**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





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





For
      the
      quarterly period ended **September
      30, 2007**





Commission
      file number **001-31608**





**XCORPOREAL,
      INC.**


(Exact
      name of small business issuer as specified in its charter)





**Delaware**
            **75-2242792**(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer Identification Number)





**11150
      Santa Monica Blvd., Suite 340, Los Angeles, California
      90025**


(Address
      of principal executive offices)





**(310)
      481-8986**


(Issuer’s
      telephone number)





**CT
      HOLDINGS ENTERPRISES, INC.**


**2100
      McKinney Avenue, Suite 1500, Dallas, Texas 75201**


(Former
      name, former address and former fiscal year, if changed since last
      report)





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 R No £





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).Yes £ No R





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date.





**Class**
            **Outstanding
                as of November 8, 2007**Common
                Stock, $0.0001 par value
            14,351,491
                shares





Transitional
      Small Business Disclosure Format (Check one): Yes £ No R











1





**INDEX**





PART
                I — FINANCIAL INFORMATIONItem
                1. Interim Financial Statements
            3Balance
                Sheets at September 30, 2007 (unaudited) and December 31,
                2006
            3Statements
                of Operations (unaudited) for the three and nine months ended September
                30, 2007 and September 30, 2006 and the period from inception (May
                4,
                2001) to September 30, 2007
            4Statement
                of Stockholders Equity (Deficit) for the nine months ended September
                30,
                2007 and the period from inception (May 4, 2001) to September 30,
                2007
                (unaudited)
            5Statements
                of Cash Flows (unaudited) for the nine months ended September 30,
                2007 and
                September 30, 2006 and the period from inception (May 4, 2001) to
                September 30, 2007
            6Notes
                to the Interim Financial Statements
            7Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            11Item
                3. Controls and Procedures
            18PART
                II — OTHER INFORMATION
            19Item
                1. Legal Proceedings
            19Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            24Item
                4. Submission of Matters to a Vote of Security Holders
            24Item
                6. Exhibits
            24Signatures
            25








2





**PART
      I — FINANCIAL INFORMATION**





**ITEM
      1. Financial Statements**





**XCORPOREAL,
      INC.**


**(a
      Development Stage Company)**


**BALANCE
      SHEETS**


**September
                  30,**
              
              
              **December
                  31,****2007**
              
              
              **2006****(Unaudited)****ASSETS**CurrentCash
                  and cash equivalents
              
              $
              672,271
              
              $
              27,440,987Marketable
                  securities, at fair value
              
              
              19,609,317
              
              
              -Restricted
                  cash
              
              
              87,996
              
              
              -Prepaid
                  Expenses & Other Current Assets
              
              
              314,163
              
              
              90,228Total
                  current assets
              
              
              20,683,747
              
              
              27,531,215Property
                  and equipment, net
              
              
              196,087
              
              
              3,328Other
                  assets
              
              
              936
              
              
              1,000Total
                  Assets
              
              $
              20,880,770
              
              $
              27,535,543**LIABILITIES**CurrentAccounts
                  payable
              
              $
              1,314,373
              
              $
              143,606Accrued
                  placement agent fees
              
              
              -
              
              
              1,348,470Accrued
                  professional fees
              
              
              582,668
              
              
              312,208Accrued
                  royalties
              
              
              270,833
              
              
              83,333Accrued
                  other liabilities
              
              
              173,456
              
              
              121,189Other
                  current liabilities
              
              
              115,400
              
              
              124,676Total
                  Current Liabilities
              
              
              2,456,730
              
              
              2,133,482**Commitments
                  and contingencies****STOCKHOLDERS'
                  EQUITY**Preferred
                  Stock, $0.001 par value, 10,000,000 sharesauthorized,
                  none outstanding
              
              
              -
              
              
              -Common
                  Stock, $0.0001 par value, 40,000,000 sharesauthorized,
                  14,000,050 and 14,200,050 outstanding onSeptember
                  30, 2007 and December 31, 2006,respectively
              
              
              1,400
              
              
              1,420Additional
                  paid-in capital
              
              
              35,081,012
              
              
              29,924,410Deficit
                  accumulated during the development stage
              
              
              (16,658,372
              )
              
              (4,523,769
              )Total
                  Stockholders' Equity
              
              
              18,424,040
              
              
              25,402,061Total
                  Liabilities & Stockholders' Equity
              
              $
              20,880,770
              
              $
              27,535,543


See
      accompanying notes to these interim financial statements.








3





**XCORPOREAL,
      INC.**


**(a
      Development Stage Company)**


**STATEMENTS
      OF OPERATIONS**


**(Unaudited)**


**May
                  4, 2001 (Date****Three
                  Months Ended**
              
              
              **Nine
                  Months Ended**
              
              
              **of
                  Inception) to****September
                  30,**
              
              
              **September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**
              
              
              **2007**Operating
                  Expenses:Selling,
                  general and administrative
              
              $
              2,664,405
              
              $
              2,307,727
              
              $
              8,254,693
              
              $
              2,319,517
              
              $
              11,573,345Research
                  and development
              
              
              2,087,753
              
              
              917,630
              
              
              4,775,887
              
              
              917,630
              
              
              6,063,209Depreciation
                  and amortization
              
              
              9,243
              
              
              -
              
              
              14,626
              
              
              -
              
              
              14,721Loss
                  before interest income and income taxes
              
              
              (4,761,401
              )
              
              (3,225,357
              )
              
              (13,045,206
              )
              
              (3,237,147
              )
              
              (17,651,275
              )Interest
                  income
              
              
              290,677
              
              
              -
              
              
              910,603
              
              
              -
              
              
              992,903Loss
                  before income taxes
              
              
              (4,470,724
              )
              
              (3,225,357
              )
              
              (12,134,603
              )
              
              (3,237,147
              )
              
              (16,658,372
              )Income
                  taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  Loss
              
              $
              (4,470,724
              )
              $
              (3,225,357
              )
              $
              (12,134,603
              )
              $
              (3,237,147
              )
              $
              (16,658,372
              )Basic
                  and diluted loss per share
              
              $
              (0.32
              )
              $
              (0.55
              )
              $
              (0.86
              )
              $
              (0.72
              )Weighted
                  average number of shares outstanding
              
              
              14,089,180
              
              
              5,835,217
              
              
              14,162,687
              
              
              4,499,121


See
      accompanying notes to these interim financial statements.








4




**XCORPOREAL,
      INC.**


**(a
      Development Stage Company)**


**STATEMENTS
      OF STOCKHOLDERS’ EQUITY (DEFICIENCY)**


**For
      the Period May 4, 2001 (Inception) to September 30, 2007**


**(Unaudited)**


**Deficit****Accumulated****Additional**
              
              
              **During****Common
                  Stock**
              
              
              **Paid-in**
              
              
              **Development****Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Stage**
              
              
              **Total**Common
                  stock issued for cash at $0.01 per share
              
              
              2,500,000
              
              $
              250
              
              $
              24,750
              
              
              
              
              $
              25,000Net
                  Loss for the year ended December 31, 2001
              
              
              
              
              
              
              
              
              
              
              $
              (40,255
              )
              
              (40,255
              )Balance
                  as of December 31, 2001
              
              
              2,500,000
              
              
              250
              
              
              24,750
              
              
              (40,255
              )
              
              (15,255
              )Common
                  stock issued for cash at $0.05 per share
              
              
              1,320,000
              
              
              132
              
              
              65,868
              
              
              
              
              
              66,000Net
                  Loss for the year ended December 31, 2002
              
              
              
              
              
              
              
              
              
              
              
              (31,249
              )
              
              (31,249
              )Balance
                  as of December 31, 2002
              
              
              3,820,000
              
              
              382
              
              
              90,618
              
              
              (71,504
              )
              
              19,496Net
                  Loss for the year ended December 31, 2003
              
              
              
              
              
              
              
              
              
              
              
              (12,962
              )
              
              (12,962
              )Balance
                  as of December 31, 2003
              
              
              3,820,000
              
              
              382
              
              
              90,618
              
              
              (84,466
              )
              
              6,534Net
                  Loss for the year ended December 31, 2004
              
              
              
              
              
              
              
              
              
              
              
              (23,338
              )
              
              (23,338
              )Balance
                  as of December 31, 2004
              
              
              3,820,000
              
              
              382
              
              
              90,618
              
              
              (107,804
              )
              
              (16,804
              )Net
                  Loss for the year ended December 31, 2005
              
              
              
              
              
              
              
              
              
              
              
              (35,753
              )
              
              (35,753
              )Balance
                  as of December 31, 2005
              
              
              3,820,000
              
              
              382
              
              
              90,618
              
              
              (143,557
              )
              
              (52,557
              )Common
                  stock issued for a licence rights
              
              
              9,600,000
              
              
              960
              
              
              40
              
              
              
              
              
              1,000Capital
                  stock cancelled
              
              
              (3,420,000
              )
              
              (342
              )
              
              342
              
              
              
              
              
              -Warrants
                  granted for consulting fees
              
              
              
              
              
              
              
              
              2,162,611
              
              
              
              
              
              2,162,611Forgiveness
                  of related party debt
              
              
              
              
              
              
              
              
              64,620
              
              
              
              
              
              64,620Common
                  stock issued for cash at $7.00, net of placementfees
                  of $2,058,024
              
              
              4,200,050
              
              
              420
              
              
              27,341,928
              
              
              
              
              
              27,342,348Stock-based
                  compensation expense
              
              
              
              
              
              
              
              
              264,251
              
              
              
              
              
              264,251Net
                  loss for the period
              
              
              
              
              
              
              
              
              
              
              
              (4,380,212
              )
              
              (4,380,212
              )Balance
                  as of December 31, 2006
              
              
              14,200,050
              
              
              1,420
              
              
              29,924,410
              
              
              (4,523,769
              )
              
              25,402,061Capital
                  stock cancelled
              
              
              (200,000
              )
              
              (20
              )
              
              20
              
              
              -
              
              
              -Warrants
                  granted for consulting services
              
              
              
              
              
              
              
              
              2,233,238
              
              
              
              
              
              2,233,238Stock-based
                  compensation expense
              
              
              
              
              
              
              
              
              2,923,344
              
              
              
              
              
              2,923,344Net
                  loss for the period
              
              
              
              
              
              
              
              
              
              
              
              (12,134,603
              )
              
              (12,134,603
              )Balance
                  as of September 30, 2007
              
              
              14,000,050
              
              $
              1,400
              
              $
              35,081,012
              
              $
              (16,658,372
              )
              $
              18,424,040





See
      accompanying notes to these interim financial statements.








5


**XCORPOREAL,
        INC.**
 **(a
        Development Stage Company)**
 **STATEMENTS
        OF CASH FLOWS**
 **(Unaudited)**
 **May
                    4, 2001 (Date****Nine
                    Months Ended**
                
                
                **of
                    Inception) to****September
                    30,**
                
                
                **September
                    30,****2007**
                
                
                **2006**
                
                
                **2007****Cash
                    flows used in operating activities**Net
                    Loss for the Period
                
                $
                (12,134,603
                )
                $
                (3,237,147
                )
                $
                (16,658,372
                )**Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:**Non-employee
                    Stock Based Compensation
                
                
                2,923,344
                
                
                2,162,611
                
                
                5,085,955Stock
                    Based Compensation
                
                
                2,233,238
                
                
                -
                
                
                2,497,489Depreciation
                    and amortization
                
                
                14,626
                
                
                -
                
                
                14,721Net
                    Change in assets and liabilities:Prepaid
                    Expenses & Other Current Assets
                
                
                (223,935
                )
                
                -
                
                
                (314,163
                )Other
                    Assets
                
                
                -
                
                
                -
                
                
                (1,000
                )Accounts
                    Payable and Accrued Liabilities
                
                
                332,524
                
                
                1,044,143
                
                
                2,341,329Other
                    Current Liabilities
                
                
                (9,276
                )
                
                -
                
                
                115,400Net
                    Cash Used in Operating Activities
                
                
                (6,864,082
                )
                
                (30,393
                )
                
                (6,918,641
                )**Cash
                    Flows from Investing Activities**Capital
                    Expenditures
                
                
                (207,321
                )
                
                -
                
                
                (210,744
                )Restricted
                    Cash
                
                
                (87,996
                )
                
                -
                
                
                (87,996
                )Purchase
                    of marketable securities
                
                
                (21,932,739
                )
                
                -
                
                
                (21,932,739
                )Sale
                    of marketable securities
                
                
                2,323,422
                
                
                -
                
                
                2,323,422Net
                    Cash Used in Investing Activities
                
                
                (19,904,634
                )
                
                -
                
                
                (19,908,057
                )**Cash
                    Flows from Financing Activities**Capital
                    Stock issued
                
                
                -
                
                
                -
                
                
                27,434,349Advances
                    from related party
                
                
                -
                
                
                30,393
                
                
                64,620Net
                    Cash Provided by Financing Activities
                
                
                -
                
                
                30,393
                
                
                27,498,969Increase/(decrease)
                    in cash during the period
                
                
                (26,768,716
                )
                
                -
                
                
                672,271Cash,
                    beginning of the period
                
                
                27,440,987
                
                
                -
                
                
                -Cash,
                    end of the period
                
                $
                672,271
                
                $
                -
                
                $
                672,271Supplemental
                    disclosure of cash flow information; cash paid for:Interest
                
                $
                -
                
                $
                -
                
                $
                -Income
                    taxes
                
                $
                -
                
                $
                -
                
                $
                -
 
 See
        accompanying notes to these interim financial statements.




6





**XCORPOREAL,
      INC.**


**(a
      Development Stage Company)**


**NOTES
      TO THE INTERIM FINANCIAL STATEMENTS**


**September
      30, 2007**


**(Unaudited)**





**Note
      1 — Interim Reporting**





While
      information presented in the accompanying interim financial statements is
      unaudited, it includes all adjustments, which are, in the opinion of management,
      necessary to present fairly the financial position, results of operations and
      cash flows for the interim period presented. All adjustments are of a normal
      recurring nature. It is suggested that these interim financial statements be
      read in conjunction with our December 31, 2006 financial
      statements.





The
      results of operations for the period ended September 30, 2007 are not
      necessarily indicative of the results that can be expected for the year ended
      December 31, 2007.





**Note
      2 — Nature and Continuance of Operations**





On
      October 12, 2007, pursuant to a merger agreement with Xcorporeal, Inc. (referred
      to hereinafter as pre-merger Xcorporeal),our newly-formed wholly-owned merger
      subsidiary merged with and into pre-merger Xcorporeal, which became our
      wholly-owned subsidiary and changed its name to “Xcorporeal Operations, Inc.” We
      changed our name from CT Holdings Enterprises, Inc. to “Xcorporeal, Inc.” and
      amended our certificate of incorporation and bylaws to read substantially as
      pre-merger Xcorporeal. As a result, our authorized common stock changed from
      60,000,000 shares to 40,000,000 common shares, and our authorized preferred
      stock changed from 1,000,000 shares to 10,000,000 shares, resulting in total
      authorized capital stock of 50,000,000 shares.





Immediately
      prior to the merger, we caused a one-for-8.27 reverse split of our common stock.
      Each share of pre-merger Xcorporeal common stock was then converted into one
      share of our common stock. In addition, we assumed all outstanding pre-merger
      Xcorporeal options and warrants to purchase pre-merger Xcorporeal common
      stock.





CTHE
      is
      considered to be the legal acquirer in this merger. As the former shareholders
      of pre-merger Xcorporeal own over 97% of the outstanding voting common stock
      of
      CTHE after the merger and CTHE is a public shell company, pre-merger Xcorporeal
      is considered the accounting acquirer and the transaction is considered to
      be a
      recapitalization of pre-merger Xcorporeal.





Historical
      financial statements prior to the merger were restated to be those of pre-merger
      Xcorporeal. The merger is accounted for as if it were an issuance of the common
      stock of pre-merger Xcorporeal to acquire our net assets, accompanied by a
      recapitalization. Historical stockholders’ equity of pre-merger Xcorporeal is
      retroactively restated for the equivalent number of shares received in the
      merger, after giving effect to the difference in par value with an offset to
      paid-in capital. The assets and liabilities of pre-merger Xcorporeal are carried
      forward at their predecessor carrying amounts. Retained deficiency of pre-merger
      Xcorporeal is carried forward after the merger. Operations prior to the merger
      are those of pre-merger Xcorporeal. Earnings per share for periods prior to
      the
      merger are restated to reflect the number of equivalent shares received by
      pre-merger Xcorporeal’s stockholders. The costs of the transaction will be
      expensed to the extent they exceed cash received from CTHE.





As
      a
      result of the merger, we transitioned to a development stage company focused
      on
      researching, developing and commercializing technology and products related
      to
      the treatment of kidney failure.





**Note
      3 — Development Stage Company**





We
      are a
      development stage company, devoting substantially all of our efforts to the
      research, development and commercialization of kidney failure treatment
      technologies.





*Risks
      and Uncertainties—* We
      operate in an industry that is subject to intense competition, government
      regulation and rapid technological change. Our operations are subject to
      significant risk and uncertainties including financial, operational,
      technological, regulatory and other risks associated with a development stage
      company, including the potential risk of business failure.





7




**Note
      4 — Cash Equivalents and Marketable Securities**





We
      invest
      available cash in short-term commercial paper, certificates of deposit and
      high
      grade variable rate securities. Liquid investments with an original maturity
      of
      three months or less when purchased are considered to be cash
      equivalents.





Investments,
      including auction rate securities and certificates of deposit, with maturity
      dates greater than three months when purchased, which have readily determined
      fair values, are classified as available-for-sale investments and reflected
      in
      current assets as marketable securities at fair market value. Auction rate
      securities are recorded at par value, which equals fair market value, as the
      rate on such securities resets generally every 7, 28 or 35 days.





Restricted
      cash represents deposits secured as collateral for a bank credit card
      program.





**Note
      5 —Property and Equipment**





Property
      and equipment consist of the following at September 30, 2007:





Property
                and equipment
            
            $
            210,744Accumulated
                depreciation
            
            
            (14,657
            )Property
                and equipment, net
            
            $
            196,087





Depreciation
      expense for the three and nine months ended September 30, 2007 was $9,229 and
      $14,562, respectively. There was no depreciation expense for the three and
      nine
      months ended September 30, 2006.





**Note
      6 — Interest Income**





Interest
      income of $290,677 and $910,603 reported for the three and nine months ended
      September 30, 2007, respectively, are a result of the interest earned on our
      cash raised from our private placement during the fourth quarter of
      2006.





**Note
      7 — Related Party Transaction**





We
      were
      charged the following by a former director of pre-merger Xcorporeal:





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,**
            
            **May
                4, 2001**
              **(Date
                of**
              **Inception)
                to**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007**Administrative
                services
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            3,000
            
            $
            12,000





On
      August
      7, 2007, CTHE issued 500,000 (60,460 post reverse split) shares of
      restricted common stock to Steven B. Solomon, CTHE’s then Chief Executive
      Officer, in connection with his services to CTHE and further advances of funds.
      CTHE issued the restricted common stock in reliance upon the exemption from
      registration provided by Section 4(2) of the Securities Act of 1933, as amended,
      pursuant to a transaction to one accredited investor not involving any public
      offering.





**Note
      8 — License Agreement**





On
      August
      31, 2006, we entered into a Contribution Agreement with a company whose sole
      managing member is our current Chairman. We issued 9,600,000 shares of common
      stock in exchange for (a) the right, title, and interest to the name
“Xcorporeal” and related trademarks and domain names, and (b) the right to enter
      into a License Agreement with National Quality Care, Inc. (NQCI) dated September
      1, 2006 pursuant to which we obtained the exclusive rights to the technology
      relating to our kidney failure treatment and other medical devices. Pre-merger
      Xcorporeal was a shell corporation prior to the transaction. We valued the
      License Agreement at the carry-over basis of $1,000. As consideration for being
      granted the License, we agreed to pay a minimum annual royalty of $250,000,
      or
      7% of net sales. We recorded $270,833 in royalty expenses covering the minimum
      royalties from commencement of the License Agreement through September 30,
      2007.
      The first minimum royalty payment is due by December 1, 2007. The License
      Agreement expires in 2105.





8


**Note
      9— Stock Options and Warrants**





***Incentive
      Compensation Plan***





On
      October 12, 2007, we adopted the Xcorporeal, Inc. 2007 Incentive Compensation
      Plan and the related form of option agreement that are substantially identical
      to the 2006 Incentive Compensation Plan in effect at pre-merger Xcorporeal
      immediately prior to the merger (see Note 2).





The
      plan
      authorizes the grant of stock options, restricted stock, restricted stock units
      and stock appreciation rights. Effective February 28, 2007, there are 3,900,000
      shares of common stock reserved for issuance pursuant to the plan (subject
      to
      adjustment in accordance with the provisions of the plan). The plan will
      continue in effect for a term of up to ten years.





On
      October 12, 2007, we also assumed options to purchase up to 3,880,000 shares
      of
      common stock that were granted by pre-merger Xcorporeal under its 2006 Incentive
      Compensation Plan.





***Stock
      Options to Employees, Officer and Directors***





The
      Compensation Committee of our Board of Directors determines the terms of the
      options granted, including the exercise price, the number of shares subject
      to
      option, and the vesting period. Options generally vest over five years and
      have
      a maximum life of ten years.





On
      August
      10, 2007 and August 15, 2007, pre-merger Xcorporeal granted options to purchase
      an aggregate of 470,000 and 325,000 shares, respectively, of common stock to
      employees, which we assumed as part of the merger. The options vest ratably
      over
      4 or 5 years, are exercisable at $7.00 per share, the fair market value of
      our
      common stock on the grant date, and expire in 2017. The fair value of such
      stock
      options was $4.8 million.





In
      connection with his August 10, 2007 resignation as an officer, Daniel Goldberger
      forfeited options to purchase 200,000 shares of common stock. He will retain
      his
      remaining 200,000 options as he continues to serve as a member of the board
      of
      directors.





We
      reported $1.0 million and $2.2 million in stock-based compensation expense
      for
      employees, officers and directors for the three and nine month period ended
      September 30, 2007, respectively. No such stock-based compensation expense
      was
      reported for the three and nine month period ended September 30,
      2006.





All
      compensation expense for stock options granted has been determined under the
      fair value method using the Black-Scholes option-pricing model with the
      following assumptions:





For
                  the nine monthsendedSeptember
                  30, 2007Expected
                  dividend yields
              
              
              zeroExpected
                  volatility
              
              
              110
              %Risk-free
                  interest rate
              
              
              4.68
              %Expected
                  terms in years
              
              
              6.25-6.50








***Warrants
      and Stock Options to Non-Employees***





On
      August
      10, 2007 and August 15, 2007, pre-merger Xcorporeal also issued stock options
      to
      two consultants to purchase 20,000 and 10,000 shares of common stock,
      respectively, in exchange for consulting services, which we also assumed. These
      stock options vest ratably over 5 years so long as the consultant continues
      to
      provide services, are exercisable at $7.00 per share, the fair market value
      of
      our common stock on the grant date and expire 2017. The resulting fair value
      of
      such stock options was $0.2 million.





We
      reported $0.1 million and $2.9 million in stock-based compensation expense
      for
      consultants for the three and nine month period ended September 30, 2007,
      respectively. Stock-based compensation expense in the amount of $2.2 million
      was
      reported for the three and nine month period ended September 30,
      2006.





9




Compensation
      for options granted to non-employees has been determined in accordance with
      SFAS
      No. 123, EITF 96-18, and EITF 00-18, “Accounting for Equity Instruments that are
      Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
      Goods or Services.” Accordingly, compensation is determined using the fair value
      of the consideration received or the fair value of the equity instruments
      issued, whichever is more reliably measured.





For
      options and warrants issued as compensation to non-employees for services that
      are fully vested and non-forfeitable at the time of issuance, the estimated
      value is recorded in equity and expensed when the services are performed and
      benefit is received as provided by Financial Accounting and Standards Board
      (“FASB”) Emerging Issues Task Force No. 96-18 “Accounting For Equity Instruments
      That Are Issued To Other Than Employees For Acquiring or In Conjunction With
      Selling Goods Or Services.”





All
      charges for warrants granted have been determined under the fair value method
      using the Black-Scholes option-pricing model with the following
      assumptions:





September
                  30, 2007Expected
                  dividend yields
              
              
              zeroExpected
                  volatility
              
              
              135
              %Risk-free
                  interest rate
              
              
              4.59
              %Expected
                  terms in years
              
              
              9.86




The
      following table shows the change in unamortized compensation expense for stock
      options and warrants issued to employees, officers, directors and non-employees
      during the nine months ended September 30, 2007:





StockOptionsand
              
              
              UnamortizedWarrants
              
              
              CompensationOutstanding
              
              
              ExpenseJanuary
                  1, 2007
              
              
              2,054,221
              
              $
              10,002,154Granted
                  in the period
              
              
              2,985,000
              
              
              18,321,060Forfeited
                  in the period
              
              
              (405,000
              )
              
              (2,721,499
              )Expensed
                  in the period
              
              
              
              
              
              (5,156,582
              )September
                  30, 2007
              
              
              4,634,221
              
              $
              20,445,133




**Number
                  of**
              
              
              **Weighted****Options**
              
              
              **Average****and**
              
              
              **Exercise****Warrants**
              
              
              **Price****Stock
                  Options and Warrants**Balance
                  at January 1, 2007
              
              
              2,054,221
              
              $
              4.50Granted
              
              
              2,985,000
              
              $
              7.00Exercised
              
              
              -
              
              $
              -Forfeited
              
              
              (405,000
              )
              $
              6.01Balance
                  at September 30, 2007
              
              
              4,634,221
              
              $
              5.98Options
                  and warrants exercisable at September 30, 2007
              
              
              4,634,221
              
              $
              5.98





**Note
      10 — Stockholders’ Equity**





On
      August
      7, 2007, Steven B. Solomon, CTHE’s then Chief
      Executive Officer, was issued 500,000 (60,460 post reverse split)
      shares of CT Holdings Enterprises, Inc. common stock for providing services
      and
      cash to fund operating expenses of the Company.  Steven Solomon is a
      50% owner of CITN Investment Inc. (CII) which owns 1,014,286 (122,647 post
      reverse split) shares of CT Holdings Enterprises common stock. Lawrence
      Lacerte, the other owner of CII transferred 100,000 (12,092 post reverse
      split) of such shares to Steven Solomon.





10




On
      August
      10, 2007, pre-merger Xcorporeal cancelled 200,000 shares of common stock
      pursuant to a settlement agreement with one of our stockholders.





**Note
      11 — Product Development Agreement**





In
      July
      2007, we entered into an agreement with Aubrey Group, Inc., an FDA-registered
      third-party contract developer and manufacturer of medical devices for the
      design and development of a Portable Artificial Kidney (PAK). The PAK will
      be
      designed for use as an Intermittent as well as a Continuous Renal Replacement
      Therapy (CRRT) in the hospital (with medical supervision). The development
      is
      expected to be completed by the end of 2008 and projected labor and material
      costs are estimated at approximately $5.1 million over the term. The agreement
      can be terminated at any time with 30 business days notice.





**Note
      12 — Subsequent Events**





Effective
      October 12, 2007 and pursuant to a merger agreement executed on August 10,
      2007,
      our merger subsidiary merged with and into pre-merger Xcorporeal, with
      pre-merger Xcorporeal being the surviving corporation and becoming our
      wholly-owned subsidiary. Each share of pre-merger Xcorporeal common stock
      outstanding immediately prior to the effective time of the merger was converted
      into one share of our common stock. In addition, we assumed all outstanding
      pre-merger Xcorporeal options and warrants.





We
      changed our name to “Xcorporeal, Inc.” and our certificate of incorporation and
      bylaws were amended and restated to read substantially as pre-merger Xcorporeal.
      Pre-merger Xcorporeal’s certificate of incorporation were amended to change its
      name to “Xcorporeal Operations, Inc.” All of our former officers and directors
      resigned, and all of the officers and directors of pre-merger Xcorporeal became
      our officers and directors effective as of October 12, 2007.





Immediately
      prior to the effectiveness of the merger, we caused a reverse split of our
      common stock, whereby each 8.27 issued and outstanding shares of our common
      stock were converted into one share of common stock.




We
      also
      adopted a new 2007 Incentive Compensation Plan substantially identical to
      pre-merger Xcorporeal’s 2006 Incentive Compensation Plan.





**ITEM
      2. Management’s Discussion and Analysis or Plan of
      Operation.**





*The
      following discussion of our financial condition and results of*  *operations
      should be read in conjunction with our financial statements and
      the*  *related
      notes, and the other financial information included in this
      report.*





**Forward-Looking
      Statements**





The
      forward-looking comments contained in this report involve risks and
      uncertainties. Our actual results may differ materially from those discussed
      here due to factors such as, among others, limited operating history, difficulty
      in developing, exploiting and protecting proprietary technologies, results
      of
      clinical studies, intense competition and substantial regulation in the
      healthcare industry. Additional factors that could cause or contribute to such
      differences can be found in the following discussion and in the “Risks Factors”
set forth below.





**Plan
      of Operation**





***Overview***





We
      are a
      medical device company actively researching and developing an *extra-corporeal* platform
      to perform functions of various human organs. Our prototype systems apply modern
      electronics and engineering principals to reduce the size, cost and power
      requirements of conventional extra-corporeal therapies including acute and
      chronic renal replacement therapies (kidney dialysis). Our platform may also
      improve the quality of therapy ultimately delivered leading to better patient
      outcomes and reduced healthcare costs. The products we plan to bring to market
      include:




11




·
            Portable
                Artificial Kidney (PAK) dialysis device for use in the hospital for
                the
                treatment of acute renal failure


·
            PAK
                for use in the home for chronic treatment of End Stage Renal Disease
                (ESRD)


·
            Wearable
                Artificial Kidney (WAK) for chronic treatment of
                ESRD.





We
      are a
      development stage company, have been unprofitable since our inception, and
      will
      incur substantial additional operating losses for at least the next twelve
      months as we continue to implement commercial operations and allocate
      significant and increasing resources to research, development, clinical trials,
      and other activities. Accordingly, our activities to date are not as broad
      in
      depth or scope as the activities we will undertake in the future, and our
      historical operations and financial information are not indicative of our future
      operating results, financial condition, or ability to operate profitably as
      a
      commercial enterprise.





Since
      we
      began implementing our current business model on August 31, 2006, we have
      accomplished the following milestones:





•
            Raised
                over $29 million in equity financing in the fourth quarter of 2006
                selling
                shares of Xcorporeal common stock at $7.00 per share.





•
            Recruited
                experienced independent board members





•
            Recruited
                top industry management team and scientific staff





•
            Advanced
                the clinical studies for our technology





•
            Paid
                in excess of $1 million in licensed product development expenses.





For
      the
      coming year we plan to test and develop the technology for our extra-corporeal
      platform and other medical devices. We will also plan our Validation and
      Verification strategy including bench testing, clinical testing, and regulatory
      strategy in the U.S. and abroad. Some of our products may qualify for the 510(k)
      regulatory process in the U.S. based on the existence of predicate devices.
      Other products, for example our WAK, are likely to require a full PMA review
      which will be longer and more expensive.





Our
      system can also be configured into a portable ultrafiltration device to treat
      fluid overload in Congestive Heart Failure (CHF) patients. We intend to focus
      initially on the renal replacement device applications described above, and
      may
      eventually exploit our technology’s CHF applications through licensing or
      strategic arrangements.





**Product
      Applications**





Our
      WAK
      is a breakthrough technology for the chronic treatment of ESRD. We have
      successfully demonstrated a prototype system that weighs less than 6 kg., is
      battery operated, and can be worn by an ambulatory patient. Increasing the
      weekly prescribed dose of dialysis therapy has previously been shown to reduce
      morbidity and improve quality of life in ESRD patients. Our WAK is the first
      practical device to provide continuous, chronic therapy, because:





•
            Its
                reduced size, weight, and power consumption allows us to deploy a
                wearable
                package so that the treatment does not interfere with normal activities
                of
                daily life.





•
            Its
                utilization of sorbents to regenerate the dialysate fluid and thus
                afford
                a considerable reduction in the amount of dialysate required for
                each
                treatment.




The
      same
      attributes (portability, size, weight, fluid and power reduction) will be
      applied to develop a PAK that will be able to provide Continuous Renal
      Replacement Therapy (CRRT) and/or acute intermittent hemodialysis to
      hospitalized patients with acute renal failure. This device will also be
      modified to provide home hemodialysis to patients with ESRD.





12




**Research
      and Development**




***R&D
      Team***





We
      acquired the exclusive license to our platform technology on September 1, 2006,
      and have commenced planning and implementing our research and development
      efforts. We have recruited an experienced scientific team to execute our
      research and development plan. The goals of our research and development efforts
      will include:





•
            Improving
                the chemicals used in the regeneration of the dialysis fluid. The
                current
                chemicals have been used for decades. We believe new chemicals that
                last
                longer and can be used in smaller quantities would further reduce
                the cost
                and weight of our product.





•
            Developing
                software to allow physicians to customize the function of the device
                to
                meet the specific dialysis needs of each patient.





•
            Adapting
                the extra-corporeal platform technology underlying our Wearable Artificial
                Kidney to other medical uses. We believe our technology is a platform
                for
                a number of other devices that can be used to treat other diseases
                and
                will offer substantive value propositions for patients and healthcare
                providers.





•
            Expanding
                our recruiting and retaining an experienced team of scientists and
                engineers.





***Clinical
      Studies***





The
      feasibility of the WAK prototype was demonstrated in a porcine model during
      2004
      and 2005. The feasibility of the WAK prototype for treatment of fluid overload
      in humans was demonstrated by the treatment of six volunteers in Vicenza, Italy
      in July and August 2006. We demonstrated the feasibility of the WAK prototype
      for dialysis treatment in humans by the treatment of eight volunteers in London
      in March 2007. We are planning over the next few years to conduct a pivotal
      study to support a regulatory submission.





We
      incurred approximately $2.1 million and $4.8 million in research and development
      expenses for the three and nine months ended September 30, 2007, respectively.
      This compares to $1.3 million incurred during the year ended December 31, 2006.
      We expect our research and development expenses to increase as a result of
      additional headcount in the areas of product development and quality assurance
      and regulatory affairs, a higher level of third-party consulting activity and
      related expenses.





***Third-party
      Arrangements***





In
      July
      2007, we entered into an agreement with Aubrey Group, Inc. an FDA-registered
      third-party contract developer and manufacturer of medical devices for the
      design and development of a PAK. The PAK will be designed for use as a
      Continuous Renal Replacement Therapy (CRRT) in either a hospital (with medical
      supervision) or home setting. The development is expected to be completed by
      the
      end of 2008 and projected labor and material costs are estimated at
      approximately $5.1 million over the term. The agreement can be terminated at
      any
      time with 30 business days notice.





We
      also
      contract with other third parties to assist in our research and development
      efforts and to supplement our internal resources while we continue to grow
      our
      organization.





***Government
      Regulation***





*US
      Regulation*





We
      are
      subject to extensive government regulation relating to the development and
      marketing of our products. Due to the relatively early nature of our development
      efforts, we have not yet confirmed with the FDA its view of the regulatory
      status of the submissions we intend to make. However, we anticipate that
      regardless of regulatory pathway, we will need to conduct clinical studies
      involving human subjects before being able to market our products in the US.





To
      support a regulatory submission, the FDA commonly requires clinical studies
      to
      show safety and effectiveness. While we cannot currently state the nature of
      the
      studies the FDA may require due to our early stage of product development,
      it is
      likely any product we attempt to develop will require time-consuming studies
      in
      order to secure approval.




13





Outside
      the US, our ability to market potential products is contingent upon receiving
      market application authorizations from the appropriate regulatory authorities.
      These foreign regulatory approval processes may involve differing requirements
      than those of the FDA, but also generally include many, if not all, of the
      risks
      associated with the FDA approval process described above, depending on the
      country involved.





In
      the
      US, medical devices are classified into three different classes, Class I, II
      and
      III, on the basis of controls deemed reasonably necessary to ensure the safety
      and effectiveness of the device. Class I devices are subject to general
      controls, including labeling, pre-market notification and adherence to the
      FDA’s
      Good Manufacturing Practices (GMP), Class II devices are subject to general
      and
      special controls, including performance standards, post-market surveillance,
      patient registries and FDA guidelines, and Class III devices are those which
      must receive pre-market approval by the FDA to ensure their safety and
      effectiveness, that is, life-sustaining, life-supporting and implantable
      devices, or new devices, which have been found not to be substantially
      equivalent to legally marketed devices. Because of their breakthrough nature,
      some of our devices may be considered Class III.





Before
      new medical devices such as our products can be marketed, marketing clearance
      must be obtained through a pre-market notification under Section 510(k) of
      the
      Federal Food, Drug and Cosmetic (FDC) Act. Noncompliance with applicable
      requirements can result in fines, injunctions, civil penalties, recall or
      seizure of products, total or partial suspension of production, refusal to
      authorize the marketing of new products or to allow us to enter into supply
      contracts and criminal prosecution. A 510(k) clearance will typically be granted
      by the FDA, if it can be established that the device is substantially equivalent
      to a “predicate device,” which is a legally marketed Class I or II device or a
      pre-amendment Class III device (that is, one that has been marketed since a
      date
      prior to May 28, 1976), for which the FDA has not called for pre-market approval
      (PMA). The FDA has been requiring an increasingly rigorous demonstration of
      substantial equivalence, which may include a requirement to submit human
      clinical trial data. It generally takes 4 to 12 months from the date of a 510(k)
      submission to obtain clearance, but it may take longer.





If
      clearance or approval is obtained, any device manufactured or distributed by
      us
      will be subject to pervasive and continuing regulation by the FDA. We will
      be
      subject to routine inspection by the FDA and will have to comply with the host
      of regulatory requirements that usually apply to medical devices marketed in
      the
      U.S. including labeling regulations, GMP requirements, Medical Device Reporting
      (MDR) regulation which requires a manufacturer to report to the FDA certain
      types of adverse events involving its products, and the FDA’s prohibitions
      against promoting products for unapproved or “off-label” uses.





European
      Community





The
      primary regulatory environment in Europe is that of the European Union (EU),
      which consists of 25 countries encompassing most of the major countries in
      Europe. The EU requires that manufacturers of medical products obtain the right
      to affix the CE mark to their products before selling them in member countries
      of the EU. The CE mark is an international symbol of adherence to quality
      assurance standards and compliance with applicable European medical device
      directives. In order to obtain the right to affix the CE mark to products,
      a
      manufacturer must obtain certification that its processes meet certain European
      quality standards. Compliance with the Medical Device Directive, as certified
      by
      a recognized European Notified Body, permits the manufacturer to affix the
      CE
      mark on its products and commercially distribute those products throughout
      the
      European Union.






International
      Organization for Standards (ISO) standards were developed by the EU as a tool
      for companies interested in increasing productivity, decreasing cost and
      increasing quality. The EU uses ISO standards to provide a universal framework
      for quality assurance and to ensure the good quality of products and services
      across borders. The ISO standards (it is now ISO13485) have facilitated trade
      throughout the EU, and businesses and governments throughout the world are
      recognizing the benefit of the globally accepted uniform standards.
      Manufacturers we utilize for purposes of producing our products (including
      us,
      if we manufacture any of our own products) will be required to obtain ISO
      certification to facilitate the highest quality products and the easiest market
      entry in cross-border marketing. This will enable us to market our products
      in
      all of the member countries of the EU. We also will be required to comply with
      additional individual national requirements that are outside the scope of those
      required by the European Economic Area.




Any
      medical device that is legally marketed in the US may be exported anywhere
      in
      the world without prior FDA notification or approval. The export provisions
      of
      the FDC Act apply only to unapproved devices. While FDA does not place any
      restrictions on the export of these devices, certain countries may require
      written certification that a firm or its devices are in compliance with US
      law.
      In such instances FDA will accommodate US firms by providing a Certificate
      for
      Foreign Government. In cases where there are devices which the manufacturer
      wishes to export during the interim period while their 510(k) submission is
      under review, exporting may be allowed without prior FDA clearance under certain
      limited conditions.





14




**Competition**





We
      compete directly and indirectly with other biotechnology and healthcare
      equipment businesses, including those in the dialysis industry. The major
      competitors for the *Xcorporeal* platform
      technology are those companies manufacturing and selling dialysis equipment
      and
      supplies. Xcorporeal will compete with these companies in the critical care
      markets as well as the home application markets. In many cases, these
      competitors are larger and more firmly established than we are. In addition,
      our
      competitors have greater marketing and development budgets and greater capital
      resources than our company. We anticipate that some of our primary competitors
      will be companies such as Baxter, Fresenius, Gambro, NxStage, and Nephros.





**License
      Agreement**





On
      September 1, 2006, we entered into the License Agreement pursuant to which
      we
      obtained exclusive rights to our technology relating to the treatment of kidney
      failure and other applications, with no geographic restrictions, that will
      last
      for a period of ninety-nine years or until the expiration of its proprietary
      rights in each item of intellectual property, if earlier. As consideration
      for
      granting the license, we agreed to reimburse designated costs and expenses
      of
      our licensor, and pay a minimum royalty of 7% of net sales, with an annual
      minimum royalty of $250,000.





**Patents
      and Trademarks**





We
      have
      exclusive license rights to two issued US patents, No. 20050101901 “Wearable
      continuous renal replacement therapy device,” and No. 20040254514 “Wearable
      ultrafiltration device” from the US Patent & Trademark Office. We also have
      exclusive rights to a pending application specifically for the pump, the most
      critical part of all three devices, “Dual-Ventricle Pump Cartridge,” and another
      proposed patent for “Method For Installing and Servicing a Wearable Continuous
      Renal Replacement Therapy Device” which is aimed to prevent entry into the
      wearable device market. We are actively developing our intellectual property,
      and plan to continually expand our patent portfolio.





In
      addition, we are actively developing additional intellectual property that
      in
      part supersedes the rights licensed under the License Agreement. We are filing
      patent applications to protect and improve the inventions that are commercially
      important for the development of our business and we plan to continually expand
      our patent portfolio.





We
      have
      pending applications to register our trademarks “Xcorporeal” and “Xcorporeal
      WAK.”





**Employees**




We
      have
      17 full-time employees, comprised of our Chief Operating Officer, Chief
      Financial Officer, Chief Medical and Scientific Officer, Senior Vice President
      of Quality Assurance and Regulatory Affairs, and seven other personnel in
      research and development and administration. During 2007, we plan to add
      additional employees, particularly in the areas of product development,
      regulatory affairs, and quality assurance. Our headcount is expected to exceed
      25 employees by the end of the year. We also utilize, whenever appropriate,
      contract and part-time professionals in order to conserve cash and resources.




**Business
      Development**





***Formation,
      Merger and Name Change***





We
      were
      incorporated in the State of Delaware in 1992 as Lonestar
      Hospitality Corp .
      Effective October 12, 2007 and pursuant to the merger agreement executed on
      August 10, 2007, our newly-formed merger subsidiary with and into pre-merger
      Xcorporeal, with pre-merger Xcorporeal being the surviving corporation and
      becoming our wholly-owned subsidiary.





Pursuant
      to the merger, we changed our name from “CT Holdings Enterprises, Inc.” to
“Xcorporeal, Inc.” and amended and restated the certificate of incorporation and
      bylaws to read substantially as pre-merger Xcorporeal. Pre-merger Xcorporeal’s
      certificate of incorporation were amended to change its name to “Xcorporeal
      Operations, Inc.” All of our former officers and directors resigned, and all of
      the officers and directors of pre-merger Xcorporeal became our officers and
      directors effective as of October 12, 2007.





15




On
      August
      31, 2006, pre-merger Xcorporeal entered into a Contribution Agreement with
      Consolidated National, LLC (CNL), which is owned and controlled by our current
      Executive Chairman, giving us the right to enter into a License Agreement with
      NQCI. We issued 9,600,000 shares of common stock, a 96% voting interest in
      our
      company, to CNL in exchange for all of our right, title, and interest to the
      name “Xcorporeal” and related trademark applications and domain names, and the
      right to enter into the License Agreement. Prior to the August 31, 2006
      transaction, pre-merger Xcorporeal was a shell corporation.





On
      September 1, 2006, pre-merger Xcorporeal entered into a License Agreement with
      NQCI, pursuant to which we obtained the exclusive rights to the technology
      relating to our congestive heart failure treatment, kidney failure treatment,
      and other medical devices. As a result, we have become a developmental stage
      company focused on researching, developing, and commercializing technology
      and
      products related to the treatment of kidney failure and congestive heart
      failure.





On
      December 1, 2006, we initiated arbitration proceedings against NQCI for its
      breach of the License Agreement, which remains pending. On December 29, 2006,
      NQCI served us with a written notice purporting to terminate the License
      Agreement for unspecified alleged breaches. On January 2, 2006, we advised
      NQCI
      that we did not consent to termination of the License Agreement, that we have
      not breached the License Agreement, and that NQCI has no right to unilaterally
      terminate the License Agreement in any event. Accordingly, the License Agreement
      cannot be terminated.





***Terminated
      Merger Agreement***





On
      September 1, 2006, we entered into a Merger Agreement with NQCI which
      contemplated that we would acquire NQCI as a wholly owned subsidiary pursuant
      to
      a triangular merger, or we would issue to NQCI shares of our common stock in
      consideration of the assignment of the technology relating to our WAK and other
      medical devices.




The
      merger was not consummated, and the Merger Agreement expired by its own terms
      on
      December 31, 2006. In addition, on December 29, 2006, NQCI served written notice
      that it was terminating the Merger Agreement, and on January 2, 2006, we
      consented to the termination. Accordingly, the Merger Agreement is now
      terminated. We will not be proceeding with any merger with NQCI.




**Management’s
      Discussion and Analysis**





***Results
      of Operations for the three and nine months ended September 30,
      2007***





We
      have
      not generated any revenues since inception. We incurred net loss of $4.7 million
      and $12.4 million for the three and nine months ended September 30, 2007,
      compared to a net loss of $3.2 million for the three and nine months ended
      September 30, 2006. The net loss for the three and nine months ended September
      30, 2007 was primarily due to (i) research, development and other expenses
      related to advancing our kidney failure treatment technologies, (ii) stock
      compensation expense related to options and warrants granted to directors,
      officer, employees and consultants, and (iii) legal and audit fees. The net
      loss
      for the three and nine months ended September 30, 2006, was the result of (i)
      stock compensation expense related to warrants granted to three consultants
      and
      (ii) research and development expenses. At September 30, 2007, we had positive
      working capital of $18.2 million compared to positive working capital of $25.4
      million at the beginning of the year.





***Liquidity
      and Capital Resources***





We
      expect
      to incur operating losses and negative cash flows for the foreseeable future.
      During the fourth quarter 2006, we raised approximately $27.3 million (net
      of
      placement fees of $2.1 million) through a private placement. Our ability to
      execute on our current business plan is dependent upon our ability to develop
      and market our products, and, ultimately, to generate revenue.





At
      September 30, 2007 we had cash, cash equivalents and marketable securities
      of
      approximately $20.3 million. We are currently expending cash at a rate of
      approximately $1.0 million per month. At present rates, we will not have to
      raise additional funds in the next twelve months.




16


***Off-Balance
        Sheet Arrangements***




As
      of
      September 30, 2007, we had no off-balance sheet arrangements that have or are
      reasonably likely to have a current or future effect on our financial condition,
      results of operations or cash flows.





***Legal
      Proceedings***





We
      are
      involved in arbitration against NQCI as described above. From time to time,
      we
      may be involved in litigation relating to claims arising out of our operations
      in the normal course of business. As of the date of this report, we are not
      currently involved in any legal proceeding that we believe would have a material
      adverse effect on our business, financial condition or operating
      results.





***Critical
      Accounting Policies and Estimates***





The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States. Generally
      accepted accounting principles require management to make estimates, judgments
      and assumptions that affect the reported amounts of assets, liabilities,
      revenues and expenses, and the disclosure of contingent assets and liabilities.
      We base our estimates on experience and on various other assumptions that we
      believe to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that may not be readily apparent from other sources. Our actual results may
      differ from those estimates.





We
      consider our critical accounting policies to be those that involve significant
      uncertainties, require judgments or estimates that are more difficult for
      management to determine or that may produce materially different results when
      using different assumptions. We consider the following accounting policies
      to be
      critical:





*Marketable
      Securities*





We
      classify investments with maturity dates greater than three months when
      purchased as marketable securities. Investments, including auction rate
      securities and certificates of deposit with maturity dates greater than three
      months when purchased and which have readily determined fair values are
      classified as available-for-sale investments and reflected in current assets
      as
      marketable securities at fair market value. Auction rate securities are recorded
      at cost, which equals fair market value, as the rate on such securities
      generally resets every 7, 28 or 35 days. Our investment policy requires that
      all
      investments be investment grade quality and no more than ten percent of our
      portfolio may be invested in any one security or with one
      institution.





*Identifiable
      Intangibles*





Certain
      costs associated with obtaining and licensing patents and trademarks are
      capitalized and amortized on a straight-line basis over the shorter of their
      estimated useful lives or their legal lives of 17 to 20 years. Amortization
      of
      such costs begins once the patent or trademark has been issued. We evaluate
      the
      recoverability of our patent costs and trademarks quarterly based on estimated
      undiscounted future cash flows.





*Stock-Based
      Compensation*





Statements
      of Financial Accounting Standards (SFAS) No. 123 (revised 2004), *Share-Based
      Payment* ,
      (SFAS
      123(R)) and Securities and Exchange Commission issued Staff Accounting Bulletin
      (SAB) No. 107 (SAB 107) require the measurement and recognition of compensation
      expense for all share-based payment awards made to employees and directors
      based
      on estimated fair values. We have applied the provisions of SAB 107 in its
      adoption of SFAS 123(R).





In
      determining stock based compensation the Company considers various factors
      in
      its calculation of fair value using a black-scholes pricing model. These factors
      include volatility, expected term of the options and forfeiture rates. A change
      in these factors could result in differences in the stock based compensation
      expense.





***Recent
      Accounting Pronouncements***





In
      July
      2006, the FASB released FASB Interpretation No. 48, *Accounting
      for*  *Uncertainty
      in Income Taxes, an interpretation of FASB Statement No. 109* (FIN
      48).
      FIN 48 clarifies the accounting and reporting for uncertainties in income tax
      law. This Interpretation prescribes a comprehensive model for the financial
      statement recognition, measurement, presentation and disclosure of uncertain
      tax
      positions taken or expected to be taken in income tax returns. This statement
      is
      effective for fiscal years beginning after December 15, 2006. We have adopted
      FIN 48 in January 2007. There was no impact on our results of operations and
      financial position upon adoption.





17




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (SFAS
      157). SFAS 157 establishes a framework for measuring fair value in generally
      accepted accounting principles, and expands disclosures about fair value
      measurements. SFAS 157 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007. We are required to adopt the provision
      of SFAS 157, as applicable, beginning in fiscal year 2008. We are currently
      in
      the process of evaluating the expected effect of SFAS 157 on our results of
      operations and financial position.





In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued FASB
      Statement No. 159, *“The
      Fair Value Option for Financial Assets and*  *Financial
      Liabilities — Including an Amendment of FASB Statement No. 115,*  *Accounting
      for Certain Investments in Debt and Equity Securities”* ( *“SFAS
      No.*  *159”* ).
      SFAS
      No. 159 permits an entity to choose to measure many financial instruments and
      certain items at fair value. The objective of this standard is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reporting earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. SFAS No. 159 permits all entities to choose to measure eligible
      items at fair value at specified election dates. Entities will report unrealized
      gains and losses on items for which the fair value option has been elected
      in
      earnings at each subsequent reporting date. The fair value option: (a) may
      be
      applied instrument by instrument, with a few exceptions, such as investments
      accounted for by the equity method; (b) is irrevocable (unless a new election
      date occurs); and (c) is applied only to entire instruments and not to portions
      of instruments. SFAS No. 159 is effective as of the beginning of an entity’s
      first fiscal year that begins after November 15, 2007, which for us would be
      our
      fiscal year beginning January 1, 2008. Early adoption is permitted as of the
      beginning of the previous fiscal year provided that the entity makes that choice
      in the first 120 days of that fiscal year and also elects to apply to provision
      of FASB Statement No. 157, *“Fair
      Value*  *Measurements.”* We
      are
      currently evaluating the impact that the adoption of SFAS No. 159 will have
      on
      our consolidated financial statements.





**ITEM
      3. Controls and Procedures**





We
      conducted an evaluation, under the supervision and with the participation of
      our
      Chief Operating Officer (principal executive officer) and Chief Financial
      Officer (principal financial officer), of our disclosure controls and procedures
      (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2007.
      Based upon this evaluation, our Chief Operating Officer and Chief Financial
      Officer concluded that our disclosure controls and procedures were effective
      to
      ensure that required material information is included in this quarterly report
      for the period ended September 30, 2007.





There
      were no changes in our internal control over financial reporting during the
      quarter ended September 30, 2007 that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.








18





**PART
      II — OTHER INFORMATION**





**ITEM
      1. Legal Proceedings.**





On
      December 1, 2006, we initiated arbitration against National Quality Care,
      Inc. (NQCI) for its failure to fully perform its obligations under our
      License Agreement. On December 29, 2006, NQCI filed suit against us in Los
      Angeles County Superior Court entitled *National
      Quality Care, Inc. v. Victor Gura, M.D., et al.* ,
      Case
      No. BC364140. We do not believe there is any reasonable likelihood that
      NQCI can prevail on its claims. On January 5, 2007, we filed a petition to
      compel arbitration, and NQCI subsequently stipulated to resolve all claims
      in
      the pending arbitration. On March 20, 2007, the lawsuit was dismissed
      without prejudice.





**ITEM
      1A. Risk Factors.**




Our
      results of operations and financial condition are subject to numerous risks
      and
      uncertainties. You should carefully consider these risk factors in conjunction
      with the other information contained in this report. Should any of these risks
      materialize, our business, financial condition and future prospects could be
      negatively impacted.




**RISKS
      RELATING TO OUR BUSINESS**




**Our
      limited operating history may make it difficult to evaluate our business to
      date
      and our future viability.**




We
      are in
      the early stage of operations and development, and have only a limited operating
      history on which to base an evaluation of our business and prospects, having
      just commenced operations in August 2006 in accordance with our new business
      plan and entry into the medical devices industry. In addition, our operations
      and developments are subject to all of the risks inherent in the growth of
      an
      early stage company. We will be subject to the risks inherent in the ownership
      and operation of a company with a limited operating history such as regulatory
      setbacks and delays, fluctuations in expenses, competition, the general strength
      of regional and national economies, and governmental regulation. Any failure
      to
      successfully address these risks and uncertainties would seriously harm our
      business and prospects. We may not succeed given the technological, marketing,
      strategic and competitive challenges we will face. The likelihood of our success
      must be considered in light of the expenses, difficulties, complications,
      problems and delays frequently encountered in connection with the growth of
      a
      new business, the continuing development of new technology, and the competitive
      and regulatory environment in which we operate or may choose to operate in
      the
      future. We have generated no revenues to date, and there can be no assurance
      that we will be able to successfully develop our products and penetrate our
      target markets.




**We
      expect to continue to incur operating losses, and if we are not able to raise
      necessary additional funds we may have to reduce or stop operations.**




We
      have
      not generated revenues or become profitable, may never do so, and may not
      generate sufficient working capital to cover the cost of operations. No party
      has guaranteed to advance additional funds to us to provide for any operating
      deficits. Until we begin generating revenue, we may seek funding through the
      sale of equity, or securities convertible into equity, further dilution to
      our
      then existing stockholders may result. If we raise additional capital through
      the incurrence of debt, our business may be affected by the amount of leverage
      we incur, and our borrowings may subject us to restrictive covenants. Additional
      funding may not be available to us on acceptable terms, or at all. If we are
      unable to obtain adequate financing on a timely basis, we may be required to
      delay, reduce or stop operations, any of which would have a material adverse
      effect on our business.




**Our
      success will depend on our ability to retain our managerial personnel and to
      attract additional personnel.**




Our
      success will depend largely on our ability to attract and retain managerial
      personnel.




Competition
      for desirable personnel is intense, and we cannot guarantee that we will be
      able
      to attract and retain the necessary staff. The loss of members of managerial,
      sales or scientific staff could have a material adverse effect on our future
      operations and on successful development of products for our target markets.
      The
      failure to maintain our management, particularly our Executive Chairman, Chief
      Operating Officer, Chief Financial Officer, and Chief Medical and Scientific
      Officer, and to attract additional key personnel could materially adversely
      affect our business, financial condition and results of operations. Although
      we
      intend to provide incentive compensation to attract and retain our key
      personnel, we cannot guarantee that these efforts will be successful.




We
      will
      need to expand our finance, administrative, product development, sales and
      marketing, and operations staff. There are no assurances that we will be able
      to
      make such hires. In addition, we may be required to enter into relationships
      with various strategic partners and other third parties necessary to our
      business. Planned personnel may not be adequate to support our future
      operations, management may not be able to hire, train, retain, motivate and
      manage required personnel or management may not be able to identify, manage
      and
      exploit existing and potential strategic relationships and market opportunities.
      If we fail to manage our growth effectively, it could have a material adverse
      effect on our business, results of operations and financial condition.




19




**We
      need to develop our financial and reporting processes, procedures and controls
      to support our anticipated growth.**




We
      have
      not historically invested significantly in our financial and reporting systems.
      To comply with our public reporting requirements, and manage the anticipated
      growth of our operations and personnel, we will be required to improve existing
      or implement new operational and financial systems, processes and procedures,
      and to expand, train and manage our employee base. Our current and planned
      systems, procedures and controls may not be adequate to support our future
      operations.




The
      laws
      and regulations affecting public companies, including the provisions of the
      Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the Securities
      and
      Exchange Commission, will result in increased costs to us as we evaluate the
      implications of any new rules and respond to their requirements. New rules
      could
      make it more difficult or more costly for us to obtain certain types of
      insurance, including director and officer liability insurance, and we may be
      forced to accept reduced policy limits and coverage or incur substantially
      higher costs to obtain the same or similar coverage. We cannot predict or
      estimate the amount of the additional costs we may incur or the timing of such
      costs to comply with any new rules and regulations, or if compliance can be
      achieved.




**We
      cannot assure you that we will be able to complete development and obtain
      necessary approvals for our proposed products even if we obtain sufficient
      funding.**




Even
      if
      we obtain sufficient funding, no assurance can be given that we will be able
      to
      design or have designed parts necessary for the manufacture of our products
      or
      complete the development of our proposed products within our anticipated time
      frames, if at all. Such a situation could have a material adverse effect upon
      our ability to remain in business.




**The
      success of our business will depend on our ability to develop and protect our
      intellectual property rights, which could be expensive.**




Patent
      and other proprietary rights are essential to our business. Our success depends
      to a significant degree on our ability to obtain and enforce patents and
      licenses to patent rights, both in the U.S. and in other countries. We cannot
      be
      certain that the patents that we license from others will be enforceable and
      afford protection against competitors. Our patent rights may not provide us
      with
      proprietary protection or competitive advantages against competitors with
      similar technologies. Even if such patents are valid, we cannot guarantee that
      competitors will not independently develop alternative technologies that
      duplicate the functionality of our technology.




We
      also
      rely on trademarks, copyrights, trade secrets and know-how to develop, maintain
      and strengthen our competitive positions. While we protect our proprietary
      rights to the extent possible, we cannot guarantee that third parties will
      not
      know, discover or develop independently equivalent proprietary information
      or
      techniques, that they will not gain access to our trade secrets or disclose
      our
      trade secrets to the public. Therefore, we cannot guarantee that we can maintain
      and protect unpatented proprietary information and trade secrets.
      Misappropriation of our intellectual property would have an adverse effect
      on
      our competitive position and may cause us to incur substantial litigation costs.




**We
      may be subject to claims that we infringe the intellectual property rights
      of
      others, and unfavorable outcomes could harm our business** .




Our
      future operations may be subject to claims, and potential litigation, arising
      from our alleged infringement of patents, trade secrets or copyrights owned
      by
      other third parties. We intend to fully comply with the law in avoiding such
      infringements. However, within the medical devices industry, established
      companies have actively pursued such infringements, and have initiated such
      claims and litigation, which has made the entry of competitive products more
      difficult. We may experience such claims or litigation initiated by existing,
      better-funded competitors. Court-ordered injunctions may prevent us from
      bringing new products to market, and the outcome of litigation and any resulting
      loss of revenues and expenses of litigation may substantially affect our ability
      to meet our expenses and continue operations.




20




**We
      compete against other dialysis equipment manufacturers with much greater
      financial resources and better established products and customer relationships,
      which may make it difficult for us to penetrate the market and achieve
      significant sales of our products.**




Our
      proposed products will compete directly against equipment produced by Fresenius
      Medical Care AG, Baxter Healthcare Corporation, Gambro AB, NxStage Medical,
      Inc.
      and others, each of which markets one or more FDA-cleared medical devices for
      the treatment of acute or chronic kidney failure.




Each
      of
      these competitors offers products that have been in use for a longer time than
      our products and are more widely recognized by physicians, patients and
      providers. Most of our competitors have significantly more financial and human
      resources, more established sales, service and customer support infrastructures
      and spend more on product development and marketing than we do. Many of our
      competitors also have established relationships with the providers of dialysis
      therapy. Most of these companies manufacture additional complementary products
      enabling them to offer a bundle of products and have established sales forces
      and distribution channels that may afford them a significant competitive
      advantage.




The
      market for our products is competitive, subject to change and affected by new
      product introductions and other market activities of industry participants,
      including increased consolidation of ownership of clinics by large dialysis
      chains. If we are successful, our competitors are likely to develop products
      that offer features and functionality similar to our proposed products.
      Improvements in existing competitive products or the introduction of new
      competitive products may make it more difficult for us to compete for sales,
      particularly if those competitive products demonstrate better safety,
      convenience or effectiveness or are offered at lower prices. If we are unable
      to
      compete effectively against existing and future competitors and existing and
      future alternative treatments and pharmacological and technological advances,
      it
      will be difficult for us to penetrate the market and achieve significant sales
      of our products.




**We
      have not commissioned or obtained marketing studies which support the likelihood
      of success of our business plan.**




No
      independent studies with regard to the feasibility of our proposed business
      plan
      have been conducted by any independent third parties with respect to our present
      and future business prospects and our capital requirements. In addition, there
      can be no assurances that our products or our treatment modality for ESRD will
      find sufficient acceptance in the marketplace to enable us to fulfill our long
      and short term goals, even if adequate financing is available and our products
      are approved to come to market, of which there can be no assurance.




**Material
      weaknesses in our internal control over financial reporting may make it
      difficult to accurately** **evaluate our results of operations and financial
      condition.**




In
      pre-merger Xcorporeal’s annual report for the year ended December 31, 2006, we
      reported material weaknesses in the effectiveness of our internal controls
      over
      financial reporting related to the application of generally accepted accounting
      principles arising from (a) our accounting for the transaction by which we
      ceased to be a shell corporation, (b) the assumptions used in estimating the
      fair value of warrants issued to consultants, (c) our accounting for research,
      development and other expenses incurred pursuant to the License Agreement,
      and
      (d) the calculation of the weighted average number of share outstanding. Despite
      our substantial efforts to ensure the integrity of our financial reporting
      process, we cannot guarantee that we will not identify additional weaknesses
      as
      we continue to work with the new systems that we have implemented. Any
      continuing material weaknesses in our internal control over financial reporting
      could result in errors in our financial statements, which could erode market
      confidence in our company, and make it more difficult to raise needed additional
      funds, and adversely affect the market price of our common stock, if such a
      market ever develops.




**An
      unfavorable result in the pending arbitration could have a material adverse
      effect on our business.**




We
      consider the protection of our proprietary technology for treatment of kidney
      failure and congestive heart failure to be critical to our business prospects.
      We obtained the rights to some of our most significant patented and
      patent-pending technologies through a License Agreement with National Quality
      Care, Inc. (NQCI). On December 1, 2006 we initiated arbitration against NQCI
      for
      failure to fully perform its obligations under our License Agreement. NQCI
      has
      filed counterclaims seeking to invalidate the License Agreement and claiming
      monetary damages against us. If NQCI were to prevail on some or all of its
      claims, we could be prevented from using some or all of the patented technology
      we licensed from it. That could significantly impact our ability to use and
      develop our technologies, which would have a material adverse effect on our
      business and results of operations.




21




**RISKS
      RELATED TO OUR INDUSTRY**




**Our
      business will always be strictly regulated by the federal and other governments,
      and we cannot assure you that we will remain in compliance with all applicable
      regulation.**




Clinical
      testing, manufacture, promotion and sale of our proposed products are subject
      to
      extensive regulation by numerous governmental authorities in the U.S.,
      principally the FDA, and corresponding foreign regulatory agencies. Changes
      in
      existing regulations or adoption of new regulations or policies could prevent
      us
      from obtaining, or affect the timing of, future regulatory approvals or
      clearances. We cannot assure you that we will be able to obtain necessary
      regulatory clearances or approvals on a timely basis, or at all, or that we
      will
      not be required to incur significant costs in obtaining or maintaining such
      foreign regulatory approvals. Delays in receipt of, or failure to receive,
      such
      approvals or clearances, the loss of previously obtained approvals or clearances
      or the failure to comply with existing or future regulatory requirements could
      have a material adverse effect on our business, financial condition and results
      of operations.




Any
      enforcement action by regulatory authorities with respect to past or future
      regulatory noncompliance could have a material adverse effect on our business,
      financial condition and results of operations. Noncompliance with applicable
      requirements can result in fines, injunctions, civil penalties, recall or
      seizure of products, total or partial suspension of production, refusal to
      authorize the marketing of new products or to allow us to enter into supply
      contracts and criminal prosecution.




Even
      if
      our proposed products are approved for market, we will be subject to continuing
      regulation. We will continuously be subject to routine inspection by the FDA
      and
      will have to comply with the host of regulatory requirements that usually apply
      to medical devices marketed in the U.S. including labeling regulations, Quality
      System requirements, MDR regulations (which requires a manufacturer to report
      to
      the FDA certain types of adverse events involving its products), and the FDA’s
      prohibitions against promoting products for unapproved or “off-label” uses. Our
      failure to comply with applicable regulatory requirements could result in
      enforcement action by the FDA, which could have a material adverse effect on
      our
      business, financial condition and results of operations.




In
      addition, failure to comply with applicable international regulatory
      requirements can result in fines, injunctions, civil penalties, recalls or
      seizures of products, total or partial suspensions of production, refusals
      by
      foreign governments to permit product sales and criminal prosecution.
      Furthermore, changes in existing regulations or adoption of new regulations
      or
      policies could prevent us from obtaining, or affect the timing of, future
      regulatory approvals or clearances. There can be no assurance that we will
      be
      able to obtain necessary regulatory clearances or approvals on a timely basis,
      or at all, or that we will not be required to incur significant costs in
      obtaining or maintaining such foreign regulatory approvals. Delays in receipt
      of, or failure to receive, such approvals or clearances, the loss of previously
      obtained approvals or clearances or the failure to comply with existing or
      future regulatory requirements could have a material adverse effect on our
      business, financial condition and results of operations. Any enforcement action
      by regulatory authorities with respect to past or future regulatory
      noncompliance could have a material adverse effect on our business, financial
      condition and results of operations.




**Our
      failure to respond to rapid changes in technology and its applications and
      intense competition in the medical devices industry could make our treatment
      system obsolete.**




The
      medical devices industry is subject to rapid and substantial technological
      development and product innovations. To be successful, we must respond to new
      developments in technology, new applications of existing technology and new
      treatment methods. Our response may be stymied if we require, but cannot secure,
      rights to essential third-party intellectual property. We may compete against
      companies offering alternative treatment systems to ours, some of which have
      greater financial, marketing and technical resources to utilize in pursuing
      technological development and new treatment methods. Our financial condition
      and
      operating results could be adversely affected if our medical device products
      fail to compete favorably with these technological developments, or if we fail
      to be responsive on a timely and effective basis to competitors’ new devices,
      applications, treatments or price strategies.




**Product
      liability claims could adversely affect our results of operations.**




The
      risk
      of product liability claims, product recalls and associated adverse publicity
      is
      inherent in the testing, manufacturing, marketing and sale of medical products.
      In an effort to minimize our liability we purchase product liability insurance
      coverage. In the future we may not be able to secure product liability insurance
      coverage on acceptable terms or at reasonable costs when needed. Any liability
      for mandatory damages could exceed the amount of our coverage. A successful
      product liability claim against us could require us to pay a substantial
      monetary award. Moreover, a product recall could generate substantial negative
      publicity about our products and business and inhibit or prevent
      commercialization of other future product candidates.




22




**RISKS
      RELATED TO OUR COMMON STOCK**




**If
      a market for our common stock does not develop, our stockholders may be unable
      to sell their shares.**




There
      is
      currently no market for our common stock and we can provide no assurance that
      a
      market will develop. If no market is ever developed for our shares, it will
      be
      difficult for stockholders to sell their stock. In such a case, stockholders
      may
      find that they are unable to achieve benefits from their investment.




**If
      a market for our common stock develops, our stock price may be volatile.**




If
      a
      market for our common stock develops, the price at which our common stock will
      trade may be highly volatile and may fluctuate as a result of a number of
      factors, including the number of shares available for sale in the market,
      quarterly variations in our operating results, actual or anticipated
      announcements of new data, studies, products or services by us or competitors,
      regulatory investigations or determinations, acquisitions or strategic alliances
      by us or our competitors, recruitment or departures of key personnel, the gain
      or loss of significant customers, changes in the estimates of our operating
      performance, market conditions in our industry and the economy as a whole.




**Over** **66%
      of our stock is controlled by a single stockholder who has the ability to
      substantially influence the election of directors and the outcome of matters
      submitted to stockholders.**




As
      of
      November 2, 2007, Consolidated National, LLC (CNL), a limited liability company
      whose managing member is our Executive Chairman, directly owned 9,600,000
      shares, which represent approximately 66.9% of our 14,351,491 shares of
      outstanding common stock. As a result, CNL presently and is expected to continue
      to have the ability to determine the outcome of issues submitted to our
      stockholders. The interests of this stockholder may not always coincide with
      our
      interests or the interests of other stockholders, and it may act in a manner
      that advances its best interests and not necessarily those of other
      stockholders. One consequence to this substantial stockholder’s interest is that
      it may be difficult for investors to remove management of the company. It could
      also deter unsolicited takeovers, including transactions in which stockholders
      might otherwise receive a premium for their shares over then current market
      prices.




**Investors’
      interests in our company will be diluted and investors may suffer dilution
      in
      their net book value per share if we issue additional shares or raise funds
      through the sale of equity securities.**




In
      the
      event that we are required to issue any additional shares or enter into private
      placements to raise financing through the sale of equity securities, investors’
interests in our company will be diluted and investors may suffer dilution
      in
      their net book value per share depending on the price at which such securities
      are sold. If we issue any such additional shares, such issuances also will
      cause
      a reduction in the proportionate ownership and voting power of all other
      stockholders. Further, any such issuance may result in a change in our control.




**We
      have never paid cash dividends and do not intend to do so.**




We
      have
      never declared or paid cash dividends on our common stock. We currently plan
      to
      retain any earnings to finance the growth of our business rather than to pay
      cash dividends. Payments of any cash dividends in the future will depend on
      our
      financial condition, results of operations and capital requirements, as well
      as
      other factors deemed relevant by our board of directors.




**We
      will need additional financing.**




We
      will
      need additional financing to maintain and expand its business, and such
      financing may not be available on favorable terms, if at all. We intend to
      finance our business through the private placement and public offering of equity
      and debt securities. Additional financing may not be available on favorable
      terms, if at all. If we need funds and cannot raise them on acceptable terms,
      we
      may not be able to execute or business plan, and our shareholders may lose
      substantially all of their investment.




**We
      became a publicly traded company through a merger with a public shell company,
      and we could be liable for unanticipated liabilities of our predecessor
      entity.**




We
      became
      a publicly traded company through a merger effective October 12, 2007 between
      Xcorporeal, Inc. and CT Holdings Enterprises, Inc., the a publicly traded shell
      company that had previously provided management expertise including consulting
      on operations, marketing and strategic planning and a single source of capital
      to early stage technology companies. Although we believe the shell company
      had
      substantially no assets and liabilities as of the merger, we may be subject
      to
      claims related to the historical business of the shell, as well as costs and
      expenses related to the merger.




23




**ITEM
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.**





On
      August
      7, 2007, the Company issued 500,000 (60,460 post reverse split)
      shares of restricted common stock to Steven B. Solomon, the
      Company’s then Chief Executive Officer, in connection with his services to
      the Company and further advances of funds. The Company issued the restricted
      common stock in reliance upon the exemption from registration provided by
      Section 4(2) of the Securities Act of 1933, as amended, pursuant to a
      transaction to one accredited investor not involving any public
      offering.





**ITEM
      4. Submission of Matters to a Vote of Security Holders.**





As
      of
      September 21, 2007, holders of 2,086,689 shares, or approximately 72% of the
      issued and outstanding common stock, considered, voted on and adopted the
      proposal to approve entering into the transactions contemplated by the August
      10, 2007 merger agreement with pre-merger Xcorporeal, and to approve the merger,
      reverse stock split, and incentive compensation plan. This consent of
      stockholders was sufficient to approve entering into the transactions.





**ITEM
      6. Exhibits.**





**No.**
            **Description
                of Exhibit**2.1
            Merger
                Agreement3.1
            Amended
                and Restated Certificate of Incorporation3.2
            Bylaws4.1
            Specimen
                of common stock certificate10.1*
            Form
                of Indemnification Agreement for directors10.2*
            Form
                of 2007 Incentive Compensation Plan10.3
            License
                Agreement10.4
            Contribution
                Agreement10.5*
            Employment
                Agreement of Victor Gura, M.D.10.6
            Form
                of Innovation, Proprietary Information and Confidentiality Agreement10.7*
            Executive
                Chairman Agreement of Terren S. Peizer10.8*
            Employment
                Agreement of Robert Weinstein10.9
            Consulting
                Agreement of Dr. Hans-Dietrich Polaschegg10.10
            Services
                Agreement with Aubrey Group, Inc.14.1
            Code
                of Ethics31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 200232.2
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002





*  Management
      contracts, compensatory plans or arrangements







24





**SIGNATURES**




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


Date: November
              12, 2007
            By:
            /s/ ROBERT
              WEINSTEINRobert
                Weinstein
              Chief
                Financial Officer
              (Principal
                Financial Officer and Principal
              Accounting
                Officer)




25