UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-QSB




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




For the
quarterly period ended January 31, 2008




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




For
the Transition Period From _____ to _____




Commission
File Number: 000-49972




IN
VERITAS MEDICAL DIAGNOSTICS, INC.


(Exact
name of registrant as specified in its charter)





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





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


011
44-1463-667-347


(Issuer's
telephone number)





WITH
COPIES TO:


Richard
A. Friedman, Esq.


Sichenzia
Ross Friedman Ference, LLP


61
Broadway, 32 nd
Floor


New York,
New York 10006


(212)
930-9700




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





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




APPLICABLE
ONLY TO CORPORATE ISSUERS




State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of December 14, 2007, the registrant had
86,103,457 shares of common stock issued, 25,685,000 shares of common stock held
in escrow which are deemed as issued but not outstanding, and 60,418,457 shares
of common stock outstanding.




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
























INDEX







PagePART
      I - FINANCIAL INFORMATIONItem
      1. Financial Statements.
            
            F-1Item
      2. Management's Discussion and Analysis or Plan of
    Operations.
            
            
            3Item
      3. Controls and Procedures
            
            
            7PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings.
            
            
            7Item
      2. Unregistered Sale of Equity Securities and Use of
    Proceeds
            
            
            7Item
      3. Defaults Upon Senior Securities
            
            
            8Item
      4. Submission of Matters to a Vote of Security Holders.
            
            
            8Item
      5. Other Information
            
            
            8Item
      6. Exhibits.
            
            
            9Signatures.
            
            
            10







2










PART I -
FINANCIAL INFORMATION




ITEM 1.
FINANCIAL STATEMENTS





PageUnaudited
      Consolidated Balance Sheet at January 31, 2008
              F-2Unaudited
      Consolidated Statements of Operations for the three and six months
      endedJanuary
      31, 2008 and 2007 and for the period from March 26, 1997
      (Inception)through
      January 31, 2008
              F-3Unaudited
      Consolidated Statements of Accumulated Other Comprehensive
      Lossfor
      the six months ended January 31, 2008 and 2007 and for the
      periodfrom
      March 26, 1997 (Inception) through January 31, 2008
              F-4Unaudited
      Statement of Changes in Shareholders' Deficit for the period
      fromMarch
      26, 1997 (Inception) through January 31, 2008
              F-5Consolidated
      Statements of Cash Flows for the six months endedJanuary
      31, 2008 and 2007 and for the period from March 26, 1997
      (inception)through
      January 31, 2008
              F-7Notes
      to the Consolidated Financial Statements
              F-8
  F-1
 In
Veritas Medical Diagnostics, Inc.
 (A
Development Stage Company)
 Unaudited
Consolidated Balance Sheet
 January
      31,2008AssetsCurrent
      assets:Prepaid
      expenses and other
              
              $
              19,848Total
      current assets
              
              
              19,848Property
      and equipment, net (note 3)
              
              
              4,077Intangible
      assets:Patent
      costs (note 4)
              
              
              146,005$
              169,930Liabilities
      and Shareholders’ DeficitCurrent
      liabilities:Accounts
      payable
              
              $
              891,394Overdraft
              
              
              1,213Accrued
      interest payable
              
              
              1,011,537Accrued
      liabilities
              
              
              1,069,854Indebtedness
      to related parties (note 2)
              
              
              524,508Current
      portion of Long Term Notes Payable
              
              
              1,304,900Notes
      payable, related party (note 9)
              
              
              1,800,000Short
      term advance from Related Party (note 9)
              
              
              645,488Short
      term advance
              
              
              140,810Total
      current liabilities
              
              
              7,389,704Long-term
      debt:Royalty
      Participation Agreement advances (note 9)
              
              
              778,773Total
      liabilities
              
              
              8,168,477Shareholders’
      deficit:Preferred
      stock, $.001 par value, 50,000,000 shares authorized
      (aggregateliquidation
      preference of $8 million)Series
      A Preferred stock, 34,343,662 shares issued and outstanding (note
      5)
              
              
              34,344Common
      stock, $.001 par value, 500,000,000 shares authorized,86,103,457
      shares issued, 25,685,000 held in escrow, and60,418,457
      shares outstanding
              
              
              86,103Stock
      issued as security for convertible debentues (note 9)
              
              
              (3,339,050
              )Additional
      paid-in capital
              
              
              9,390,498Accumulated
      other comprehensive loss- foreign currency adjustment
              
              
              (463,575
              )Deficit
      accumulated during the development stage
              
              
              (13,706,866
              )Total
      shareholders' deficit
              
              
              (7,998,546
              )$
              169,930
 
 F-2
  In
Veritas Medical Diagnostics, Inc.
 (A
Development Stage Company)
  Unaudited
Consolidated Statements of Operations
 March
      26, 1997(Inception)Three
      months ended

                  January
      31,
              
              
              Six
      months ended

                  January
      31,
              
              
              Through

                  January
      31,2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008Net
      sales and gross revenues:Net
      sales
              
              $
              —
              
              
              $
              —
              
              
              
              —
              
              
              $
              —
              
              
              $
              3,571,807Cost
      of sales
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              242,097Gross
      profit
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              3,329,710Operating
      expenses:Research
      and development
              
              
              156,237
              
              
              
              147,348
              
              
              
              359,663
              
              
              
              330,606
              
              
              
              6,060,711Legal
      & Professional
              
              
              57,758
              
              
              
              180,365
              
              
              
              61,720
              
              
              
              207,544
              
              
              
              1,456,363Selling
      and marketing
              
              
              —
              
              
              
              80,808
              
              
              
              —
              
              
              
              142,461
              
              
              
              622,750General
      and administrative
              
              
              135,915
              
              
              
              287,414
              
              
              
              296,138
              
              
              
              680,148
              
              
              
              6,586,630Total
      operating expenses
              
              
              349,910
              
              
              
              695,935
              
              
              
              717,521
              
              
              
              1,360,759
              
              
              
              14,726,454Loss
      from operations
              
              
              (349,910
              )
              
              
              (695,935
              )
              
              
              (717,521
              )
              
              
              (1,360,759
              )
              
              
              (11,396,744
              )Nonoperating
      income (expense):UK
      government grant (Note 1)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              291,400Interest
      expense
              
              
              (274,798
              )
              
              
              (257,109
              )
              
              
              (563,212
              )
              
              
              (458,681
              )
              
              
              (2,175,075
              )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
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              662,610Loss
      before income taxes
              
              
              (624,708
              )
              
              
              (953,044
              )
              
              
              (1,280,733
              )
              
              
              (1,819,440
              )
              
              
              (13,706,866
              )Income
      tax provision
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Net
      loss
              
              $
              (624,708
              )
              
              $
              (953,044
              )
              
              
              (1,280,733
              )
              
              $
              (1,819,440
              )
              
              $
              (13,706,866
              )Loss
      applicable to common stock
              
              $
              (624,708
              )
              
              $
              (953,044
              )
              
              
              (1,280,733
              )
              
              $
              (1,819,440
              )Basic
      and diluted loss per share
              
              $
              (0.010
              )
              
              $
              (0.02
              )
              
              
              (0.021
              )
              
              $
              (0.03
              )Weighted
      average number of common sharesoutstanding
              
              
              60,418,457
              
              
              
              58,678,457
              
              
              
              60,342,430
              
              
              
              57,553,457
 
 F-3
  In
Veritas Medical Diagnostics, Inc.
 (A
Development Stage Company)
 Unaudited
Consolidated Statements of Accumulated Other Comprehensive
Loss
  March
      26, 1997(Inception)Six
      month period ended
              
              
              ThroughJanuary
      31,
              
              
              
              
              
              January
      31,2008
              
              
              2007
              
              
              2008Net
      loss
              
              $
              (1,280,733
              )
              
              $
              (1,819,440
              )
              
              $
              (13,706,866
              )Other
      comprehensive loss, net of tax:Cumulative
      translation adjustment
              
              
              19,537
              
              
              
              16,873
              
              
              
              (463,575
              )Comprehensive
      loss
              
              $
              (1,261,196
              )
              
              $
              (1,802,567
              )
              
              $
              (14,170,441
              )
 
 F-4
  In
Veritas Medical Diagnostics, Inc.
 (A
Development Stage Company)
    
 Preferred
      Stock OutstandingSeries
      A
              
              
              Series
      B
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              AccumulatedCommon
      Stock
              
              
              
              
              
              Additional
              
              
              Stock
              
              
              Deficit
      During
              
              
              Accumulated
                OtherShares
              
              
              Par
      Value
              
              
              Shares
              
              
              Par
      Value
              
              
              Issued
              
              
              SharesOutstanding
              
              
              Par
      Value
              
              
              paid-incapital
              
              
              issued
      as security
              
              
              DevelopmentStage
              
              
              ComprehensiveLoss
              
              
              TotalBalance,
      March 26, 1997
              
              
              —
              
              
              $
              —
              
              
              
              —
              
              
              $
              —
              
              
              
              —
              
              
              
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              -October
      2000, sale of stock, ($0.0035/share)
              
              
              4,366,377
              
              
              
              4,366
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              10,874
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              15,240December
      2001, sale of stock, ($0.0035/share)
              
              
              6,545,703
              
              
              
              6,546
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              16,301
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              22,847October
      2001, sale of stock, ($0.0202/share)
              
              
              23,431,582
              
              
              
              23,432
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              448,906
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              472,338—Foreign
      currencytranslation
      adjustment
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              21,203
              
              
              
              21,203Net
      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
      currencytranslation
      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
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              9,000July
      2004, merger with SIPC
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              10,550,000
              
              
              
              10,550,000
              
              
              
              10,550
              
              
              
              (10,688
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (138
              )July
      2004, issuance of commonstock
      for bridge loans, ($0.2750/share)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,636,233
              
              
              
              1,636,233
              
              
              
              1,636
              
              
              
              448,364
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              450,000July
      2004, issuance of commonstock
      for services, ($0.4093/share)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              239,289
              
              
              
              239,289
              
              
              
              239
              
              
              
              97,702
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              97,941Foreign
      currencytranslation
      adjustment
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (339,570
              )
              
              
              (339,570
              )Reclassification
      of debt forgivenessby
      Westek (Notes 2 and 9)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,030,298
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2,030,298Net
      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 bridgeloans
      exchanged for shares
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              17,495
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              17,495
   F-5
   —
              
              
              
              —
              
              
              
              —
              
              
              
              (6,000
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (6,000
              )Conversion
      of Preferred Stock into Debenture
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              694,550
              
              
              
              694,550
              
              
              
              695
              
              
              
              427,695
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              428,390December
      2004, issuance of stock for interest on
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              60,096
              
              
              
              60,096
              
              
              
              60
              
              
              
              76,100
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              76,160bridge
      loanMarch
      2005, issuance of stock for services
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              100,000
              
              
              
              100,000
              
              
              
              100
              
              
              
              62,880
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              62,980April
      2005, issuance of stock warrants forservices
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              17,295
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              17,295April
      2005, sale of preferred Series B stocknet
      of $97,995 offering costs ($.001 par),
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              -($0.65/share)
              
              
              —
              
              
              
              —
              
              
              
              617,692
              
              
              
              618
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              302,887
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              303,505April
      2005, issuance of stock fordebt
      forgiveness
              
              
              —
              
              
              
              —
              
              
              
              246,152
              
              
              
              246
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              159,754
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              160,000June
      2005, issuance of stock options forservices
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              35,403
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              35,403Reversal
      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
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              35,408July
      2005, issuance of stock for conversionof
      debt
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,162,791
              
              
              
              1,162,791
              
              
              
              1,163
              
              
              
              278,047
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              279,210Foreign
      currency translation adjustment
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              274,643
              
              
              
              274,643Net
      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
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              3,640Stock
      Issued for services (August 2005)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              472,000
              
              
              
              472,000
              
              
              
              472
              
              
              
              60,888
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              61,360Stock
      Issued for services (September 2005)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              805,000
              
              
              
              805,000
              
              
              
              805
              
              
              
              132,020
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              132,825Stock
      Issued for services (September, 2005)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              750,000
              
              
              
              750,000
              
              
              
              750
              
              
              
              254,250
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              255,000Stock
      Issued for services (May 2006)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              875,000
              
              
              
              875,000
              
              
              
              875
              
              
              
              86,625
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              87,500Stock
      Issued for services (June 2006)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              83,334
              
              
              
              83,334
              
              
              
              83
              
              
              
              8,251
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              8,334Foreign
      currency translation adjustment
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (79,486
              )
              
              
              (79,486
              )January,
      2006, Issuance of stock options forservices
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              62,379
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              62,379September
      2006 issuance of stock warrantsin
      connection with financing
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              45,164
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              45,164Net
      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
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              62,640Issuance
      of stock for services (October, 2006)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,000,000
              
              
              
              1,000,000
              
              
              
              1,000
              
              
              
              67,000
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              68,000Issuance
      of stock for services (October, 2006)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,250,000
              
              
              
              1,250,000
              
              
              
              1,250
              
              
              
              148,749
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              149,999October,
      2006 issuance of stock options for services
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              223,844
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              223,844Foreign
      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
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              50,000Stock
      Option Expense
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              466,624
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              466,624Beneficial
      conversion discount underlying Convertible Loan Notes (Notes 2 &
      9)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              283,874
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              283,874Stock
      issued for services (December 2006)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              850,000
              
              
              
              850,000
              
              
              
              850
              
              
              
              51,000
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              51,850Cashless
      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 (unaudited)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,280,733
              )
              
              
              —
              
              
              
              (1,280,733
              )Foreign
      currency translation adjustment (unaudited)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              19,537
              
              
              
              19,537Stock
      Option Expense (unaudited)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              270,630
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              270,630Balance
      January 31, 2008 (unaudited)
              
              
              34,343,662
              
              
              $
              34,344
              
              
              
              —
              
              
              $
              —
              
              
              
              86,103,457
              
              
              
              60,418,457
              
              
              $
              86,103
              
              
              $
              9,390,498
              
              
              $
              (3,339,050
              )
              
              $
              (13,706,866
              )
              
              $
              (463,575
              )
              
              $
              (7,998,546
              )
 
 F-6
  In
Veritas Medical Diagnostics, Inc.
 (A
Development Stage Company)
 
 March
      26, 1997(Inception)Six
      month period ended
                
                
                ThroughJanuary
      31,
                
                
                January
      31,2008
                
                
                2007
                
                
                2008Cash
      flows from operating activities:Net
      loss
                
                $
                (1,280,733
                )
                
                $
                (1,819,440
                )
                
                $
                (13,706,866
                )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Depreciation
      and amortization
                
                
                1,174
                
                
                
                6,567
                
                
                
                164,559Retirement
      of patents (written off)
                
                
                —
                
                
                
                —
                
                
                
                —Intercompany
      interest income
                
                
                —
                
                
                
                —
                
                
                
                242,382Interest
      imputed (non cash)
                
                
                217,086
                
                
                
                411,410
                
                
                
                441,276Prepaid
      element of expenses and beneficial
                
                
                —
                
                
                
                
                
                
                
                —discounts
      on loan note conversions
                
                
                —
                
                
                
                (307,308
                )
                
                
                169,031Stock
      issued for compensation and services
                
                
                —
                
                
                
                
                
                
                
                —and
      stock option expense
                
                
                270,630
                
                
                
                674,304
                
                
                
                2,466,625Stock
      issued for interest
                
                
                —
                
                
                
                —
                
                
                
                86,160Gain
      (loss) on debt forgiveness
                
                
                —
                
                
                
                —
                
                
                
                (662,610
                )Changes
      in operating assets and liabilities:
                
                
                —
                
                
                
                
                
                
                
                —Receivables
                
                
                —
                
                
                
                195,192
                
                
                
                (21,927
                )Prepaid
      expenses and other current assets
                
                
                (8,696
                )
                
                
                (14,275
                )
                
                
                2,403Deferred
      debt issue costs
                
                
                —
                
                
                
                —
                
                
                
                —Accounts
      payable
                
                
                (8,424
                )
                
                
                153,048
                
                
                
                1,161,097Accrued
      expenses
                
                
                140,896
                
                
                
                66,068
                
                
                
                1,918,942Accrued
      interest payable
                
                
                346,126
                
                
                
                86,982
                
                
                
                346,126Accounts
      payable (related party)
                
                
                —
                
                
                
                (194,479
                )
                
                
                138,697Other
                
                
                —
                
                
                
                50,554
                
                
                
                45,304Net
      cash used inoperating
      activities
                
                
                (321,941
                )
                
                
                (691,377
                )
                
                
                (7,208,801
                )Cash
      flows from investing activities:Acquisition
      of patents
                
                
                (50,460
                )
                
                
                (58,834
                )
                
                
                (149,538
                )Acquisition
      of equipment
                
                
                —
                
                
                
                —
                
                
                
                (151,209
                )Net
      cash used ininvesting
      activities
                
                
                (50,460
                )
                
                
                (58,834
                )
                
                
                (300,747
                )Cash
      flows from financing activities:Advances
      from affiliates
                
                
                —
                
                
                
                —
                
                
                
                4,378,963Proceeds
      from debenture issue
                
                
                —
                
                
                
                —
                
                
                
                335,000Repayment
      of advances from affiliates
                
                
                —
                
                
                
                —
                
                
                
                (728,426
                )Advances
      from related parties
                
                
                292,028
                
                
                
                91,903
                
                
                
                728,538Proceeds
      from issuance of preferred stock
                
                
                —
                
                
                
                —
                
                
                
                813,930Discount
      on notes payable
                
                
                —
                
                
                
                —
                
                
                
                144,382Proceeds
      from Royalty Participation Agreement
                
                
                —
                
                
                
                —
                
                
                
                450,000Proceeds
      from issue of Loan Notes
                
                
                —
                
                
                
                335,000
                
                
                
                1,262,495Repayment
      of notes payable
                
                
                —
                
                
                
                —
                
                
                
                (10,000
                )Interest
      payable reclassified as Loan Notes
                
                
                —
                
                
                
                192,300
                
                
                
                —Short
      term advances
                
                
                60,810
                
                
                
                80,000
                
                
                
                140,810Net
      cash provided byfinancing
      activities
                
                
                352,838
                
                
                
                699,203
                
                
                
                7,515,692Effect
      on cash from foreign currency translation
                
                
                19,537
                
                
                
                1,111
                
                
                
                (7,357
                )Net
      change in cash andcash
      equivalents
                
                
                (26
                )
                
                
                49,897
                
                
                
                (1,213
                )Cash
      and cash equivalents:Beginning
      of period
                
                
                (1,187
                )
                
                
                61,240
                
                
                
                —End
      of period
                
                $
                (1,213
                )
                
                $
                11,343
                
                
                $
                (1,213
                )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
                
                $
                —
                
                
                $
                —
                
                
                $
                700,000Conversion
      of interest to common stock
                
                
                —
                
                
                
                —
                
                
                
                —Conversion
      of preferred stock into debentures
                
                
                —
                
                
                
                —
                
                
                
                86,160$
                —
                
                
                $
                —
                
                
                $
                786,160
  F-7






In
Veritas Medical Diagnostics, Inc.


(Formerly
In Vivo Medical Diagnostics, Inc.)


(A
Development Stage Company)


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.




The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-QSB and Regulation S-B.  Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of the Company, the accompanying unaudited condensed financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of January 31,
2008, the results of operations for the three months ended January 31, 2008 and
2006 and the period from March 26, 1997 (inception) through January 31, 2008,
and cash flows for the three months ended January 31, 2008 and 2006 and the
period from March 26, 1997 (inception) through January 31, 2008. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto contained in the Company's annual report on Form 10-KSB for
the year ended July 31, 2007.  There have been no updates or changes to our
audited financial statements for the year ended July 31, 2007.





There is
no provision for dividends for the quarter to which this quarterly report
relates.





The
results of operations for the three and six month period ended January 31, 2008
is not necessarily indicative of the results to be expected for the full
year.




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




We have
reported net losses of $3,670,764, $1,848,797 and $12,426,134 for the fiscal
years ended July 31, 2007, 2006 and for the period from the date of inception,
March 26, 1997 to July 31, 2007, respectively. The loss from date of inception,
March 26, 1997 to January 31, 2008 amounts to $13,706,866. We have a net capital
deficit at January 31, 2008 ($7,998,546) and had substantial net current
liabilities of $7,369,856 and cash balances of $nil at January 31, 2008. In
addition, as explained in Note 10 we are in default under the terms of Loan
Notes with total amounts outstanding at January 31, 2008 of
$873,800.  These factors, among others, raise substantial doubt about
our ability to continue as a going concern.




We
require ongoing capital to continue our development activities but have been
unable to raise adequate new capital to support operational needs and are
currently dependent upon minimal advances being made by Westek as described in
Note 9, which simply maintain very basic operations and compliance. As described
in Note 11 Westek has put us and our other loan note holders on notice of its
inability to continue to provide such finance on an ongoing basis unless our
other loan note holders agree to join in the provision of working capital
finance or to restructure or convert their loans to allow us to negotiate with
other financiers to provide fresh capital from a clean balance sheet. The other
Loan Note Holders have declined to do this and the Company and its Loan Note
Holders are in the advanced stages of negotiating a transaction, which is
described in outline on Note 11, that would return the Company to a shell, with
reduced and simplified debt and other obligations, as an alternative to imminent
insolvency by threatened loan note foreclosure.




There can be no assurance that this proposed transaction will
take place and it remains possible that terms of the proposed transaction may
change or that it will not take place at all. In the event that the proposed
transaction does occur the Company’s financial statements would change
materially, as outlined in Note 11. In the event that the proposed transaction
does not occur, then, in the absence of any further initiatives taken by the
loan note holders, it seems likely that the Company and its subsidiaries will
become insolvent and certain adjustments would need to be made to the carrying
value of the assets included in the consolidated balance sheet in such an
event.




As
explained in Note 10 we are in default on several of our Loan Notes at July 31,
2007. Our major creditors and Loan Note holders have continued to work with us
during the six month period ended January 31, 2008 to restructure our
obligations to enable us to match future payments with our future working
capital plans and several Loan Note holders formally restructured their advances
to us in the period ended January 31, 2008. In addition the directors,
management team and key contractors have deferred payment of compensation due to
them since October 2006 (and in certain cases previously) and many key suppliers
are providing us with valued and ongoing support and forbearance with respect to
our payment obligations.








F-8




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




As of
January 31, 2008, $524,508 was due to related parties for
services.  We purchased additional services from related parties
during the three month period ended January 31, 2008 amounting to
$39,181.  All of these fees were purchased from AWY Ltd and the ARM
Partnership, the companies through which Graham Cooper, our CEO, and Martin
Thorp, our CFO, provide services to the Company.  Both AWY Ltd and the
ARM Partnership have agreed to defer or forego, in part or in full, these
amounts pending the ability of the company, or its subsidiaries to make such
payments.  During the three month period ended January 31, 2007 we
purchased services amounting to $8,052




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




On
November 13, 2006 we reached and agreement with Westek to amend the terms of the
Promissory Note to extend the maturity date until March 31, 2008. The amended
Promissory note carries interest at a rate of 10% per annum from October 1, 2006
which is payable quarterly in arrears. Unpaid interest may, at the option of
Westek, be converted into shares of the Company’s common Stock at a price of $
0.05 per share.   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 has been charged
in the profit and loss account as interest expense on a straight line basis
across the life of the amended Promissory Note.




During the three and six month period ended January 31, 2008
Westek advanced $131,208 and $280,984 respectively to the Company. These
advances are interest free and are payable on demand. The advances are intended
to enable the Company to maintain a basic level of operation ahead of securing
new commercial contracts. These short term advances are described more fully in
Note 9.





Note
3: Property and Equipment




Major
classes of property and equipment as of January 31, 2008 are listed
below:




Furniture
      and Fixtures
            
            $
            16,523Office
      Equipment
            
            
            89,814Plant
      and Equipment
            
            
            20,939127,276Less:
      accumulated depreciation
            
            
            123,199$
            4,077




Depreciation
expense was $568 and $2867 for the three month periods ended January 31, 2008
and 2007, (and $1,174 and $6,567 for the six month period ended January 31, 2008
and 2007), respectively.




Note
4: Intangible Assets - Patent Costs




Changes
in Intangible assets - Patent Costs for the six month period ended January 31,
2008 were as follows:





Cost
      - start of year
            
            $
            95,545Costs
      incurred during the period
            
            
            50,460Amortization
            
            
            -Retirements
            
            
            -Cost
      - end of period
            
            $
            146,005








F-9











No
amortization is recorded because the economic life of the underlying patents is
expected to be less than their legal life and the company has yet to derive
revenue from the commercial applications of the underlying patents. At such time
as we begin earning revenues, the cost of the underlying patents will be
amortized over their estimated economic life.




Note
5: Preferred Stock




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




4%
Convertible Preferred Stock




As of
January 31, 2008, the Company had 34,343,662 shares of Series A 4% voting
callable convertible preferred stock outstanding. Such shares pay an annual
dividend of 4% and are convertible at any time at the option of the holder into
Common Stock at the rate of one share Common Stock for each outstanding share of
Series A Preferred Stock. Holders of Series A Preferred Stock have priority over
all of the shares of the Company on liquidation or sale at the rate of
$0.233 per share. Holders of Series A Preferred Stock are entitled to vote on
all matters as to which Common Stock shareholders are entitled to
vote.  The preferred stock is redeemable at the option of the
Company.  There is no mandatory redemption feature.  The
dividends are cumulative.




The
aggregate of arrearages in cumulative preferred dividends on the Series A
Preferred Shares through January 31, 2008, are $22,756.




Note 6: Common Stock




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




We issued
the following shares of common stock for services during the six month periods
ended January 31, 2008 and 2007, respectively:




January
      31, 2008
            January
      31, 2007Number
            Fair
      Value
            Number
            
            Fair
      Valueof
      Shares
            of
      Shares
            of
      Shares
            
            of
      SharesShareholder
            Issued
            Issued
            Issued
            
            IssuedCrown
      Capital Group Ltd
            
            
            
            
            
            
            1,000,000
            
            
            68,000UTEK
      Corporation
            
            
            
            
            
            
            1,250,000
            
            
            150,000Sichenzia
      Ross Friedman and Ference LLP
            
            
            
            
            
            
            850,000
            
            
            51,8500
            
            $
            0
            
            
            3,100,000
            
            $
            269,850




We value
the shares of common stock issued for services at the quoted market price of the
stock at the issue date or at the contracted value of the services where this is
clearly defined in the underlying contract.




No other
shares of common stock, other than those described above, were issued during the
six month periods ended January 31, 2008 and 2007.




Note
7: Stock Options and Warrants




Stock
Options - Employees and contractors (“Staff”)




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




·
            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.




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






F-10





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





·
            On
      June 1, 2005, the Company issued 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 optionsOctober
      10, 2006
            
            
            2,500,000November
      30, 2006
            
            
            500,000December
      31, 2006
            
            
            150,000September
      30, 2007
            
            
            5,515,000September
      30, 2008
            
            
            3,750,000September
      30, 2009
            
            
            3,600,000Total
            
            
            16,015,000




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




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




Grant
      DateMay,
      2004
            
            
            June,
      2005
            
            
            January,
      2006
            
            
            October,
      2006Risk
      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
            
            
            
            5No
      of options expected to vest on vesting date
            
            
            0
            
            
            
            650,000
            
            
            
            725,000
            
            
            
            16,015,000Value
      of one option (Black Scholes)
            
            $
            0.000
            
            
            $
            0.289
            
            
            $
            0.070
            
            
            $
            0.065Value
      of option grant (aggregate)
            
            $
            0
            
            
            $
            187,850
            
            
            $
            50,750
            
            
            $
            1,040,975




From
August 1, 2006 we were required to adopt SFAS No. 123(R) whereby we account for
stock option expense for employees and contractors by charging the fair value of
options granted and expected to vest equally over the vesting period. In the
case of options that vest on grant the fair value of the option is expensed
immediately. The expense is shown as stock option expense in the consolidated
statement of operations with the credit posted to Additional Paid In Capital.
Prior to August 1, 2006 we were not required to treat employee stock options in
accordance with SFAS No. 123 (R) , and we disclosed the impact on pre-tax
results had we valued employee stock options on a proforma basis in the
footnotes to our Annual Financial Statements. In the three month period and nine
month period ended January 31, 2007 the stock option charge would have increased
by approximately $37,500 and $112,500, respectively, had we adopted SFAS No.
123(R) in that period.




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




The
Black-Scholes options valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.  The Company determined the expected term
was based on the legal life of the option; volatility was calculated using our
historical stock price and the risk free rate was taken from the 20-year
Treasury Constant Maturity Series based on the nominal 3-year rate.





No
options have yet been exercised by any employees.






F-11




Warrants




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





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





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




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




On
September 9, 2005, as part of the consideration for arranging a financing for
the Company, we issued to Montgomery Equity Partners Ltd (“Montgomery”),
three-year warrants to purchase 350,000 shares of Common Stock at an exercise
price of $0.001 per share. The market value of the Company's common stock
on the date of the negotiation of this transaction was $0.13. The weighted
average exercise price and fair value of the warrants at the date of their grant
were $0.001 and $0.076, respectively. On October 27, 2006 Montgomery exercised
these warrants by way of cashless conversion into 345,000 shares of Common
stock.




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





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





Summary
of options and warrants outstanding





The
following schedule summarizes the changes in the Company's outstanding stock
awards since July 31, 2007.




Weighted
            
            WeightedOptions
      Outstanding
            
            
            Average
            
            Average
            
            AggregateNumber
      of
            
            
            Exercise
      Price
            
            
            Exercise
      Price
            
            Remaining
            
            IntrinsicShares
            
            
            Per
      Share
            
            
            Per
      Share
            
            Contractual
      Life
            
            ValueBalance
      at July 31, 2007
            
            
            19,401,603
            
            
            $
            
            
            
            $
            0.055-1.50
            
            
            $
            0.1636
            
            8.06
      years
            
            
            1,296,238Awards
      Granted to Staff
            
            
            0
            
            
            
            
            
            
            $
            0
            
            
            $
            0Awards
      cancelled/expired
            
            
            0
            
            
            
            
            
            
            $
            0
            
            
            $
            0Warrants
      exercised
            
            
            0
            
            
            
            
            
            
            $
            0
            
            
            $
            0Balance
      at January 31, 2008
            
            
            19,401,603
            
            
            $
            
            
            
            $
            0.055-1.50
            
            
            $
            0.1636
            
            8.06
      years
            
            $
            1,296,238Awards
      exercisable atJanuary
      31, 2008
            
            
            10,101,769
            
            
            
            
            
            
            $
            0.550-1.50
            
            
            $
            0.1075
            
            6.66
      years
            
            $
            819,052




Note
8: Income Taxes




We record
our income taxes in accordance with Statement of Financial Accounting Standard
No. 109, "Accounting for Income Taxes". We had tax losses available to carry
forward in our UK operating subsidiaries at July 31, 2007 and we continued to
incur tax losses in the six month period ended January 31, 2008. We have
therefore not recorded any tax charge of liability in the three month period
ended January 31, 2008.






F-12




Note
9: Financings




The
Company has substantial obligations under various financial instruments arising
from the following financing agreements:







A.
April 2005, Financing




On April
15, 2005, we completed the sale of 863,845 units (the “Units”), each Unit
consisting of one share of Series B 5% Convertible Preferred Stock, one warrant
to purchase one share of the Company’s common stock (“Stock Warrants”), and one
warrant to purchase an additional unit (“Unit Warrants”). Such shares paid an
annual dividend of 5% and were convertible at any time at the option of the
holder into Common Stock at the rate of one share Common Stock for each
outstanding share of Series B Preferred Stock commencing April 15, 2005. The
Stock Warrants were exercisable from April 15, 2005 until April 15, 2008 at an
exercise price of $1.50 per share, subject to adjustment. The Unit Warrants were
exercisable for a period of 180 days from the effective date of the registration
statement at an exercise price of $0.65 per unit, subject to adjustment. All
preferential amounts to be paid to the holders of Series B Preferred Stock were
to have been be paid on a pari-passu basis with any preferential amounts to
be paid to the holders of our Series A Preferred Stock, and prior to the common
stock. As explained below the Units were subsequently exchanged for Notes issued
under the September, 2005 Financing.




B.
September 2005 Financing and subsequent restructurings




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




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




2. A
Securities Purchase Agreement (the "Purchase Agreement") with Montgomery Equity
Partners Ltd. ("Montgomery"), an affiliated fund of Cornell, providing for the
sale by the Company to Montgomery of its 18% secured convertible debentures in
the aggregate principal amount of $750,000 (the "Debentures") of which $300,000
was funded on September 7, 2005; $200,000was to have been funded two business
days prior to the Company's completion of its audited financial statements for
the fiscal year ended July 31, 2005, and; $250,000 was to have been funded
within five business days of the date the Registration Statement is declared
effective by the SEC. Under the Purchase Agreement, the Company also issued to
Montgomery three-year warrants (the "Warrants") to purchase 350,000 shares of
Common Stock at $0.001 per share, which have subsequently been exercised. The
Debentures matured on September 7, 2006 and bear interest at the annual rate of
18%. Holders have the right to convert, at any time, the principal amount
outstanding under the Debentures into shares of Common Stock, at a conversion
price per share equal to $0.144, subject to adjustment. Upon three-business day
advance written notice, the Company may redeem the Debentures, in whole or in
part. In the event that the closing bid price of the Common Stock on the date
that the Company provides advance written notice ofredemption 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.  In the event of
default the debenture holder is entitled to liquidated damages calculated at the
rate of 24% per annum on any unpaid balance.




3. A
Securities Purchase Agreement (the "Accredited Investor Purchase Agreement")
with the investors in a April 2005, Financing, pursuant to which these investors
agreed to exchange the securities that they purchased in the earlier financing
for an aggregate of $556,500 principal amount of Debentures, such debentures
have substantially the same terms as those issued to Montgomery and described in
the preceding paragraph 2 above.




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




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




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




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






F-13




·
            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.




2. On
November 29, 2006, the Company issued a secured subordinated convertible note to
Triumph Small Cap Fund Inc. ("Triumph"), (one of the investors in the Accredited
Investor Purchase Agreement referred to above) in the principal amount of
$165,000 in exchange for the interest and principal outstanding under the
Debenture previously issued to Triumph under the terms of the Accredited
Investor Purchase Agreement. The note (a) matures on October 31, 2008; (b) bears
interest at the rate of8% per annum, which is payable on maturity of the note
and (c) is convertible, at Triumph's option, into shares of the Company’s common
stock at a conversion price of $0.05 per share, subject to a 9.99%
conversion restriction.. On December 11, 2006Triumph converted $50,000 of the
principal amount outstanding under their note into 1,000,000 shares of the
Company's common stock in accordance with these conversion rights.




3. On
January 9, 2007, the Company issued two secured convertible notes to Longview
Fund L.P. (“Longview”)(one of the investors in the Accredited Investor Purchase
Agreement referred to above) in the aggregate principal amount of$309,300 as
follows:.




·
            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).




Subsequent
to the restructuring of the Loan Notes with Longview and Cornell / Montgomery,
both described above, the Company has been unable to comply with the payment
installments due under the terms of the restructured loan notes and is therefore
in default under these new Loan Notes.  These Loan Notes provide the
note holder with the right to liquidated damages at the rate of 24% per annum
during the period of default on unpaid balances.




The
conversion terms of the restructured loan notes from Longview and Cornell /
Montgomery enable the Loan Note holder to convert the amount outstanding under
the Notes into shares in the Company's common stock at a price of $0.05 cents
per share. The market price of the common stock at the dates that the
restructured loan notes were issued was, in the case of Cornell /Montgomery,
$0.072 and in the case of Longview $0.055 and therefore there is a beneficial
discount underlying these conversion options. We have valued that discount at
$170,474, 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 Loan Note.






F-14




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




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




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




On
November 8, 2006 The Rubin Family Irrevocable Stock Trust assigned its rights
under the Agreement to Harbor View Fund Inc, an entity which is unrelated to the
Company.




D.
Secured Subordinated Convertible Loan Notes (November 2006)




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




E.
Related Party Loans - Westek Limited




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




During
the six month period ended January 31, 2008 Westek advanced $280,984 to the
Company and its subsidiaries, giving a total short term indebtedness to Westek
of $645,488 at January 31, 2008. The intention of Westek in making such advances
was to maintain a basic level of operations in our main trading subsidiary
(IVMD UK Ltd) and to maintain compliance at IVMD Inc. Westek has continued to
make limited funding available to the Group subsequent to July 31, 2007
..  These advances are interest free and are payable on
demand.





F.
Short Term Advance from Loan Note Holder




During
the year ended July 31, 2007, Triumph advanced a sum of $80,000 to the Company.
Triumph has subsequently indicated that it will not demand repayment of this
loan, but no formal arrangements have been entered into. Therefore, this loan is
treated as repayable on demand. The note does not bear interest and is not
convertible.





During
the six month period ended January 31, 2008, Triumph advanced the sum of $60,810
to the Company in connection with the transaction detailed in note
11.  The funds have been used specifically to cover ongoing costs in
maintaining the compliance of the public entity.  No formal
arrangements have been entered into, and therefore this loan is treated as
repayable on demand. The note does not bear interest and is not
convertible.






F-15




Presentation
of Financings in the Financial Statements




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




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




The
following table shows the treatment of the Royalty Participation Agreement
Advances in the Financial Statements at January 31, 2008.





Total
      Amount Advanced
            
            $
            450,000Interest
      Imputed from inception until January 31, 2008
            
            $
            328,773Included
      in Long Term Debt at January 31, 2008
            
            $
            778,773




Accounting
for September, 2005 Financing and subsequent restructurings




The
Principal amount of unpaid Loan Notes at July 31, 2007 is shown separately on
the balance sheet as Notes Payable. The total is classified within Current
Liabilities as “Current Portion of Notes Payable”, since all amounts are
repayable before October 31, 2008.




The
following table shows the composition and classification of the Principal
amounts of Notes Payable in the balance sheet at July 31, 2007:




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




*Described
in A above


** see
“Beneficial Conversion Rights” below





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




Beneficial
Conversion Rights




As
explained above and in Note 2 the conversion rights in certain of the Loan Notes
described above have been granted at a discount from the market price of the
shares of the Company's common stock at the date that the loan notes were
issued. Such beneficial discounts are recognized when the loan note is issued.
The value of the discount is estimated using the Black Scholes method and is
credited to Additional Paid in Capital on the balance sheet. The cost of the
discount is expensed (as interest expense) over the life of the loan note.
The unamortized portion of the value of the discount ($18,900) is show as a
deduction from the total principal value of the loan notes outstanding on the
balance sheet, resulting in a net balance of $1,304,900.




Note
10: Defaults upon Senior Securities




As
explained in Note 9, the Company has been unable to pay interest and principal
repayments when due under the terms of its September, 2005 financing and certain
of the subsequent restructurings of the loans made under the September 2005
financing. As of July 31, 2007, the arrears of due but unpaid interest and
penalties on Debentures and Loan Notes that were in default was $663,141 and the
arrears of unpaid but due principal on Debentures in default amounted to
$873,800.




Note
11: Recent Developments
 
 In common
with most Development-stage entities we have incurred losses since inception. At
January 31, 2008 we had a net capital deficit of $7,998,546 and net current
liabilities of $7,369,856. We are in default under the terms of certain
convertible loan notes under which we owed $1,654,904 (including interest and
penalties) at January 31, 2008. These circumstances have effectively prevented
us, during the year, from raising adequate working capital to operate the
business effectively and we have been dependent upon advances from Westek Ltd, a
Company that is related to Mr. Graham Cooper, our Chief Executive Officer to
maintain basic operations and compliance and avoid insolvency. Westek provided
this support whilst the Company and its loan note holders sought to reach
agreement to restructure the Company’s borrowings to enable it to raise adequate
new capital. Such negotiations occurred throughout the year and subsequently,
and were exhaustive.  However, they failed to produce a satisfactory
solution and, as a result, Westek has recently indicated to the Company and the
other loan note holders that it can not continue to advance funds. It proposed
that the loan note holders work together and with the Company and others to find
an alternative solution to avoid insolvency. Negotiations are now at an advanced
stage between all of the loan note holders, the Company and a new company,
Medical Diagnostic Innovations Limited (“MDI”) (a company incorporated under the
laws of England and Wales, which has been formed by the management and employees
of the subsidiaries, including Mr. Graham Cooper and Mr. Martin Thorp) to work
together with the objective of entering into a transaction which, if
consummated, would involve the sale of the share capital of the
subsidiaries to MDI and the simplification and reduction of the indebtedness of
the Company so as to enable the Company to return to a “shell” and pursue future
merger transactions. There can be no certainty that this potential a transaction
will take place, or what the precise terms will be, and, in the event that these
or similar negotiations fail, the Company and its subsidiaries face the prospect
of insolvency and complete loss of shareholder value.




F-16




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.




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




Plan
of Operation




Overview




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




We
operate through two wholly owned subsidiaries located in England and Scotland,
both of which are incorporated under the Laws of England and Wales:




(A) IVMD
(UK) Limited, and (B) Jopejo Limited.




Our
website is located at www.ivmd.com.




Intellectual
Property and Product Development




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




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




The
prothrombin measurement device (the "PT Device") was developed under a research
and development contract with Inverness Medical Innovations Inc ("IMI"), which
was entered in on November 11, 2002 (the "IMI Agreement"). Pursuant to the IMI
Agreement, we are entitled to two types of revenue streams: (i) billings to IMI
for our development work during the product development phase and (ii) royalties
equal to 2% of net revenues from the sale of the PT Device. The product
development phase of the IMI Agreement has been completed. Commercialization of
the PT Device by IMI is expected to commence in 2008. IMI will oversee sales and
marketing of the prothrombin device and we will not have any influence over this
process.






3




We are
developing additional hand held or portable products which are focused on (a)
the measurement and detection of pregnancy and labor and (b) the detection of
diseases and medical conditions using magnetic detection techniques applied to
tissue and blood. We routinely seek to identify potential product applications
which would benefit from our technology and know-how and we are in discussions
with several parties which our management believes may result in commercial,
revenue earning contracts.




Results
of Operations




Three
and six months ended January 31, 2008 compared to three and six months ended
January 31, 2007




Revenues




We did
not generate any revenues during the three and six months ended January 31, 2008
and 2007.  As explained above, the next phase of the IMI agreement
involves our receiving royalties from future sales of the PT Device by IMI.
Additionally, we are seeking to enter into additional research and development
or IPR license contracts.




Depreciation
Expenses




Depreciation
expenses for the three and six months ended January 31, 2008 amounted to $567
and $1174, (compared to $2,867 and $6,567 for the three and six months ended
January 31, 2007), respectively. The decline is due to that fact that it has not
been necessary to replace or update any of our fixed asset base which is
adequate for our purposes and therefore the depreciation charge continues to
decline.




General
& Administrative Expenses




General
and administrative expenses for the three and six months ended January 31, 2008
were $135,915 and $296,138 as compared to $287,414 and $680,148 for the three
and six months ended January 31, 2007. This change reflects efforts to reduce
general and administrative expenses in the light of cash
constraints.




Sales
and Marketing Expenses




We
incurred $nil of marketing costs in the three and six month period ended January
31, 2008, as compared to $80,808 and $142,461 for the three and six month period
ended January 31, 2007.




Research
& Development Expenditure




During
the three and six months ended January 31, 2008, we spent $156,237 and $359,663
respectively on research and development compared to $147,348 and $330,606
during the three and six month period ended January 31, 2007.  In the
three month period ended January 31, 2008 our R&D activity was focused on
our Magnetic Strip Reader technology and our Magnetic Detection technology. By
comparison, during the three month period ended January 31, 2007, our R&D
expenditure was focused in part on the PT Device which was completed in late
August early September 2006 causing a lower comparable charge in the
period.




Stock
Option Expense




No stock
options were awarded during the six month period ended January 31,
2008.  We account for stock option expense under the provisions of
SFAS No. 123(R) whereby we value stock options using the Black Scholes method
and spread the charge equally from the date of grant until the date that the
options vest, adjusting for options that we believe are unlikely to ever
vest.  The remaining options vest over various periods through
September 30, 2010.  The total charge for option expense in the three
month period ended January 31, 2008 amounted to $135,315 compared to $180,612 in
the three month period ended January 31, 2007.




Net
Income (Loss)




Net loss
before other income and expense (which excluded interest expense) for the three
months ended January 31, 2008 was $(349,910), as compared to a net loss of
$(695,935) for the three months ended January 31, 2007.  The decrease
in net loss is attributable to significantly reduced expenditure in the areas of
legal and professional fees, selling and marketing and general and
administrative as the company introduced efforts to reduce the monthly burn
rate.




Net loss
(after other income and expense, including interest) for the three and six month
period ended January 31, 2008 amounted to $(624,708) and ($1,280,733),
respectively compared to $(953,044) and $(1,819,440) for the three and six month
period ended January 31, 2007. The decrease in net loss was due to the factors
discussed above.  Interest expense amounted to $274,798 in the three
month period ended January 31, 2008, as compared to $257,109 in the three month
period ended January 31, 2007.  The increase in interest expense is
attributable to punitive interest charges related to outstanding debt
obligations of the Company which were in default during the three month period
ended January 31, 2008 and the generally increased debt burden of the
Company.






4






Liquidity
and Capital Resources




We have
incurred operating losses since our inception. At January 31, 2008, we had an
accumulated deficit from inception of $(13,706,866). We are in default under the
terms of certain of our credit obligations and are operating at the forbearance
of our creditors. Our auditors, in their report on our financial statement for
the fiscal year ended July 31, 2007, have expressed substantial doubt about our
ability to continue as a going concern.




The
Company's working capital needs include payment of salaries, administrative
expenses, and research and development activities. At January 31, 2008, we had
no cash and we had net current liabilities of $7,369,856. We are in default
under the terms of certain convertible loan notes under which we owed
$1,654,904 (including interest and penalties) at January 31, 2008. These
circumstances have effectively prevented us, during the year, from raising
adequate working capital to operate the business effectively and we have been
dependent upon advances from Westek Ltd, a Company that is related to Mr. Graham
Cooper, our Chief Executive Officer to maintain basic operations and compliance
and avoid insolvency. We have described under ‘Recent Developments’ above
certain current events which indicate that, because of the failure of the loan
note holders to agree on a financing solution between themselves and with the
Company, the Company is unlikely to raise further working capital under its
current structure; and, as further described there, discussions are taking place
between the loan note holders and with the Company and others to sell the
Company’s operating subsidiaries and return the Company to a shell with a
simplified and reduced debt structure to enable it to realistically plan future
merger transactions. In the event that these current negotiations are
unsuccessful, and in the absence of any alternative solutions, the Company and
its subsidiaries would be likely to face insolvency. However, the directors
believe that current negotiations will end in an agreement between the loan note
holders and the Company which will lead to the survival of the Company,
potentially as a shell, as described above; or, alternatively, that some other
outcome will materialize which will result in the survival of the
Group.




Critical
Accounting Policies




Principles
of consolidation




Our
consolidated financial statements include our accounts and the accounts of our
two wholly owned foreign subsidiaries; IVMD (UK) Limited and Jopejo Limited,
both UK companies. The assets and liabilities of our foreign subsidiaries have
been translated from British pounds into U.S. dollars at the exchange rate in
effect at January 31, 2008 with the related translation adjustments reported as
a separate component of shareholders' deficit. Operating statement accounts have
been translated at the average exchange rate in effect during the period
presented. All significant intercompany transactions have been
eliminated.




Basis of
presentation




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




We are a
development stage enterprise and have incurred losses since inception. We had a
net capital deficit at January 31, 2008 of $(7,998,546). We also had substantial
net current liabilities at January 31, 2008 and we were in default on several of
our Notes Payable, as explained in Item 3 of Part 2. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern, in common with many development stage companies in our industry.
Historically we have depended on various sources of finance to support ongoing
operations, in particular, until our various products and work in progress reach
the point where they generate income (which cannot be assured) we are dependent
upon external funding, which has generally been made available to us in the past
by way of convertible loan notes provided by specialist investment funds. Since
November 2006 such funding has not been forthcoming and we have depended upon
short term advances from two of our loan note holders, as explained in Note 9 to
the Unaudited Condensed Consolidated Financial Statements (set forth in Part I
herein). More recently those advances have been restricted to one loan note
holder, a related party, Westek. As explained in Liquidity and capital resources
above, the Company is in negotiations to return to a shell to realistically plan
future merger transactions, and thereby ensure the survival of the
Company.




Use
of Estimates




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




Research
& Development Expenditure




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






5




Revenue
Recognition




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




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




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




Currently
we receive revenue mainly from contracts which we enter into with commercial
partners who work with us to develop new products which employ our core
technology. This revenue is generally in the form of contribution towards
development costs that we incur and is accounted for in accordance with the
underlying contracts. In the future we anticipate the nature of our principle
revenues changing from contribution towards development expenditure to royalty
income from developed products, this change will not take place until products
that are currently in development have been completed and are taken to
market.




Off
Balance Sheet Arrangements




We do not
have any off balance sheet arrangements as of January 31, 2008 or as of the date
of this report.




Recent
Accounting Pronouncements




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




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




On
February 15, 2007, the FASB issued FASB Statement No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement No.
115.  The fair value option established by Statement 159
permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity will report unrealized gains and
losses on items for which the fair value option has been elected in earnings (or
another performance indicator if the business entity does not report earnings)
at each subsequent reporting date. Statement 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007.  The Company does not expect that adoption of SFAS No. 159 will
have a material effect on its financial position, results of operations, or
liquidity and does not currently believe it will have a material impact on our
financial statements.






6






On
September 29, 2006, the FASB issued FASB Statement No. 158,Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans—An Amendment of FASB Statements No.
87, 88, 106, and 132R.  This new standard requires an employer
to: (a  ) recognize
in its statement of financial position an asset for a plan’s over funded status
or a liability for a plan’s under funded status; (b  )
measure a plan’s assets and its obligations that determine its funded status as
of the end of the employer’s fiscal year (with limited exceptions); and (c  )
recognize changes in the funded status of a defined benefit postretirement plan
in the year in which the changes occur. The requirement to recognize the funded
status of a benefit plan and the disclosure requirements are effective as of the
end of the fiscal year ending after December 15, 2006, for entities with
publicly traded equity securities, and at the end of the fiscal year ending
after June 15, 2007, for all other entities. The requirement to measure plan
assets and benefit obligations as of the date of the employer’s fiscal year-end
statement of financial position is effective for fiscal years ending after
December 15, 2008. The Company does not expect that adoption of SFAS
No. 158 will have a material effect on its financial position, results of
operations, or liquidity and does not currently believe it will have a material
impact on our financial statements.




In
September 2006, the FASB issued Statement No. 157,Fair Value Measurements.
This new standard provides guidance for using fair value to measure assets and
liabilities. Statement 157 applies whenever other standards require (or permit)
assets or liabilities to be measured at fair value but does not expand the use
of fair value in any new circumstances. Under Statement 157, fair value refers
to the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants in the market in
which the reporting entity transacts. In this standard, the FASB clarifies the
principle that fair value should be based on the assumptions market participants
would use when pricing the asset or liability. The provisions of Statement 157
are effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company
does not expect that adoption of SFAS No. 157 will have a material effect
on its financial position, results of operations, or liquidity and does not
currently believe it will have a material impact on our financial
statements.





In March
2006, the FASB issued FASB Statement No. 156,Accounting for Servicing of Financial Assets -
An Amendment of FASB Statement No. 140.  This standard amends
the guidance in FASB Statement No. 140,Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities.  Among other requirements, Statement 156 requires
an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a
servicing contract in various situations. Statement 156 is effective as of
the beginning of an entity's first fiscal year that begins after September
15, 2006. The Company does not expect that adoption of SFAS No. 156 will
have a material effect on its financial position, results of operations, or
liquidity and does not currently believe it will have a material impact on our
financial statements.





In
February 2006, the FASB issued Statement No. 155,Accounting for Certain Hybrid
Instruments. This standard amends the guidance in FASB Statements No.
133,Accounting for
Derivative Instruments
and Hedging Activities,  and No. 140,Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities.  Statement 155 allows financial instruments that
have embedded derivatives to be accounted for as a whole (eliminating the need
to bifurcate the derivative from its host) if the holder elects to account for
the whole instrument on a fair value basis. Statement 155 is effective for all
financial instruments acquired or issued after the beginning of an entity’s
first fiscal year that begins after September 15, 2006. The Company does not
expect that adoption of SFAS No. 155 will have a material effect on its
financial position, results of operations, or liquidity and does not currently
believe it will have a material impact on our financial statements.




On July
13, 2006, FASB Interpretation (FIN) No. 48,Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No.
109,  was issued. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109,Accounting for Income
Taxes.  FIN 48 also prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The new FASB
standard also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. The
Company has adopted the provisions of FIN 48 effective as of January 1, 2007.
There is no financial statement impact from our adoption of FIN 48.







ITEM
3. CONTROLS AND PROCEDURES




(a)
Evaluation of Disclosure Controls and Procedures. As of the end of the period
covered by this report, we conducted an evaluation, under the supervision and
with the participation of our chief executive officer and chief financial
officer of our disclosure controls and procedures (as defined in Rule 13a-15(e)
and Rule 15d-15(e) of the Exchange Act). Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports we file or submit
under the Act is accumulated and communicated to our management, including our
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure. Based upon this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are
effective.




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




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








7











PART
II - OTHER INFORMATION




ITEM
1. LEGAL PROCEEDINGS




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




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




None.




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




At
January 31, 2008 we were in default under the terms of several notes payable.
The total principal and interest due, but not paid, under these notes at January
31, 2008 were $873,800 (principal), and $536,245 (interest and penalties)
respectively.




The notes
in default were as follows:





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





The
lender of the above notes has served notice on us demanding repayment of the
full amount due under the note.  Subsequent to the receipt of this
demand notice, we have entered into negotiations with the note holders with the
objective of restructuring the debt outstanding. These notes are in default
because capital repayments have not been made on schedule dates.




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





On
December 18, 2007, the Convertible Debenture was assigned to Triumph Small Cap,
Inc. (“Triumph”) pursuant to the terms of the Purchase and Assignment Agreement
(the “Assignment Agreement”) among, Montgomery, Triumph and the Company. The
Assignment Agreement became null and void on February 16, 2008 due to the fact
that the transactions contemplated by the Share Purchase Agreement dated
December 18, 2007  by and among, In Veritas Medical Diagnostics, Inc.,
Medical Diagnostic Innovations Ltd. (“MDI”), IVMD (UK) Limited, and Jopejo
Limited were not consummated on or prior to February 16, 2008.





Management
believes that this matter will be resolved, prior to further action being taken,
to enable the planned sale of IVMD (UK) Limited and Jopejo Limited to MDI to
progress in line with previously announced plans and agreements and are
currently facilitating discussions between MDI and Yorkville to that
end.








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




None.




ITEM
5. OTHER INFORMATION




None.




8







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.










9










SIGNATURES




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






IN
      VERITAS MEDICAL DIAGNOSTICS, INC.Date: March
      14, 2008
            By:
            /s/ 
      Graham
      CooperGraham
      Cooper
              Chief
      Executive Office




By:
            /s/ 
      Martin E.
      ThorpMartin
      E. Thorp
              Chief
      Financial Officer