**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-QSB**

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

**ACT      OF 1934**

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

**ACT      OF 1934**

**For      the Transition Period From _____ to _____**

*Commission      File Number: 000-49972*

**IN      VERITAS MEDICAL DIAGNOSTICS, INC.**

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

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

**WITH      COPIES TO:**

**APPLICABLE      ONLY TO CORPORATE ISSUERS**

----

| Page                                                             |                                                                        |                       |
|------------------------------------------------------------------|-----------------------------------------------------------------------------|----------------------------|
|                                                             |                                                                        |                       |
| PART                  I --FINANCIAL                  INFORMATION |                                                                        |
|                                                             |                                                                        |
| Item 1.                                                          | Financial                  Statements.                                      | F-1-                  F-19 |
|                                                             |                                                                        |                       |
| Item                  2.                                         | Management's                  Discussion and Analysis or Plan of Operations |                            |
|                                                             |                                                                        |                       |
| Item                  3.                                         | Controls                  and Procedures                                    |                       |
|                                                             |                                                                        |                       |
| PART                  II -                  OTHER INFORMATION    |                                                                             |
|                                                             |                                                                        |
| Item                  1.                                         | Legal                    Proceedings.                                       |                       |
|                                                             |                                                                        |                       |
| Item                  2.                                         | Unregistered                  Sale of Equity Securities and Use of Proceeds |                       |
|                                                             |                                                                        |                       |
| Item                  3.                                         | Defaults                  Upon Senior Securities                            |                       |
|                                                             |                                                                        |                       |
| Item                  4.                                         | Submission                  of Matters to a Vote of Security Holders.       |                       |
|                                                             |                                                                        |                       |
| Item                  5.                                         | Other                  Information                                          |                       |
|                                                             |                                                                        |                       |
| Item                  6.                                         | Exhibits.                                                                   |                       |
|                                                             |                                                                        |                       |
| Signatures.                                                      |                                                                        |                       |

----

**PART        I - FINANCIAL INFORMATION**

**ITEM        1. FINANCIAL STATEMENTS**

|                                                                                                                                                                                                                                                                                         |                      | **Page** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|----------|
|                                                                                                                                                                                                                                                                                         |                      |     |
| Unaudited                Condensed Consolidated Balance Sheet at January 31, 2007                                                                                                                                                                                                            | F-2                       |
|                                                                                                                                                                                                                                                                                         |                      |     |
| Unaudited                Consolidated Statements of Operations for the three and six months                ended                January                31, 2007 and 2006 and for the period  from                March 26, 1997 (Inception) through January 31,                2007     | F-3                  |
|                                                                                                                                                                                                                                                                                         |                      |     |
| Unaudited                Condensed Consolidated Statements of Accumulated Other Comprehensive                Loss                for                the six months ended January 31, 2007 and 2006 and for the periodfrom                March 26, 1997 (Inception) through January 31, 2007 | F-4                  |
|                                                                                                                                                                                                                                                                                         |                      |     |
| Unaudited                Condensed Statement of Changes in Shareholders' Deficit for the period                from March                26, 1997 (Inception) through January 31, 2007                                                                                                       |                      |
|                                                                                                                                                                                                                                                                                         |                           | F-5      |
| Unaudited                Condensed Consolidated Statements of Cash Flows for the six monthsended                January 31, 2007 and 2006 and for the period  from                March 26, 1997 (Inception) through January 31,                2007                                    | F-6                  |
|                                                                                                                                                                                                                                                                                         |                      |     |
| Notes                to the Unaudited Condensed Consolidated Financial                Statements                                                                                                                                                                                             | F-7                - F-19 |
|                                                                                                                                                                                                                                                                                         |                      |     |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated            Balance Sheet**

**January          31, 2007**

**(unaudited**

| **Assets**                                                                                                |   |    |        |
|-----------------------------------------------------------------------------------------------------------|--------|--------------|-------------|
| Current                assets:                                                                            |   |         |        |   |
| Cash                                                                                                      |   | $            | 11,343      |   |
| Prepaid                expenses and other                                                                 |   |         | 53,993      |   |
| Total                current assets                                                                  |   |         | 65,336      |   |
| Property                and equipment, net (Note 3)                                                       |   |         | 7,002       |   |
| Intangible                assets:                                                                         |   |         |        |   |
| Patent                costs (note 4)                                                                      |   |         | 157,911     |   |
|                                                                                                      |   |         |        |   |
|                                                                                                      |   | $            | 230,249     |   |
|                                                                                                      |   |         |        |   |
| **Liabilities                and Shareholders’ Deficit**                                            |   |         |        |   |
|                                                                                                      |   |         |        |   |
| Current                liabilities:                                                                       |   |         |        |   |
| Accounts                payable                                                                           |   | $            | 988,850     |   |
| Accrued                interest payable                                                                   |   |         | 357,317     |   |
| Accrued                liabilities                                                                        |   |         | 500,038     |   |
| Indebtedness                to related parties (Note 2)                                                   |   |         | 197,337     |   |
| Current                portion of Long Term Notes Payable (Note 9)                                        |   |         | 829,430     |   |
| Short                term advance from Related Party (Note 9)                                             |   |         | 91,903      |   |
| Short                term advance                                                                         |   |         | 80,000      |   |
| Total                current liabilities                                                             |   |         | 3,044,875   |   |
|                                                                                                      |   |         |        |   |
| Long-term                debt:                                                                            |   |         |        |   |
| Convertible                Loan Notes, net of unamortized discount of $233,519 (Note                9)    |   |         | 216,481     |   |
| Royalty                Participation Agreement advances (Note 9)                                          |   |         | 571,705     |   |
| Notes                payable, related party (Note 9)                                                      |   |         | 1,800,000   |   |
| Total                liabilities                                                                     |   |         | 5,633,061   |   |
|                                                                                                      |   |         |        |   |
| Shareholders’                deficit:                                                               |   |         |        |   |
| Preferred                stock, $.001 par value, 50,000,000 shares authorized                (aggregate   |   |         |        |   |
| liquidation                preference of $8 million)                                                      |   |         |        |   |
| Series                A Preferred stock, 34,343,662 shares issued and outstanding (Note                6) |   |         | 34,344      |   |
| Common                stock, $.001 par value, 500,000,000 shares authorized,                              |   |         |        |   |
| 86,058,457                shares issued, 25,685,000 held in escrow, and                                   |   |         |        |   |
| 60,373,457                shares outstanding                                                              |   |         | 86,103      |   |
| Prepaid                element of expenses settled in stock                                               |   |         | (73,789     | ) |
| Stock                issued as security for convertible debentues (Note 9)                                |   |         | (3,339,050  | ) |
| Additional                paid-in capital                                                                 |   |         | 8,896,496   |   |
| Accumulated                other comprehensive loss- foreign currency adjustment                          |   |         | (432,105    | ) |
| Deficit                accumulated during the development stage                                           |   |         | (10,574,811 | ) |
|                                                                                                      |   |         |        |   |
| Total                shareholders' deficit                                                           |   |         | (5,402,812  | ) |
|                                                                                                      |   |         |        |   |
|                                                                                                      |   | $            | 230,249     |   |
|                                                                                                      |   |         |        |   |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated          Statements of Operation**

**(unaudited**

|                                                    |   |                                                           |       |                                           |   |                              |   |   |       | March                26, 1997 |   |
|---------------------------------------------------------|--------|----------------------------------------------------------------|------------|------------------------------------------------|--------|-----------------------------------|--------|--------|------------|-------------------------------|--------|
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       | (Inception)                   |   |
|                                                    |   | Six                  Months Ended January                  31, |       | Three                  Months EndedJanuary 31, |   | ThroughJanuary                31, |   |
|                                                    |   |                                                           | 2007       |                                           |   | 2006                              |   |   | 2007       |                          |   | 2006 |   |   | 2007 |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Net                sales and gross revenues:            |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Net                sales                                |   | $                                                              | —    |                                           | $      | 766,432                           |   | $      | —    |                          | $      | 413,439 |   | $ | 3,571,807 |   |
| Cost                of sales                            |   |                                                           | —    |                                           |   | —                           |   |   | —    |                          |   | — |   |   | 242,097 |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Gross                profit                        |   |                                                           | —    |                                           |   | 766,432                           |   |   | —    |                          |   | 413,439 |   |   | 3,329,710 |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Operating                expenses:                      |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Research                and development                 |   |                                                           | 330,606    |                                           |   | 586,670                           |   |   | 147,348    |                          |   | 321,461 |   |   | 5,320,327 |   |
| Legal                & Professional                 |   |                                                           | 207,544    |                                           |   | —                           |   |   | 180,365    |                          |   | — |   |   | 1,192,604 |   |
| Stock                options expense                    |   |                                                           | 404,455    |                                           |   | 11,742                            |   |   | 180,612    |                          |   | 5,871 |   |   | 519,532 |   |
| Selling                and marketing                    |   |                                                           | 142,461    |                                           |   | —                           |   |   | 80,808     |                          |   | — |   |   | 485,015 |   |
| General                and administrative               |   |                                                           | 275,693    |                                           |   | 565,978                           |   |   | 106,802    |                          |   | 305,579 |   |   | 5,134,556 |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Total                operating expenses                 |   |                                                           | 1,360,759  |                                           |   | 1,164,390                         |   |   | 695,935    |                          |   | 632,911 |   |   | 12,652,034 |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Loss                before other income                 |   |                                                           | (1,360,759 | )                                              |   | (397,958                          | )      |   | (695,935   | )                             |   | (219,472 | ) |   | (9,322,324 | ) |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Nonoperating                income (expense):           |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| UK                government grant (Note 1)             |   |                                                           | —    |                                           |   | 94,458                            |   |   | —    |                          |   | 94,458 |   |   | 291,398 |   |
| Interest                expense                         |   |                                                           | (458,681   | )                                              |   | (136,748                          | )      |   | (257,109   | )                             |   | (92,057 | ) |   | (1,117,438 | ) |
| Loan                Finance issue costs                 |   |                                                           | —    |                                           |   | (154,180                          | )      |   | —    |                          |   | (76,419 | ) |   | (708,279 | ) |
| Costs                of aborted financing               |   |                                                           | —    |                                           |   | —                           |   |   | —    |                          |   | — |   |   | (113,400 | ) |
| Compensation                payment to former director  |   |                                                           | —    |                                           |   | —                           |   |   | —    |                          |   | — |   |   | (135,000 | ) |
| Gain                (loss) on foreign exchange          |   |                                                           | —    |                                           |   | 8,202                             |   |   | —    |                          |   | (11,496 | ) |   | (132,378 | ) |
| Gain                (loss) from extinguishments of debt |   |                                                           | —    |                                           |   | —                           |   |   | —    |                          |   | — |   |   | 662,610 |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Loss                before income taxes                 |   |                                                           | (1,819,440 | )                                              |   | (586,226                          | )      |   | (953,044   | )                             |   | (304,986 | ) |   | (10,574,811 | ) |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Income                tax provision                     |   |                                                           | —    |                                           |   | —                           |   |   | —    |                          |   | — |   |   | — |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Net                loss                                 |   | $                                                              | (1,819,440 | )                                              | $      | (586,226                          | )      | $      | (953,044   | )                             | $      | (304,986 | ) | $ | (10,574,811 | ) |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Preferred                stock dividend requirements    |   |                                                           | (22,757    | )                                              |   | (21,384                           | )      |   | (22,757    | )                             |   | (21,384 | ) |   |   |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Loss                applicable to common stock          |   | $                                                              | (1,842,197 | )                                              | $      | (607,610                          | )      | $      | (975,801   | )                             | $      | (326,370 | ) |   |   |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Basic                and diluted loss per share         |   | $                                                              | (0.03      | )                                              | $      | (0.01                             | )      | $      | (0.02      | )                             | $      | (0.01 | ) |   |   |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| Weighted                average number of common shares |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
| outstanding                                             |   |                                                           | 57,553,457 |                                           |   | 54,826,668                        |   |   | 58,678,457 |                          |   | 55,105,123 |   |   |   |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |
|                                                    |   |                                                           |       |                                           |   |                              |   |   |       |                          |   |   |   |   |   |   |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated          Statements of Accumulated Other Comprehensive Loss**

**(unaudited**

|                                                   |   |                                           |        |                                |   | March                  26, 1997 |   |
|--------------------------------------------------------|--------|------------------------------------------------|-------------|-------------------------------------|--------|---------------------------------|--------|
|                                                   |   |                                           |        |                                |   | (Inception)                     |   |
|                                                   |   | Six                    Months EndedJanuary 31, |        | ThroughJanuary                  31, |   |
|                                                   |   | 2007                                           |        | 2006                                |   | 2007                            |   |
|                                                   |   |                                           |        |                                |   |                            |   |
| Net                  loss                              |   | $                                              | (1,819,440) |                                | $      | (586,226                        | )      | $ | (10,574,811 | ) |
|                                                   |   |                                           |        |                                |   |                            |   |   |   |   |
| Other                  comprehensive loss, net of tax: |   |                                           |        |                                |   |                            |   |   |   |   |
| Cumulative                  translation adjustment     |   |                                           | 16,873      |                                |   | (20,903                         | )      |   | (432,105 | ) |
|                                                   |   |                                           |        |                                |   |                            |   |   |   |   |
| Comprehensive                  loss               |   | $                                              | (1,802,567) |                                | $      | (607,129                        | )      | $ | (11,006,916 | ) |
|                                                   |   |                                           |        |                                |   |                            |   |   |   |   |
|                                                   |   |                                           |        |                                |   |                            |   |   |   |   |

----

**In          Veritas Medical Diagnostics, Inc.**

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

**(unaudited**

|                                                                                   |   |                                                                      |       |                             |   |                                                |   |                       |    |        |   |          |   |                                          |       |                                       |   |                              |   |          |    |
|----------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|------------|---------------------------------------|--------|-----------------------------------------------------|--------|----------------------------|---------|------------------|--------|---------------|--------|-----------------------------------------------|------------|--------------------------------------------|--------|------------------------------|--------|---------------|---------|
|                                                                                   |   | Preferred                  Stock                  Outstanding   |       |                                       |   |                  Common                  Stock |   |                       |    |  Additional |   |          |   | Prepaid                    elementof expenses |       | AccumulatedDeficit                  During |   | AccumulatedOther             |   |          |    |
|                                                                                   |   | Series                  A                                                 |       |   Series                  B |   |                                                |   |  Shares               |    |             |   |  paid-in |   | Stock                  issued                 |       | settled                  in                |   | Development                  |   | Comprehensive |    |   |   |
|                                                                                   |   |  Shares                                                              |       | Par                  Value            |   |  Shares                                        |   | Par                  Value |    |  Issued     |   | Outstanding   |   | Par                  Value                    |       |  capital                              |   | as                  security |   | stock         |    | Stage |   | Loss |   | Total |   |
|                                                                                   |   |                                                                 |       |                                  |   |                                           |   |                       |    |        |   |          |   |                                          |       |                                  |   |                         |   |          |    |   |   |   |   |   |   |
| Balance,                  March 26, 1997                                               |   |                                                                      | —    |                                  | $      | —                                             |   |                       | — |             | $      | —       |   |                                          | —    |                                       |   | —                      |   | $             | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| October                  2000, sale of stock, ($0.0035/share)                          |   |                                                                      | 4,366,377  |                                  |   | 4,366                                               |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 10,874 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 15,240 |   |
| December                  2001, sale of stock, ($0.0035/share)                         |   |                                                                      | 6,545,703  |                                  |   | 6,546                                               |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 16,301 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 22,847 |   |
| October                  2001, sale of stock, ($0.0202/share)                          |   |                                                                      | 23,431,582 |                                  |   | 23,432                                              |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 448,906 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 472,338 |   |
| Foreign                currency translation                  adjustment                |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 21,203 |   |   | 21,203 |   |
| Net                  loss                                                              |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | (1,350,829 | ) |   | — |   |   | (1,350,829 | ) |
| Balance,                  July 31, 2001                                                |   |                                                                      | 34,343,662 |                                  |   | 34,344                                              |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 476,081 |   |   | — |   |   | — |   |   | (1,350,829 | ) |   | 21,203 |   |   | (819,201 | ) |
|                                                                                   |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign                currency translation                  adjustment                |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | (140,377 | ) |   | (140,377 | ) |
| Net                  loss                                                              |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | (1,007,362 | ) |   | — |   |   | (1,007,362 | ) |
| Balance,                  July 31, 2002                                                |   |                                                                      | 34,343,662 |                                  |   | 34,344                                              |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 476,081 |   |   | — |   |   | — |   |   | (2,358,191 | ) |   | (119,174 | ) |   | (1,966,940 | ) |
|                                                                              |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign                currency translation                  adjustment                |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | (185,391 | ) |   | (185,391 | ) |
| Net                  loss                                                              |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | (1,080,619 | ) |   | — |   |   | (1,080,619 | ) |
| Balance,                  July 31, 2003                                                |   |                                                                      | 34,343,662 |                                  |   | 34,344                                              |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 476,081 |   |   | — |   |   | — |   |   | (3,438,810 | ) |   | (304,565 | ) |   | (3,232,950 | ) |
| Merger                  with HEMP (Note 8)                                             |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 38,397,164 |                                       |   | 38,397,164                   |   |          | 38,397  |   |   | (29,397 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   | 9,000 |   |
| July                  2004, merger with SIPC                                           |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 10,550,000 |                                       |   | 10,550,000                   |   |          | 10,550  |   |   | (10,688 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   | (138 | ) |
| July                  2004, issuance of common                                         |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stock                  for bridge loans, ($0.2750/share)                               |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 1,636,233  |                                       |   | 1,636,233                    |   |          | 1,636   |   |   | 448,364 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 450,000 |   |
| July                  2004, issuance of common                                         |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stock                  for services, ($0.4093/share)                                   |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 239,289    |                                       |   | 239,289                      |   |          | 239     |   |   | 97,702 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 97,941 |   |
| Foreign                  currency                                                      |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| translation                  adjustment                                                |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | (339,570 | ) |   | (339,570 | ) |
| Reclassification                  of debt forgiveness                                  |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| by                  Westek (Notes 2 and 9)                                             |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 2,030,298 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 2,030,298 |   |
| Net                  loss                                                              |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | (1,016,972 | ) |   | — |   |   | (1,016,972 | ) |
| Balance,                  July 31, 2004                                                |   |                                                                      | 34,343,662 |                                  |   | 34,344                                              |   |                       | — |             |   | —       |   |                                          | 50,822,686 |                                       |   | 50,822,686                   |   |          | 50,822  |   |   | 3,012,360 |   |   | — |   |   | — |   |   | (4,455,782 | ) |   | (644,135 | ) |   | (2,002,391 | ) |
|                                                                                   |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| August                  2004, additional paid in capital from bridge                   |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| loans                  exchanged for shares                                            |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 17,495 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 17,495 |   |
|  —                                                                          |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          | — |   |   | (6,000 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   | (6,000 | ) |
| Conversion                  of Preferred Stock into Debenture                          |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 694,550    |                                       |   | 694,550                      |   |          | 695     |   |   | 427,695 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 428,390 |   |
| December                  2004, issuance of stock for interest on                      |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 60,096     |                                       |   | 60,096                       |   |          | 60      |   |   | 76,100 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 76,160 |   |
| bridge                  loan                                                           |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March                  2005, issuance of stock for services                            |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 100,000    |                                       |   | 100,000                      |   |          | 100     |   |   | 62,880 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 62,980 |   |
| April                  2005, issuance of stock warrants for                            |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| services                                                                               |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 17,295 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 17,295 |   |
| April                  2005, sale of preferred Series B stock                          |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net                  of $97,995 offering costs ($.001 par),                            |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| ($0.65/share)                                                                          |   |                                                                      | —    |                                  |   | —                                             |   |                       | 617,692 |             |   | 618           |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 302,887 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 303,505 |   |
| April                  2005, issuance of stock for                                     |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| debt                  forgiveness                                                      |   |                                                                      | —    |                                  |   | —                                             |   |                       | 246,152 |             |   | 246           |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 159,754 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 160,000 |   |
|                                                                                        |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| June                    2005, issuance of stock Options                    forservices |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | 35,403 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 35,403 |   |
| Reversal                  of conversion of                                             |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          | —    |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| convertible                  preferred shares                                          |   |                                                                      | (1,301,178 | )                                     |   | (1,301                                              | )      |                       | — |             |   | —       |   |                                          | 1,301,178  |                                       |   | 1,301,178                    |   |          | 1,301   |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| July                  2005, issuance of stock for services                             |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 120,000    |                                       |   | 120,000                      |   |          | 120     |   |   | 35,288 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 35,408 |   |
| July                  2005, issuance of stock for conversion                           |   |                                                                      |       |                                  |   |                                                |   |                       |    |             |   |          |   |                                          |       |                                       |   |                         |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of                  debt                                                               |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | 1,162,791  |                                       |   | 1,162,791                    |   |          | 1,163   |   |   | 278,047 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 279,210 |   |
| Foreign                  currency translation adjustment                               |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 274,643 |   |   | 274,643 |   |
| Net                  loss                                                              |   |                                                                      | —    |                                  |   | —                                             |   |                       | — |             |   | —       |   |                                          | —    |                                       |   | —                      |   |          | — |   |   | — |   |   | — |   |   | — |   |   | (2,450,792 | ) |   | — |   |   | (2,450,792 | ) |
| Balance                  July 31, 2005                                                 |   |                                                                      | 33,042,484 |                                  |   | 33,043                                              |   |                       | 863,844 |             |   | 864           |   |                                          | 54,261,301 |                                       |   | 54,261,301                   |   |          | 54,261  |   |   | 4,419,204 |   |   | — |   |   | — |   |   | (6,906,574 | ) |   | (369,492 | ) |   | (2,768,694 | ) |

----

|                                                                                                                                  |   |   |       |   |   |    |   |   |     |   |   |    |   |   |       |   |   |       |   |   |    |   |   |      |   |   |       |   |   |    |   |   |        |   |   |     |   |   |       |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|---------|--------|--------|----------|--------|--------|---------|--------|--------|------------|--------|--------|------------|--------|--------|---------|--------|--------|-----------|--------|--------|------------|--------|--------|---------|--------|--------|-------------|--------|--------|----------|--------|--------|------------|--------|
| Conversion                  of common stock into debentures                                                                           |   |   | —    |   |   | — |   |   | (863,844 | )      |   | (864    | )      |   | —    |   |   | —    |   |   | — |   |   | (555,636  | )      |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | (556,500   | )      |
| (Note                  10)                                                                                                            |   |   |       |   |   |    |   |   |     |   |   |    |   |   |       |   |   |       |   |   |    |   |   |      |   |   |       |   |   |    |   |   |        |   |   |     |   |   |       |   |
| Conversion                  of preferred stock into common stock                                                                      |   |   | 1,301,178  |   |   | 1,301   |   |   | —  |   |   | — |   |   | (1,301,178 | )      |   | (1,301,178 | )      |   | (1,301  | )      |   | —   |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | —    |   |
| Shares                  issued as security for convertible debtures                                                                   |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 25,685,000 |   |   | —    |   |   | 25,685  |   |   | 3,313,365 |   |   | (3,339,050 | )      |   | — |   |   | —     |   |   | —  |   |   | —    |   |
| (Notes                  5 and 10)                                                                                                     |   |   |       |   |   |    |   |   |     |   |   |    |   |   |       |   |   |       |   |   |    |   |   |      |   |   |       |   |   |    |   |   |        |   |   |     |   |   |       |   |
| Stock                  Issued for services (August 2005)                                                                              |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 28,000     |   |   | 28,000     |   |   | 28      |   |   | 3,612     |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 3,640      |   |
| Stock                  Issued for services (August 2005)                                                                              |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 427,000    |   |   | 427,000    |   |   | 427     |   |   | 60,888    |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 61,360     |   |
| Stock                  Issued for services (September 2005)                                                                           |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 805,000    |   |   | 805,000    |   |   | 805     |   |   | 132,020   |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 132,825    |   |
| Stock                  Issued for services (September, 2005)                                                                          |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 750,000    |   |   | 750,000    |   |   | 750     |   |   | 254,250   |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 255,000    |   |
| Stock                  Issued for services (May 2006)                                                                                 |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 875,000    |   |   | 875,000    |   |   | 875     |   |   | 86,625    |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 87,500     |   |
| Stock                  Issued for services (June 2006)                                                                                |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 83,334     |   |   | 83,334     |   |   | 83      |   |   | 8,251     |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 8,334      |   |
| Foreign                  currency translation adjustment                                                                              |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | —   |   |   | —    |   |   | — |   |   | —     |   |   | (79,486  | )      |   | (79,486    | )      |
| January,                  2006, Issuance of stock options for                                                                         |   |   |       |   |   |    |   |   |     |   |   |    |   |   |       |   |   |       |   |   |    |   |   |      |   |   |       |   |   |    |   |   |        |   |   |     |   |   |       |   |
| services                                                                                                                              |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | 62,379    |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 62,379     |   |
| September                  2006 issuance of stock warrants                                                                            |   |   |       |   |   |    |   |   |     |   |   |    |   |   |       |   |   |       |   |   |    |   |   |      |   |   |       |   |   |    |   |   |        |   |   |     |   |   |       |   |
| in                  connection with financing                                                                                         |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | 45,164    |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 45,164     |   |
| Net                  loss                                                                                                             |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | —   |   |   | —    |   |   | — |   |   | (1,848,797  | )      |   | —  |   |   | (1,848,797 | )      |
| Balance                  July 31, 2006                                                                                                |   |   | 34,343,662 |   |   | 34,344  |   |   | —  |   |   | — |   |   | 81,613,457 |   |   | 55,928,457 |   |   | 81,658  |   |   | 7,830,122 |   |   | (3,339,050 | )      |   | — |   |   | (8,755,371  | )      |   | (448,978 | )      |   | (4,597,275 | )      |
|                                                                                                                                  |   |   |       |   |   |    |   |   |     |   |   |    |   |   |       |   |   |       |   |   |    |   |   |      |   |   |       |   |   |    |   |   |        |   |   |     |   |   |       |   |
| Discount                  on issue of loan note (Note 10)                                                                             |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | 62,640    |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 62,640     |   |
| Issuance                  of stock for services (October, 2006)                                                                       |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 1,000,000  |   |   | 1,000,000  |   |   | 1,000   |   |   | 67,000    |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 68,000     |   |
| Issuance                  of stock for services (October, 2006)                                                                       |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 1,250,000  |   |   | 1,250,000  |   |   | 1,250   |   |   | 148,749   |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 149,999    |   |
| October,                  2006 issuance of stock options for services                                                                 |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | 223,844   |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 223,844    |   |
| Foreign                  currency translation adjustment                                                                              |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | —   |   |   | —    |   |   | — |   |   | —     |   |   | 16,873   |   |   | 16,873     |   |
| Net                  Loss                                                                                                             |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | —   |   |   | —    |   |   | — |   |   | (1,819,440  | )      |   | —  |   |   | (1,819,440 | )      |
| Partial                  conversion of Convertible Loan Note into Common Stock (Dec. 2006)                  (Note                  6) |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 1,000,000  |   |   | 1,000,000  |   |   | 1,000   |   |   | 49,000    |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 50,000     |   |
| Stock                  Option Expense                                                                                                 |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | 180,612   |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 180,612    |   |
| Beneficial                  conversion discount underlying Convertible Loan Notes (Notes 2&                  9)                   |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | 283,874   |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 283,874    |   |
| Stock                  issued for services (December 2006)                                                                            |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 850,000    |   |   | 850,000    |   |   | 850     |   |   | 51,000    |   |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | 51,850     |   |
| Cashless                  conversion - Montgomery                                                                                     |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | 345,000    |   |   | 345,000    |   |   | 345     |   |   | (345      | )      |   | —    |   |   | — |   |   | —     |   |   | —  |   |   | —    |   |
| Prepaid                  element of expenses settled in stock                                                                         |   |   | —    |   |   | — |   |   | —  |   |   | — |   |   | —    |   |   | —    |   |   | — |   |   | —   |   |   | —    |   |   | (73,789 | )      |   | —     |   |   | —  |   |   | (73,789    | )      |
| Balance                  January 31, 2007                                                                                             |   |   | 34,343,662 |   | $      | 34,344  |   |   | —  |   | $      | — |   |   | 86,058,457 |   |   | 60,373,457 |   | $      | 86,103  |   | $      | 8,896,496 |   | $      | (3,339,050 | )      | $      | (73,789 | )      | $      | (10,574,811 | )      | $      | (432,105 | )      | $      | (5,402,812 | )      |
|                                                                                                                                  |   |   |       |   |   |    |   |   |     |   |   |    |   |   |       |   |   |       |   |   |    |   |   |      |   |   |       |   |   |    |   |   |        |   |   |     |   |   |       |   |

----

**In        Veritas Medical Diagnostics, Inc.**

**Consolidated          Statements of Cash Flows**

**(unaudited**

|                                                             |   |                                         |       |                              |   | March                26, 1997 |   |
|------------------------------------------------------------------|--------|----------------------------------------------|------------|-----------------------------------|--------|-------------------------------|--------|
|                                                             |   |                                         |       |                              |   | (Inception)                   |   |
|                                                             |   | Six                  Months EndedJanuary 31, |       | ThroughJanuary                31, |   |
|                                                             |   | 2007                                         |       | 2006                              |   | 2007                          |   |
|                                                             |   |                                         |       |                              |   |                          |   |
| Cash                flows from operating activities:             |   |                                         |       |                              |   |                          |   |
| Net              loss                                            |   | $                                            | (1,819,440 | )                                 | $      | (586,226                      | )      | $ | (10,522,961 | ) |
| Adjustments                to reconcile net loss to net cash     |   |                                         |       |                              |   |                          |   |   |   |   |
| used                by operating activities:                     |   |                                         |       |                              |   |                          |   |   |   |   |
| Depreciation                and amortization                     |   |                                         | 6,567      |                              |   | 16,186                        |   |   | 158,100 |   |
| Intercompany                interest income                      |   |                                         | —    |                              |   | —                       |   |   | 242,382 |   |
| Interest                imputed (non cash)                       |   |                                         | 411,410    |                              |   | —                       |   |   | 347,940 |   |
| Prepaid                element of expenses and beneficial        |   |                                         |       |                              |   |                          |   |   |   |   |
| discounts                on loan note conversions                |   |                                         | (307,308   | )                                 |   | —                       |   |   | (307,308 | ) |
| Stock                issued for compensation and services        |   |                                         | 674,304    |                              |   | 391,465                       |   |   | 1,858,132 |   |
| Stock                issued for interest                         |   |                                         | —    |                              |   | 61,360                        |   |   | 86,160 |   |
| Gain                (loss) on debt forgiveness                   |   |                                         | —    |                              |   | —                       |   |   | (662,610 | ) |
| Changes                in operating assets and liabilities:      |   |                                         |       |                              |   |                          |   |   |   |   |
| Receivables                                                      |   |                                         | 195,192    |                              |   | (98,873                       | )      |   | (25,246 | ) |
| Prepaid                expenses and other current assets         |   |                                         | (14,275    | )                                 |   | 47,681                        |   |   | (31,743 | ) |
| Deferred                debt issue costs                         |   |                                         | —    |                              |   | (130,242                      | )      |   | — |   |
| Accounts                payable                                  |   |                                         | 153,048    |                              |   | (176,662                      | )      |   | 1,115,841 |   |
| Accrued                expenses                                  |   |                                         | 66,068     |                              |   | 233,065                       |   |   | 757,264 |   |
| Accrued                interest payable                          |   |                                         | 86,982     |                              |   | —                       |   |   | 86,982 |   |
| Accounts                payable (related party)                  |   |                                         | (194,479   | )                                 |   | —                       |   |   | (72,745 | ) |
| Other                                                            |   |                                         | 50,554     |                              |   | (28,403                       | )      |   | 188,328 |   |
| Net                cash used in                             |   |                                         |       |                              |   |                          |   |   |   |   |
|  operating                activities                        |   |                                         | (691,377   | )                                 |   | (270,649                      | )      |   | (6,781,484 | ) |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
| Cash                flows from investing activities:             |   |                                         |       |                              |   |                          |   |   |   |   |
| Acquisition                of patents                            |   |                                         | (58,834    | )                                 |   | (11,620                       | )      |   | (157,912 | ) |
| Acquisition                of equipment                          |   |                                         | —    |                              |   | (3,481                        | )      |   | (151,209 | ) |
| Net                cash used in                             |   |                                         |       |                              |   |                          |   |   |   |   |
|  investing                activities                        |   |                                         | (58,834    | )                                 |   | (15,101                       | )      |   | (309,121 | ) |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
| Cash                flows from financing activities:             |   |                                         |       |                              |   |                          |   |   |   |   |
| Advances                from affiliates                          |   |                                         | —    |                              |   | —                       |   |   | 4,378,963 |   |
| Proceeds                from debenture issue                     |   |                                         | —    |                              |   | 300,000                       |   |   | — |   |
| Repayment                of advances from affiliates             |   |                                         | —    |                              |   | —                       |   |   | (728,426 | ) |
| Advances                from related parties                     |   |                                         | 91,903     |                              |   | —                       |   |   | 174,953 |   |
| Proceeds                from issuance of preferred stock         |   |                                         | —    |                              |   | —                       |   |   | 813,930 |   |
| Discount                on notes payable                         |   |                                         | —    |                              |   | 50,913                        |   |   | 144,382 |   |
| Proceeds                from Royalty Participation Agreement     |   |                                         | —    |                              |   | —                       |   |   | 450,000 |   |
| Proceeds                from issue of Loan Notes                 |   |                                         | 335,000    |                              |   | —                       |   |   | 1,597,495 |   |
| Short                term advances                               |   |                                         | 80,000     |                              |   | —                       |   |   | 80,000 |   |
| Interest                payable reclassified as Loan Notes       |   |                                         | 192,300    |                              |   | —                       |   |   | 182,300 |   |
| Net                cash provided by                         |   |                                         |       |                              |   |                          |   |   |   |   |
|  financing                activities                        |   |                                         | 699,203    |                              |   | 350,913                       |   |   | 7,093,597 |   |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
| Effect                on cash from foreign currency translation  |   |                                         | 1,111      |                              |   | 15,505                        |   |   | 8,351 |   |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
| Net                change in cash and                       |   |                                         |       |                              |   |                          |   |   |   |   |
|  cash                equivalents                            |   |                                         | (51,008    | )                                 |   | 80,668                        |   |   | 2,992 |   |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
| Cash                and cash equivalents:                        |   |                                         |       |                              |   |                          |   |   |   |   |
| Beginning                of period                               |   |                                         | 61,240     |                              |   | 2,015                         |   |   | — |   |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
| End                of period                                     |   | $                                            | 11,343     |                              | $      | 82,683                        |   | $ | 11,343 |   |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
| Supplemental                disclosure of cash flow information: |   |                                         |       |                              |   |                          |   |   |   |   |
| Cash                paid during the year for:                    |   |                                         |       |                              |   |                          |   |   |   |   |
| Income                taxes                                      |   | $                                            | —    |                              | $      | —                       |   | $ | — |   |
| Interest                                                         |   | $                                            | —    |                              | $      | —                       |   | $ | — |   |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
| Non-cash                financing activities:                    |   |                                         |       |                              |   |                          |   |   |   |   |
| Conversion                of note payable to common stock        |   | $                                            | —    |                              | $      | —                       |   | $ | 700,000 |   |
| Conversion                of preferred stock into debentures     |   |                                         | —    |                              |   | 556,500                       |   |   | 86,160 |   |
| Stock-based                compensation                          |   |                                         | 674,304    |                              |   | —                       |   |   | 1,234,567 |   |
|                                                             |   | $                                            | 674,304    |                              | $      | 556,500                       |   | $ | 2,020,727 |   |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |
|                                                             |   |                                         |       |                              |   |                          |   |   |   |   |

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

**Note      1: ORGANIZATION AND BASIS OF PRESENTATION**

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

      With      respect to our payment obligations.

**Note      2: Related Party Transactions**

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

**Note      3: Property and Equipment**

| Furniture                  and Fixtures         |   | $      | 16,523  |   |
|-------------------------------------------------|--------|--------|---------|--------|
| Office                  Equipment               |   |   | 89,814  |   |
| Plant                  and Equipment            |   |   | 20,939  |   |
|                                            |   |   | 127,276 |   |
| Less:                  accumulated depreciation |   |   | 120,274 |   |
|                                            |   | $      | 7,002   |   |

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

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

| Cost                  - start of year             |   | $      | 99,007  |   |
|---------------------------------------------------|--------|--------|---------|--------|
|                                              |   |   |    |   |
| Costs                  incurred during the period |   |   | 58,904  |   |
| Amortization                                      |   |   | -       |   |
| Retirements                                       |   |   | -       |   |
| Cost                  - end of year               |   | $      | 157,911 |   |

**Note      5: Preferred Stock**

**4%      Convertible Preferred Stock**

**Note      6: Common Stock**

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

|                                                 |   |  31-Jan-07                                |      | 31-Jan-06                                                |   |
|------------------------------------------------------|--------|------------------------------------------------|-----------|----------------------------------------------------------|--------|
| Shareholder                                     |   |  Number                  of Shares Issued |      |  Fair                  Value of Shares  Issued |   |  Number                  of Shares Issued |   |        Fair                Valueof                  Shares Issued |   |
| CLX                  & Associates Inc            |   |                                           |           |                                                     |   |   |   | $ | 750,000 |   | $ | 255,000 |   |
| Sichenzia                  Ross Friedman Ference LLP |   |                                           |      |                                                     |   |  |   |   | 805,000 |   |   | 132,825 |   |
| Cornell                  Capital Partners LP         |   |                                           |      |                                                     |   |   |   |   | 472,000 |   |   | 61,360 |   |
| Monitor                  Capital Inc                 |   |                                           |      |                                                     |   |   |   |   | 28,000 |   |   | 3,640 |   |
| Crown                  Capital Group Ltd             |   |                                           | 1,000,000 |                                                     |   | 68,000 |   |   |   |   |   |   |   |
| UTEK                  Corporation                    |   |                                           | 1,250,000 |                                                     |   | 150,000 |   |   |   |   |   |   |   |
| Sichenzia                  Ross Friedman Ference LLP |   |                                           | 850,000   |                                                     |   | 51,850 |   |   |   |   |   |   |   |
|                                                 |        | $                                              | 3,100,000 |                                                          |        | 269,850 |   | $ | 2,055,000 |   | $  | 452,825 |   |

**Note      7: Stock Options and Warrants**

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

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

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

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

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

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

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

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

**Stock      Warrants**

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

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

|                                                                |   |                                           |       |                                          |   |                                                                         |   |
|---------------------------------------------------------------------|--------|------------------------------------------------|------------|-----------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|                                                                |   |  Options                Outstanding  |       |                                          |   |                                                                         |   |   |   |
|                                                                |   |  Number                of Shares          |       |  Exercise                Price Per Share |   |  Weighted                AverageExercise                Price Per Share |   |  Weighted                Average Remaining Contractual                Life |   |                  Aggregate Intrinsic Value |   |
|                                                                |   |                                           |       |                                          |   |                                                                         |   |   |   |   |   |
|  Balance              at July 31, 2006                         |   |                                           | 4,996,436  |                                          | $      | 0.001-$1.50                                                                  |   | $ | 0.750 |   |   |   |   |   |   |   |
|  Awards              Granted to Staff                          |   |                                           | 16,015,000 |                                          | $      | 0.065                                                                        |   | $ | 0.065 |   |   |   |   |   |   |   |
|  Awards              exercised                                 |   |                                           |       |                                          |   |                                                                         |   | $ | 0.000 |   |   |   |   |   |   |   |
|  Warrants              exercised                               |   |                                           | (350,000   | )                                             | $      | 0.001                                                                        |   | $ | 0.001 |   |   |   |   |   |   |   |
|  Balance              at January 31, 2007                      |   |                                           | 20,661,436 |                                          | $$     | $0.065-1.50                                                                  |   | $ | 0.685 |   |   | 13.95              years |   |   | $1,341,388 |   |
|                                                                |   |                                           |       |                                          |   |                                                                         |   |   |   |   |   |   |   |   |   |   |
| Awards                exercisable atJanuary                31, 2007 |   |                                           | 3,201,769  |                                          | $      | 0.065-$1.50                                                                  |   | $ | 0.685 |   |   | 7.27              years |   | $ | 184,960 |   |

|                                           |   |   | Number              of Shares  |   |   | Weighted AverageExercise                Price Per                Share    |   |   | Weighted Average Grant                  Date Fair                  Value   |   |
|------------------------------------------------|--------|--------|------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------|--------|
|                                           |   |   |                                     |   |   |                                                                                          |   |   |                                                                                           |   |
|  Balance              at July 31, 2006    |   |   | 4,996,436                                |   | $      | 0.001-$1.50                                                                                   |   | $      | 0.750                                                                                          |   |
|  Awards              Granted              |   |   | 12,463,231                               |   | $      | 0.065                                                                                         |   | $      | 0.065                                                                                          |   |
|  Awards              exercised            |   |   | -                                        |   |   | N/A                                                                                           |   |   | N/A                                                                                            |   |
|  Awards              cancelled/expired    |   |   | -                                        |   |   | N/A                                                                                           |   |   | N/A                                                                                            |   |
|  Balance              at January 31, 2007 |   |   | 17,459,667                               |   | $      | 0.065-1.50                                                                                    |   | $      | 0.685                                                                                          |   |
|                                           |   |   |                                     |   |   |                                                                                          |   |   |                                                                                           |   |

**Note      8: Income Taxes**

**Note      9: Financings**

**A.      September 2005 Financing and subsequent and ongoing      restructurings**

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

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

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

| ·   | 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 April 30, 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 a result of the default on the                Debenture                previously issued to Longview under the terms of the Accredited Investor                Purchase Agreement. This note has the same interest and conversion                terms                as described above, but is repayable on maturity (principal and                interest). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|           |   |  Beneficial                Discount |    |  Q2                charge |   |  UnamortizedAmount |   |
|----------------|--------|------------------------------------------|---------|--------------------------------|--------|-------------------------|--------|
|  Westek   |   | $                                        | 113,400 |                           | $      | 18,900                  |   | $ | 94,500 |   |
|  Triumph  |   | $                                        | 0       |                           | $      | 0                       |   | $ | 0 |   |
|  Cornell  |   | $                                        | 146,160 |                           | $      | 30,240                  |   | $ | 115,920 |   |
|  Longview |   | $                                        | 24,314  |                           | $      | 1,216                   |   | $ | 23,098 |   |
|           |   | $                                        | 283,874 |                           | $      | 50,356                  |   | $ | 233,519 |   |

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

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

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

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

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

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

**Presentation      of Financings in the Financial Statements**

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

----

**In      Veritas Medical Diagnostics, Inc.**

**Notes      to Consolidated Financial Statements**

|  Total                Amount Advanced                                                 |   | $ | 523,300 |   |
|--------------------------------------------------------------------------------------------|--------|---|---------|--------|
|  Interest                Imputed from inception until                January 31, 2007 |   | $ | 48,405  |   |
|  Included                in Long Term Debt at January 31,                2007         |   | $ | 571,705 |   |

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

|                                                 |   | Amounts                maturing during the                year ended January 31   |        | Total                PrincipalOutstanding |   |
|-------------------------------------------------|--------|---------------------------------------------------------------------------------------------|-------------|-------------------------------------------|--------|
|                                                 |   |                                                                                        |  2008* |                                      |   | 2009** |   |   |   |   |
|  Montgomery              Capital Partners  |   |                                                                                        | 303,630     |                                      |   |   |   |   | 303,630 |   |
|  Triumph              Small Cap Fund       |   |                                                                                        |        |                                      |   | 450,000 |   |   | 450,000 |   |
|  Longview                                  |   |                                                                                        | 309,300     |                                      |   |   |   |   | 309,300 |   |
|  Other              Accredited Investor*** |   |                                                                                        | 216,500     |                                      |   |   |   |   | 216,500 |   |
|  Total              Notes payable          |   |                                                                                        | 829,430     |                                      |   | 450,000 |   |   | 1,279,430 |   |

**Beneficial      Conversion Rights**

**Note      10: Defaults upon Senior Securities**

----

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

**Forward-Looking      Statements**

**Plan      of Operation**

**Overview**

**Intellectual      Property and Product Development**

**Results      of Operations**

**Revenues**

----

**Depreciation      Expenses**

**General      & Administrative Expenses**

**Sales      and Marketing Expenses**

**Research      & Development Expenditure**

**Stock      Option Expense**

**Net      Income (Loss)**

**Liquidity      and Capital Resources**

----

**Critical      Accounting Policies**

**Use      of Estimates**

**Research      & Development Expenditure**

**Revenue      Recognition**

----

**Recent      Financings and Restructurings**

**Termination,      Settlement, and Forbearance Agreement (Cornell / Montgomery      Debenture)**

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

| ·   | The                Company shall pay Montgomery an aggregate of $348,000.00 (the "Funds")                which represents all amounts owed by the Company to Montgomery under                the                Debenture as of the date hereof including outstanding principal and                interest. The Company shall pay the Funds to Montgomery monthly at                the                rate of $29,000.00 ("Monthly Payment") per calendar month, with the                first                payment being due and payable on November 15, 2006 and each subsequent                payment being due and payable on the first business day of each subsequent                month until the Funds are repaid in                full. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Montgomery                shall continue to have valid, enforceable and perfected first-priority                liens upon and security interests in the Pledged Property and the                Pledged                Shares (each as defined in the Purchase Agreement transaction documents)                and in the Financial Statements set out in Part 1                above. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 and related penalties and redemption                premium                payments lapse provided that the Company complies with the terms                of the                amended terms described above. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Cornell                shall retain the 472,000 shares of the Company's common                stock. |
|--------------------|------------------------------------------------------------------------------------------------------|

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**Westek      Loan Amendment**

**Triumph      Loan Restructuring**

**Longview      Loan Restructuring**

| ·   | The                first, for $261,300, was 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 April 30, 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 balance due of principal plus unpaid interest                on                maturity. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                second, for $48,000 was issued in exchange for liquidated damages                payable                as a 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 a conversion term as the first amount,                described                above, but is repayable on maturity (principal and                interest). |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Royalty      Participation Agreement**

**Off      Balance Sheet Arrangements**

----

**Recent      Accounting Pronouncements**

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

**ITEM      3. CONTROLS AND PROCEDURES**

**PART      II - OTHER INFORMATION**

**ITEM      1. LEGAL PROCEEDINGS**

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

**ITEM      3. DEFAULTS UPON SENIOR SECURITIES**

----

| Type                  of Security         | Maturity                  Date      | Principal                  Amount (not including interest) |
|-------------------------------------------|-------------------------------------|------------------------------------------------------------|
| Secured                  Convertible Note | Regular                  Repayments | $309,000                                                   |
| Secured                  Convertible Note | Monthly                  Repayments | $303,630                                                   |

| Type              of Security           | Maturity              Date       | Principal              Amount (not including interest) |
|-----------------------------------------|----------------------------------|--------------------------------------------------------|
| Secured                Convertible Note | September                7, 2006 | $201,500                                               |
| Secured                Convertible Note | September                7, 2006 | $15,00                                                 |

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

**ITEM      5. OTHER INFORMATION**

**ITEM      6. EXHIBITS**

**EXHIBITS**

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

|   |
|--------|

----

**ITEM      7. SIGNATURES**

**SIGNATURES**

|                                   |                                                    |                                |
|----------------------------------------|---------------------------------------------------------|-------------------------------------|
|                                   | **IN                VERITAS MEDICAL DIAGNOSTICS, INC.** |
|                              |                                               |                           |
| Date: April              25, 2007 | By:                                           | /s/ Graham              Cooper |
|                                   | Graham              Cooper                              |
|                                   | Chief              Executive Officer                    |

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