**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
  WASHINGTON,
        D.C. 20549
  **FORM
        10-QSB**
  **[x]
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE**
  **ACT
        OF 1934**
  For
        the
        quarterly period ended April 30, 2007
  **[
        ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE**
  **ACT
        OF 1934**
  **For
        the Transition Period From _____ to _____**
  *Commission
        File Number: 000-49972*
  **IN
        VERITAS MEDICAL DIAGNOSTICS, INC.**
 (Exact
        name of registrant as specified in its charter)
   Colorado
              84-1579760(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  No.)
   The
                  Green House, Beechwood Business Park North,Inverness,
                  Scotland
              IV2
                  3BL(Address
                  of principal executive offices)
              (Zip
                  Code)
   011
                  44-1463-667-347
                (Issuer's
                  telephone number)
                
                
                WITH
                    COPIES TO:
                  Richard
                    A. Friedman, Esq.
                  Sichenzia
                    Ross Friedman Ference, LLP
                  61
                    Broadway, 32ndFloor
                  New
                    York, New York 10006
                  (212)
                    930-9700
                  
                  Check
                    whether the issuer (1) filed all reports required to be filed
                    by Section
                    13 or 15(d) of the Exchange Act during the past 12 months (or
                    for such
                    shorter period that the registrant was required to file such
                    reports), and
                    (2) has been subject to such filing requirements for the past
                    90 days. Yes
                    [ X ] No [ ]
                  
                  Indicate
                    by check mark whether the registrant is a shell company (as defined
                    in
                    Rule 12b-2 of the Exchange Act) Yes [_] No [X]
                  
                  **APPLICABLE
                    ONLY TO CORPORATE ISSUERS**
                  
                  State
                    the number of shares outstanding of each of the issuer's classes
                    of common
                    equity, as of the latest practicable date: As of April 30, 2007,
                    the
                    registrant had 86,058,457 shares of common stock issued, 25,685,000
                    shares
                    of common stock held in escrow which are deemed as issued but
                    not
                    outstanding, and 60,373,457 shares of common stock
                    outstanding.
                  
                  Transitional
                    Small Business Disclosure Format (check one): Yes [_] No [X]
  
   
  INDEX
 
 PagePART
                    I - FINANCIAL INFORMATIONItem
                    1. Financial Statements.
                
                F-1Item
                    2. Management's Discussion and Analysis or Plan of Operations.
                
                
                3Item
                    3. Controls and Procedures
                
                
                9PART
                    II - OTHER INFORMATIONItem
                    1. Legal Proceedings.
                
                
                9Item
                    2. Unregistered Sale of Equity Securities and Use of Proceeds
                
                
                9Item
                    3. Defaults Upon Senior Securities
                
                
                9Item
                    4. Submission of Matters to a Vote of Security Holders.
                
                
                10Item
                    5. Other Information
                
                
                10Item
                    6. Exhibits.
                
                
                10Signatures.
                
                
                11
  
  
 PART
        I -
        FINANCIAL INFORMATION
  ITEM
        1.
        FINANCIAL STATEMENTS
  **IN
          VERITAS MEDICAL DIAGNOSTICS, INC.**
 (A
          Development Stage Company)
 Index
          to
          Unaudited Condensed Financial Statements
   **Page**Unaudited
                      Condensed Consolidated Balance Sheet at April 30, 2007
                  
                  F-2Unaudited
                      Consolidated Statements of Operations for the three and nine
                      months
                      endedApril
                      30, 2007 and 2006 and for the periodfrom
                      March 26, 1997 (Inception) through January 31, 2007
                  
                  
                  F-3Unaudited
                      Condensed Consolidated Statements of Accumulated Other Comprehensive
                      Lossfor
                      the nine months ended April 30, 2007 and 2006 and for the periodfrom
                      March 26, 1997 (Inception) through April 30, 2007
                  
                  
                  F-4Unaudited
                      Condensed Statement of Changes in Shareholders' Deficit for
                      the period
                      fromMarch
                      26, 1997 (Inception) through April 30, 2007
                  
                  
                  F-5Unaudited
                      Condensed Consolidated Statements of Cash Flows for the nine
                      monthsended
                      April 30, 2007 and 2006 and for the periodfrom
                      March 26, 1997 (Inception) through April 30, 2007
                  
                  
                  F-6Notes
                      to the Unaudited Condensed Consolidated Financial
                      Statements
                  
                  
                  F-7
    F-1
  **IN
            VERITAS MEDICAL DIAGNOSTICS, INC.**
 (A
            Development Stage Company )
 Consolidated
            Balance Sheet
 April
            30, 2007
 (Unaudited)
  **Assets**Current
                      assets:Cash
                  
                  $
                  1,459Prepaid
                      expenses and other
                  
                  
                  22,108Total
                      current assets
                  
                  
                  23,567Property
                      and equipment, net (Note 3)
                  
                  
                  5,251Intangible
                      assets:Patent
                      costs (note 4)
                  
                  
                  157,911$
                  186,729**Liabilities
                      and Shareholders’ Deficit**Current
                      liabilities:Accounts
                      payable
                  
                  $
                  1,103,177Accrued
                      interest payable
                  
                  
                  495,994Accrued
                      liabilities
                  
                  
                  584,101Indebtedness
                      to related parties (Note 2)
                  
                  
                  197,337Current
                      portion of Long Term Notes Payable(net
                      of unamortized discount of $178,102) (Note 9)
                  
                  
                  1,116,350Short
                      term advance from Related Party (Note 9)
                  
                  
                  178,102Notes
                      payable, related party (Note 9)
                  
                  
                  1,800,000Short
                      term advance
                  
                  
                  80,000Total
                      current liabilities
                  
                  
                  5,555,061Long-term
                      debt:Royalty
                      Participation Agreement advances (Note 9)
                  
                  
                  616,005Total
                      liabilities
                  
                  
                  6,171,066Shareholders’
                      deficit:Preferred
                      stock, $.001 par value, 50,000,000 shares authorized
                      (aggregateliquidation
                      preference of $8 million)Series
                      A Preferred stock, 34,343,662 shares issued and outstanding
                      (Note
                      6)
                  
                  
                  34,344Common
                      stock, $.001 par value, 500,000,000 shares authorized,86,058,457
                      shares issued, 25,685,000 held in escrow, and60,373,457
                      shares outstanding
                  
                  
                  86,103Prepaid
                      element of expenses settled in stock
                  
                  
                  (49,244
                  )Stock
                      issued as security for convertible debentues (Note 9)
                  
                  
                  (3,339,050
                  )Additional
                      paid-in capital
                  
                  
                  9,031,811Accumulated
                      other comprehensive loss- foreign currency adjustment
                  
                  
                  (476,944
                  )Deficit
                      accumulated during the development stage
                  
                  
                  (11,271,357
                  )Total
                      shareholders' deficit
                  
                  
                  (5,984,337
                  )$
                  186,729
   F-2
 **IN
            VERITAS MEDICAL DIAGNOSTICS, INC.**
 (A
            Development Stage Company)
 Consolidated
            Statements of Operations
 (Unaudited)
 March
                      26, 1997(Inception)Nine
                      Months Ended
                  
                  Three
                      Months Ended
                  
                  ThroughApril
                      30,
                  April
                      30,
                  
                  April
                      30,2007
                  
                  2006
                  
                  2007
                  
                  2006
                  
                  2007Net
                      sales and gross revenues:Net
                      sales
                  
                  $
                  —
                  
                  $
                  1,077,451
                  
                  $
                  —
                  
                  $
                  311,019
                  
                  $
                  3,571,807Cost
                      of sales
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  242,097Gross
                      profit
                  
                  
                  —
                  
                  
                  1,077,451
                  
                  
                  —
                  
                  
                  311,019
                  
                  
                  3,329,710Operating
                      expenses:Research
                      and development
                  
                  
                  459,050
                  
                  
                  901,416
                  
                  
                  128,444
                  
                  
                  314,746
                  
                  
                  5,448,771Legal
                      & Professional
                  
                  
                  219,404
                  
                  
                  315,000
                  
                  
                  11,860
                  
                  
                  15,000
                  
                  
                  1,204,464Stock
                      options expense
                  
                  
                  539,770
                  
                  
                  —
                  
                  
                  135,315
                  
                  
                  —
                  
                  
                  654,847Selling
                      and marketing
                  
                  
                  218,425
                  
                  
                  —
                  
                  
                  75,964
                  
                  
                  —
                  
                  
                  560,979General
                      and administrative
                  
                  
                  367,240
                  
                  
                  413,729
                  
                  
                  91,547
                  
                  
                  136,009
                  
                  
                  5,226,103Total
                      operating expenses
                  
                  
                  1,803,889
                  
                  
                  1,630,145
                  
                  
                  443,130
                  
                  
                  465,755
                  
                  
                  13,095,164Loss
                      before other income
                  
                  
                  (1,803,889
                  )
                  
                  (552,694
                  )
                  
                  (443,130
                  )
                  
                  (154,736
                  )
                  
                  (9,765,454
                  )Nonoperating
                      income (expense):UK
                      government grant (Note 1)
                  
                  
                  —
                  
                  
                  94,458
                  
                  
                  —
                  
                  
                  
                  
                  
                  291,398Interest
                      expense
                  
                  
                  (712,097
                  )
                  
                  (233,177
                  )
                  
                  (253,416
                  )
                  
                  (96,429
                  )
                  
                  (1,370,854
                  )Loan
                      Finance issue costs
                  
                  
                  —
                  
                  
                  (219,301
                  )
                  
                  —
                  
                  
                  (65,121
                  )
                  
                  (708,279
                  )Costs
                      of aborted financing
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  
                  
                  (113,400
                  )Compensation
                      payment to former director
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  
                  
                  (135,000
                  )Gain
                      (loss) on foreign exchange
                  
                  
                  —
                  
                  
                  18,426
                  
                  
                  —
                  
                  
                  10,224
                  
                  
                  (132,378
                  )Gain
                      (loss) from extinguishments of debt
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  662,610Loss
                      before income taxes
                  
                  
                  (2,515,986
                  )
                  
                  (892,288
                  )
                  
                  (696,546
                  )
                  
                  (306,062
                  )
                  
                  (11,271,357
                  )Income
                      tax provision
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Net
                      loss
                  
                  $
                  (2,515,986
                  )
                  $
                  (892,288
                  )
                  $
                  (696,546
                  )
                  $
                  (306,062
                  )
                  $
                  (11,271,357
                  )Preferred
                      stock dividend requirements
                  
                  
                  (1,030
                  )
                  
                  (1,030
                  )
                  
                  (343
                  )
                  
                  (343
                  )Loss
                      applicable to common stock
                  
                  $
                  (2,517,016
                  )
                  $
                  (893,318
                  )
                  $
                  (696,889
                  )
                  $
                  (306,405
                  )Basic
                      and diluted loss per share
                  
                  $
                  (0.04
                  )
                  $
                  (0.02
                  )
                  $
                  (0.01
                  )
                  $
                  (0.01
                  )Weighted
                      average number of common sharesoutstanding
                  
                  
                  58,891,790
                  
                  
                  54,638,212
                  
                  
                  60,373,457
                  
                  
                  55,015,123
    F-3
 **IN
            VERITAS MEDICAL DIAGNOSTICS, INC.**
 (A
            Development Stage Company)
 Consolidated
            Statements of Accumulated Other
            Comprehensive Loss
 (Unuaudited)
  March
                      26, 1997(Inception)Nine
                      Months Ended
                  
                  ThroughApril
                      30,
                  
                  April
                      30,2007
                  
                  2006
                  
                  2007Net
                      loss
                  
                  $
                  (2,515,986
                  )
                  $
                  (892,288
                  )
                  $
                  (11,271,357
                  )Other
                      comprehensive loss, net of tax:Cumulative
                      translation adjustment
                  
                  
                  (27,966
                  )
                  
                  (155,962
                  )
                  
                  (476,944
                  )Comprehensive
                      loss
                  
                  $
                  (2,543,952
                  )
                  $
                  (1,048,250
                  )
                  $
                  (11,748,301
                  )
   F-4
 **IN
            VERITAS MEDICAL DIAGNOSTICS, INC.**
 (A
            Development Stage Company)
 Condensed
            Statement of Changes in Shareholders'
            Deficit
 (Unaudited)
   Prepaid
                      element
                  
                  Accumulated
                    Deficit
                  
                  AccumulatedPreferred
                      Stock Outstanding
                  
                  Common
                      Stock
                  
                  Additional
                  
                  Stock
                  
                  of
                      expenses
                  
                  During
                  
                  OtherSeries
                      A
                  
                  Series
                      B
                  
                  Shares
                  
                  paid-in
                  
                  issued
                  
                  settled
                      in
                  
                  Development
                  
                  ComprehensiveShares
                  
                  Par
                      Value
                  
                  Shares
                  
                  Par
                      Value
                  
                  Issued
                  
                  Outstanding
                  
                  Par
                      Value
                  
                  capital
                  
                  as
                      security
                  
                  stock
                  
                  Stage
                  
                  Loss
                  
                  TotalBalance,
                      March 26, 1997
                  
                  
                  —
                  
                  $
                  —
                  
                  
                  —
                  
                  $
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —October
                      2000, sale of stock, ($0.0035/share)
                  
                  
                  4,366,377
                  
                  
                  4,366
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  10,874
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  15,240December
                      2001, sale of stock, ($0.0035/share)
                  
                  
                  6,545,703
                  
                  
                  6,546
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  16,301
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  22,847October
                      2001, sale of stock, ($0.0202/share)
                  
                  
                  23,431,582
                  
                  
                  23,432
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  448,906
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  472,338Foreign
                      currencytranslation
                      adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  21,203
                  
                  
                  21,203Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,350,829
                  )
                  
                  —
                  
                  
                  (1,350,829
                  )Balance,
                      July 31, 2001
                  
                  
                  34,343,662
                  
                  
                  34,344
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  476,081
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,350,829
                  )
                  
                  21,203
                  
                  
                  (819,201
                  )Foreign
                      currencytranslation
                      adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (140,377
                  )
                  
                  (140,377
                  )Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,007,362
                  )
                  
                  —
                  
                  
                  (1,007,362
                  )Balance,
                      July 31, 2002
                  
                  
                  34,343,662
                  
                  
                  34,344
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  476,081
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (2,358,191
                  )
                  
                  (119,174
                  )
                  
                  (1,966,940
                  )Foreign
                      currency
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —translation
                      adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (185,391
                  )
                  
                  (185,391
                  )Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,080,619
                  )
                  
                  —
                  
                  
                  (1,080,619
                  )Balance,
                      July 31, 2003
                  
                  
                  34,343,662
                  
                  
                  34,344
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  476,081
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3,438,810
                  )
                  
                  (304,565
                  )
                  
                  (3,232,950
                  )Merger
                      with HEMP (Note 8)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  38,397,164
                  
                  
                  38,397,164
                  
                  
                  38,397
                  
                  
                  (29,397
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  9,000July
                      2004, merger with SIPC
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  10,550,000
                  
                  
                  10,550,000
                  
                  
                  10,550
                  
                  
                  (10,688
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (138
                  )July
                      2004, issuance of commonstock
                      for bridge loans, ($0.2750/share)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,636,233
                  
                  
                  1,636,233
                  
                  
                  1,636
                  
                  
                  448,364
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  450,000July
                      2004, issuance of commonstock
                      for services, ($0.4093/share)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  239,289
                  
                  
                  239,289
                  
                  
                  239
                  
                  
                  97,702
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  97,941Foreign
                      currencytranslation
                      adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (339,570
                  )
                  
                  (339,570
                  )Reclassification
                      of debt forgivenessby
                      Westek (Notes 2 and 9)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,030,298
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,030,298Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,016,972
                  )
                  
                  —
                  
                  
                  (1,016,972
                  )Balance,
                      July 31, 2004
                  
                  
                  34,343,662
                  
                  
                  34,344
                  
                  
                  —
                  
                  
                  —
                  
                  
                  50,822,686
                  
                  
                  50,822,686
                  
                  $
                  50,822
                  
                  $
                  3,012,360
                  
                  $
                  —
                  
                  
                  —
                  
                  
                  (4,455,782
                  )
                  $
                  (644,135
                  )
                  $
                  (2,002,391
                  )August
                      2004, additional paid in capital from bridgeloans
                      exchanged for shares
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  17,495
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  17,495—
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (6,000
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (6,000
                  )Conversion
                      of Preferred Stock into Debenture
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  694,550
                  
                  
                  694,550
                  
                  
                  695
                  
                  
                  427,695
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  428,390December
                      2004, issuance of stock for interest on
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  60,096
                  
                  
                  60,096
                  
                  
                  60
                  
                  
                  76,100
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  76,160bridge
                      loanMarch
                      2005, issuance of stock for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  100,000
                  
                  
                  100,000
                  
                  
                  100
                  
                  
                  62,880
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,980April
                      2005, issuance of stock warrants forservices
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  17,295
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  17,295April
                      2005, sale of preferred Series B stocknet
                      of $97,995 offering costs ($.001 par),
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —($0.65/share)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  617,692
                  
                  
                  618
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  302,887
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  303,505April
                      2005, issuance of stock fordebt
                      forgiveness
                  
                  
                  —
                  
                  
                  —
                  
                  
                  246,152
                  
                  
                  246
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  159,754
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  160,000June
                      2005, issuance of stock options forservices
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  35,403
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  35,403Reversal
                      of conversion of
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —convertible
                      preferred shares
                  
                  
                  (1,301,178
                  )
                  
                  (1,301
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  1,301,178
                  
                  
                  1,301,178
                  
                  
                  1,301
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —July
                      2005, issuance of stock for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  120,000
                  
                  
                  120,000
                  
                  
                  120
                  
                  
                  35,288
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  35,408July
                      2005, issuance of stock for conversionof
                      debt
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,162,791
                  
                  
                  1,162,791
                  
                  
                  1,163
                  
                  
                  278,047
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  279,210Foreign
                      currency translation adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  274,643
                  
                  
                  274,643Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (2,450,792
                  )
                  
                  —
                  
                  
                  (2,450,792
                  )Balance
                      July 31, 2005
                  
                  
                  33,042,484
                  
                  
                  33,043
                  
                  
                  863,844
                  
                  
                  864
                  
                  
                  54,261,301
                  
                  
                  54,261,301
                  
                  
                  54,261
                  
                  
                  4,419,204
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (6,906,574
                  )
                  
                  (369,492
                  )
                  
                  (2,768,694
                  )Conversion
                      of common stock into debentures
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (863,844
                  )
                  
                  (864
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (555,636
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (556,500
                  )(Note
                      10)Conversion
                      of preferred stock into common stock
                  
                  
                  1,301,178
                  
                  
                  1,301
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,301,178
                  )
                  
                  (1,301,178
                  )
                  
                  (1,301
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued as security for convertible debtures
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  25,685,000
                  
                  
                  —
                  
                  
                  25,685
                  
                  
                  3,313,365
                  
                  
                  (3,339,050
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —(Notes
                      5 and 10)Stock
                      Issued for services (August 2005)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  28,000
                  
                  
                  28,000
                  
                  
                  28
                  
                  
                  3,612
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  3,640Stock
                      Issued for services (August 2005)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  427,000
                  
                  
                  427,000
                  
                  
                  427
                  
                  
                  60,888
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  61,360Stock
                      Issued for services (September 2005)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  805,000
                  
                  
                  805,000
                  
                  
                  805
                  
                  
                  132,020
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  132,825Stock
                      Issued for services (September, 2005)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  750,000
                  
                  
                  750,000
                  
                  
                  750
                  
                  
                  254,250
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  255,000Stock
                      Issued for services (May 2006)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  875,000
                  
                  
                  875,000
                  
                  
                  875
                  
                  
                  86,625
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  87,500Stock
                      Issued for services (June 2006)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  83,334
                  
                  
                  83,334
                  
                  
                  83
                  
                  
                  8,251
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  8,334Foreign
                      currency translation adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (79,486
                  )
                  
                  (79,486
                  )January,
                      2006, Issuance of stock options forservices
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,379
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,379September
                      2006 issuance of stock warrantsin
                      connection with financing
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  45,164
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  45,164Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,848,797
                  )
                  
                  —
                  
                  
                  (1,848,797
                  )Balance
                      July 31, 2006
                  
                  
                  34,343,662
                  
                  
                  34,344
                  
                  
                  —
                  
                  
                  —
                  
                  
                  81,613,457
                  
                  
                  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
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  62,640Issuance
                      of stock for services (October, 2006)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,000,000
                  
                  
                  1,000,000
                  
                  
                  1,000
                  
                  
                  67,000
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  68,000Issuance
                      of stock for services (October, 2006)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,250,000
                  
                  
                  1,250,000
                  
                  
                  1,250
                  
                  
                  148,749
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  149,999October,
                      2006 issuance of stock options for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  223,844
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  223,844Foreign
                      currency translation adjustment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (27,966
                  )
                  
                  (27,966
                  )Net
                      Loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (2,515,986
                  )
                  
                  —
                  
                  
                  (2,515,986
                  )Partial
                      conversion of Convertible Loan Note into Common Stock (Dec.
                      2006) (Note
                      6)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,000,000
                  
                  
                  1,000,000
                  
                  
                  1,000
                  
                  
                  49,000
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  50,000Stock
                      Option Expense
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  315,927
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  315,927Beneficial
                      conversion discount underlying Convertible Loan Notes (Notes
                      2 &
                      9)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  283,874
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  283,874Stock
                      issued for services (December 2006)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  850,000
                  
                  
                  850,000
                  
                  
                  850
                  
                  
                  51,000
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  51,850Cashless
                      conversion - Montgomery
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  345,000
                  
                  
                  345,000
                  
                  
                  345
                  
                  
                  (345
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Prepaid
                      element of expenses settled in stock
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (49,244
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (49,244
                  )Balance
                      April 30, 2007
                  
                  
                  34,343,662
                  
                  $
                  34,344
                  
                  
                  —
                  
                  $
                  —
                  
                  
                  86,058,457
                  
                  
                  60,373,457
                  
                  $
                  86,103
                  
                  $
                  9,031,811
                  
                  $
                  (3,339,050
                  )
                  $
                  (49,244
                  )
                  $
                  (11,271,357
                  )
                  $
                  (476,944
                  )
                  $
                  (5,984,337
                  )
    F-5
 **IN
          VERITAS MEDICAL DIAGNOSTICS, INC.**
 (A
          Development Stage Company)
 Consolidated
          Statements of Cash Flows
 (Unaudited)
 March
                      26, 1997(Inception)Nine
                      Months Ended
                  
                  ThroughApril
                      30,
                  
                  January
                      31,2007
                  
                  2006
                  
                  2007Cash
                      flows from operating activities:Net
                      loss
                  
                  $
                  (2,515,986
                  )
                  $
                  (892,288
                  )
                  $
                  (11,271,357
                  )Adjustments
                      to reconcile net loss to net cashused
                      by operating activities:Depreciation
                      and amortization
                  
                  
                  8,318
                  
                  
                  24,075
                  
                  
                  159,851Intercompany
                      interest income
                  
                  
                  —
                  
                  
                  —
                  
                  
                  242,382Interest
                      imputed (non cash)
                  
                  
                  495,915
                  
                  
                  26,046
                  
                  
                  484,295Prepaid
                      element of expenses and beneficial
                  
                  
                  
                  
                  
                  
                  
                  
                  —discounts
                      on loan note conversions
                  
                  
                  (252,529
                  )
                  
                  —
                  
                  
                  (252,529
                  )Stock
                      issued for compensation and services
                  
                  
                  809,619
                  
                  
                  391,465
                  
                  
                  1,993,447Stock
                      issued for interest
                  
                  
                  —
                  
                  
                  61,360
                  
                  
                  86,160Gain
                      (loss) on debt forgiveness
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (662,610
                  )Changes
                      in operating assets and liabilities:
                  
                  
                  —
                  
                  
                  
                  
                  
                  —Receivables
                  
                  
                  195,192
                  
                  
                  (62,280
                  )
                  
                  (25,246
                  )Prepaid
                      expenses and other current assets
                  
                  
                  17,610
                  
                  
                  66,419
                  
                  
                  142Deferred
                      debt issue costs
                  
                  
                  —
                  
                  
                  (84,092
                  )
                  
                  —Accounts
                      payable
                  
                  
                  267,375
                  
                  
                  (28,958
                  )
                  
                  1,230,168Accrued
                      expenses
                  
                  
                  150,130
                  
                  
                  (3,029
                  )
                  
                  841,326Accrued
                      interest payable
                  
                  
                  225,659
                  
                  
                  207,131
                  
                  
                  225,659Accounts
                      payable (related party)
                  
                  
                  (194,479
                  )
                  
                  1,330
                  
                  
                  (72,745
                  )Other
                  
                  
                  5,715
                  
                  
                  43,197
                  
                  
                  143,489Net
                      cash used inoperating
                      activities
                  
                  
                  (787,461
                  )
                  
                  (249,624
                  )
                  
                  (6,877,568
                  )—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
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,378,963Proceeds
                      from debenture issue
                  
                  
                  —
                  
                  
                  300,000
                  
                  
                  —Repayment
                      of advances from affiliates
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (728,426
                  )Advances
                      from related parties
                  
                  
                  178,102
                  
                  
                  —
                  
                  
                  261,152Proceeds
                      from issuance of preferred stock
                  
                  
                  —
                  
                  
                  —
                  
                  
                  813,930Discount
                      on notes payable
                  
                  
                  —
                  
                  
                  50,913
                  
                  
                  144,382Proceeds
                      from Royalty Participation Agreement
                  
                  
                  —
                  
                  
                  —
                  
                  
                  450,000Proceeds
                      from issue of Loan Notes
                  
                  
                  335,000
                  
                  
                  —
                  
                  
                  1,597,495Short
                      term advances
                  
                  
                  80,000
                  
                  
                  —
                  
                  
                  80,000Interest
                      payable reclassified as Loan Notes
                  
                  
                  192,300
                  
                  
                  —
                  
                  
                  182,300Net
                      cash provided by
                  
                  
                  
                  
                  
                  
                  
                  
                  —financing
                      activities
                  
                  
                  785,402
                  
                  
                  350,913
                  
                  
                  7,179,796—Effect
                      on cash from foreign currency translation
                  
                  
                  1,111
                  
                  
                  13,209
                  
                  
                  8,351—Net
                      change in cash and
                  
                  
                  
                  
                  
                  
                  
                  
                  —cash
                      equivalents
                  
                  
                  (60,893
                  )
                  
                  86,188
                  
                  
                  (6,893
                  )—Cash
                      and cash equivalents:
                  
                  
                  
                  
                  
                  
                  
                  
                  —Beginning
                      of period
                  
                  
                  61,240
                  
                  
                  2,015
                  
                  
                  ——
                  
                  
                  
                  
                  
                  
                  
                  
                  —End
                      of period
                  
                  $
                  1,458
                  
                  $
                  101,412
                  
                  $
                  1,458Supplemental
                      disclosure of cash flow information:Cash
                      paid during the year for:Income
                      taxes
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —Interest
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —Non-cash
                      financing activities:Conversion
                      of note payable to common stock
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  700,000Conversion
                      of preferred stock into debentures
                  
                  
                  —
                  
                  
                  556,500
                  
                  
                  86,160Stock-based
                      compensation
                  
                  
                  809,619
                  
                  
                  —
                  
                  
                  1,993,447$
                  809,619
                  
                  $
                  556,500
                  
                  $
                  2,779,607
  F-6





**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**






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




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







The
      accompanying unaudited condensed financial statements have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information and with the instructions to Form
      10-QSB and Regulation S-B.  Accordingly, they do not include all of the
      information and footnotes required by accounting principles generally accepted
      in the United States of America for complete financial statements. In the
      opinion of the Company, the accompanying unaudited condensed financial
      statements contain all adjustments (consisting of only normal recurring
      accruals) necessary to present fairly the financial position as of April 30,
      2007, the results of operations for the nine and three months ended April 30,
      2007 and 2006 and the period from March 26, 1997 (inception) through April
      30,
      2007, and cash flows for the nine months ended April 30, 2007 and 2006 and
      the
      period from March 26, 1997 (inception) through April 30, 2007. These financial
      statements should be read in conjunction with the audited financial statements
      and notes thereto contained in the Company's annual report on Form 10-KSB for
      the year ended July 31, 2006.  There have been no updates or changes to our
      audited financial statements for the year ended July 31, 2006.





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





The
      results of operations for the three month period ended April 30, 2007 is not
      necessarily indicative of the results to be expected for the full
      year.




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





We
      have
      reported net losses of $1,848,797, $2,450,792 and $8,755,370 for the fiscal
      years ended July 31, 2006, 2005 and for the period from the date of inception,
      March 26, 1997 to July 31, 2006, respectively. The loss from date of inception,
      March 26, 1997 to April 30, 2007 amounts to $(11,271,357). We had substantial
      net current liabilities of $5,531,494  and
      cash
      balances of $1,459 at April 30, 2007.. These factors, among others, raise
      substantial doubt about its ability to continue as a going concern.




As
      explained in Note 9 we are in default on several of our Loan Notes at July
      31,
      2006. Our major creditors and Loan Note holders have continued to work with
      us
      during the nine month period ended April 30, 2007 to restructure our obligations
      to enable us to match future payments with our future working capital plans
      and
      several Loan Note holders formally restructured their advances to us in the
      period Ended April 30, 2007. In addition the directors, management team and
      key
      contractors have deferred payment of compensation due to them since October
      2006
      (and in certain cases previously) and many key suppliers are providing us with
      valued and ongoing support and forbearance with respect to our payment
      obligations.




However
      as further explained in Note 9, we have not been able to make repayments
      required under our Loan Notes (including those restructured since July 31,
      2006)
      and therefore we are in default under the terms of several of those Loan Notes.
      Therefore, although we are in continued discussions with those loan note holders
      and creditors, their continued forbearance can not be assured with certainty.
      Our ability to continue normal operations will depend on (i) the continued
      forbearance of our loan note holders and creditors; (ii) our continued ability
      to raise additional funds through various potential sources such as equity
      and
      debt financing and government grants, which is a continuous part of our business
      process; (iii) our ability to develop new products and obtain new revenue
      generating contracts; and (iv) the market success of our first product to
      market, described below. Such sources of finance and credit may not become
      available as needed or be available on acceptable terms or be maintained, as
      appropriate.




Historically
      a significant portion of our financing has been through the sale of equity
      securities and convertible notes in private placements. The last successful
      financing raised $335,000 from Triumph Small Cap Fund LP. in November 2006.
      Since that time the Company has relied on short term advances from Westek Ltd.
      (“Westek”) (a related party - see Note 2) and from Triumph Small Cap Fund LP
      (“Triumph”). During the
      nine
      month period ended April 30, 2007 Westek made aggregate advances of $178,102
      and
      Triumph made aggregate advances of $80,000. Triumph informed the Company in
      January 2007 that it is unable to make further advances, although Westek has
      continued to make advances during the three month period ended April 30, 2007
      and subsequently. The advances from Westek are intended to maintain a basic
      level of operations in our trading subsidiaries and to maintain basic compliance
      at IVMD Inc ahead of improved operating conditions. The advances from Westek
      and
      Triumph are unsecured, unconvertible and interest free; they are payable on
      demand.







F-7











**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**








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




Prior
      to
      July 31, 2006 we recorded revenues from billings made under a Research and
      Development Contract with Inverness Medical Innovations (IMI), dated November
      2002. Under the terms of this contract (and a related Patent License Agreement,
      both subsequently amended throughout the contract field work) we jointly
      developed, with IMI, the technology underlying a new product (a prothrombin
      measurement device which is used for the measurement of coagulation of blood
      in
      patients at risk of heart disease and stroke) ("The PT Product"). In July 31,
      2006 our involvement in the development of this product ended and we anticipate
      that the product will be launched into the global markets in 2007/2008. The
      product is to be sold by IMI and we have no influence over the marketing and
      sales process. Under the terms of our agreements with IMI we are entitled to
      participate in the following revenue streams: (a) billings to IMI for our
      development work during the product development phase ("Development Revenues")
      and (b) the receipt of 2% of all future net sales proceeds arising from the
      sale
      of The PT Product ("Royalty Income"). Development Revenues ceased with the
      completion of the development of the PT Product in July, 2006. We will begin
      to
      earn Royalty Income simultaneously with the commencement of sales of the PT
      Product. The commencement of the sale of this product will result in a change
      of
      our status from a "Development-stage Enterprise". We are currently developing
      other hand held and portable products which are focused on (a) the measurement
      and detection of pregnancy and labor and (b) the detection of diseases and
      medical conditions using magnetic detection techniques applied to tissue and
      blood. We intend to engage in discussions with several parties which management
      believes may result in commercial, revenue earning contracts.




**Note
      2: Related Party Transactions**




As
      of
      April 30, 2007, $197,337 was due to related parties and we purchased services
      from related parties during the three and nine month period ended April 30,
      2007
      amounting to $0 and $121,051 respectively. There were no transactions with
      related parties during the three and nine month period ended April 30,
      2006.




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




On
      November 13, 2006 we reached and agreement with Westek to amend the terms of
      the
      Promissory Note to extend the maturity date until March 31, 2008. The amended
      Promissory note carries interest at a rate of 10% per annum from October 1,
      2006
      which is payable quarterly in arrears. Unpaid interest may, at the option of
      Westek, be converted into shares of the Company’s common Stock at a price of $
      0.05 per share. The
      market value of the common stock at the date of the amendment was $0.072 and
      therefore there is a beneficial discount underlying the conversion option.
      We
      have valued that discount at $113,400, (using the Black Scholes method). The
      inherent discount has been charged toAdditional
      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.




During
      the nine month period ended April 30, 2007 Westek advanced $178,102 to the
      Company. These advances are interest free and are payable on demand. The
      advances are intended to enable the Company to maintain a basic level of
      operation ahead of securing new commercial contracts. These short term advances
      are described more fully in Note 9.










F-8







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**






**Note
      3: Property and Equipment**




Major
      classes of property and equipment as of April 30, 2007 are listed
      below:




Furniture
                  and Fixtures
              
              $
              16,523Office
                  Equipment
              
              
              89,814Plant
                  and Equipment
              
              
              20,939127,276Less:
                  accumulated depreciation
              
              
              122,061$
              5,215





Depreciation
      expense was $ 1,751 and $8,009 for the three month periods ended April 30 2007
      and 2006 (and $ 8,318  and
      $24,075 for the nine month periods ended April 30, 2007 and 2006),
      respectively.




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




Changes
      in Intangible assets - Patent Costs for the nine month period ended April 30,
      2007 were as follows:




Cost
                  - start of year
              
              $
              157,911Costs
                  incurred during the period
              
              
              -Amortization
              
              
              -Retirements
              
              
              -Cost
                  - end of year
              
              $
              157,911




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




**Note
      5: Preferred Stock**




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




**4%
      Convertible Preferred Stock**




As
      of
      April 30, 2007, the Company had 34,343,662 shares of Series A 4% voting
      redeemable convertible preferred stock outstanding. Such shares pay an annual
      dividend of 4% and are convertible at any time at the option of the holder
      into
      Common Stock at the rate of one share Common Stock for each outstanding share
      of
      Series A Preferred Stock. Holders of Series A Preferred Stock have priority
      over
      all of the shares of the Company on liquidation or sale at the rate of $0.233
      per share. Holders of Series A Preferred Stock are entitled to vote on all
      matters as to which Common Stock shareholders are entitled to vote.




The
      aggregate of arrearages in cumulative preferred dividends on the Series A
      Preferred Shares through April 30, 2007, are $22,757.




**Note
      6: Common Stock**




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




We
      issued
      the following shares of common stock for services during the nine month periods
      ended April 30, 2007 and 2006, respectively







F-9







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      6: Common Stock, continued**




April
                  30, 2007
              
              April
                  30, 2006Number
              
              Fair
                  Value
              
              Number
              
              Fair
                  Valueof
                  Shares
              
              of
                  Shares
              
              of
                  Shares
              
              of
                  SharesShareholder
              
              Issued
              
              Issued
              
              Issued
              
              IssuedCLX
                  & Associates Inc
              
              
              
              
              
              
              
              $
              750,000
              
              $
              255,000Sichenzia
                  Ross Friedman Ference LLP
              
              
              
              
              
              
              
              
              805,000
              
              
              132,825Cornell
                  Capital Partners LP
              
              
              
              
              
              
              
              
              472,000
              
              
              61,360Monitor
                  Capital Inc
              
              
              
              
              
              
              
              
              28,000
              
              
              3,640Crown
                  Capital Group Ltd
              
              
              1,000,000
              
              
              68,000UTEK
                  Corporation
              
              
              1,250,000
              
              
              150,000Sichenzia
                  Ross Friedman Ference LLP
              
              
              850,000
              
              
              51,8503,100,000
              
              $
              269,850
              
              
              2,055,000
              
              $
              452,825




We
      value
      the shares of common stock issued for services at the quoted market price of
      the
      stock at the issue date or at the contracted value of the services where this
      is
      clearly defined in the underlying contract. During the nine month period ended
      April 30, 2007 we issued:




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




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




(c)
      850,000 shares to Sichenzia Ross Friedman Ference LLP as consideration for
      the
      provision of legal services




The
      cost
      of the stock issues described in (a) and (b) above is spread over the periods
      over which the service is to be provided and a prepayment established
      accordingly. This prepayment is shown as a deduction in shareholders funds
      on
      the face of the balance sheet on the line “Prepaid element of expenses settled
      in stock”.




On
      December 11, 2006 one of our Loan Note holders, Triumph Small Cap Fund Inc
      converted $50,000 of the principal value of their Loan Note into 1,000,0000
      shares of Common Stock in accordance with their conversion rights (see Note
      9)




On
      October 27, 2006 we issued to Montgomery Equity Partners Ltd 345,000 shares
      of
      common stock upon its exercise of warrants which were issued to Montgomery
      Equity Partners as part of a prior financing, as more fully described in Note
      7




No
      other
      shares of common stock, other than those described above, were issued during
      the
      nine month periods ended April 30, 2007 and 2006.




**Note
      7: Stock Options and Warrants**




Stock
      Options - Employees and contractors (“Staff”)




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




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







F-10







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      7: Stock Options and Warrants, continued**




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




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




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







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




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




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




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




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







F-11







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      7: Stock Options and Warrants, continued**




consolidated
      statement of operations with the credit posted to Additional Paid In Capital.
      Prior to August 1, 2006 we were not required to treat employee stock options
      in
      accordance with SFAS No. 123 (R) , and we disclosed the impact on pre-tax
      results had we valued employee stock options on a proforma basis in the
      footnotes to our Annual Financial Statements. In the three month period and
      nine
      month period ended April 30, 2006 the stock option charge would have increased
      by approximately $37,500 and $112,500, respectively, had we adopted SFAS No.
      123(R) in that period.




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




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




**Warrants**




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




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




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




Summary
      of options and warrants outstanding




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







F-12







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      7: Stock Options and Warrants, continued**




Weighted
              
              WeightedOptions
                    Outstanding
              
              Average
              
              Average
              
              AggregateNumber
                  of
              
              Exercise
                  Price
              
              Exercise
                  Price
              
              Remaining
              
              IntrinsicShares
              
              Per
                    Share
              
              Per
                    Share
              
              Contractual
                    Life
              
              ValueBalance
                  at July 31, 2006
              
              
              4,996,436
              
              $
              0.001-$1.50
              
              $
              0.750Awards
                  Granted to Staff
              
              
              16,015,000
              
              $
              0.065
              
              $
              0.065Awards
                  exercised
              
              
              
              
              $
              0.000Warrants
                  exercised
              
              
              (350,000
              )
              $
              0.001
              
              $
              0.001Balance
                  at April 30, 2007
              
              
              20,661,436
              
              $
              0.065-$1.50
              
              $
              0.685
              
              
              13.95
                  years
              
              $
              1,341,388Awards
                  exercisable atApril
                  30, 2007
              
              
              3,201,769
              
              $
              0.065-$1.50
              
              $
              0.685
              
              
              7.27
                  years
              
              $
              184,960







The
      following schedule summarizes the non-vested stock awards for the year ended
      April 30, 2007.




Weighted
              
              WeightedAverage
              
              AverageNumber
                  of
              
              Exercise
                  Price
              
              Grant
                  DateShares
              
              Per
                  Share
              
              Fair
                  ValueBalance
                  at July 31, 2006
              
              
              4,996,436
              
              $$
              0.001-1.50
              
              $
              0.750Awards
                  Granted
              
              
              12,463,231
              
              $
              0.065
              
              $
              0.065Awards
                  exercised
              
              
              -
              
              
              N/A
              
              
              N/AAwards
                  cancelled/expired
              
              
              -
              
              
              N/A
              
              
              N/ABalance
                  at April 30, 2007
              
              
              17,459,667
              
              $$
              .065-1.50
              
              $
              0.685







**Note
      8: Income Taxes**




We
      record
      our income taxes in accordance with Statement of Financial Accounting Standard
      No. 109, "Accounting for Income Taxes". We had tax losses available to carry
      forward in our UK operating subsidiaries of $5.6 million at July 31, 2006 and
      we
      continued to incur tax losses in the nine month period ended April 30, 2007.
      We
      have therefore not recorded any tax charge of liability in the three month
      period ended April 30, 2007 or in any previous period.




**Note
      9: Financings**




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




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




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




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




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





F-13







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc. )


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      9: Financings, continued**




redemption
      or on the date redemption is made exceeds the conversion price then in effect.
      Redemption of Debentures is to be calculated at 112% of the Debentures' face
      value.




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




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




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




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




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




·
            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.







F-14







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      9: Financings, continued**




2.
      On
      November 29, 2006, the Company issued a secured subordinated convertible note
      to
      Triumph Small Cap Fund Inc. ("Triumph"), (one of the investors in the Accredited
      Investor Purchase Agreement referred to above) in the principal amount of
      $165,000 in exchange for the interest and principal outstanding under the
      Debenture previously issued to Triumph under the terms of the Accredited
      Investor Purchase Agreement. The note (a) matures on April 30, 2008; (b) bears
      interest at the rate of 8% per annum, which is payable on maturity of the note
      and (c) is convertible, at Triumph's option, into shares of the Company's common
      stock at a conversion price of $0.05 per share, subject to a 9.99% conversion
      restriction.. On December 11, 2006 Triumph converted $50,000 of the principal
      amount outstanding under their note into 1,000,000 shares of the Company’s
      common stock in accordance with these conversion rights.




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




·
            Secured
                convertible note in the principal amount of $261,300 issued in exchange
                for the interest and principal outstanding under the Debenture previously
                issued to Longview under the terms of the Accredited Investor Purchase
                Agreement. The note (a) matures on 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).




Subsequent
      to the restructuring of the Loan Notes with Longview and Cornell / Montgomery,
      both described above, the Company has been unable to comply with the payment
      installments due under the terms of the restructured loan notes and is therefore
      in default under these new Loan Notes.




The
      conversion terms of the restructured loan notes from Longview and Cornell /
      Montgomery enable the Loan Note holder to convert the amount outstanding under
      the Notes into shares in the Company’s common stock at a price of $0.05 cents
      per share. The market price of the common stock at the dates that the
      restructured loan notes were issued was, in the case of Cornell / Montgomery,
      $0.072 and in the case of Longview $0.055 and therefore there is a beneficial
      discount underlying these conversion options. We have valued that discount
      at
      $170,474, using the Black Scholes method. The inherent discount has been charged
      to Additional Paid in Capital within shareholders funds in the balance sheet
      and
      is being charged in the profit and loss account as interest expense on a
      straight line basis across the life of the amended Loan Note.




The
      table
      below details the unamortized discount figure shown in the balance
      sheet:




Beneficial
              
              
              
              UnamortizedDiscount
              
              Q2
                  charge
              
              AmountWestek
              
              $
              113,400
              
              $
              37,800
              
              $
              75,600Triumph
              
              $
              0
              
              $
              0
              
              $
              0Cornell
              
              $
              146,160
              
              $
              61,560
              
              $
              184,600Longview
              
              $
              24,314
              
              $
              5,775
              
              $
              18,539$
              283,874
              
              $
              105,135
              
              $
              233,519






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




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





F-15







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      9: Financings, continued**




Pursuant
      to these royalty participation agreements, the Company received the aggregate
      sum of $450,000 in exchange for 10% of the future IMI Royalties received by
      the
      Company, subject to the terms and conditions set forth in the Agreement (the
      "Royalty Payments"). The Royalty




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




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




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




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




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




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




In
      addition during the nine month period ended April 30, 2007 Westek advanced
      $178,102 to the Company. The intention of Westek in making such advances was
      to
      permit the Company to maintain a basic level of operations in our main trading
      subsidiary (IVMD UK Ltd) and to maintain compliance at IVMD Inc. Westek has
      continued to make limited funding available to us subsequent to April 30,
      2007pending the outcome of various commercial discussions which we are engaging
      in which management believes may result in new commercial contracts which could
      result in new sources of revenue in the form of sales or license contracts.
      These advances are interest free and are payable on demand.




As
      of
      April 30, 2007, Westek has made aggregate advances of $178,102 to us and as
      of
      June 5, 2007 has made further total aggregate advance of $55,000 to the
      Company.




Subsequent
      to April 30, 2007 Westek put the Company on notice of the fact that it had
      informed the other loan note holders (described under A and C above and E below)
      that it was considering ceasing to make further such advances to the Group
      unless some of them would assist on a comparable basis. Westek pointed out
      to
      the loan note holders that it was unreasonable to expect it to continue to
      provide new finance as an unsecured junior debt holder since the other loan
      note
      holders have better collateral and terms than Westek.




Whilst
      Westek continues to advance money to cover day to operations, it has informed
      the Company and the other loan note holders that it is only be prepared to
      consider continuing to fund the Group in the future if the other loan note
      holders agree to either (a) share some of the ongoing financial burden with
      Westek; or (b) convert their loans into common stock, in which case Westek
      has
      offered to forgo part of its loan and convert the balance; this would
      restructure the balance sheet and open the way for new finance from Westek
      and
      others. Westek has also proposed to the Company and other loan note holders
      that, if no agreement can be reached, then, to avoid formal insolvency it would
      be prepared to consider purchasing the share capital of the subsidiary companies
      (which are secured on the advances of the loan note holders,





F-16







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      9: Financings, continued**




other
      than Westek), thus returning the Company to a shell status for the loan note
      holders to consider maintaining. Negotiations and discussions continue between
      the loan note holders, Westek and the Company, but no final agreement has yet
      been reached. The outcome of such negotiations is not certain and the future
      viability of the Company and nature of its operations is obviously in doubt
      pending the outcome of those negotiations




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




During
      the nine month period ended April 30, 2007, Triumph advanced a sum of $80,000
      to
      the Company. Triumph has subsequently indicated that it will not demand
      repayment of this loan, but no formal arrangements have been entered into.
      Therefore, this loan is treated as repayable on demand. The note does not bear
      interest and is not convertible.




**Presentation
      of Financings in the Financial Statements**




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




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




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




Total
                Amount Advanced $450,000
              Interest
                Imputed from inception until April 30, 2007 $166,005
              --------------
              Included
                in Long Term Debt at April 30, 2007 $616,005
              ==============




Total
                  Amount Advanced
              
              $
              450,000Interest
                  Imputed from inception until April 30, 2007
              
              $
              166,005Included
                  in Long Term Debt at April 30, 2007
              
              $
              616,005




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




The
      Principal amount of unpaid Loan Notes at April 30, 2007 is shown separately
      on
      the balance sheet as Notes Payable. The total is classified within Current
      Liabilities as “Current Portion of Notes Payable”, since all amounts are
      repayable before April 30, 2008..




The
      following table shows the composition and classification of the Principal
      amounts of Notes Payable in the balance sheet at April 30April 30,
      2007:




Total
                  PrincipalOutstandingMontgomery
                  Capital Partners
              
              
              319,290Triumph
                  Small Cap Fund
              
              
              450,000Longview
              
              
              309,300Other
                  Accredited Investors*
              
              
              216,500Total
                  Notes payable(before
                  beneficial conversion discount**)
              
              
              1,295,090






*Described
      in A above** see “Beneficial Conversion Rights” below




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




The
      amended Loan Note issued to Montgomery Capital Partners under the terms of
      the
      Settlement Agreement referred to above does not bear interest and is therefore
      treated as being issued at a discount. The discount rate used is the rate of
      interest charged on the original Debenture.





F-17







**In
      Veritas Medical Diagnostics, Inc.**


(Formerly
      In Vivo Medical Diagnostics, Inc.)


(A
      Development Stage Company)


**Notes
      to Consolidated Financial Statements**




**Note
      9: Financings, continued**




The
      principal value of the Loan Note at April 30, 2007 ($348,000) is included in
      the
      balance sheet net of the unamortized discount (of $28,710) at $319,290. The
      discount imputed on the loan is offset against Additional Paid in Capital and
      is
      charged to the operating statement over the life of the Loan Note




**Beneficial
      Conversion Rights**




As
      explained above and in Note 2 the conversion rights in certain of the Loan
      Notes
      described above have been granted at a discount from the market price of the
      shares of the Company’s common stock at the date that the loan notes were
      issued. Such beneficial discounts are recognized when the loan note is issued.
      The value of the discount is estimated using the Black Scholes method and is
      credited to Additional Paid in Capital on the balance sheet. The cost of the
      discount is expensed (as interest expense) over the life of the loan note.
      The
      unamortized portion of the value of the discount ($178,740) is show as a
      deduction from the total principal value of the loan notes outstanding on the
      balance sheet, resulting in a net balance of $1,116,350.




**Note
      10: Defaults upon Senior Securities**




As
      explained in Note 9, the Company has been unable to pay interest and principal
      repayments when due under the terms of its September, 2005 financing and certain
      of the subsequent restructurings of the loans made under the September 2005
      financing. As of April 30, 2007, the arrears of due but unpaid interest and
      penalties on Debentures and Loan Notes that were in default was $313,528 and
      the
      arrears of unpaid but due principal on Debentures in default amounted to
      $873,800.





F-18





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




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




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




**Plan
      of Operation**




**Overview**




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




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




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




Our
      website is located at www.ivmd.com.




**Intellectual
      Property and Product Development**




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




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




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




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




**Results
      of Operations**




**Three
      and Nine months ended April 30, 2007 compared to Three and Nine months ended
      April 30, 2006**




**Revenues**




We
      did
      not generate any revenues during the three and nine months ended April 30,
      2007,
      as compared to revenues of $311,109 and $1,077,451766, the three and nine months
      ended April 30, 2006. The decline in revenues is due to the completion of the
      produce development phase of our agreement with IMI. As explained above, the
      next phase of the IMI agreement involves our receiving royalties from future
      sales of the PT Device by IMI. Additionally, we are seeking to enter into
      additional research and development or IPR license contracts.




**Depreciation
      Expenses**





3







Depreciation
      expenses for the three and nine months ended April 30, 2007 amounted to
      $1,751and $8,318, respectively compared to $8,009 and $24,075 for the three
      and
      nine months ended April 30, 2006, respectively. The decline is due to that
      fact
      that it has not been necessary to replace or update any of our fixed asset
      base
      which is adequate for our purposes and therefore the depreciation charge
      continues to decline.




**General
      & Administrative Expenses**




General
      and administrative expenses for the three and nine months ended April 30, 2007
      were $91,457 and $367,240, respectively, as compared to $136,009 and $413,729
      for the three and nine months ended April 30, 2006, respectively. This change
      reflects efforts to reduce general and administrative expenses. Because of
      our
      cash shortages we have deferred payment of as many general and administrative
      costs as possible.




**Sales
      and Marketing Expenses**




We
      incurred $75,964 of marketing costs in the three month period ended April 30,
      2007, and $218,425 in the nine period ended April 30, 2007, as compared to
      $Nil
      for the three and nine month period ended January31, 2006. With the conclusion
      of the IMI contract we have the capacity to explore new commercial contracts
      to
      exploit our various technologies and these new costs include general commercial
      and promotional activity, attendance at trade fairs and exhibitions and
      compensation for our business development manager and associated costs. Several
      important commercial opportunities have been developed from this new activity
      all of which are currently being followed through. To conserve cash our main
      marketing contractors have accepted shares of our common stock as consideration
      for services performed.




**Research
      & Development Expenditure**




During
      the three months ended April 30, 2007, we spent $128,444 on research and
      development compared to $314,746 during the three month period ended April
      30,
      2006.. We spent $459,050 in the nine month period ended April 30, 2007 compared
      to $901,416 for the nine month period ended April 30, 2006 on research and
      development. In the three month period ended April 30, 2007 our R&D activity
      was focused on preparing our new (post PT Device) technology for potential
      future product launches. This activity focused on our Magnetic Strip Reader
      technology and our Magnetic Detection technology. By comparison, during the
      three month period ended April 30, 2006, our R&D expenditure was focused on
      the PT Device and was substantially higher because of the volume of outsourced
      R&D expenditure required to develop the PT Device.




**Stock
      Option Expense**




No
      stock
      options were awarded during the nine month period ended April 30, 2006. By
      comparison we granted stock options to purchase 16,015,000 shares of our common
      stock to members of our management team pursuant to our 2005 Incentive Stock
      Plan during the three month period ended October 31, 2006. We account for stock
      option expense under the provisions of SFAS No. 123(R) whereby we value stock
      options using the Black Scholes method and spread the charge equally from the
      date of grant until the date that the options vest, adjusting for options that
      we believe are unlikely to ever vest. 2,500,000 of the options granted during
      the three month period ended October 31, 2006 vested on the grant date,
      resulting in an abnormal charge of $162,000. The remaining options vest over
      various periods through September 30, 2010. The total charge for option expense
      in the three month period ended April 30, 2007 amounted to $135,315 and $539,770
      during the nine month period ended April 30, 2007 compared to $0 and $0 in
      the
      three month and nine month periods ended April 30, 2006,
      respectively.




**Net
      Income (Loss)**




Net
      loss
      before other income and expense (which included interest expense) for the three
      months ended April 30, 2007 was $(443,130), as compared to a net loss of
      $(154,736) for the three months ended April 30, 2006. During the nine month
      period ended April 30, 2007 the net loss before other income and expense (which
      included interest expense) was $(1,803,889) compared to $(552,694) in the nine
      month period ended April 30, 2006. The increase in net loss is attributable
      to
      (a) the completion of the product development phase of the IMI Agreement, and
      (b) the grant of a significant number of stock options to members of our
      management team.




Net
      loss
      (after other income and expense, including interest) for the three and nine
      month period ended April 30, 2007 amounted to $(696,546) and $(2,515,986),
      respectively compared to $(306,062) and $(892,288) for the three and nine month
      period ended April 30, 2006, respectively. The increase in net loss was due
      to
      the factors discussed above, as well as interest expense amounting to $253,416
      and $712,097 in the three and nine month period ended April 30, 2007,
      respectively as compared to $96,429 and $233,177 in the three and nine month
      period ended April 30, 2006, respectively. The increase in interest expense
      is
      attributable to punitive interest charges related to outstanding debt
      obligations of the Company which were in default during the three month period
      ended October 31, 2006 and the generally increased debt burden of the
      Company.




**Liquidity
      and Capital Resources**




We
      have
      incurred operating losses since our inception. At April 30, 2007, we had an
      accumulated deficit from inception of $(11,271,357). We are in default under
      the
      terms of certain of our credit obligations and are operating at the forbearance
      of our creditors. Our auditors, in their report
      on
      our financial statement for the fiscal year ended July 31, 2006, have expressed
      substantial doubt about our ability to continue as a going concern.





4









The
      Company's working capital needs include payment of salaries, administrative
      expenses, and research and development activities. At April 30, 2007, we had
      a
      cash balance of $1,459 and current liabilities of $ 5,555,061 .
      The
      Company's cash balances at April 30, 2007 are not sufficient to support
      operations for the next twelve months and it is necessary for the Company to
      continue to seek one or more of the following: (i) additional financing in
      the
      form of equity and/or debt, (ii) additional grants from the U.K. government;
      and
      (iii) product development contracts with commercial partners. As explained
      in
      Note 9 to the Unaudited Condensed Consolidated Financial Statements (set forth
      in Part I herein) and further explained in the section below entitled "Recent
      Financings", the Company has been active, and continues to be active, in seeking
      to secure new sources of financing. However, there can be no assurance that
      that
      any additional financing will become available on terms that are acceptable
      to
      us and, as further explained in Note 9 to the Unaudited Condensed Consolidated
      Financial Statements (set forth in Part I herein) and further explained in
      the
      section below entitled "Recent Financings" since April 30, 2007; Westek, who
      had
      been funding the Company by way of short term advances, notified the Company
      and
      the other loan note holders (referred to in Note 9) that it was not prepared
      to
      continue to do so in future unless agreement is reached with those loan note
      holders regarding the shared ongoing responsibility for funding the Company
      and
      other related matters. Negotiations between Westek and the other loan note
      holders are ongoing and the future viability of the Company and its underlying
      business is dependent upon the outcome of these discussions. There can be no
      assurance that an arrangement can be worked out among the parties. If an
      agreement is not reached among the parties, we may be forced to curtail our
      operations.




**Critical
      Accounting Policies**




Principles
      of consolidation




Our
      consolidated financial statements include our accounts and the accounts of
      our
      two wholly owned foreign subsidiaries; IVMD (UK) Limited and Jopejo Limited,
      both UK companies. The assets and liabilities of our foreign subsidiaries have
      been translated from British pounds into U.S. dollars at the exchange rate
      in
      effect at April 30, 2007 with the related translation adjustments reported
      as a
      separate component of shareholders' deficit. Operating statement accounts have
      been translated at the average exchange rate in effect during the period
      presented. All significant intercompany transactions have been
      eliminated.




Basis
      of
      presentation




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




We
      are a
      development stage enterprise and have incurred losses since inception. We had
      a
      net capital deficit at April 30, 2007 of $(5,984,337). We also had substantial
      net current liabilities at April 30, 2007 and we were in default on several
      of
      our Notes Payable, as explained in Item 3 of Part 2. These factors, among
      others, raise substantial doubt about our ability to continue as a going
      concern, in common with many development stage companies in our industry.
      Historically we have depended on various sources of finance to support ongoing
      operations, in particular, until our various products and work in progress
      reach
      the point where they generate income (which cannot be assured) we are dependent
      upon external funding, which has generally been made available to us in the
      past
      by way of convertible loan notes provided by specialist investment funds. Since
      November 2006 such funding has not been forthcoming and we have depended upon
      short term advances from two of our loan note holders, as explained in Note
      9 to
      the Unaudited Condensed Consolidated Financial Statements (set forth in Part
      I
      herein). More recently those advances have been restricted to one loan note
      holder, a related party, Westek. As explained in Note 9 to the Unaudited
      Condensed Consolidated Financial Statements, Westek has recently notified the
      Company and the other loan note holders (referred to in Note 9) that it was
      not
      prepared to continue to do so in future unless agreement is reached with those
      loan note holders regarding the shared ongoing responsibility for funding the
      Company and other related matters Negotiations between Westek and the other
      loan
      note holders are ongoing and the future viability of the Company and its
      underlying business is clearly dependent upon the outcome of these discussions.
      The outcome of those negotiations can not be predicted at this time. There
      can
      be no assurance that an arrangement can be worked out among the parties. If
      an
      agreement is not reached among the parties, we may be forced to curtail our
      operations.




**Use
      of Estimates**




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




**Research
      & Development Expenditure**




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





5







**Revenue
      Recognition**




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




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




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




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




**Recent
      Financings and Restructurings**




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




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




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




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




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




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.






6







·
            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.




**Westek
      Loan Amendment**




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




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




**Triumph
      Loan Restructuring**




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




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




**Longview
      Loan Restructuring**




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




·
            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).




Subsequent
      to the restructuring of the Loan Notes with Longview and Cornell / Montgomery,
      both described above, the Company has been unable to comply with the payment
      installments due under the terms of the restructured loan notes. Also described
      above; and the Company is therefore in default under these new Loan Notes.




**Royalty
      Participation Agreement**




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





7









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




Short
      Term Advances since November 2006




As
      explained above, we have depended on various sources of finance to support
      ongoing operations, in particular, until our various products and work in
      progress reach the point where they generate income (which cannot be assured)
      we
      are dependent upon external funding, which has generally been made available
      to
      us in the past by way of convertible loan notes provided by specialist
      investment funds.




Since
      November 2006 such funding has not been forthcoming and we have depended upon
      short term advances from two of our loan note holders, as explained in Note
      9 to
      the Unaudited Condensed Consolidated Financial Statements (set forth in Part
      I
      herein). Advances, which are interest free, not convertible and repayable on
      demand, have been made by Triumph and Westek. During the nine month period
      ended
      April 30, 2007 Triumph advanced a total of $80,000 and Westek a total of
      $178,102. Triumph has indicated that it is unable to continue to make such
      advances and so, since December 2006 those advances have been restricted to
      Westek, a related party.




As
      explained in Note 9 to the Unaudited Condensed Consolidated Financial
      Statements, Westek has recently notified the Company and the other loan note
      holders that it is not prepared to continue to make further advances unless
      agreement is reached amongst all of loan note holders regarding the shared
      ongoing responsibility for funding the Company and other related matters.
      Negotiations between Westek and the other loan note holders are ongoing and
      the
      future viability of the Company and its underlying business is clearly dependent
      upon the outcome of these discussions. The outcome of those negotiations can
      not
      be predicted at this time.




**Off
      Balance Sheet Arrangements**




We
      do not
      have any off balance sheet arrangements as of April 30, 2006 or as of the date
      of this report.




**Recent
      Accounting Pronouncements**




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




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









8





ITEM
      3. CONTROLS AND
      PROCEDURES




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




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




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




**PART
      II - OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**




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




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




None.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




At
      April
      30, 2007 we were in default under the terms of several notes payable. The total
      principal and interest due, but not paid, under these notes at April 30, 2007
      were $873,800 (principal) , and $313,528 (interest and penalties)
      respectively.




The
      notes
      in default were as follows:




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





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





9








These
                notes remain in default although no formal default notice has been
                served
                on the Company.
            
            Type
                of Security
            
            Maturity
                Date
            
            Principal
                Amount (not including interest)Secured
                Convertible Note
            
            
            September
                7, 2006
            
            $
            201,500Secured
                Convertible Note
            
            
            September
                7, 2006
            
            $
            15,000




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




None.




**ITEM
      5. OTHER INFORMATION**




None.




**ITEM
      6. EXHIBITS**




**EXHIBITS**




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











10





**ITEM
      7. SIGNATURES**




**SIGNATURES**




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






**IN VERITAS MEDICAL DIAGNOSTICS,
              INC.**Date: June
              14, 2007
            By:
            /s/ *Graham
              Cooper*Graham
                Cooper
              Chief
                Executive Office




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