374,348
    
    
    
    3,820,000
    
    
    
    4,006,813
    
    
    
    3,820,000
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XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
 May 4, 2001 (Dateof Inception) toNine months ended September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006Cash flows used in operating activitiesNet loss for the period
    
    $
    (79,303
    )
    
    $
    (25,764
    )
    
    $
    (222,860
    )Adjustment for item not involving
cash:Consulting fees
    
    
    65,000
    
    
    
    
    
    
    
    65,000Changes in non-cash working capital
items related to operationsPrepaid expenses
    
    
    
    
    
    
    600
    
    
    
    Accounts payable and accrued
liabilities
    
    
    164,315
    
    
    
    11,026
    
    
    
    182,633150,012
    
    
    
    (14,138
    )
    
    
    24,773Cash flows from investing activityCapitalized license fees
    
    
    (150,000
    )
    
    
    
    
    
    
    (150,000
    )(150,000
    )
    
    
    
    
    
    
    (150,000
    )Cash flows from financing activitiesBank overdraft
    
    
    (12
    )
    
    
    
    
    
    
    Capital stock issued
    
    
    
    
    
    
    
    
    
    
    91,000Advance from a related party
    
    
    
    
    
    
    13,774
    
    
    
    34,227(12
    )
    
    
    13,774
    
    
    
    125,227Decrease in cash during the period
    
    
    
    
    
    
    (364
    )
    
    
    Cash, beginning of the period
    
    
    
    
    
    
    576
    
    
    
    Cash, end of the period
    
    $
    
    
    
    $
    212
    
    
    $
    Supplemental disclosure of cash flow
information; cash paid for:Interest
    
    $
    
    
    
    $
    
    
    
    $
    Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    Non-cash
Transactions  Note 10
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XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
INTERIM STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
for the period May 4, 2001 (Date of Inception) to September 30, 2006
(Unaudited)
 Deficit(Note 10)
    
    
    
    
    
    AccumulatedCommon Shares
    
    
    Additional Paid-in
    
    
    During DevelopmentNumber
    
    
    Par Value
    
    
    Capital
    
    
    Stage
    
    
    TotalCapital stock issued
for cash at $0.01
    
    
    2,500,000
    
    
    $
    250
    
    
    $
    24,750
    
    
    $
    
    
    
    $
    25,000Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,255
    )
    
    
    (40,255
    )Balance as at December
31, 2001
    
    
    2,500,000
    
    
    
    250
    
    
    
    24,750
    
    
    
    (40,255
    )
    
    
    (15,255
    )Capital stock issued
for cash at $0.05
    
    
    1,320,000
    
    
    
    132
    
    
    
    65,868
    
    
    
    
    
    
    
    66,000Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,249
    )
    
    
    (31,249
    )Balance as at December
31, 2002
    
    
    3,820,000
    
    
    
    382
    
    
    
    90,618
    
    
    
    (71,504
    )
    
    
    19,496Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,962
    )
    
    
    (12,962
    )Balance as at December
2003
    
    
    3,820,000
    
    
    
    382
    
    
    
    90,618
    
    
    
    (84,466
    )
    
    
    6,534Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,338
    )
    
    
    (23,338
    )Balance as at December
31, 2004
    
    
    3,820,000
    
    
    
    382
    
    
    
    90,618
    
    
    
    (107,804
    )
    
    
    (16,804
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,753
    )
    
    
    (35,753
    )Balance as at December
31, 2005
    
    
    3,820,000
    
    
    
    382
    
    
    
    90,618
    
    
    
    (143,557
    )
    
    
    (52,557
    )Capital stock issued
for a licence  Note
7 at $1.00
    
    
    9,600,000
    
    
    
    960
    
    
    
    9,599,040
    
    
    
    
    
    
    
    9,600,000Capital stock cancelled
    
    
    (3,420,000
    )
    
    
    (342
    )
    
    
    342
    
    
    
    
    
    
    
    Warrants granted for
consulting fees
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    
    
    
    
    
    65,000Forgiveness of debt
 Note 6
    
    
    
    
    
    
    
    
    
    
    64,620
    
    
    
    
    
    
    
    64,620Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,303
    )
    
    
    (79,303
    )Balance as at
September 30, 2006
    
    
    10,000,000
    
    
    $
    1,000
    
    
    
    9,819,620
    
    
    $
    (222,860
    )
    
    $
    9,597,760
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XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 Note 1  Interim Reporting
   Note 2  Nature and Continuance of Operations
     Note 3  Development Stage Company
  7




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XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 Note 4  Significant Accounting Policies
  Identifiable Intangibles
  Stock-based Compensation
   Note 5  Lease Termination
  Note 6  Related Party Transaction
  May 2, 2001(Date ofNine months ended
    
    
    Inception) toSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006Administrative services
    
    $
    3,000
    
    
    $
    4,500
    
    
    $
    12,000
  8




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XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 Note 6  Related Party Transaction (continued)
   Note 7  License Agreement
   Note 8  Merger Agreement
  Note 9  Stock Options and Warrants to Non-Employees
    9




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XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 Note 9  Stock Options and Warrants to Non-Employees (continued)
  Nine months endedSeptember 30, 2006Expected dividend yield
    
    
    0.00
    %Expected volatility
    
    
    11.10
    %Risk-free interest rate
    
    
    3.88
    %Expected terms in years
    
    5 years
 Note 10 Non-cash Transactions
   a)
    
    We cancelled 3,420,000 shares of common stock.b)
    
    We issued 9,600,000 shares of common stock at a value of $1.00 per share totaling
$9,600,000 to acquire the right, title and interest to the name Xcorporeal, related
trademarks and domain names, and the right to enter into the Merger Agreement and License
Agreement to obtain the rights to technology relating to congestive heart and kidney
failure treatment and other devices.c)
    
    A former director of the Company forgave $64,620 of unpaid advances and management fees.
  Note 11  Subsequent Events
 Nevada Reincorporation
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XCORPOREAL, INC.
(formerly Pacific Spirit Inc.)
(a Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 Note 11  Subsequent Events (continued)
 Employment Agreement
    Incentive Compensation Plan
  Contemplated Financing
  11




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ITEM 2. Managements Discussion and Analysis or Plan of Operation.
 The following discussion of our financial condition and results of operations should be read
in conjunction with our financial statements and the related notes, and the other financial
information included in this report.
 Forward-Looking Statements
  Plan of Operation
 Overview
  License Agreement
  Description of Business
  1.
    
    Hospital congestive heart failure device2.
    
    Hospital renal replacement device3.
    
    Wearable congestive heart failure device4.
    
    Wearable artificial kidney
    12




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Competitors
  Governmental Regulations
       13




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Research and Development
  
    
    Improving the chemicals used in the dialysis process; the current chemicals have
been used for decades. Management believes that new chemicals that last longer and can
be used in small quantities would further reduce the cost and weight of its product.
    
    Developing software that allows physicians to customize the function of the device
to meet the specific dialysis needs of each patient.
    
    Adapting the technology underlying the wearable artificial kidney to other medical
uses. Management believes that this technology is a platform for a number of other
devices that can be used to treat other diseases and it would offer substantive value
propositions for patients and healthcare providers.
 Managements Discussion and Analysis
 Results of Operations for the nine months ended September 30, 2006
  14




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Liquidity and Capital Resources
  Contemplated Financing
  Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
   Identifiable Intangibles
  Stock-Based Compensation
 Share-Based
Payment
 Recent Accounting Pronouncements
 Accounting for Servicing of Financial Assets 
an amendment of FASB Statement No. 140
 Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109
 15




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Fair Value Measurements
 Risk Factors
  Risks Related to Our Business
 Our limited operating history may make it difficult to evaluate our business to date and our future
viability.
  We expect to continue to incur operating losses, and if we are not able to raise necessary
additional funds we may have to reduce or stop operations.
  Our success will depend on our ability to retain our managerial personnel and to attract additional
personnel.
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We need to develop our financial and reporting processes, procedures and controls to support our
anticipated growth.
   We cannot assure you that we will be able to complete development and obtain necessary approvals
for our proposed products even if we obtain sufficient funding.
  The success of our business will depend on our ability to develop and protect our intellectual
property rights, which could be expensive.
   We may be subject to claims that we infringe the intellectual property rights of others, and
unfavorable outcomes could harm our business.
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We may not be able to operate as a going concern and our business may fail.
  We compete against other dialysis equipment manufacturers with much greater financial resources and
better established products and customer relationships, which may make it difficult for us to
penetrate the market and achieve significant sales of our products.
   We have not commissioned or obtained marketing studies which support the likelihood of success of
our business plan.
  Risks Related to Our Industry
 Our business will always be strictly regulated by the federal and other governments, and we cannot
assure you that we will remain in compliance with all applicable regulation.
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Our failure to respond to rapid changes in technology and its applications and intense competition
in the medical devices industry could make our treatment system obsolete.
  Risks Related to Our Common Stock
 If a market for our common stock does not develop, our stockholders may be unable to sell their
shares.
  If a market for our common stock develops, our stock price may be volatile.
  Over 90% of our stock is controlled by a single stockholder who has the ability to substantially
influence the election of directors and the outcome of matters submitted to stockholders.
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Investors interests in our company will be diluted and investors may suffer dilution in their net
book value per share if we issue additional shares or raise funds through the sale of equity
securities.
  We have never paid cash dividends and do not intend to do so.
  CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
   
    
    our capital needs and ability to obtain financing,
    
    our ability to successfully research and develop marketable products,
    
    our ability to obtain regulatory approval to market and distribute our products,
    
    anticipated trends and conditions in the industry in which we operate, including regulatory changes,
    
    general economic conditions, and
    
    other risks and uncertainties as may be detailed from time to time in our public
announcements and filings with the SEC.
  20




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ITEM 3. Controls and Procedures
  21




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PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings.
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
   
 ITEM 4. Submission of Matters to a Vote of Security Holders.
    
 ITEM 5. Other Information.
 Board of Directors
  Terren S. Peizer
 Daniel S. Goldberger
 II-1




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Victor Gura, M.D.
 Marc G. Cummins
 Hervé de Kergrohen, M.D.
 Jay
A. Wolf
   II-2




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ITEM
6.     Exhibits.
 No.
    
    Description of Exhibit2.1
    
    Merger Agreement3.1
    
    Certificate of Incorporation, as amended3.2
    
    Bylaws, as amended10.1*
    
    Indemnification Agreement for directors10.2*
    
    Xcorporeal, Inc. 2006 Incentive Compensation Plan10.3*
    
    Employment Agreement of Daniel S. Goldberger10.4
    
    License Agreement31.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 
 *Management contracts, compensatory plans or arrangements. II-3




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SIGNATURES
  XCORPOREAL, INC.Date: November 17, 2006
    By:
    /s/ DANIEL S. GOLDBERGERDaniel S. GoldbergerPresident and Chief Operating Officer II-4