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

                                   FORM 10-QSB

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934

                 For the quarterly period ended October 31, 2006

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

                  For the Transition Period From _____ to _____

                        Commission File Number: 000-49972

                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
             (Exact name of registrant as specified in its charter)


          Colorado                                       84-1579760
-------------------------------                    -------------------
(State or other jurisdiction of                     (I.R.S. Employer
  incorporation or organization)                   Identification No.)


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

                               011 44-1463-667-347
                           --------------------------
                           (Issuer's telephone number)

                                 WITH COPIES TO:

                            Richard A. Friedman, Esq.
                      Sichenzia Ross Friedman Ference, LLP
                           1065 Avenue of the Americas
                            New York, New York 10018
                                 (212) 930-9700

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of  the  latest  practicable  date:  As of  December  6,  2006,  the
registrant had 83,908,457  shares of common stock issued,  25,685,000  shares of
common stock held in escrow which are deemed as issued but not outstanding,  and
58,223,457 shares of common stock outstanding.

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


<PAGE>
                                      INDEX

Page

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.                                           F-1

Item 2.  Management's Discussion and Analysis or Plan of Operations.       2

Item 3.  Controls and Procedures                                           7

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.                                                7

Item 2.  Unregistered Sale of Equity Securities and Use of Proceeds        7

Item 3.  Defaults Upon Senior Securities                                   7

Item 4.  Submission of Matters to a Vote of Security Holders.              8

Item 5.  Other Information                                                 8

Item 6.  Exhibits.                                                         8

Signatures.

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                  INDEX TO UNAUIDTED CONDENSED FINANCIAL STATEMENTS

                                                                                                        Page
                                                                                                  ----------------



<S>                                                                                                     <C>
Unaudited Condensed Consolidated Balance Sheet at October 31, 2006                                      F-2

Unaudited Condensed Consolidated Statements of Operations for the three months
     ended October 31, 2006 and 2005 and for the period from March 26, 1997
     (Inception) through October 31, 2006                                                               F-3

Unaudited Condensed Consolidated Statements of Accumulated Other Comprehensive
     Loss for the three months ended October 31, 2006 and 2005 and for the
     period from March 26, 1997 (Inception) through October 31, 2006                                    F-4

Unaudited Condensed Statement of Changes in Shareholders' Deficit for the period
from
     March 26, 1997 (Inception) through October 31, 2006                                                F-5

Unaudited Condensed Consolidated Statements of Cash Flows for the three months
     ended October 31, 2006 and 2005 and for the period
     from March 26, 1997 (Inception) through October 31, 2006                                           F-6

Notes to the Unaudited Condensed Consolidated Financial Statements                                      F-7
</TABLE>


                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                OCTOBER 31, 2006
                                  (UNAUDITED)


  Assets
Current assets:
<S>                                                                                     <C>
    Cash                                                                            $    40,102
    Accounts receivable                                                                  12,016
    Prepaid expenses and other                                                          190,585
                                                                                    -----------
               Total current assets                                                     242,703
Property and equipment, net (Note 3)                                                      9,869
Intangible assets:
    Patent costs (note 4)                                                               133,664
                                                                                    -----------

                                                                                    $   386,236
                                                                                    ===========

                       Liabilities and Shareholders' Deficit

Current liabilities:
    Accounts payable                                                                $   794,278
    Accrued interest payable                                                            420,163
    Accrued liabilities                                                                 324,017
    Indebtedness to related parties (Note 2)                                            189,285
    Current portion of Long Term Notes Payable (Note 10)                                704,470
    Short term advance from Related Party (Note 10)                                      50,000
                                                                                    -----------
               Total current liabilities                                              2,482,213

Long-term debt:
    Convertible Loan Notes (Note 10)                                                    500,000
    Royalty Participation Agreement advances (Note 10)                                  523,300
    Notes payable, related party (Note 10)                                            1,800,000
                                                                                    -----------
               Total liabilities                                                      5,305,513
                                                                                    -----------

Shareholders' deficit:
    Preferred stock, $.001 par value, 50,000,000 shares authorized (aggregate
      liquidation preference of $8 million)
      Series A Preferred stock, 34,343,662 shares issued and outstanding (Note 6)        34,344
    Common stock, $.001 par value, 500,000,000 shares authorized,
      83,908,457 shares issued, 25,685,000 held in escrow, and
      58,223,457 shares outstanding                                                      83,908
    Stock issued as security for convertible debentues (Note 10)                     (3,339,050)
    Additional paid-in capital                                                        8,332,355
    Accumulated other comprehensive loss- foreign currency adjustment                  (409,067)
    Deficit accumulated during the development stage                                 (9,621,767)
                                                                                    -----------

               Total shareholders' deficit                                           (4,919,277)
                                                                                    -----------

                                                                                    $   386,236
                                                                                    ===========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                  (UNAUDITED)

                                                                              March 26, 1997
                                                 Three Month Period Ended       (Inception)
                                                         Oct-31                   Through
                                               ----------------------------       Oct-31
                                                   2006            2005            2006
                                               ------------   -------------    ------------

Net sales and gross revenues:
<S>                                               <C>             <C>             <C>
    Net sales                                  $         --    $    352,993    $  3,571,807
    Cost of sales                                        --              --         242,097
                                               ------------    ------------    ------------

                   Gross profit                          --         352,993       3,329,710
                                               ------------    ------------    ------------

Operating expenses:
    Research and development                        183,258         273,398       5,172,979
    Legal & Professional                             27,179          65,205       1,012,239
    Stock options expense                           223,843           5,871         338,920
    Selling and marketing                            61,653              --         404,207
    General and administrative                      168,891         187,005       5,027,754
                                               ------------    ------------    ------------

    Total operating expenses                        664,824         531,479      11,956,099
                                               ------------    ------------    ------------

       Loss before other income                    (664,824)       (178,486)     (8,626,389)

Nonoperating income (expense):
    UK government grant (Note 1)                         --              --         291,398
    Interest expense                               (201,572)        (44,691)       (860,329)
    Loan Finance issue costs                             --         (77,761)       (708,279)
    Costs of aborted financing                           --              --        (113,400)
    Compensation payment to former director              --              --        (135,000)
    Gain (loss) on foreign exchange                      --          19,698        (132,378)
    Gain (loss) from extinguishments of debt             --              --         662,610
                                               ------------    ------------    ------------


       Loss before income taxes                    (866,396)       (281,240)     (9,621,767)

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

                   Net loss                    $   (866,396)   $   (281,240)   $ (9,621,767)
                                               ============    ============    ============

Basic and diluted loss per share               $      (0.02)   $     (0.005)
                                               ============    ============

Loss per share available to
common shareholders                            $      (0.02)   $     (0.005)
                                               ============    ============

Weighted average number of common shares
    outstanding                                  57,053,457      54,638,212
                                               ============    ============
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
    CONDENSED CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
                                   (UNAUDITED)


                                                                                     March 26, 1997
                                                     Three Month Period Ended         (Inception)
                                                            October 31,                 Through
                                                  ------------------------------       October 31,
                                                        2006            2005             2006
                                                  --------------   -------------    ---------------

<S>                                                   <C>              <C>              <C>
Net loss                                          $     (866,396)  $    (281,240)   $    (9,621,767)

Other comprehensive loss, net of tax:
    Cumulative translation adjustment                     39,911         (35,869)          (409,067)
                                                  --------------   -------------    ---------------

                   Comprehensive loss             $     (826,485)  $    (317,109)   $   (10,030,834)
                                                  ==============   =============    ===============

</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                          (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT (UNAUDITED)

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

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

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

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

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

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

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

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

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

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

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

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

Discount on issue of loan
   note (Note 10)                                                                                               62,640
Issuance of stock for services
   (October, 2006)                                                           1,000,000   1,000,000   1,000      67,000
Issuance of stock for services
   (October, 2006)                                                           1,250,000   1,250,000   1,250     148,750
October, 2006 issuance of stock
   options for services                                                                                        223,843
Foreign currency translation
   adjustment
Net Loss
                                  ----------  --------- -------- ---------  ----------  ---------- -------  ----------  -----------
Balance October 31, 2006          34,343,662    $34,344        0         0  83,908,457  58,223,457 $83,908  $8,332,355  $(3,339,050)
                                  ==========  ========= ======== =========  ==========  ========== =======  ==========  ===========

</TABLE>
(1) Drop

                                     F-5
<PAGE>
                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                          (A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT (UNAUDITED)
                                   (Continued)


                                         Deficit
                                       Accumulated
                                         During        Other
                                      Development   Comprehensive
                                          Stage          Loss        Total


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

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

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


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

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


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

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

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

Discount on issue of loan
   note (Note 10)                                                   62,640
Issuance of stock for services
   (October, 2006)                                                  68,000
Issuance of stock for services
   (October, 2006)                                                 150,000
October, 2006 issuance of stock
   options for services                                            223,843
Foreign currency translation
   adjustment                                         39,911        39,911
Net Loss                                 (866,396)                (866,396)
                                      -----------  ---------   -----------
Balance October 31, 2006              $(9,621,767) $(409,067)  $(4,919,277)
                                      ===========  =========   ===========


<PAGE>

                      IN VERITAS MEDICAL DIAGNOSTICS, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                           March 26, 1997
                                                                    Three Months Ended       (Inception)
                                                                       October 31,            Through
                                                               --------------------------    October 31,
                                                                   2006           2005          2006
                                                               -----------    -----------    -----------

Cash flows from operating activities:
<S>                                                                  <C>            <C>            <C>
   Net loss                                                    $  (866,396)   $  (281,240)   $(9,621,767)
   Adjustments to reconcile net loss to net cash
     used by operating activities:
       Depreciation and amortization                                 3,700          8,189        155,234
       Intercompany interest income                                     --             --        242,382
       Interest imputed (non cash)                                  63,470         92,470
       Stock issued for compensation and services                  441,842        391,465      1,677,520
       Stock issued for interest                                        --         61,360         86,160
       Gain (loss) on debt forgiveness                                  --             --       (662,610)
       Changes in operating assets and liabilities:
           Receivables                                             182,771       (118,650)       (37,667)
           Prepaid expenses and other current assets              (150,864)      (131,219)      (168,332)
           Deferred debt issue costs                                    --       (195,359)            --
           Accounts payable                                       (208,158)       (10,204)       754,635
           Accrued expenses                                         (6,751)        77,070        684,445
           Accrued interest payable                                 53,682             --         53,682
           Accounts payable (related party)                         (5,194)            --        116,540
           Other                                                    36,637        (28,786)        81,941
                                                               -----------    -----------    -----------
                Net cash used in
                  operating activities                            (455,261)      (227,374)    (6,545,367)
                                                               -----------    -----------    -----------

Cash flows from investing activities:
   Acquisition of patents                                          (34,587)        (7,360)      (133,665)
   Acquisition of equipment                                             --         (3,481)      (151,209)
                                                               -----------    -----------    -----------
                Net cash used in
                  investing activities                             (34,587)       (10,841)      (284,874)
                                                               -----------    -----------    -----------

Cash flows from financing activities:
   Advances from affiliates                                             --             --      4,378,963
   Repayments of advances from affiliates                               --        (96,203)      (728,426)
   Advances from related parties                                    50,000             --        133,050
   Proceeds from issuance of preferred stock                            --             --        813,930
   Discount on notes payable                                            --             --        144,382
   Proceeds from Royalty Participation Agreement                        --             --        450,000
   Proceeds from issue of Loan Notes                               335,000             --      1,597,495
   Interest payable reclassified as Loan Notes                      83,000             --         73,000
                                                               -----------    -----------    -----------
                Net cash used in
                  financing activities                             468,000        (96,203)     6,862,394
                                                               -----------    -----------    -----------

Effect on cash from foreign currency translation                       710             --          7,950

                Net change in cash and
                  cash equivalents                                 (21,138)         2,232         40,102

Cash and cash equivalents:
   Beginning of period                                              61,240         46,191             --
                                                               -----------    -----------    -----------

   End of period                                               $    40,102    $    48,423    $    40,102
                                                               ===========    ===========    ===========

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

Non-cash financing activities:
   Conversion of note payable to common stock                  $        --    $   450,000    $   700,000
   Conversion of interest to common stock                               --             --         86,160
   Stock-based compensation                                        441,842             --      1,053,955
                                                               -----------    -----------    -----------
                                                               $   441,842    $   450,000    $ 1,840,115
                                                               ===========    ===========    ===========

</TABLE>
          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                  (Formerly In Vivo Medical Diagnostics, Inc.)
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


Note 1: ORGANIZATION AND BASIS OF PRESENTATION

In the opinion of management,  the accompanying  unaudited  condensed  financial
statements contain all adjustments  (consisting of normal recurring adjustments)
necessary to present  fairly our  financial  position as of October 31, 2006 and
our  results of  operations  and cash  flows for the three  month  period  ended
October 31, 2006 and 2005 and the period from March 26, 1997 (date of inception)
to October  31,  2006.  The results of  operations  for the three  months  ended
October 31, 2006 are not  necessarily  indicative  of the results to be expected
for the full year. The condensed balance sheet presented herein has been derived
from the audited financial statements included in the Form 10-KSB for the fiscal
year ended July 31, 2006,  filed with the  Securities  and Exchange  Commission.
Interim financial data presented herein are unaudited.

Certain footnote  disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States
of  America  have  been  omitted  in  accordance  with the  published  rules and
regulations of the Securities and Exchange  Commission.  The condensed financial
statements  in this  report  should be read in  conjunction  with the  financial
statements  and notes thereto  included in the Form 10-K for the year ended July
31, 2006.

We are a  development  stage  company  as  defined  in  Statement  of  Financial
Accounting  Standards  No. 7. We are devoting  substantially  all of its present
efforts to developing new products.  Our planned  principal  operations have not
commenced and, accordingly, no significant revenue has been derived therefrom.

We have reported net losses of  $1,848,797,  $2,450,792  and  $8,755,370 for the
fiscal  years  ended July 31,  2006,  2005 and for the  period  from the date of
inception, March 26, 1997 to July 31, 2006, respectively.  The loss from date of
inception,  March 26, 1997 to October 31, 2006  amounts to $  9,621,767.  We had
substantial  net current  liabilities at October 31, 2006 of $2,239,513 and cash
balances of $ 40,102. These factors, among others, raise substantial doubt about
our ability to continue as a going concern.

As  explained  in Note 9 we were in default on several of our Loan Notes at July
31, 2006. Our major  creditors and Loan Note holders have continued to work with
us to restructure our obligations to enable us to match future payments with our
future  working  capital  plans and  several  Loan Note  holders  have  formally
restructured  their  advances to us in the three month period ended  October 31,
2006 and all major trade  creditors  have agreed to accept a phased payment plan
to address overdue payables.  This restructuring  includes restructuring a major
loan note from Westek Limited, a related party, as further described in Note 2.

As  further  explained  in  Note  9,  not all of the  planned  arrangements  and
discussions  have yet been  formalized  and we  continue to be in default of the
repayment  conditions of some of our Loan Notes,  therefore,  although we are in
continued positive discussions with those Loan Note holders and creditors, their
continued forbearance can not be assured with certainty. Our ability to continue
normal  operations  will depend on (i) the continued  forbearance  of these Note
holders and  creditors;  (ii) our continued  ability to raise  additional  funds
through  various  potential  sources  such as  equity  and  debt  financing  and
government grants, which is a continuous part of our business process; (iii) our
ability to develop new products and obtain new revenue generating contracts; and
(iv) the market success of our first product to market,  described  below.  Such
sources of finance and credit may not become available as needed or be available
on acceptable terms or be maintained, as appropriate.  Through October 31, 2006,
a  significant  portion of our  financing  has been  through  the sale of equity
securities and convertible notes in private placements and the exercise of stock
options.  Until and unless our  operations  generate  significant  revenues,  we
expect to continue to fund our operations from the sources of capital previously
described.  There can be no assurance  that we will be able to raise the capital
needed on acceptable terms, if at all.


                                       F-7
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                  (Formerly In Vivo Medical Diagnostics, Inc.)
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


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

Note 2:  Related Party Transactions

As of October 31,  2006,  $189,285  was due to related  parties and we purchased
services  from related  parties  during the three month period ended October 31,
2006  amounting to $112,999  There were no  transactions  with  related  parties
during the three month periods ended October 31, 2005.

In July 2004,  Westek, a related party,  agreed to release us from $2,030,298 of
previously accumulated advances in exchange for a noninterest-bearing promissory
note  totalling  $1,800,000.  We  reflected  a  capital  contribution  totalling
$2,030,298 in our financial  statements at that time.  The  promissory  note was
payable in full by September 30, 2006.

On November 13, 2006 we reached  agreement with Westek to amend the terms of the
Promissory Note such that its maturity date is extended until March 31, 2008 and
it carries interest at 10% p.a. from October 1, 2006 which is payable  quarterly
in arrears.  Unpaid  interest  may, at the option of Westek,  be converted  into
shares of the Companies common Stock at a price of $ 0.05 per share.

Note 3:  Property and Equipment

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

Furniture and Fixtures                           $    16,523
Office Equipment                                      89,814
Plant and Equipment                                   20,939
                                                 -----------
                                                     127,276
Less: accumulated depreciation                       117,407
                                                 -----------
                                                 $     9,869
                                                 -----------


                                       F-8
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                  (Formerly In Vivo Medical Diagnostics, Inc.)
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


Depreciation  expense  was $3,700 and $8,189 for the three month  periods  ended
October 31 2006 and 2005, respectively.

 Note 4: Intangible Assets - Patent Costs

Changes in Intangible assets - Patent Costs for the three month period ended
October 31, 2006 were as follows:

Cost - start of year                             $    99,077
Costs incurred during the year                        34,587
Amortization                                               -
Retirements                                                -
                                                 -----------
Cost - end of year                               $   133,664
                                                 -----------

No amortization is recorded because the economic life of the underlying  patents
is  expected  to be less than their legal life and the company has yet to derive
revenue from the commercial  applications of the underlying  patents.  When such
revenue starts to be earned the cost of the underlying patents will be amortized
over their estimated economic life.

Note 5:  Preferred Stock

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

4% Convertible Preferred Stock

As of October 31, 2006, the Company had 34,343,662  shares of Series A 4% voting
redeemable  convertible  preferred stock outstanding.  Such shares pay an annual
dividend of 4% and are  convertible at any time at the option of the holder into
Common Stock at the rate of one share Common Stock for each outstanding share of
Series A Preferred Stock. Holders of Series A Preferred Stock have priority over
all of the shares of In Veritas Medical Diagnostics, Inc. on liquidation or sale
at the rate of $0.233 per share.  Holders are entitled to vote on all matters as
to which Common Stock shareholders are entitled to vote.

The aggregate of arrearages  in cumulative  preferred  dividends on the Series A
Preferred Shares through October 31, 2006, are $26,186.

Note 6:  Common Stock

We are authorized to issue 500,000,000 shares of common stock.

We issued the  following  shares of common stock for  services  during the three
month periods ended October 31, 2006 and 2005, respectively:


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

<TABLE>
<CAPTION>
                                                         31-Oct-06                    31-Oct-05
                                                 ---------------------------   --------------------------
                                                    Number       Fair Value       Number       Fair Value
                                                  of Shares      of Shares      of Shares      of Shares
                  Shareholder                       Issued         Issued         Issued         Issued
                                                 ------------   -----------    -----------    -----------
<S>                                                   <C>           <C>             <C>            <C>
CLX & Associates Inc                                            $                  750,000    $   255,000
Sichenzia Ross Friedman Ference LLP                                                805,000        132,825
Cornell Capital Partners LP                                                        472,000         61,360
Monitor Capital Inc                                                                 28,000          3,640
Crown Capital Group Ltd                             1,000,000        68,000
UTEK Corporation                                    1,250,000       150,000
                                                 ------------   -----------    -----------    -----------
                                                    2,250,000   $   218,000      2,055,000    $   452,825
                                                 ------------   -----------    -----------    -----------
</TABLE>

We value the shares of common  stock  issued for  services at the quoted  market
price of the stock at the issue date or at the contracted  value of the services
where this is clearly  defined in the  underlying  contract.  No other  units of
common stock were issued  during the three month  periods ended October 31, 2006
and 2005.

During the three month period ended October 31, 2006 we issued:

     (a) 1,000,000 shares to Crown Capital Group Ltd as consideration for market
     information  and  promotional  services to be provided  over a twelve month
     period.  The shares were valued at the mid-market quoted share price on the
     day of issue; and

     (b) 1,250,000 shares to UTEK Corporation for technology  search services as
     consideration  under the terms of a contract  entered  into in May 2006 and
     covering  services to be provided over 15 months.  This  consideration  was
     valued at the contract price,  which was approximately  equal to the market
     price of the  companies  stock in May,  2006 and, at the  Companies  option
     could have been settled in cash rather than stock.

The cost of these stock issues is spread over the periods over which the service
is to be provided and a prepayment established accordingly.

Note 7:  Stock Options and Warrants

Stock Options - Employees and contractors (`staff')

Since  inception  stock  options  have been granted to staff  members  under the
Company's 2005 Stock Incentive Plan as follows:

     o    During May 2004, the Company granted 9,659,000 common stock options to
          two officers with an exercise price of $1.00 per share.  The Company's
          common  stock had no  traded  market  value on the date of grant.  The
          market value of the stock was  determined  to be $1.00 per share based
          on estimates  made by the directors at that time. In March 2006 one of
          the officers resigned and his options  (4,829,500)  lapsed.  Under the
          terms of the option  award the  remaining  4,829,500  options  vest in
          three equal installments of 1,609,834 each in May 2006, 2007 and 2008,
          subject to certain operating performance criteria having been met. The
          performance  criteria  were  not met by the  first  vesting  date  and
          therefore 1,609,834 of these options have lapsed. Management is of the
          view that the  performance  criteria are unlikely to be met by each of
          the future vesting periods.


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


     o    On June 1, 2005, the Company issued 650,000 options to its staff under
          the plan, with an exercise price of $0.55 per share.  The market price
          on June 1, 2005 was also $0.55 per share.

     o    On January 3, 2006, the Company  issued  725,000  options to its staff
          under the plan, with an exercise price of $0.10 per share.  The market
          price on January 3, 2006 was also $0.10 per share.

     o    On October 10,  2006,  the Company  issued  16,015,000  options to its
          staff under the plan, with an exercise price of $0.065 per share.  The
          market  price on October  10,  2006 was also  $0.065  per  share.  The
          vesting date of these options varies as set out in the table below:

              Vesting Date            No of options
         ----------------------       -------------
         October 10, 2006                 2,500,000
         November 30, 2006                  500,000
         December 31, 2006                  150,000
         September 30, 2007               5,515,000
         September 30, 2008               3,750,000
         September 30, 2009               3,600,000
                                      -------------
         Total                           16,015,000
                                      =============

     Options that vested on the day of grant were granted  primarily  (2,000,000
     of the total  options  which vest on the grant date of October 10, 2006) to
     Martin Thorp,  the Companies CFO, to provide him with a significant  equity
     interest  in the  Company in line with the other  members of the Board,  in
     order to provide  mutuality of interest going forward and to reward him for
     past performance.

The fair value for the options  granted is  estimated at the date of grant using
the Black-Scholes option-pricing model with the assumptions set out in the table
below.

<TABLE>
<CAPTION>
                                                      Grant Date
                                                   ------------------ --------------- ------------------- ----------------
                                                       May, 2004        June, 2005      January, 2006      October, 2006
                                                   ------------------ --------------- ------------------- ----------------
<S>                                                             <C>             <C>                 <C>               <C>
Risk Free Interest Rate                                         2.3%            4.4%                4.4%              4.7%
Dividend Yield                                                    0%              0%                  0%                0%
Volatility Factor                                                 0%             55%                 88%              314%
Weighted Average Expected Life (yrs)                               5               5                   5                 5
No of options expected to vest on vesting date                     0         650,000             725,000        16,015,000
Value of one option (Black Scholes)                           $0.000          $0.289              $0.070            $0.065
Value of option grant (aggregate)                                 $0        $187,850             $50,750        $1,040,975
                                                   ------------------ --------------- ------------------- ----------------
</TABLE>

From August 1, 2006 we were required to adopt SFAS No. 123(R) whereby we account
for stock option  expense for  employees  and  contractors  by charging the fair
value of options  granted and expected to vest equally over the vesting  period.
In the case of  options  that  vest on grant  the fair  value of the  option  is
expensed  immediately.  The  expense  is shown as stock  option  expense  in the


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


consolidated  statement of operations  with the credit posted to Additional Paid
In Capital. Prior to August 1, 2006 we were not required to treat employee stock
options in  accordance  with SFAS No. 123 (R) , and we  disclosed  the impact on
pre-tax  results had we valued employee stock options on a proforma basis in the
footnotes to our Annual  Financial  Statements.  In the three month period ended
October 31, 2005 the stock option charge would have  increased by  approximately
$37,500 has we adopted SFAS No. 123(R) in that period.

In  determining  which options are expected to vest we have taken account of the
fact that options have only been granted to relatively  few key members of staff
and in the opinion of management all of those people are likely to stay with the
Company through the vesting period of their options and beyond.  Therefore it is
assumed that all options  granted are likely to vest,  except those that are not
expected  to vest by  virtue of  underlying  performance  conditions  (described
above).

The  Black-Scholes  options  valuation model was developed for use in estimating
the fair value of traded  options,  which have no vesting  restrictions  and are
fully  transferable.  In addition,  option valuation models require the input of
highly  subjective  assumptions  including the expected stock price  volatility.
Because the Company's stock options have characteristics significantly different
from  those of traded  options,  and  because  changes in the  subjective  input
assumptions  can  materially  affect the fair value  estimate,  in  management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its stock options.

Stock Warrants

On September 9, 2005 the Company  issued to  Montgomery  Equity  Partners Ltd as
part of the  consideration  for  arranging a Financing,  three-year  warrants to
purchase  350,000  shares of Common  Stock at $0.001  per share.  The  Company's
common  stock's  traded  market value on the date that the  negotiation  of this
transaction  was $0.13.  The weighted  average  exercise price and fair value of
these warrants at the date of their grant were $0.001 and $0.076, respectively.

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

       Risk-free interest rate                                  4.18%
       Dividend yield                                           0.00%
       Volatility factor                                       88.40%
       Weighted average expected life                         3 years


Summary of options and warrants outstanding

The following schedule summarizes the changes in the Company's outstanding stock
awards since July 31, 2006


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


                                       Options Outstanding          Weighted
                               --------------------------------      Average
                                  Number of      Exercise Price  Exercise Price
                                   Shares          Per Share       Per Share
                               -------------    ---------------  --------------
Balance at July 31, 2005                         $0.001-$1.50          $0.750
                                   4,996,436
Awards Granted to Staff           16,015,000           $0.065          $0.065
Awards exercised                                                       $0.000
                                           -

                               -------------                     --------------
Balance at Oct 31, 2006           21,011,436      $.001-$1.50          $0.228
                               -------------                     --------------

Note 8:  Income Taxes

We record our income taxes in accordance with Statement of Financial  Accounting
Standard No. 109,  "Accounting for Income Taxes". We had tax losses available to
carry forward in our UK operating  subsidiaries of $5.6 million at July 31, 2006
and we continued to incur tax losses in the three month period ended October 31,
2006.  We have  therefore  not recorded any tax charge of liability in the three
month period ended July 31, 2006 or in any previous period.

Note 9:  Financings

The Company has  substantial  obligations  under various  financial  instruments
which were raised under the following financing agreements:

September 2005 Financing and subsequent restructurings

In a linked series of transactions  dated September 7, 2005, the Company entered
into:

     1.   A Standby Equity Distribution Agreement (the "Distribution Agreement")
          with Cornell  Capital  Partners LP ("Cornell")  providing for the sale
          and  issuance to Cornell of up to  $10,000,000  of Common Stock over a
          period of up to 24 months.

     2.   A  Securities  Purchase  Agreement  (the  "Purchase  Agreement")  with
          Montgomery Equity Partners Ltd.. ("Montgomery"), an affiliated fund of
          Cornell,  providing  for the sale by the Company to  Montgomery of its
          18% secured  convertible  debentures in the aggregate principal amount
          of  $750,000  (the  "Debentures")  of which  $300,000  was  funded  on
          September 7, 2005;  $200,000 was to have been funded two business days
          prior to the Company's  completion of its audited financial statements
          for the fiscal year ended July 31,  2005,  and;  $250,000  was to have
          been funded  within five  business  days of the date the  Registration
          Statement  is  declared  effective  by the  SEC.  Under  the  Purchase
          Agreement,  the Company also issued to Montgomery  three-year warrants
          (the  "Warrants") to purchase 350,000 shares of Common Stock at $0.001
          per  share.  The  Debentures  matured  on  September  7. 2006 and bare
          interest at the annual rate of 18%. Holders have the right to convert,
          at any time,  the principal  amount  outstanding  under the Debentures
          into shares of Common Stock, at a conversion  price per share equal to
          $0.144, subject to adjustment. Upon three-business day advance written
          notice, the Company may redeem the Debentures, in whole or in part. In
          the event that the closing  bid price of the Common  Stock on the date
          that the Company  provides  advance written notice of redemption or on
          the date  redemption  is made  exceeds  the  conversion  price then in
          effect.  Redemption  of  Debentures is to be calculated at 112% of the
          Debentures' face value.


                                      F-13
<PAGE>
                      In Veritas Medical Diagnostics, Inc.
                  (Formerly In Vivo Medical Diagnostics, Inc.)
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements


     3.   A Securities  Purchase  Agreement (the "Accredited  Investor  Purchase
          Agreement")  with the  investors in a previous  financing  dated April
          2005,  pursuant  to which  these  investors  agreed  to  exchange  the
          securities  that  they  purchased  in  the  earlier  financing  for an
          aggregate of $556,500 principal amount of Debentures.

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

Pursuant to these agreements, the Company filed a registration statement on Form
SB-2 with the Securities and Exchange  Commission for the purpose of registering
the securities underlying the transactions. In connection therewith, the Company
has received  comments from the Commission  indicating that, in the Commission's
view, based upon the structure of the transactions, the Company may not register
the securities sold in the financing transactions. On March 6, 2006, we withdrew
the registration  statement on Form SB-2 (File No.  333-128321) by filing a Form
R-W with the Commission. As a result, the Company has not been able to draw down
any further amounts under the Debenture (other than the initial $300,000) or the
related  Distribution  Agreement  and was unable to pay interest  and  principal
payments on the debentures drawn down under this financing,  as a consequence it
became in default under the terms of the Debentures.

We have been in detailed  discussion  with several of the  Debenture  Holders to
restructure our obligations to rectify the defaults and the following agreements
have been entered into:

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

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


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


     2.   On  November  29,  2006,  the  Company  issued a secured  subordinated
          convertible notes to Triumph Small Cap Fund Inc.. ("Triumph"), (one of
          the investors in the Accredited  Investor Purchase  Agreement referred
          to above) in the  principal  amount of $165,000  in  exchange  for the
          interest and  principal  outstanding  under the  Debenture  previously
          issued  Triumph under the terms of the  Accredited  Investor  Purchase
          Agreement.  The note (a) mature on April 30, 2008;  (b) bears interest
          at the rate of 8% per annum, which is payable on maturity of the notes
          and (c) is  convertible,  at  Triumph's  option,  into  shares  of the
          Company's  common  stock at a  conversion  price of $0.05  per  share,
          subject to a 9.99% conversion restriction.

The Company is in discussions with the holders of the remaining  Debentures with
a view to restructuring those debentures on terms to be agreed.

Royalty Participation Agreement

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

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

Secured Subordinated Convertible Loan Notes

On November  29, 2006,  the Company  issued a secured  subordinated  convertible
notes to Triumph,  in the principal  amount of $335,000 in  consideration of new
cash  advances  made to the Company by Triumph  subsequent  to July 31, 2006 and
prior to October 31, 2006.  This note (a) matures on April 30,  2008;  (b) bares
interest  at the rate of 8% per annum  which is payable on maturity of the notes
and (c) is convertible, at Triumph's option, into shares of the Company's common
stock at a conversion  price of $0.05 per share,  subject to a 9.99%  conversion
restriction.


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


Related Party Loan - Westek Limited

As more  fully  discussed  in Note 2, on  November  14,  2006  the  terms of our
$1,800,000  Promissory  Note with  Westek Ltd were  amended  to address  default
conditions  that had arisen.  Under the amended terms the Loan Note maturity has
been extended  until March 31, 2008 (from  September 30, 2006) and interest will
now be charged at 10% p.a.  from  October 1, 2006 which is payable  quarterly in
arrears.  Unpaid interest may, at the option of Westek, be converted into shares
of the Companies common Stock at a price of $ 0.05 per share.

In addition on October 2, 2006 Westek advanced  $50,000 to the Company by way of
a bridge loan. This amount is repayable on or before December 31, 2006, although
Westek has indicated that it currently does not plan to seek repayment until the
Company has  successfully  raised further equity  capital.  The loan is interest
free, unsecured and not convertible into equity.

Presentation in the Financial Statements

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

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

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

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



Total Amount Advanced                                    $      450,000
Interest Imputed from inception until October 31, 2006          $73,300
                                                         --------------
Included in Long Term Debt at October31, 2006                  $523,300
                                                         ==============

Accounting for September, 2005 Financing and subsequent restructurings

The  Principal  amount  of  unpaid  Loan  Notes  at  October  31,  2006 is shown
separately on the balance sheet as Notes Payable. The total is classified within
Long-term debt on the balance  sheet,  or, in the case of the amounts which fall
due to be paid before October 31, 2007,  within  Current  Liabilities as Current
Portion of Notes Payable.  In  determining  which amounts are classified as long
term and which are classified as current we have taken account of restructurings
which took place after October 31, 2007, described above. Further restructurings
are under discussion and negotiation with Debenture  holders which may result in
other amounts being reclassified from Current Liabilities to Long-term Debt.

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


                                   Amounts maturing during     Total Principal
                                  the year ended October 31      Outstanding
                                 ----------------------------  ---------------
                                         2007*         2008**
Montgomery Capital Partners            287,970                         287,970
Triumph Small Cap Fund                                500,000          500,000
Other Accredited Investors***          416,500                         416,500
                                 -------------  -------------  ---------------
Total Notes payable                    704,470        500,000        1,204,470
                                 =============  =============  ===============

*     Classified within Current Liabilities
**   Classified within Long Term Debt
*** As defined above

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

The amended Loan Note issued to Montgomery  Capital  Partners under the terms of
the  Settlement  Agreement  referred  to above  does not  bare  interest  and is
therefore  treated as being issued at a discount.  The discount rate used is the
rate of interest charged on the original  Debenture.  The principal value of the
Loan Note at October 31, 2006 ($348,000) is included in the balance sheet net of
the unamortized  discount (of $60,030) at $287,970.  The discount imputed on the
loan  is  offset  against  Additional  Paid in  Capital  and is  charged  to the
operating statement over the life of the Loan Note.

Note 10: Defaults upon Senior Securities

As  explained  in Note 10,  the  Company  has been  unable to pay  interest  and
principal repayments when due under the terms of its September,  2005 financing.
As of October 31, 2006, the arrears of due but unpaid  interest and penalties on
Debentures  that were in default was  $187,860 and the arrears of unpaid but due
principal on Debentures in default amounted to $416,500. As further explained in
Note 10 the Company is in discussion with the remaining Debenture holders with a
view to restructuring those and correcting the related defaults.


                                      F-17
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

Forward-Looking Statements

The  information in this quarterly  report contains  forward-looking  statements
within the meaning of the Private Securities litigation Reform Act of 1995. This
Act  provides  a "safe  harbor"  for  forward-looking  statements  to  encourage
companies to provide  prospective  information  about themselves so long as they
identify these statements as forward looking and provide  meaningful  cautionary
statements  identifying  important  factors that could cause  actual  results to
differ from the projected results. All statements other than these statements of
historical  fact made in this report are forward  looking.  In  particular,  the
statements herein regarding  industry prospects and future results of operations
or financial position are forward looking statements. Forward-looking statements
reflect  management's  current  expectations and are inherently  uncertain.  Our
actual results may differ significantly from management's expectations.

The following  discussion and analysis  should be read in  conjunction  with the
financial statements of In Veritas Medical Diagnostics, Inc., included herewith.
This  discussion  should not be  construed  to imply that the results  discussed
herein will necessarily continue into the future, or that any conclusion reached
herein will necessarily be indicative of actual operating results in the future.
Such discussion represents only the best present assessment of our management.

Plan of Operation

Overview

In Veritas Medical Diagnostics Inc. ("IVMD" or the "Company") specializes in the
field of near patient  medical  diagnostics,  also known as "point of care".  We
develop products to address conditions affecting large numbers of the population
which  are  aimed  at  transforming  their  lives,   quality  of  treatment  and
significantly  reducing  healthcare costs. We focus on developing products which
are designed to be accurate,  cost  effective,  easy to use, and  portable.  Our
products are designed to bring diagnosis into patients' hands.

We  operate  through  two wholly  owned  subsidiaries  located  in  England  and
Scotland,  both of which are  incorporated  under the Laws of England and Wales:
IVMD (UK) Limited and Jopejo Limited .

Our website is located at www.ivmd.com


                                       2
<PAGE>

Intellectual Property and Product Development

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

The  first  product  to be  completed  using  our  technology  is a  prothrombin
measurement device, which is used for the measurement of coagulation of blood in
patients at risk of heart disease and stroke.

The  prothrombin  measurement  device (the "PT  Device") was  developed  under a
research  and  development  contract  with  Inverness  Medical  Innovations  Inc
("IMI"),  which was  entered  in on  November  11,  2002 (the "IMI  Agreement").
Pursuant to the IMI Agreement,  we are entitled to two types of revenue streams:
(i)  billings to IMI for our  development  work  during the product  development
phase and (ii)  royalties  equal to 2% of net  revenues  from the sale of the PT
Device.  The product  development phase of the IMI Agreement has been completed.
Sales and  marketing  of the PT Device by IMI is  expected  to begin  during the
first  half of the 2007  calendar  year.  However,  IMI will  oversee  sales and
marketing of the prothrombin device and we will not have any influence over this
process.

We are developing additional hand held or portable products which are focused on
(a) the  measurement  and detection of pregnancy and labor and (b) the detection
of diseases and medical conditions using magnetic  detection  techniques applied
to  tissue  and  blood.  We  routinely  seek  to  identify   potential   product
applications which would benefit from our technology and know-how.

Results of Operations

Three Months Ended  October 31, 2006  compared to Three Months Ended October 31,
2005

Revenues

We did not generate any revenues during the three months ended October 31, 2006,
as compared to revenues of $352,993 for the three months ended October 31, 2005.
The  decline in  revenues is due to the  completion  of the produce  development
phase of our agreement with IMI. As explained  above,  the next phase of the IMI
agreement involves our receiving royalties from future sales of the PT Device by
IMI.  Additionally,  we are  seeking  to  enter  into  additional  research  and
development contracts.

Depreciation Expenses

Depreciation  expenses for the three months ended  October 31, 2006  amounted to
$3,700,  compared to $8,189 for the three  months ended  October 31,  2005.  The
decline is due to that fact that it has not been  necessary to replace or update
any of our fixed asset base which is adequate for our purposes and therefore the
depreciation charge continues to decline.

General & Administrative Expenses

General and administrative  expenses for the three months ended October 31, 2006
were  $168,891,  as compared to $187,005 for the three months ended  October 31,
2005.  This  change  reflects  efforts  to  reduce  general  and  administrative
expenses.

Sales and Marketing Expenses

We incurred $61,653 of sales and marketing costs in the three month period ended
October,  31, 2006 ( $Nil for the three month period ended  October,  31, 2005).
With the  conclusion  of the IMI  contract  we have the  capacity to explore new
commercial  contracts  to exploit our various  technologies  and these new costs
include general commercial and promotional  activity,  attendance at trade fairs
and  exhibitions  and  compensation  for our  business  development  manager and
associated costs. Several important commercial opportunities have been developed
from this new activity all of which are currently being followed through.

Research & Development Expenditure

During the three months ended  October 31, 2006,  we spent  $183,258 on research
and development compared to $273,398 during the three month period ended October
31, 2005.  In the three month period ended October 31, 2006 our R&D activity was
focused on preparing our new (post PT Device)  technology  for potential  future
product launches.  This activity focused on our Magnetic Strip Reader technology
and our Magnetic  Detection  technology.  By comparison,  during the three month
period ended October 31, 2005, our R&D  expenditure was focused on the PT Device
and was substantially higher because of the volume of outsourced R&D expenditure
required to develop the PT Device.

Stock Option Expense

As set forth in the financial  statements  and  accompanying  notes set forth in
Part I herein,  during the three month period ended October 31, 2006, we granted
stock  options to purchase  16,015,000  shares of our common stock to members of
our management team pursuant to our 2005 Incentive Stock Plan. By comparison, no
stock option  awards where made in the quarter  ended  October 31, 2005,  and an
aggregate of only 1,375,000 option grants were made in the two year period ended


                                       3
<PAGE>

July 31, 2006. We account for stock option  expense under the provisions of SFAS
No. 123(R)  whereby we value stock  options  using the Black Scholes  method and
spread the charge equally from the date of grant until the date that the options
vest, adjusting for options that we believe are unlikely to ever vest. 2,500,000
of the options  granted  during the three month  period  ended  October 31, 2006
vested on the grant date,  resulting  in an abnormal  charge of $162,000  during
that three month  period.  The  remaining  options  vested over various  periods
running up until  September 30, 2010 and the total charge for option  expense in
the three month period ended October 31, 2006  amounted to $223,843  compared to
$5,871 in the three month period ended October 31, 2005.

Net Income (Loss)

Net loss before other income and expense (which included  interest  expense) for
the three months ended October 31, 2006 was $664,824,  as compared to a net loss
of $178,486  for the three months  ended  October 31, 2005.  The increase in net
loss is attributable to (a) the completion of the product  development  phase of
the IMI Agreement, and (b) the grant of a significant number of stock options to
members of our management team.

Net loss (after  other  income and expense,  including  interest)  for the three
month period ended  October 31, 2006  amounted to $866,396  compared to $281,240
for the three month period ended October 31, 2005.  The increase in net loss was
due to the factors  discussed  above, as well as interest expense in the quarter
ended  October 31, 2006 amounted to $201,572 as compared to $44,961 in the three
month  period  ended  October 31,  2005.  The  increase  in interest  expense is
attributable  to  punitive   interest   charges  related  to  outstanding   debt
obligations  of the Company which were in default  during the three month period
ended October 31, 2006.

Liquidity and Capital Resources

We have incurred  operating losses since our inception.  At October 31, 2006, we
had an accumulated deficit from inception of $9,621,767. We are in default under
the  terms  of  certain  of our  credit  obligations  and are  operating  at the
forbearance  of our  creditors.  Our auditors,  in their report on our financial
statement for the fiscal year ended July 31, 2006,  have  expressed  substantial
doubt about our ability to continue as a going concern.

The Company's working capital needs include payment of salaries,  administrative
expenses, and research and development activities. At October 31, 2006, we had a
cash balance of $40,102 and current  liabilities  of  $2,482,213.  The Company's
cash balances at October 31, 2006 are not  sufficient to support  operations for
the next twelve  months and it is necessary  for the Company to continue to seek
one or more of the  following:  (i)  additional  financing in the form of equity
and/or debt, (ii) additional  grants from the U.K.  government and (iii) product
development  contracts with commercial  partners.  As explained in Note 9 to the
Unaudited  Condensed  Consolidated  Financial  Statements  (set  forth in Part I
herein) and further explained in the section below entitled "Recent Financings",
the Company has been active,  and  continues to be active,  is seeking to secure
new  sources of  financing.  However,  there can be no  assurance  that that any
additional financing will become available on terms that are acceptable to us.

Critical Accounting Policies

Principles of consolidation

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

Basis of presentation

Our research and  development  is conducted in Inverness,  Scotland  through our
subsidiaries: IVMD (UK) Limited and Jopejo Limited. Development-stage activities
consist of raising capital,  obtaining financing,  medical products research and
development and administrative matters.

We are a development  stage enterprise and have incurred losses since inception.
We had a net capital  deficit at October 31, 2006 of  $(4,919,277).  We also had
substantial  net current  liabilities at October 31, 2006 and we were in default
on  several  of our  Notes  Payable,  as  explained  in Item 3 of Part 2.  These
factors,  among others, raise substantial doubt about our ability to continue as
a going  concern,  in  common  with  many  development  stage  companies  in our
industry. Our plans to finance ongoing operations include the following:

(i) We continuously seek new financing in the form of equity and/or debt;
(ii) We have  restructured  certain  outstanding  notes which were in default at
October  31,  2006  (see Item 3 of Part II  herein)  and we are  discussing  the
possible restructuring of other notes that are in default;
(iii) We routinely pursue grants funding from the U.K. government;
(iv) We are  negotiating  new  product  development  contracts  with  commercial
partners focused on our latest technology;
(v) We anticipate  receipts of royalties  fromany future sales of the PT product
by IMI.

The favorable outcome of these various initiatives cannot be assured.


                                       4
<PAGE>

Use of Estimates

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

Research & Development Expenditure

Research & Development expenditure is written off as it is incurred.

Revenue Recognition


We recognize  revenue in accordance with SEC Staff  Accounting  Bulletin No. 104
"Revenue  Recognition  in Financial  Statements"  (SAB 104).  Arrangements  with
multiple  elements are  accounted for in  accordance  with Emerging  Issues Task
Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables,  or EITF
00-21. We consider this  methodology to be the most appropriate for our business
model and current revenue streams.

Currently our only revenue streams relate to research and development  contracts
under  which we enter into  collaborative  agreements  with  medical  technology
companies  where the other party  generally  receives  exclusive  marketing  and
distribution rights for certain products for set time periods and set geographic
areas. The terms of the  collaborative  agreements  typically include funding of
certain research and development efforts and royalties on product sales.

Revenue from research  funding is recognized when the services are performed and
is  typically  based on the fully  burdened  cost of a  researcher  working on a
collaboration plus reimbursement of other costs incurred

Currently  we receive  revenue  mainly from  contracts  which we enter into with
commercial  partners who work with us to develop new  products  which employ our
core technology.  This revenue is generally in the form of contribution  towards
development  costs that we incur and is  accounted  for in  accordance  with the
underlying  contracts.  In the future we anticipate  the nature of our principle
revenues changing from contribution  towards development  expenditure to royalty
income from developed  products,  this change will not take place until products
that are currently in  development  have been completed and are taken to market.
Whilst there can be no assurance we currently expect our first royalty income to
commence in the last quarter of 2006.

Recent Financings and Restructurings

Termination, Settlement, and Forbearance Agreement

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

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

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

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


                                       5
<PAGE>

Pursuant to the Settlement AFgreement, the parties agreed to the following
principal terms:

o    The Company shall pay Montgomery an aggregate of $348,000.00  (the "Funds")
     which  represents  all amounts owed by the Company to Montgomery  under the
     Debenture  as of  the  date  hereof  including  outstanding  principal  and
     interest. The Company shall pay the Funds to Montgomery monthly at the rate
     of  $29,000.00  ("Monthly  Payment")  per  calendar  month,  with the first
     payment  being due and  payable on November  15,  2006 and each  subsequent
     payment being due and payable on the first business day of each  subsequent
     month until the Funds are repaid in full.
o    Montgomery  shall  continue  to  have  valid,   enforceable  and  perfected
     first-priority  liens upon and security  interests in the Pledged  Property
     and  the  Pledged  Shares  (each  as  defined  in  the  Purchase  Agreement
     transaction  documents)  and in the Financial  Statements set out in Part 1
     above.
o    The Company  and  Montgomery  agree that during the term of the  Settlement
     Agreement,  the  Debenture  shall not bear any interest  and no  liquidated
     damages shall accrue under any of the financing documents.
o    The  Conversion  Price  (as set  forth in the  Debenture)  in effect on any
     Conversion  Date (as set  forth in the  Debenture)  from and after the date
     hereof shall be adjusted to equal $0.05, which may be subsequently adjusted
     pursuant to the other terms of the Debenture.
o    Montgomery  shall  retain  the  Warrants  issued  in  accordance  with  the
     Securities Purchase Agreement.
o    The Company and Cornell agree to terminate the  Distribution  Agreement and
     related transaction  documents and related penalties and redemption premium
     payments  lapse  provided  that the Company  complies with the terms of the
     amended terms described above.
o    Cornell shall retain the 472,000 shares of the Company's common stock.

Westek Loan Amendment

On November 21, 2006, In Veritas  Medical  Diagnostics,  Inc. and Westek Limited
entered into an amendment (the  "Amendment")  to the Loan Agreement  dated as of
June,  2004 (the "Loan").  Pursuant to the  Amendment,  the maturity date of the
Loan has been  extended to March 31, 2008,  and interest will accrue at the rate
of 10% beginning in October 2007. The Loan has an outstanding  principal balance
of $1,800,000.

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

Triumph Loan Restructuring

On November 29, 2006,  the Company issued two secured  subordinated  convertible
notes to Triumph  Small Cap Fund,  Inc.  ("Triumph")  in an aggregate  principal
amount of  $440,000.  The first note,  in a principal  amount of  $275,000,  was
issued in  consideration  of cash advances made to the Company by Triumph during
the three month period ended  October 31, 2006.  The second note, in a principal
amount of  $165,000,  was  issued in  exchange  for a secured  convertible  note
previously issued to a designee of Triumph.  The notes bear interest at the rate
of 8% per annum and  mature on April 30,  2008.  The notes are  convertible,  at
Triumph's  option,  into shares of the  Company's  common  stock at a conversion
price of $0.05 per share, subject to a 9.99% conversion restriction.

Subsequently,  on December 8, 2006,  the  Company  and Triumph  entered  into an
addendum  pursuant to which the principal amount of the first note was increased
from $275,000 to $335,000.

Royalty Participation Agreement

On May 5,  2006,  we  completed  the sale of a  percentage  of future  royalties
pursuant to a Royalty  Participation  Agreement (the "Agreement") with The Rubin
Family  Irrevocable  Stock  Trust.  The  royalties  to be paid  pursuant  to the
Agreement are derived from the Patent License  Agreement with Inverness  Medical
Innovations,  Inc.  (the "IMI  Agreement")  pursuant to which the  Company  will
receive royalties from the sale of a Prothrombin blood clotting measuring device
(the  "IMI   Royalties).   The  IMI  Agreement  is  further   described  in  the
"Organization and Basis of Presentation"  section of these financial statements.
On November 29, 2006 the Company  entered into a similar  agreement with Triumph
Small Cap Fund,  Inc. in  consideration  of cash advances made to the Company by
Triumph during June and July 2006.

Pursuant  to the two royalty  participation  agreements,  the  Company  received
aggregate  proceeds of $450,000 in exchange for 10% of the future IMI  Royalties
received by the Company,  subject to the terms and  conditions  set forth in the
two agreements.  Pursuant to the two agreements, the IMI Royalties shall be paid
to The Rubin Family Irrevocable Stock Trust and Triumph ("The Investors") within
15 days of the end of the  month  in  which  the  Company  receives  future  IMI
Royalties.  The Company has the option to terminate  the  Agreement at any time,
without penalty,  by making a lump sum payment to the Investors equal to 300% of
the funds received from the Investors pursuant to the Agreement,  or $1,350,000.
If no royalties  are paid to the  Investors by December 31, 2007, or if $450,000
of royalties  are not made by December 31, 2008,  the  Investors  shall have the
right to convert the  advances  made into a three year note with a face value of
$1,350,000 accruing interest at 4% above prime and repayable at maturity.

Off Balance Sheet Arrangements

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

Recent Accounting Pronouncements

Statement of Financial  Accounting  Standards No. 123 (revised 2004) Share-Based
Payment (SFAS 123R) establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services.  It also


                                       6
<PAGE>

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

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

ITEM 3. CONTROLS AND PROCEDURES

(a)  Evaluation  of  Disclosure  Controls and  Procedures.  As of the end of the
period covered by this report, we conducted an evaluation, under the supervision
and with the  participation  of our chief executive  officer and chief financial
officer of our disclosure  controls and procedures (as defined in Rule 13a-15(e)
and Rule 15d-15(e) of the Exchange Act). Based upon this  evaluation,  our chief
executive  officer and chief  financial  officer  concluded  that our disclosure
controls and procedures are effective to ensure that information  required to be
disclosed  by us in the reports that we file or submit under the Exchange Act is
recorded, processed,  summarized and reported, within the time periods specified
in the Commission's rules and forms.

(b) Changes in internal  controls.  There was no change in our internal controls
or in other  factors  that could affect  these  controls  during our last fiscal
quarter that has  materially  affected,  or is  reasonably  likely to materially
affect, our internal control over financial reporting.

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

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In Veritas is not a party to any pending legal  proceeding,  nor is its property
the subject of a pending legal proceeding, that is not in the ordinary course of
business  or  otherwise  material  to the  financial  condition  of In  Veritas'
business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

At October 31, 2006 we were in default under the terms of several notes payable.
The total  principal  and interest due but not paid under these notes at October
31, 2006 were  $2,356,500 (of which  $1,940,000 has been  restructured - see `C'
below), and $187,866 respectively.

The notes in default were as follows:


                                        7
<PAGE>
<TABLE>
<CAPTION>
A.

<S>                                            <C>                          <C>
-------------------------------------- --------------------- --------------------------------------------
Type of Security                       Maturity Date         Principal Amount (not including interest)
-------------------------------------- --------------------- --------------------------------------------
Secured Convertible Note               September 7, 2006     $200,000
-------------------------------------- --------------------- --------------------------------------------

The lender of this note has served notice on us demanding  repayment of the full
amount due under the note.  Subsequent  to the receipt of this demand  notice we
have  entered  into  negotiations  with the note  holder with the  objective  of
restructuring the debt outstanding.

B.

-------------------------------------- --------------------- --------------------------------------------
Type of Security                       Maturity Date         Principal Amount (not including interest)
-------------------------------------- --------------------- --------------------------------------------
Secured Convertible Note               September 7, 2006     $201,500
-------------------------------------- --------------------- --------------------------------------------
Secured Convertible Note               September 7, 2006     $15,000
-------------------------------------- --------------------- --------------------------------------------

These notes Fremain in default although no formal default notice has been served
on the Company.

C.

-------------------------------------- --------------------- --------------------------------------------
Type of Security                       Maturity Date         Principal Amount (not including interest)
-------------------------------------- --------------------- --------------------------------------------
Secured Convertible Note               September 30, 2006    $1,800,000
-------------------------------------- --------------------- --------------------------------------------
Secured Convertible Note               September 7, 2006     $140,000
-------------------------------------- --------------------- --------------------------------------------
</TABLE>

These loans have been restructured  subsequent to October 31, 2006, as explained
in further detail in the Financial Statements contained in Part I herein.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

EXHIBITS

31.1      Certification by Graham Cooper, President and Chief Executive Officer,
          pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2      Certification by Martin Thorp,  Chief Financial  Officer,  pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002.
32.1      Certification by Graham Cooper, President and Chief Executive Officer,
          pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2      Certification by Martin Thorp,  Chief Financial  Officer,  pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002.


                                       8
<PAGE>

ITEM 7. SIGNATURES

                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                  IN VERITAS MEDICAL DIAGNOSTICS, INC.

December 15, 2006



                                    By: /s/ Graham Cooper
                                        --------------------------
                                        Graham Cooper
                                        Chief Executive Officer

                                        /s/ Martin E. Thorp
                                        --------------------------
                                        Martin E. Thorp
                                        Chief Financial Officer


                                       9