**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-QSB**

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

**[      ] 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.**

|                  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) |

**APPLICABLE      ONLY TO CORPORATE ISSUERS**

----

|                                                                                              |   |   |   |
|---------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                              |   | Page   |   |
|                                                                                              |   |   |   |
| PART                I - FINANCIAL INFORMATION                                                     |   |   |   |
|                                                                                              |   |   |   |
| Item                1. Financial Statements.                                                      |   | F-1    |   |
|                                                                                              |   |   |   |   |
| Item                2. Management's Discussion and Analysis or Plan of                Operations. |   |   | 3      |   |
|                                                                                              |   |   |   |   |
| 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                                            |   |   | 8      |   |
|                                                                                              |   |   |   |   |
| Item                4. Submission of Matters to a Vote of Security Holders.                       |   |   | 8      |   |
|                                                                                              |   |   |   |   |
| Item                5. Other Information                                                          |   |   | 8      |   |
|                                                                                              |   |   |   |   |
| Item                6. Exhibits.                                                                  |   |   | 8      |   |
|                                                                                              |   |   |   |   |
| Signatures.                                                                                       |   |   | 9      |   |

----

 

|                                                                                                                                        |                                                                                                           | **Page** |
|---------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                        |                                                                                                           |     |
| Unaudited                  Consolidated Balance Sheet at October 31, 2007                                                                   | F-2                                                                                                            |
|                                                                                                                                        |                                                                                                           |     |
| Unaudited                  Consolidated Statements of Operations for the three months                  ended                                |                                                                                                           |
|                                                                                                                                        | October                  31, 2007 and 2006 and for the period from March 26, 1997                  (Inception) |     |
|                                                                                                                                        | through                  October 31, 2007                                                                      | F-3      |
|                                                                                                                                        |                                                                                                           |     |
| Unaudited                  Consolidated Statements of Accumulated Other Comprehensive                  Loss                                 |                                                                                                           |
|                                                                                                                                        | for                  the three months ended October 31, 2007 and 2006 and for the                  period      |     |
|                                                                                                                                        | from                  March 26, 1997 (Inception) through July 31, 2007                                         | F-4      |
|                                                                                                                                        |                                                                                                           |     |
| Unaudited                  Consolidated Statement of Changes in Shareholders' Deficit for                  the period                  from |                                                                                                           |
|                                                                                                                                        | March                  26, 1997 (Inception) through October 31, 2007                                           | F-5      |
|                                                                                                                                        |                                                                                                           |     |
| Unaudited  Consolidated                  Statements of Cash Flows for the three months ended                                 |                                                                                                           |
|                                                                                                                                        | October                  31, 2007 and 2006 and for the period from March 26, 1997                  (inception) |     |
|                                                                                                                                        | through                  October 31, 2007                                                                      | F-6      |
|                                                                                                                                        |                                                                                                           |     |
| Notes                  to the Consolidated Financial Statements                                                                             | F-7                                                                                                            |
|                                                                                                                                        |                                                                                                           |     |
|                                                                                                                                        |                                                                                                           |     |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated        Balance Sheet**

**October         31, 2007**

**(unaudited**

|                                                                                                      |   |                           |        |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------|-------------|
|                                                                                                      |   |                           |        |
|                                                                                                      |   |                           |        |
|                                                                                                      |   | **October                31,** |        |
|                                                                                                      |   | **2007**                       |        |
| **Assets**                                                                                                |   |                           |        |
| Current                assets:                                                                            |   |                           |        |
| Prepaid                expenses and other                                                                 |   | $                              | 16,937      |   |
| Total                current assets                                                                       |   |                           | 16,937      |   |
| Property                and equipment, net (note 3)                                                       |   |                           | 4,645       |   |
| Intangible                assets:                                                                         |   |                           |        |   |
| Patent                costs (note 4)                                                                      |   |                           | 129,491     |   |
|                                                                                                      |   |                           |        |   |
|                                                                                                      |   | $                              | 151,073     |   |
|                                                                                                      |   |                           |        |   |
| **Liabilities                and Shareholders’ Deficit**                                            |   |                           |        |   |
|                                                                                                      |   |                           |        |   |
| Current                liabilities:                                                                       |   |                           |        |   |
| Accounts                payable                                                                           |   | $                              | 1,307,434   |   |
| Overdraft                                                                                                 |   |                           | 1,233       |   |
| Accrued                interest payable                                                                   |   |                           | 838,474     |   |
| Accrued                liabilities                                                                        |   |                           | 996,246     |   |
| Indebtedness                to related parties (note 2)                                                   |   |                           | 215,163     |   |
| Current                portion of Long Term Notes Payable                                                 |   |                           |        |   |
| (net                of unamortized discount of $60,064) (note 9)                                          |   |                           | 1,263,736   |   |
| Notes                payable, related party (net of discount) (note 9)                                    |   |                           | 1,800,000   |   |
| Short                term advance from Related Party (note 9)                                             |   |                           | 528,888     |   |
| Short                term advance                                                                         |   |                           | 80,000      |   |
| Total                current liabilities                                                                  |   |                           | 7,031,174   |   |
|                                                                                                      |   |                           |        |   |
| Long-term                debt:                                                                            |   |                           |        |   |
| Royalty                Participation Agreement advances (note 9)                                          |   |                           | 718,202     |   |
| Total                liabilities                                                                          |   |                           | 7,749,376   |   |
|                                                                                                      |   |                           |        |   |
| 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                5) |   |                           | 34,344      |   |
| Common                stock, $.001 par value, 500,000,000 shares authorized,                              |   |                           |        |   |
| 86,103,457                shares issued, 25,685,000 held in escrow, and                                   |   |                           |        |   |
| 60,418,457                shares outstanding                                                              |   |                           | 86,103      |   |
| Stock                issued as security for convertible debentues (note 9)                                |   |                           | (3,339,050  | ) |
| Additional                paid-in capital                                                                 |   |                           | 9,255,183   |   |
| Accumulated                other comprehensive loss- foreign currency adjustment                          |   |                           | (552,725    | ) |
| Deficit                accumulated during the development stage                                           |   |                           | (13,082,158 | ) |
|                                                                                                      |   |                           |        |   |
| Total                shareholders' deficit                                                                |   |                           | (7,598,303  | ) |
|                                                                                                      |   |                           |        |   |
|                                                                                                      |   | $                              | 151,073     |   |
|                                                                                                      |   |                           |        |   |
|                                                                                                      |   |                           |        |   |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated        Statements of Operation**

**(unaudited**

|                                                      |   |                                                  |       |   |                         |   |       |                            |   |
|-----------------------------------------------------------|--------|-------------------------------------------------------|------------|--------|------------------------------|--------|------------|---------------------------------|--------|
|                                                      |   |                                                  |       |   |                         |   |       | March                  26, 1997 |   |
|                                                      |   |                                                  |       |   |                         |   |       | (Inception)                     |   |
|                                                      |   | Three                  months ended    |       |   | Through                      |   |
|                                                      |   | October                  31,           |       |   | October                  31, |   |
|                                                      |   | 2007                                                  |       |   | 2006                         |   |       | 2007                            |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |
| Net                  sales and gross revenues:            |   |                                                  |       |   |                         |   |       |                            |   |
| Net                  sales                                |   | $                                                     | —    |   |                         | $      | —    |                            |   | $ | 3,571,807 |   |
| Cost                  of sales                            |   |                                                  | —    |   |                         |   | —    |                            |   |   | 242,097 |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Gross                  profit                             |   |                                                  | —    |   |                         |   | —    |                            |   |   | 3,329,710 |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Operating                  expenses:                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Research                  and development                 |   |                                                  | 203,426    |   |                         |   | 183,258    |                            |   |   | 5,904,474 |   |
| Legal                  & Professional                 |   |                                                  | 3,962      |   |                         |   | 27,179     |                            |   |   | 1,398,605 |   |
| Selling                  and marketing                    |   |                                                  | —    |   |                         |   | 61,653     |                            |   |   | 622,750 |   |
| General                  and administrative               |   |                                                  | 160,223    |   |                         |   | 392,734    |                            |   |   | 5,645,171 |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Total                  operating expenses                 |   |                                                  | 367,611    |   |                         |   | 664,824    |                            |   |   | 14,376,544 |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Loss                  from operations                     |   |                                                  | (367,611   | )      |                         |   | (664,824   | )                               |   |   | (11,046,834 | ) |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Nonoperating                  income (expense):           |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| UK                  government grant (Note 1)             |   |                                                  | —    |   |                         |   | —    |                            |   |   | 291,400 |   |
| Interest                  expense                         |   |                                                  | (288,414   | )      |                         |   | (201,572   | )                               |   |   | (1,900,277 | ) |
| Loan                  Finance issue costs                 |   |                                                  | —    |   |                         |   | —    |                            |   |   | (708,279 | ) |
| Costs                  of aborted financing               |   |                                                  | —    |   |                         |   | —    |                            |   |   | (113,400 | ) |
| Compensation                  payment to former director  |   |                                                  | —    |   |                         |   | —    |                            |   |   | (135,000 | ) |
| Gain                  (loss) on foreign exchange          |   |                                                  | —    |   |                         |   | —    |                            |   |   | (132,378 | ) |
| Gain                  (loss) from extinguishments of debt |   |                                                  | —    |   |                         |   | —    |                            |   |   | 662,610 |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Loss                  before income taxes                 |   |                                                  | (656,025   | )      |                         |   | (866,396   | )                               |   |   | (13,082,158 | ) |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Income                  tax provision                     |   |                                                  | —    |   |                         |   | —    |                            |   |   | — |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Net                  loss                                 |   | $                                                     | (656,025   | )      |                         | $      | (866,396   | )                               |   | $ | (13,082,158 | ) |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Loss                  applicable to common stock          |   | $                                                     | (656,025   | )      |                         | $      | (866,396   | )                               |   |   |   |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Basic                  and diluted loss per share         |   | $                                                     | (0.011     | )      |                         | $      | (0.02      | )                               |   |   |   |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| Weighted                  average number of common shares |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
| outstanding                                               |   |                                                  | 60,266,402 |   |                         |   | 57,053,457 |                            |   |   |   |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |
|                                                      |   |                                                  |       |   |                         |   |       |                            |   |   |   |   |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated        Statements of Accumulated Other Comprehensive Loss**

**(unaudited**

|                                                   |   |                                      |     |   |    |   |     | March                  26, 1997 |   |
|--------------------------------------------------------|--------|-------------------------------------------|----------|--------|---------|--------|----------|---------------------------------|--------|
|                                                   |   |                                      |     |   |    |   |     | (Inception)                     |   |
|                                                   |   | Three                  month period ended |     |   | Through |   |
|                                                   |   | October                  31,              |     |   |    |   |     | October                  31,    |   |
|                                                   |   | 2007                                      |     |   | 2006    |   |     | 2007                            |   |
|                                                   |   |                                      |     |   |    |   |     |                            |   |
| Net                  loss                              |   | $                                         | (656,025 | )      |    | $      | (866,396 | )                               |   | $ | (13,082,158 | ) |
|                                                   |   |                                      |     |   |    |   |     |                            |   |   |   |   |
| Other                  comprehensive loss, net of tax: |   |                                      |     |   |    |   |     |                            |   |   |   |   |
| Cumulative                  translation adjustment     |   |                                      | (69,613  | )      |    |   | 39,911   |                            |   |   | (552,725 | ) |
|                                                   |   |                                      |     |   |    |   |     |                            |   |   |   |   |
| Comprehensive                  loss                    |   | $                                         | (725,638 | )      |    | $      | (826,485 | )                               |   | $ | (13,634,883 | ) |
|                                                   |   |                                      |     |   |    |   |     |                            |   |   |   |   |
|                                                   |   |                                      |     |   |    |   |     |                            |   |   |   |   |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated        Statements of Changes in Shareholders' Deficit**

**(unaudited)**

|                                                                                                                                  |   |   | Preferred                  Stock Outstanding    |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       | Accumulated                     |   |   | Accumulated                  |    |   |        |      |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------|---------|--------|---------------------------------------------|---------|---------|-------------------------------|--------|----------|----------------------------|--------|--------|---------|---------|--------|-------------|------------|---------|-----------------------------------------------------|--------|------------|---------------------------------|--------|--------|------------------------------|---------|--------|-------------|-----------|
|                                                                                                                                  |   |   | Series                  A                       |    |   | Series                  B    |    |    | Common                  Stock |   |     |                       |   |   |    |    |   | Additional  |       |    |                  Stock                  issued |   |       | Deficit                  During |   |   | Other                        |    |   |        |      |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   | Shares  |    |   |        |       |    |                                                |   |       | paid-in                         |   |   |                         |    |   | Development |      |   | Comprehensive |   |   |   |   |
|                                                                                                                                  |   |   | Shares                                                         |    |   | Par                  Value                  |    |    | Shares                        |   |     | Par                  Value |   |   | Issued  |    |   | Outstanding |       |    | Par                  Value                          |   |       | capital                         |   |   | as                  security |    |   | Stage       |      |   | Loss |   |   | Total |   |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |
| Balance,                  March 26, 1997                                                                                              |   |   | —                                                        |    |   | $                                           | — |    |                          |   | —  |                       |   | $      | — |    |   |        | —    |    |                                                |   | —    |                            |   | $      | —                      |    |   | $           | —   |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | - |   |
| October                  2000, sale of stock, ($0.0035/share)                                                                         |   |   | 4,366,377                                                      |    |   |                                        | 4,366   |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 10,874    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 15,240 |   |
| December                  2001, sale of stock, ($0.0035/share)                                                                        |   |   | 6,545,703                                                      |    |   |                                        | 6,546   |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 16,301    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 22,847 |   |
| October                  2001, sale of stock, ($0.0202/share)                                                                         |   |   | 23,431,582                                                     |    |   |                                        | 23,432  |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 448,906   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 472,338 |   |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       | — |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign                  currency                                                                                                     |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| translation                  adjustment                                                                                               |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | —   |   |   |   | — |   |   |   | — |   |   |   | 21,203 |   |   |   | 21,203 |   |
| Net                  loss                                                                                                             |   |   |                                                           | — |   |                                        |    | — |                          |   |     | —                    |   |   |    | — |   |        |       | — |                                                |   |       | —                         |   |   |                         | — |   |        |      | — |   |   |   | — |   |   |   | (1,350,829 | ) |   |   | — |   |   |   | (1,350,829 | ) |
| Balance,                  July 31, 2001                                                                                               |   |   | 34,343,662                                                     |    |   |                                        | 34,344  |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 476,081   |   |   |   | — |   |   |   | (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                                                                                               |   |   | 34,343,662                                                     |    |   |                                        | 34,344  |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 476,081   |   |   |   | — |   |   |   | (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                                                                                               |   |   | 34,343,662                                                     |    |   |                                        | 34,344  |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 476,081   |   |   |   | — |   |   |   | (3,438,810 | ) |   |   | (304,565 | ) |   |   | (3,232,950 | ) |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       | — |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Merger                  with HEMP (Note 8)                                                                                            |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 38,397,164 |    |                                                |   | 38,397,164 |                            |   |   | 38,397                       |    |   |        | (29,397   | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 9,000 |   |
| July                  2004, merger with SIPC                                                                                          |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 10,550,000 |    |                                                |   | 10,550,000 |                            |   |   | 10,550                       |    |   |        | (10,688   | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (138 | ) |
| July                  2004, issuance of common                                                                                        |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stock                  for bridge loans, ($0.2750/share)                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 1,636,233  |    |                                                |   | 1,636,233  |                            |   |   | 1,636                        |    |   |        | 448,364   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 450,000 |   |
| July                  2004, issuance of common                                                                                        |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stock                  for services, ($0.4093/share)                                                                                  |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 239,289    |    |                                                |   | 239,289    |                            |   |   | 239                          |    |   |        | 97,702    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 97,941 |   |
| Foreign                  currency                                                                                                     |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| translation                  adjustment                                                                                               |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | —   |   |   |   | — |   |   |   | — |   |   |   | (339,570 | ) |   |   | (339,570 | ) |
| Reclassification                  of debt forgiveness                                                                                 |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| by                  Westek (Notes 2 and 9)                                                                                            |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 2,030,298 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,030,298 |   |
| Net                  loss                                                                                                             |   |   |                                                           | — |   |                                        |    | — |                          |   |     | —                    |   |   |    | — |   |        |       | — |                                                |   |       | —                         |   |   |                         | — |   |        |      | — |   |   |   | — |   |   |   | (1,016,972 | ) |   |   | — |   |   |   | (1,016,972 | ) |
| Balance,                  July 31, 2004                                                                                               |   |   | 34,343,662                                                     |    |   |                                        | 34,344  |    |                          |   | —  |                       |   |   | — |    |   |        | 50,822,686 |    |                                                |   | 50,822,686 |                            |   |   | 50,822                       |    |   |        | 3,012,360 |   |   |   | — |   |   |   | (4,455,782 | ) |   |   | (644,135 | ) |   |   | (2,002,391 | ) |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| August                  2004, additional paid in capital from bridge                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| loans                  exchanged for shares                                                                                           |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 17,495    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 17,495 |   |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       | — |                                                |   |       | —                         |   |   |                         | — |   |        |      | (6,000 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (6,000 | ) |
| Conversion                  of Preferred Stock into Debenture                                                                         |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 694,550    |    |                                                |   | 694,550    |                            |   |   | 695                          |    |   |        | 427,695   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 428,390 |   |
| December                  2004, issuance of stock for interest on                                                                     |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 60,096     |    |                                                |   | 60,096     |                            |   |   | 60                           |    |   |        | 76,100    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 76,160 |   |
| bridge                  loan                                                                                                          |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March                  2005, issuance of stock for services                                                                           |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 100,000    |    |                                                |   | 100,000    |                            |   |   | 100                          |    |   |        | 62,880    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 62,980 |   |
| April                  2005, issuance of stock warrants for                                                                           |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| services                                                                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 17,295    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 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   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 303,505 |   |
| April                  2005, issuance of stock for                                                                                    |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| debt                  forgiveness                                                                                                     |   |   | —                                                        |    |   |                                        | — |    |                          |   | 246,152  |                       |   |   | 246     |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 159,754   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 160,000 |   |
| June                  2005, issuance of stock options for                                                                             |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| services                                                                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 35,403    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 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    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 35,408 |   |
| July                  2005, issuance of stock for conversion                                                                          |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of                  debt                                                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 1,162,791  |    |                                                |   | 1,162,791  |                            |   |   | 1,163                        |    |   |        | 278,047   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 279,210 |   |
| Foreign                  currency translation adjustment                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | —   |   |   |   | — |   |   |   | — |   |   |   | 274,643 |   |   |   | 274,643 |   |
| Net                  loss                                                                                                             |   |   |                                                           | — |   |                                        |    | — |                          |   |     | —                    |   |   |    | — |   |        |       | — |                                                |   |       | —                         |   |   |                         | — |   |        |      | — |   |   |   | — |   |   |   | (2,450,792 | ) |   |   | — |   |   |   | (2,450,792 | ) |
| Balance                  July 31, 2005                                                                                                |   |   | 33,042,484                                                     |    |   |                                        | 33,043  |    |                          |   | 863,844  |                       |   |   | 864     |    |   |        | 54,261,301 |    |                                                |   | 54,261,301 |                            |   |   | 54,261                       |    |   |        | 4,419,204 |   |   |   | — |   |   |   | (6,906,574 | ) |   |   | (369,492 | ) |   |   | (2,768,694 | ) |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion                  of common stock into debentures                                                                           |   |   | —                                                        |    |   |                                        | — |    |                          |   | (863,844 | )                          |   |   | (864    | )       |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | (555,636  | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (556,500 | ) |
|  (Note                  10)                                                                                                      |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 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                                                                   |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 25,685,000 |    |                                                |   | —    |                            |   |   | 25,685                       |    |   |        | 3,313,365 |   |   |   | (3,339,050 | ) |   |   | — |   |   |   | — |   |   |   | - |   |
|  (Notes                  5 and 10)                                                                                               |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock                  Issued for services (August 2005)                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 28,000     |    |                                                |   | 28,000     |                            |   |   | 28                           |    |   |        | 3,612     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 3,640 |   |
| Stock                  Issued for services (August 2005)                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 472,000    |    |                                                |   | 472,000    |                            |   |   | 472                          |    |   |        | 60,888    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 61,360 |   |
| Stock                  Issued for services (September 2005)                                                                           |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 805,000    |    |                                                |   | 805,000    |                            |   |   | 805                          |    |   |        | 132,020   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 132,825 |   |
| Stock                  Issued for services (September, 2005)                                                                          |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 750,000    |    |                                                |   | 750,000    |                            |   |   | 750                          |    |   |        | 254,250   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 255,000 |   |
| Stock                  Issued for services (May 2006)                                                                                 |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 875,000    |    |                                                |   | 875,000    |                            |   |   | 875                          |    |   |        | 86,625    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 87,500 |   |
| Stock                  Issued for services (June 2006)                                                                                |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 83,334     |    |                                                |   | 83,334     |                            |   |   | 83                           |    |   |        | 8,251     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 8,334 |   |
| Foreign                  currency translation adjustment                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | —   |   |   |   | — |   |   |   | — |   |   |   | (79,486 | ) |   |   | (79,486 | ) |
| January,                  2006, Issuance of stock options for                                                                         |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  services                                                                                                                        |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 62,379    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 62,379 |   |
| September                  2006 issuance of stock warrants                                                                            |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  in                  connection with financing                                                                                   |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 45,164    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 45,164 |   |
| Net                  loss                                                                                                             |   |   |                                                           | — |   |                                        |    | — |                          |   |     | —                    |   |   |    | — |   |        |       | — |                                                |   |       | —                         |   |   |                         | — |   |        |      | — |   |   |   | — |   |   |   | (1,848,797 | ) |   |   | — |   |   |   | (1,848,797 | ) |
| Balance                  July 31, 2006                                                                                                |   |   | 34,343,662                                                     |    |   |                                        | 34,344  |    |                          |   | —  |                       |   |   | — |    |   |        | 81,658,457 |    |                                                |   | 55,973,457 |                            |   |   | 81,658                       |    |   |        | 7,830,122 |   |   |   | (3,339,050 | ) |   |   | (8,755,370 | ) |   |   | (448,977 | ) |   |   | (4,597,275 | ) |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount                  on issue of loan note (Note 10)                                                                             |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 62,640    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 62,640 |   |
| Issuance                  of stock for services (October, 2006)                                                                       |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 1,000,000  |    |                                                |   | 1,000,000  |                            |   |   | 1,000                        |    |   |        | 67,000    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 68,000 |   |
| Issuance                  of stock for services (October, 2006)                                                                       |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 1,250,000  |    |                                                |   | 1,250,000  |                            |   |   | 1,250                        |    |   |        | 148,749   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 149,999 |   |
| October,                  2006 issuance of stock options for services                                                                 |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 223,844   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 223,844 |   |
| Foreign                  currency translation adjustment                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | —   |   |   |   | — |   |   |   | — |   |   |   | (34,135 | ) |   |   | (34,135 | ) |
| Net                  Loss                                                                                                             |   |   |                                                           | — |   |                                        |    | — |                          |   |     | —                    |   |   |    | — |   |        |       | — |                                                |   |       | —                         |   |   |                         | — |   |        |      | — |   |   |   | — |   |   |   | (3,670,764 | ) |   |   | — |   |   |   | (3,670,764 | ) |
| Partial                  conversion of Convertible Loan Note into Common Stock (Dec. 2006)                  (Note                  6) |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 1,000,000  |    |                                                |   | 1,000,000  |                            |   |   | 1,000                        |    |   |        | 49,000    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 50,000 |   |
| Stock                  Option Expense                                                                                                 |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 466,624   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 466,624 |   |
| Beneficial                  conversion discount underlying Convertible Loan Notes (Notes 2&                  9)                   |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 283,874   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 283,874 |   |
| Stock                  issued for services (December 2006)                                                                            |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 850,000    |    |                                                |   | 850,000    |                            |   |   | 850                          |    |   |        | 51,000    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 51,850 |   |
| Cashless                  conversion - Montgomery                                                                                     |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | 345,000    |    |                                                |   | 345,000    |                            |   |   | 345                          |    |   |        | (345      | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | - |   |
| Imputed                  discount cancelled due to loan default                                                                       |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | (62,640   | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (62,640 | ) |
| Balance                  July 31, 2007                                                                                                |   |   | 34,343,662                                                     |    |   |                                        | 34,344  |    |                          |   | —  |                       |   |   | — |    |   |        | 86,103,457 |    |                                                |   | 60,418,457 |                            |   |   | 86,103                       |    |   |        | 9,119,868 |   |   |   | (3,339,050 | ) |   |   | (12,426,134 | ) |   |   | (483,112 | ) |   |   | (7,007,981 | ) |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  Loss for the period                                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | —   |   |   |   | — |   |   |   | (656,025 | ) |   |   | — |   |   |   | (656,025 | ) |
| Foreign                  currency translation adjustment                                                                              |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | —   |   |   |   | — |   |   |   | — |   |   |   | (69,613 | ) |   |   | (69,613 | ) |
| Stock                  Option Expense                                                                                                 |   |   | —                                                        |    |   |                                        | — |    |                          |   | —  |                       |   |   | — |    |   |        | —    |    |                                                |   | —    |                            |   |   | —                      |    |   |        | 135,315   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 135,315 |   |
| Balance                  October 31, 2007 (unaudited)                                                                                 |   |   | 34,343,662                                                     |    |   | $                                           | 34,344  |    |                          |   | —  |                       |   | $      | — |    |   |        | 86,103,457 |    |                                                |   | 60,418,457 |                            |   | $      | 86,103                       |    |   | $           | 9,255,183 |   |   | $ | (3,339,050 | ) |   | $ | (13,082,158 | ) |   | $ | (552,725 | ) |   | $ | (7,598,303 | ) |
|                                                                                                                                  |   |   |                                                           |    |   |                                        |    |    |                          |   |     |                       |   |   |    |    |   |        |       |    |                                                |   |       |                            |   |   |                         |    |   |        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated        Statements of Cash Flows**

**(unaudited)**

|                                                               |   |                                           |     |   |                         |   |     | March                  26, 1997 |   |
|--------------------------------------------------------------------|--------|------------------------------------------------|----------|--------|------------------------------|--------|----------|---------------------------------|--------|
|                                                               |   |                                           |     |   |                         |   |     | (Inception)                     |   |
|                                                               |   | Three                  month period ended      |     |   | Through                      |   |
|                                                               |   | October                  31,    |     |   | October                  31, |   |
|                                                               |   | 2007                                           |     |   | 2006                         |   |     | 2007                            |   |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |
| Cash                  flows from operating activities:             |   |                                           |     |   |                         |   |     |                            |   |
|                    Net loss                                   |   | $                                              | (656,025 | )      |                         | $      | (866,396 | )                               |   | $ | (13,082,158 | ) |
| Adjustments                  to reconcile net loss to net cash     |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| used                  by operating activities:                     |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Depreciation                  and amortization                     |   |                                           | 607      |   |                         |   | 3,700    |                            |   |   | 163,992 |   |
| Retirement                  of patents (written off)               |   |                                           | —  |   |                         |   | —  |                            |   |   | — |   |
| Intercompany                  interest income                      |   |                                           | —  |   |                         |   | —  |                            |   |   | 242,382 |   |
| Interest                  imputed (non cash)                       |   |                                           | 115,351  |   |                         |   | 63,470   |                            |   |   | 339,541 |   |
| Prepaid                  element of expenses and beneficial        |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| discounts                  on loan note conversions                |   |                                           | —  |   |                         |   |     |                            |   |   | 169,031 |   |
| Stock                  issued for compensation and services        |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| and                  stock option expense                          |   |                                           | 135,315  |   |                         |   | 441,842  |                            |   |   | 2,331,310 |   |
| Stock                  issued for interest                         |   |                                           | —  |   |                         |   | —  |                            |   |   | 86,160 |   |
| Gain                  (loss) on debt forgiveness                   |   |                                           | —  |   |                         |   | —  |                            |   |   | (662,610 | ) |
| Changes                  in operating assets and liabilities:      |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Receivables                                                        |   |                                           | —  |   |                         |   | 182,771  |                            |   |   | (21,927 | ) |
| Prepaid                  expenses and other current assets         |   |                                           | (5,785   | )      |                         |   | (150,864 | )                               |   |   | 5,314 |   |
| Deferred                  debt issue costs                         |   |                                           | —  |   |                         |   | —  |                            |   |   | — |   |
| Accounts                  payable                                  |   |                                           | 98,271   |   |                         |   | (208,158 | )                               |   |   | 1,267,794 |   |
| Accrued                  expenses                                  |   |                                           | 67,288   |   |                         |   | (6,751   | )                               |   |   | 1,845,334 |   |
| Accrued                  interest payable                          |   |                                           | 173,063  |   |                         |   | 53,682   |                            |   |   | 173,063 |   |
| Accounts                  payable (related party)                  |   |                                           | —  |   |                         |   | -5194    |                            |   |   | 138,697 |   |
|                     Other                                |   |                                           | —  |   |                         |   | 36,637   |                            |   |   | 45,304 |   |
| Net                  cash used in                                  |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| operating                  activities                              |   |                                           | (71,915  | )      |                         |   | (455,261 | )                               |   |   | (6,958,775 | ) |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Cash                  flows from investing activities:             |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Acquisition                  of patents                            |   |                                           | (33,946  | )      |                         |   | (34,587  | )                               |   |   | (133,024 | ) |
| Acquisition                  of equipment                          |   |                                           | —  |   |                         |   | —  |                            |   |   | (151,209 | ) |
| Net                  cash used in                                  |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| investing                  activities                              |   |                                           | (33,946  | )      |                         |   | (34,587  | )                               |   |   | (284,233 | ) |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Cash                  flows from financing activities:             |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Advances                  from affiliates                          |   |                                           | —  |   |                         |   | —  |                            |   |   | 4,378,963 |   |
| Proceeds                  from debenture issue                     |   |                                           | —  |   |                         |   | —  |                            |   |   | 335,000 |   |
| Repayment                  of advances from affiliates             |   |                                           | —  |   |                         |   | —  |                            |   |   | (728,426 | ) |
| Advances                  from related parties                     |   |                                           | 175,428  |   |                         |   | 50,000   |                            |   |   | 611,938 |   |
| 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  |                            |   |   | 1,262,495 |   |
| Repayment                  of notes payable                        |   |                                           | —  |   |                         |   | —  |                            |   |   | (10,000 | ) |
| Interest                  payable reclassified as Loan Notes       |   |                                           | —  |   |                         |   | 83,000   |                            |   |   | — |   |
|  Short                  term advances                         |   |                                           | —  |   |                         |   |     |                            |   |   | 80,000 |   |
| Net                  cash provided by                              |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| financing                  activities                              |   |                                           | 175,428  |   |                         |   | 468,000  |                            |   |   | 7,338,282 |   |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Effect                  on cash from foreign currency translation  |   |                                           | (69,613  | )      |                         |   | 710      |                            |   |   | (96,507 | ) |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Net                  change in cash and                            |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| cash                  equivalents                                  |   |                                           | (46      | )      |                         |   | (21,138  | )                               |   |   | (1,233 | ) |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Cash                  and cash equivalents:                        |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| Beginning                  of period                               |   |                                           | (1,187   | )      |                         |   | 61,240   |                            |   |   | — |   |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| End                  of period                                     |   | $                                              | (1,233   | )      |                         | $      | 40,102   |                            |   | $ | (1,233 | ) |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |   |   |   |
| 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        |   | $                                              | —  |   |                         | $      | —  |                            |   | $ | 700,000 |   |
| Conversion                  of interest to common stock            |   |                                           | —  |   |                         |   | —  |                            |   |   | — |   |
| Conversion                  of preferred stock into debentures     |   |                                           | —  |   |                         |   | —  |                            |   |   | 86,160 |   |
| Stock-based                  compensation                          |   |                                           | 135,315  |   |                         |   | 441,842  |                            |   |   | 1,837,617 |   |
|                                                               |   | $                                              | 135,315  |   |                         | $      | 441,842  |                            |   | $ | 2,623,777 |   |
|                                                               |   |                                           |     |   |                         |   |     |                            |   |   |   |   |

----

**In        Veritas Medical Diagnostics, Inc.**

**Notes        to Consolidated Financial Statements**

**Note        1: ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN**

**Attention        is drawn to the detailed disclosures in this Note and elsewhere in these        Financial Statements which creates substantial doubt concerning the Company’s        ability to continue to finance and maintain its current        operations.**

----

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        ended and we anticipate that the product will be launched into the global        markets in 2007/2008. 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 participate in the following revenue streams: (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. We        will        begin to earn Royalty Income simultaneously with the commencement of sales        of        the PT Product. The commencement of the sale of this product will result        in a        change of our status from 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. We intend to engage in discussions with several parties        which        management believes may result in commercial, revenue earning        contracts.

**Note        2: Related Party Transactions**

  The market        value of        the common stock at the date of the amendment was $0.072 and therefore there        is        a beneficial discount underlying the conversion option. We have valued that        discount at $113,400, (using the Black Scholes method). The inherent discount        has been charged to Additional Paid in Capital within shareholders funds        in the        balance sheet and is being charged in the profit and loss account as interest        expense on a straight line basis across the life of the amended Promissory        Note.

----

**Note        3: Property and Equipment**

| Furniture                  and Fixtures         |   | $      | 16,523  |   |
|-------------------------------------------------|--------|--------|---------|--------|
| Office                  Equipment               |   |   | 89,814  |   |
| Plant                  and Equipment            |   |   | 20,939  |   |
|                                            |   |   | 127,276 |   |
| Less:                  accumulated depreciation |   |   | 122,631 |   |
|                                            |   | $      | 4,645   |   |

 

**Note        4: Intangible Assets - Patent Costs**

| Cost                  - start of year             |   | $      | 95,545  |   |
|---------------------------------------------------|--------|--------|---------|--------|
|                                              |   |   |    |   |
| Costs                  incurred during the period |   |   | 33,946  |   |
| Amortization                                      |   |   | -       |   |
| Retirements                                       |   |   | -       |   |
| Cost                  - end of period             |   | $      | 129,491 |   |

**Note        5: Preferred Stock**

**4%        Convertible Preferred Stock**

----

**Note        6: Common Stock**

|                                     | October                  31, 2007 | October                  31, 2006 |                       |
|------------------------------------------|-----------------------------------|-----------------------------------|----------------------------|
|                                     | Number                            | Fair                  Value       | Number                     |   | Fair                  Value |   |
|                                     | of                  Shares        | of                  Shares        | of                  Shares |   | of                  Shares |   |
| Shareholder                              | Issued                            | Issued                            | Issued                     |   | Issued |   |
| Crown                  Capital Group Ltd |                              |                              |                       |   |   | 1,000,000 |   |   |   |   | 68,000 |   |
| UTEK                  Corporation        |                              |                              |                       |   |   | 1,250,000 |   |   |   |   | 150,000 |   |
|                                     | 0                                 | $                                 | 0                          |   |   | 2,250,000 |   |   |   | $ | 218,000 |   |

**Note        7: Stock Options and Warrants**

|   | · | 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                  the 4,829,500 options granted to him 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | 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. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 |   |

|                                                            |   | Grant                  Date |   |
|-----------------------------------------------------------------|--------|-----------------------------|--------|
|                                                            |   | May,                  2004  |   |   | June,                  2005 |   |   | January,                  2006 |   |   | October,                  2006 |   |
| 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 |   |

----

**Warrants**

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

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

----

|                                           |   |                                   |       |                              |   | Weighted                          |   | Weighted                            |   |      |   |
|------------------------------------------------|--------|----------------------------------------|------------|-----------------------------------|--------|-----------------------------------|--------|-------------------------------------|--------|-----------|--------|
|                                           |   | Options                    Outstanding |       | Average                           |   | Average                           |   |   Aggregate               |   |
|                                           |   | Number                    of           |       | Exercise                    Price |   | Exercise                    Price |   | Remaining                           |   | Intrinsic |   |
|                                           |   | Shares                                 |       | Per                    Share      |   | Per                    Share      |   | Contractual                    Life |   | Value     |   |
| Balance                    at July 31, 2007    |   |                                   | 19,401,603 |                              | $      | 0.055-$1.50                       |   | $                                   | 0.1636 |      |   | 8.06                    years |   |   | 1,296,238 |   |
|                                           |   |                                   |       |                              |   |                              |   |                                |   |      |   |   |   |   |   |   |
| Awards                    Granted to Staff     |   |                                   | 0          |                              | $      | 0                                 |   | $                                   | 0      |      |   |   |   |   |   |   |
| Awards                    cancelled/expired    |   |                                   | 0          |                              | $      | 0                                 |   | $                                   | 0      |      |   |   |   |   |   |   |
| Warrants                    exercised          |   |                                   | 0          |                              | $      | 0                                 |   | $                                   | 0      |      |   |   |   |   |   |   |
|                                           |   |                                   |       |                              |   |                              |   |                                |   |      |   |   |   |   |   |   |
| Balance                    at October 31, 2007 |   |                                   | 19,401,603 |                              | $      | 0.055-$1.50                       |   | $                                   | 0.1636 |      |   | 8.06                    years |   | $ | 1,296,238 |   |
|                                           |   |                                   |       |                              |   |                              |   |                                |   |      |   |   |   |   |   |   |
| Awards                    exercisable at       |   |                                   |       |                              |   |                              |   |                                |   |      |   |   |   |   |   |   |
| October                    31, 2007            |   |                                   | 4,586,769  |                              | $      | 0.550-1.50                        |   | $                                   | 0.1586 |      |   | 6.66                    years |   | $ | 460,949 |   |

**Note        8: Income Taxes**

**Note        9: Financings**

**A.        April 2005, Financing**

**B.        September 2005 Financing and subsequent restructurings**

----

 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.

|   | · | 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. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Montgomery                  shall retain the Warrants issued in accordance with the Securities                  Purchase Agreement. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The                  Company and Cornell agree to terminate the Distribution Agreement                  and                  related transaction documents. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Secured                  convertible note in the principal amount of $261,300 issued in                  exchange                  for the interest and principal outstanding under the Debenture                  previously                  issued to Longview under the terms of the Accredited Investor Purchase                  Agreement. The note (a) matures on October 31, 2008; (b) bears                  interest at                  the rate of 18% per annum, which is payable in accordance with                  the                  repayment provisions described in the Note and (c) is convertible                  at                  Longview's option, into shares of the Company’s common stock at a                  conversion price of $0.05 per share. Minimum repayments are due                  under the                  note as follows: (i) two installments of $12,500 each were due                  to be paid                  on or before February 28, 2007 and March 30, 2007; (ii) monthly                  installments of $15,000 commencing on November 30, 2007; and (iii)                  the                  remaining principal balance plus unpaid interest on the maturity                  date. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Secured                  convertible note in the principal amount of $48,000 was issued                  in exchange                  for liquidated damages payable as result of the default on the                  Debenture                  previously issued to Longview under the terms of the Accredited                  Investor                  Purchase Agreement. This note has the same interest and conversion                  terms                  as described above, but is repayable on maturity (principal and                  interest). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|     |   | Beneficial |    |   |   |   |    | Unamortized |   |
|----------|--------|------------|---------|--------|--------|--------|---------|-------------|--------|
|     |   | Discount   |    |   | Charge |   |    | Amount      |   |
| Westek   |   | $          | 113,400 |   |   | $      | 75,600  |        |   | $ | 37,800 |   |
| Triumph  |   | $          | 0       |   |   | $      | 0       |        |   | $ | 0 |   |
| Cornell  |   | $          | 146,160 |   |   | $      | 124,200 |        |   | $ | 21,960 |   |
| Longview |   | $          | 24,314  |   |   | $      | 24,011  |        |   | $ | 304 |   |
|     |   | $          | 283,874 |   |   | $      | 223,811 |        |   | $ | 60,064 |   |

**C. Royalty        Participation Agreement (May to November, 2006)**

**D.        Secured Subordinated Convertible Loan Notes (November        2006)**

**E.        Related Party Loans - Westek Limited**

----

**F.        Short Term Advance from Loan Note Holder**

**Presentation        of Financings in the Financial Statements**

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

| Total                  Amount Advanced                                  |   | $ | 450,000 |   |
|-------------------------------------------------------------------------|--------|---|---------|--------|
| Interest                  Imputed from inception until October 31, 2007 |   | $ | 268,202 |   |
| Included                  in Long Term Debt at October 31, 2007         |   | $ | 718,202 |   |

**Accounting        for September, 2005 Financing and subsequent        restructurings**

|                                                       |   | Total                  Principal |      |
|------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                       |   | Outstanding                      |      |
|                                                       |   |                             |      |
| Montgomery                  Capital Partners               |   |                             | 348,000   |   |
| Triumph                  Small Cap Fund                    |   |                             | 450,000   |   |
| Longview                                                   |   |                             | 309,300   |   |
| Other                  Accredited Investors*               |   |                             | 216,500   |   |
| Total                  Notes payable                       |   |                             |      |   |
| (before                  beneficial conversion discount**) |   |                             | 1,323,800 |   |

----

**Beneficial        Conversion Rights**

**Note        10: Defaults upon Senior Securities**

**Note        11: Recent Developments**

----

**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 their business and operations 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.

**Plan      of Operation**

**Overview**

**Intellectual      Property and Product      Development**

**Results      of Operations**

**Three      months ended October 31, 2007 compared to three months ended October 30,      2006**

**Revenues**

----

**Depreciation      Expenses**

**General      & Administrative Expenses**

**Sales      and Marketing Expenses**

**Research      & Development Expenditure**

**Stock      Option Expense**

**Net      Income (Loss)**

**Liquidity      and Capital Resources**

----

**Critical      Accounting Policies**

**Use      of Estimates**

**Research      & Development Expenditure**

**Revenue      Recognition**

----

**Off      Balance Sheet Arrangements**

**Recent      Accounting Pronouncements**

*The Fair Value      Option for Financial Assets and Financial Liabilities - Including an Amendment      of FASB Statement No. 115.*
**.**

*Employers'      Accounting for Defined Benefit Pension and Other Postretirement Plans — An      Amendment of FASB Statements No. 87, 88, 106, and 132R.*
*a*
*b*
*c*
**.**

*Fair Value      Measurements*
**.**

----

*Accounting for Servicing of      Financial Assets - An Amendment of FASB Statement No. 140.*
*Accounting for Transfers and      Servicing of Financial Assets and Extinguishments of Liabilities.*
**.**

*Accounting for Certain      Hybrid Instruments.*
*Accounting for Derivative Instruments and Hedging Activities,*
*Accounting for Transfers and Servicing of Financial Assets and      Extinguishments of Liabilities.*
**.**

*Accounting for Uncertainty in      Income Taxes - An Interpretation of FASB Statement No. 109,*
*Accounting for Income Taxes.*

**ITEM      3. CONTROLS AND PROCEDURES**

**PART      II - OTHER INFORMATION**

**ITEM      1. LEGAL PROCEEDINGS**

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

----

**ITEM      3. DEFAULTS UPON SENIOR SECURITIES**

| Type                of Security         | Maturity                Date      | Principal                Amount (not including interest) |
|-----------------------------------------|-----------------------------------|----------------------------------------------------------|
| Secured                Convertible Note | Regular                Repayments | $309,300                                                 |
| Secured                Convertible Note | Monthly                Repayments | $348,000                                                 |

| 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                                                    |

Negotiations      are in place      among the Company, Westek Limited, Montgomery Equity Partners, Ltd. Longview      Fund, L.P., Triumph Small Cap Fund, Inc., Whalehaven Capital Fund      Limited, and the Rubin Family Stock Trust, pursuant to which      the Company      will sell its subsidiaries to Medical Diagnostic Innovations Limited      (“MDI”).  Medical Diagnostic Innovations Limited is a company      incorporated under the laws of the United Kingdom and Wales which was formed      by      the management and employees of the Company’s subsidiaries, including, Mr.      Graham Cooper, our CEO and Martin Thorp, our CFO.  The parties      contemplate the entry into a Stock Purchase Agreement, pursuant to which MDI      will acquire all of the issued and outstanding share capital of the Company’s      subsidiaries. The parties also contemplate that the proceeds of the sale will      be      utilized to provide partial settlement of the outstanding amounts owed to the      Loan Note Holders.

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

**ITEM      5. OTHER INFORMATION**

**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.                |

----

**SIGNATURES**

|                                        |                                                              |                                     |
|---------------------------------------------|-------------------------------------------------------------------|------------------------------------------|
|                                        | **IN                VERITAS MEDICAL DIAGNOSTICS, INC.**           |
|                                   |                                                         |                                |
| Date: December                14, 2007 | By:                                                     | /s/                 *Graham Cooper* |
|                                        | Graham                CooperChief                Executive Office |
|                                        |                                                              |

|         |                                                                   |                                       |
|--------------|------------------------------------------------------------------------|--------------------------------------------|
|         |                                                                   |
|    |                                                              |                                  |
|         | By:                                                          | /s/                 *Martin E. Thorp* |
|         | Martin                  E. ThorpChief                Financial Officer |
|         |                                                                   |