**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON**
**,        D.C. 20549**

**FORM        10-Q**

| x      | **Quarterly                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange                  Act of                  1934****For                  the quarterly period ended September 30, 2008**                                                                                                                                               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                               |
| or     |                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| o      | **Transition                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange                  Act of                  1934****For                  the transition period from                                                              to**  |

**ADVANCED        MEDICAL INSTITUTE INC.**

| NEVADA                                                                                      |   | 88-0409144                                                 |
|---------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|
| (State or Other Jurisdiction ofIncorporation or Organization) |   | (I.R.S. Employer                  Identification No.) |

| Level                  1, 204-218 Botany RoadAlexandria,                  NSWAustralia                  2015 |
|--------------------------------------------------------------------------------------------------------------|
| (Address                  of Principal Executive Offices) (Zip                  Code)                        |

|   | (61)                  2 9640 5253                                           |   |
|--------|-----------------------------------------------------------------------------|--------|
|   | (Registrant’s                  Telephone Number, Including Area Code) |   |

|   |                                                                                                  |   |
|--------|----------------------------------------------------------------------------------------------------------------------|--------|
|   | (Former                  Name, Former Address and Former Fiscal Year, if Changed Since Last                  Report) |   |

         No o  

| Large accelerated Filer o   | Accelerated Filer o | Non-Accelerated Filer o                                                | Smaller Reporting Company x |
|------------------------------------------------------|-------------------------------|----------------------------------------------------------------------------------|--------------------------------------------|
|                                                 |                          | (Do not check if a smaller reporting company) |

----

**TABLE        OF CONTENTS**

|                          |                                                                                                                                                             | **Page**  |
|-------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|
|                          |                                                                                                                                                             |           |
| **Part                  I.**  | **Financial                  Information**                                                                                                                       | **3**          |
|                          |                                                                                                                                                             |           |
|                          | Item                  1. Financial Statements                                                                                                                    | 3              |
|                          |                                                                                                                                                             |           |
|                          | Consolidated Balance                  Sheets as at September 30, 2008 (unaudited) and June 30, 2008                  (audited)                         | 3              |
|                          |                                                                                                                                                             |           |
|                          | Consolidated                  Unaudited Statements of Operations for the Three Month Periods                  Ended                  September 30, 2008 and 2007 | 4              |
|                          |                                                                                                                                                             |           |
|                          | Consolidated                  Unaudited Statements of Cash Flows for the Three Month Periods                  Ended                  September 30, 2008 and 2007 | 5              |
|                          |                                                                                                                                                             |           |
|                          | Notes                  to Consolidated Unaudited Financial Statements                                                                                            | 7              |
|                          |                                                                                                                                                             |           |
|                          | Item                  2. Management’s Discussion and Analysis of Financial Condition and Results                  of Operations                            | 22             |
|                          |                                                                                                                                                             |           |
|                          | Item                  3. Quantitative and Qualitative Disclosures About Market                  Risk                                                             | 26             |
|                          |                                                                                                                                                             |           |
|                          | Item                  4T. Controls and Procedures                                                                                                                | 27             |
|                          |                                                                                                                                                             |           |
| **Part                  II.** | **Other                  Information**                                                                                                                           | **27**         |
|                          |                                                                                                                                                             |           |
|                          | Item                  1. Legal Proceedings                                                                                                                       | 27             |
|                          |                                                                                                                                                             |           |
|                          | Item                  1A. Risk Factors                                                                                                                           | 27             |
|                          |                                                                                                                                                             |           |
|                          | Item                  2. Unregistered Sales of Equity Securities and Use of                  Proceeds                                                            | 27             |
|                          |                                                                                                                                                             |           |
|                          | Item                  3. Defaults Upon Senior Securities                                                                                                         | 27             |
|                          |                                                                                                                                                             |           |
|                          | Item                  4. Submission of Matters to a Vote of Security Holders                                                                                     | 27             |
|                          |                                                                                                                                                             |           |
|                          | Item                  5. Other Information                                                                                                                       | 27             |
|                          |                                                                                                                                                             |           |
|                          | Item                  6. Exhibits                                                                                                                                | 28             |
|                          |                                                                                                                                                             |
| SIGNATURES                    | 29                                                                                                                                                               |

----

**PART        I -**
**FINANCIAL        INFORMATION**

**ITEM        1.**
**FINANCIAL        STATEMENTS**
** **

**ADVANCED        MEDICAL INSTITUTE INC. AND SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEETS**

|                                                                                                                                                                                                                               |   | **September 30, ****2008****(Unaudited)** |       | **June 30, 2008** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|-----------------------------|--------|
| **ASSETS**                                                                                                                                                                                                                         |   |                                                |            |                        |   |  |   |
| **CURRENT                  ASSETS**                                                                                                                                                                                                |   |                                                |            |                        |   |  |   |
| Cash                  & cash equivalents                                                                                                                                                                                       |   | $                                                   | 2,364,098  |                        | $      | 3,127,029 |   |
| Receivables,                  net                                                                                                                                                                                                  |   |                                                | 18,678,599 |                        |   | 18,196,314 |   |
| Receivables                  due from related parties                                                                                                                                                                              |   |                                                | 1,339,722  |                        |   | 751,034 |   |
| Inventory                                                                                                                                                                                                                          |   |                                                | 206,273    |                        |   | 468,950 |   |
| Asset                  held for disposition                                                                                                                                                                                        |   |                                                | 326,784    |                        |   | 408,039 |   |
| Other                  assets                                                                                                                                                                                                      |   |                                                | 608,717    |                        |   | 701,329 |   |
| **TOTAL                  CURRENT ASSETS**                                                                                                                                                                                          |   |                                                | 23,524,193 |                        |   | 23,652,695 |   |
|                                                                                                                                                                                                                               |   |                                                |            |                        |   |  |   |
| **NON-CURRENT                  ASSETS**                                                                                                                                                                                            |   |                                                |            |                        |   |  |   |
| Security                  deposits                                                                                                                                                                                                 |   |                                                | 106,210    |                        |   | 124,569 |   |
| Property                  and equipment, net                                                                                                                                                                                       |   |                                                | 1,322,496  |                        |   | 1,314,825 |   |
| Assets                  held for disposition                                                                                                                                                                                       |   |                                                | 286,827    |                        |   | 128,696 |   |
| Intangible                  assets, net                                                                                                                                                                                            |   |                                                | 25,532,676 |                        |   | 30,281,340 |   |
| **TOTAL                  NON-CURRENT ASSETS**                                                                                                                                                                                      |   |                                                | 27,248,209 |                        |   | 31,849,430 |   |
|                                                                                                                                                                                                                               |   |                                                |            |                        |   |  |   |
| **TOTAL                  ASSETS**                                                                                                                                                                                                  |   | $                                                   | 50,772,402 |                        | $      | 55,502,125 |   |
|                                                                                                                                                                                                                               |   |                                                |            |                        |   |  |   |
| **LIABILITIES                  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                    |   |                                                |            |                        |   |  |   |
| **CURRENT                  LIABILITIES**                                                                                                                                                                                           |   |                                                |            |                        |   |  |   |
| Unearned                  revenue                                                                                                                                                                                                  |   | $                                                   | 6,476,016  |                        | $      | 6,922,800 |   |
| Accounts                  payable & accrued expenses                                                                                                                                                                           |   |                                                | 10,500,253 |                        |   | 9,874,446 |   |
| Interest                  bearing liabilities - current                                                                                                                                                                            |   |                                                | 1,874,323  |                        |   | 422,715 |   |
| Liabilities                  related to entities held for disposition                                                                                                                                                              |   |                                                | 96,450     |                        |   | 140,403 |   |
| Income                  taxes payable                                                                                                                                                                                              |   |                                                | 355,266    |                        |   | 820,674 |   |
| **TOTAL                  CURRENT LIABILITIES**                                                                                                                                                                                     |   |                                                | 19,302,308 |                        |   | 18,181,038 |   |
|                                                                                                                                                                                                                               |   |                                                |            |                        |   |  |   |
| **NON-CURRENT                  LIABILITIES**                                                                                                                                                                                       |   |                                                |            |                        |   |  |   |
| Interest                  bearing liabilities - non-current                                                                                                                                                                        |   |                                                | 168,718    |                        |   | 1,523,716 |   |
| Deferred                  tax liabilities                                                                                                                                                                                          |   |                                                | 2,567,393  |                        |   | 2,323,212 |   |
| **TOTAL                  NON-CURRENT LIABILITIES**                                                                                                                                                                                 |   |                                                | 2,736,111  |                        |   | 3,846,928 |   |
|                                                                                                                                                                                                                               |   |                                                |            |                        |   |  |   |
| **TOTAL                  LIABILITIES**                                                                                                                                                                                             |   |                                                | 22,038,419 |                        |   | 22,027,966 |   |
|                                                                                                                                                                                                                               |   |                                                |            |                        |   |  |   |
| **Commitments                  & Contingency**                                                                                                                                                                                 |   |                                                |            |                        |   |  |   |
|                                                                                                                                                                                                                               |   |                                                |            |                        |   |  |   |
| **STOCKHOLDERS’                  EQUITY**                                                                                                                                                                                    |   |                                                |            |                        |   |  |   |
| Common                  stock, par value $0.001 per share, 90,000,000                  shares authorized, 53,507,450                  issued and outstanding as at September 30, 2008                  and June 30, 2008 |   |                                                | 53,507     |                        |   | 53,507 |   |
| Additional                  paid in capital                                                                                                                                                                                        |   |                                                | 24,149,420 |                        |   | 24,149,420 |   |
| Other                  comprehensive income                                                                                                                                                                                        |   |                                                | 2,117,678  |                        |   | 6,972,500 |   |
| Retained                  earnings                                                                                                                                                                                                 |   |                                                | 2,413,378  |                        |   | 2,298,732 |   |
| **TOTAL                  STOCKHOLDERS’ EQUITY**                                                                                                                                                                              |   |                                                | 28,733,983 |                        |   | 33,474,159 |   |
|                                                                                                                                                                                                                               |   |                                                |            |                        |   |  |   |
| **TOTAL                  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                              |   | $                                                   | 50,772,402 |                        | $      | 55,502,125 |   |

----

**ITEM        1.**
**FINANCIAL        STATEMENTS (CONTINUED)**

**ADVANCED        MEDICAL INSTITUTE INC. AND SUBSIDIARIES**

**CONSOLIDATED**
**STATEMENTS        OF OPERATIONS**

|                                                                                                    |   | **For                    The Three Months Ended**   |        |
|---------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|-------------|
|                                                                                                    |   | **September 30, ****2008****(Unaudited)** |        | **September 30, ****2007****(Unaudited)** |   |
|                                                                                                    |   |                                                |        |   |   |
| **NET                  REVENUE**                                                                        |   | $                                                   | 15,949,302  |   | $ | 10,813,778 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **COST                  OF REVENUE**                                                                    |   |                                                | (3,591,200  | ) |   | (2,612,183 | ) |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **GROSS                  PROFIT**                                                                       |   |                                                | 12,358,102  |   |   | 8,201,595 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **SELLING,                  GENERAL AND ADMINISTRATIVE EXPENSES**                                       |   |                                                | (11,807,687 | ) |   | (7,762,138 | )  |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **OPERATING                  INCOME**                                                                   |   |                                                | 550,415     |   |   | 439,457 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **OTHER                  INCOME AND (EXPENSE)**                                                         |   |                                                |             |   |   |  |   |
| Bank                  interest                                                                          |   |                                                | 34,610      |   |   | 9,382 |   |
| Management                  fee income                                                                  |   |                                                | -           |   |   | 14,384 |   |
| Other                  income                                                                           |   |                                                | 20,646      |   |   | 5,965 |   |
| Interest                  expense                                                                       |   |                                                | (71,745     | ) |   | (64,701 | )  |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **TOTAL                  OTHER INCOME (EXPENSE)**                                                       |   |                                                | (16,489     | ) |   | (34,970 | )  |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **INCOME                  FROM CONTINUED OPERATIONS**                                                   |   |                                                | 533,926     |   |   | 404,487 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **DISCONTINUED                  OPERATIONS**                                                            |   |                                                |             |   |   |  |   |
| Loss                  from discontinued operations                                                      |   |                                                | (45,433     | ) |   | (255,814 | )  |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **INCOME                  BEFORE INCOME TAXES**                                                         |   |                                                | 488,493     |   |   | 148,673 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| INCOME                  TAX EXPENSE                                                                     |   |                                                | (373,847    | ) |   | (210,210 | )  |
|                                                                                                    |   |                                                |             |   |   |  |   |
| NET                  INCOME (LOSS)                                                                      |   |                                                | 114,646     |   |   | (61,537 | )  |
|                                                                                                    |   |                                                |             |   |   |  |   |
| Other                  Comprehensive item - Foreign currency translation income                  (loss) |   |                                                | (4,854,822  | ) |   | 1,226,391 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **Net                  Comprehensive Income (loss)**                                                    |   | **$**                                               | (4,740,176  | ) | **$** | 1,164,854 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **Earnings                  (Loss) per common share, basic**                                            |   | **$**                                               | **0.00**    |   | $ | **(0.00** | **)**  |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **Weighted                  average number of shares, basic**                                           |   |                                                | 53,507,450  |   |   | 53,507,450 |   |

----

**ITEM        1.**
**FINANCIAL        STATEMENTS (CONTINUED)**

**ADVANCED        MEDICAL INSTITUTE INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

|                                                                                                    |   | **For                    The Three Months Ended**   |        |
|---------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|-------------|
|                                                                                                    |   | **September 30, ****2008****(Unaudited)** |        | **September 30, ****2007****(Unaudited)** |   |
|                                                                                                    |   |                                                |        |   |   |
| **Cash                  Flows from Operating Activities**                                               |   |                                                |             |   |   |  |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| Receipts                  from Customers                                                                |   | $                                                   | 11,388,351  |   | $ | 9,291,044 |   |
| Interest                  Received                                                                      |   |                                                | 34,610      |   |   | 9,382 |   |
| Payment                  to Suppliers & Employees                                                   |   |                                                | (10,754,419 | ) |   | (8,473,195 | ) |
| Interest                  Paid                                                                          |   |                                                | (71,745     | ) |   | (64,701 | ) |
| Income                  Tax Paid                                                                        |   |                                                | (115,570    | ) |   | (35,991 | ) |
| **Net                  cash provided by operating activities of continued                  operations** |   |                                                | 481,227     |   |   | 726,539 |   |
| **Net                  cash provided by (used in)                  discontinued operations**  |   |                                                | 8,748       |   |   | (43,718 | ) |
| **Net                  cash provided by operating activities**                                          |   |                                                | 489,975     |   |   | 682,821 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **Cash                  Flows from Investing Activities**                                               |   |                                                |             |   |   |  |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| Loans                  to related entities                                                              |   |                                                | (784,233    | ) |   | - |   |
| Payment                  for Property, Plant & Equipment                                            |   |                                                | (143,452    | ) |   | (39,831 | ) |
| Payment                  for Intangible Assets                                                          |   |                                                | (17,629     | ) |   | (23,813 | ) |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **Net                  cash used in investing activities**                                              |   |                                                | (945,314    | ) |   | (63,644 | ) |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **Cash                  Flows From Financing Activities**                                               |   |                                                |             |   |   |  |   |
| Proceeds                  from Borrowings                                                               |   |                                                | 356,696     |   |   | - |   |
| Repayment                  of Borrowings                                                                |   |                                                | (91,129     | ) |   | (85,879 | ) |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **Net                  cash (used in) provided by financing activities**                                |   |                                                | 265,567     |   |   | (85,879 | ) |
|                                                                                                    |   |                                                |             |   |   |  |   |
| Net                  (decrease) increase in cash and cash equivalents                                   |   |                                                | (189,772    | ) |   | 533,298 |   |
| Effect                  of exchange rate on cash                                                        |   |                                                | (573,159    | ) |   | (276,640 | ) |
| Cash                  and cash equivalents at beginning of period                                       |   |                                                | 3,127,029   |   |   | 737,383 |   |
|                                                                                                    |   |                                                |             |   |   |  |   |
| **Cash                  and cash equivalents at end of period**                                         |   | **$**                                               | 2,364,098   |   | **$** | 994,041 |   |

----

**ITEM        1.**
**FINANCIAL        STATEMENTS (CONTINUED)**

**ADVANCED        MEDICAL INSTITUTE, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS (CONTINUED)**

|                                                                                                                                                                                                                                        |   | **Three Months Ended**                    |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|
|                                                                                                                                                                                                                                        |   | **September 30, ****2008****(Unaudited)** |       | **September 30, ****2007****(Unaudited)** |   |
|                                                                                                                                                                                                                                        |   |                                                |       |   |   |
| **Reconciliation                  of Cash & Cash Equivalents**                                                                                                                                                                          |   |                                                |            |   |   |  |   |
|                                                                                                                                                                                                                                        |   |                                                |            |   |   |  |   |
| Cash                  & cash equivalents at the end of financial period as shown in the                  Statement of Cash Flows is reconciled to the related items in the                  Statement of Financial Position as follows: |   |                                                |            |   |   |  |   |
|                                                                                                                                                                                                                                        |   |                                                |            |   |   |  |   |
| **Cash                  & Cash Equivalents**                                                                                                                                                                                            |   | $                                                   | 2,364,098  |   | $ | 994,041 |   |
|                                                                                                                                                                                                                                        |   |                                                |            |   |   |  |   |
| **Reconciliation                  of Cash Flow from Operations with Profit from Ordinary Activities                  after                  Income Tax**                                                                                    |   |                                                |            |   |   |  |   |
| **Net                  Income**                                                                                                                                                                                                             |   | $                                                   | 114,646    |   | $ | (61,537 | ) |
|                                                                                                                                                                                                                                        |   |                                                |       |   |   |   |   |
| **Non-Cash                  Flows in Profit from Ordinary Activities**                                                                                                                                                                      |   |                                                |       |   |   |   |   |
| Depreciation                                                                                                                                                                                                                                |   |                                                | 463,165    |   |   | 404,870 |   |
| Provision                  for doubtful accounts                                                                                                                                                                                            |   |                                                | 1,764,158  |   |   | 495,700 |   |
|                                                                                                                                                                                                                                        |   |                                                |       |   |   |   |   |
| **Changes                  in Assets and Liabilities**                                                                                                                                                                                      |   |                                                |       |   |   |   |   |
| Decrease                    in inventories                                                                                                                                                                                                  |   |                                                | 210,906    |   |   | 9,071 |   |
| Increase                  in receivables                                                                                                                                                                                                    |   |                                                | (5,188,309 | ) |   | (848,797 | ) |
| Increase                  in unearned revenue                                                                                                                                                                                               |   |                                                | 612,625    |   |   | (121,171 | ) |
| Increase                  in payables                                                                                                                                                                                                       |   |                                                | 2,175,148  |   |   | 946,940 |   |
| Decrease                  in provisions for compensated absences                                                                                                                                                                            |   |                                                | 70,431     |   |   | 61,836 |   |
| Increase                    (decrease) in deferred tax liabilities                                                                                                                                                                          |   |                                                | 633,613    |   |   | (268,352 | ) |
| Increase                  in security deposit                                                                                                                                                                                               |   |                                                | 183        |   |   | 366 |   |
| Increase                    (decrease) in income tax payable                                                                                                                                                                                |   |                                                | (375,339   | ) |   | 107,613 |   |
|                                                                                                                                                                                                                                        |   |                                                |            |   |   |   |   |
| **Net                  cash provided by operating activities of continued                  operations**                                                                                                                                     |   |                                                | 481,227    |   |   | 726,539 |   |
| **Net                    cash provided by (used in) operating activities of discontinued                    operation**                                                                                                                     |   |                                                | 8,748      |   |   | (43,718 | ) |
| **Net                  cash provided by operating activities**                                                                                                                                                                              |   | **$**                                               | 489,975    |   | **$** | **682,821** |   |
|                                                                                                                                                                                                                                        |   |                                                |            |   |   |  |   |
| **Supplemental                  Cash Flow Disclosures:**                                                                                                                                                                                    |   |                                                |            |   |   |  |   |
| Interest                  paid                                                                                                                                                                                                              |   | $                                                   | 71,745     |   | $ | 64,753 |   |
|                                                                                                                                                                                                                                        |   |                                                |       |   |   |   |   |
| Income                  tax paid                                                                                                                                                                                                            |   | $                                                   | 115,570    |   | $ | 35,991 |   |
|                                                                                                                                                                                                                                        |   |                                                |            |   |   |  |   |
| **Non-Cash                  Investing/Financing Activities:**                                                                                                                                                                               |   |                                                |            |   |   |  |   |
| Stock                  issued in acquisition                                                                                                                                                                                                |   | $                                                   | -          |   | $ | - |   |
| Assets                  acquired under capital leases                                                                                                                                                                                       |   | $                                                   | 136,303    |   | $ | 22,661 |   |

----

**ADVANCED        MEDICAL INSTITUTE INC.**

**AND        SUBSIDIARIES**

**NOTES        TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2008**

**1.              **

|   |   | Our                  physicians prescribe varying combinations or dosages of medications                  for                  erectile dysfunction (predominantly phentalomine, apomorphine or                  a                  combination of them), premature ejaculation (predominantly clomipramine)                  and prostate problems (mixture of medicinal herbs). Our compound                  formulations have not been subject to any clinical trial, but may                  lawfully                  be prescribed on an individual prescription (“off-label”) basis in each                  country in which we operate. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (a) | injections,                      nasal spray, lozenges, tablets and gels for the treatment of                      erectile                      dysfunction; |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (b) | injections,                      nasal spray, lozenges and gels for the treatment of premature                      ejaculation; |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------|

|  | (c) | topical                      gels for the treatment of female sexual arousal dysfunction;                      and |
|--|-----|--------------------------------------------------------------------------------------------------------------------|

|  | (d) | an                      oral elixir for the treatment of prostate                      problems. |
|--|-----|--------------------------------------------------------------------------------------------------|

----

|   | On                  July 29, 2008, AMI announced the development of new transdermal                  gel used                  to treat premature ejaculation and erectile dysfunction in men                  as well as                  sexual arousal dysfunction in women. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Since                      2003, AMI’s subsidiary, Intelligent Medical Technologies Pty Limited                      (“IMT”) has been developing an ultrasonic nebulizer which will deliver                      drugs to the lungs. The group’s intention is to use this delivery system                      to administer its compound formulations. To utilize this delivery                      system,                      IMT needs to obtain regulatory approval of the nebulizer as                      a medical                      device. IMT has been working on this process for the last 3                      years,                      however, IMT has not yet completed such process. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | AMI                  currently operates a centralized call center and 20 clinic offices                  throughout Australia and New Zealand. AMI has an arrangement with                  two                  hospitals in Beijing where Chinese patients are treated, and AMI                  has                  recently established two clinics in the United Kingdom to service                  UK                  patients. AMI’s products and services are only available by prescription                  and are sold on an “off-label” basis. AMI Australia’s treatment programs                  are generally available in the same manner through its medical                  clinics and                  its over-the-phone sales and marketing program. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | AMI                  Australia’s subsidiaries are Advanced Medical Institute Pty Limited, PE                  Patent Holdco, Worldwide PE, Advanced Medical Institute (NZ) Limited,                  IMT                  and AMI Clinic Limited. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | AMI                  International’s subsidiary is AMI China. |
|--------|---------------------------------------------------------------------|

|   | On                  February 4, 2008, AMI discontinued operations of AMI Japan Kabushiki                  Gaisya. |
|--------|-------------------------------------------------------------------------------------------------------------------|

|   | AMI                  International Pty Limited was established to hold the Group’s                  shareholdings in the Chinese company established to conduct operations                  in                  that jurisdiction. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | AMI                  Management Services Pty Limited provides treasury and management                  services                  to AMI Australia and its                  subsidiaries. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Advanced                  Medical Institute (NZ) Limited conducts the group’s business in New                  Zealand. |
|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | Ai                  Te Wei (Beijing) Medicine Consulting Company conducts the group’s business                  in China. |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | During                      September 2006, AMI commenced a not-for-profit division of                      the Company,                      AMI-SCI, which provides treatment options to men who have sustained                      a                      spinal cord injury. Details regarding this unit’s services and operations                      are located at                      rocketlaunch.com.au. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2.        **
**SUMMARY OF SIGNIFICANT ACCOUNTING        POLICIES**

----

----

|  **Intangibles**                   |   | **Gross Carrying** **Amount** |                     | **Accumulated** **Amortization** |   | **Impairment** **Loss** |   | **Net Carrying ****Amount****September 30, ****2008****(Unaudited)** |               | **Net Carrying ****Amount****June 30, 2008****(Audited)** |   |
|-----------------------------------------|--------|-----------------------------------------|--------------------------|---------------------------------------|--------|------------------------------|--------|------------------------------------------------------------------------------------------|--------------------|-------------------------------------------------------------------------------|--------|
|                                    |   |                                    |                     |                                  |   |                         |   |                                                                                     |               |                                                                          |   |
| Amortized                intangibles:   |   |                                    |                          |                                  |   |                              |   |                                                                                     |                    |                                                                          |   |  |   |   |  |   |
| Patents                                 |   | $                                       | 9,527,672                |                                  | $      | (1,305,798                   | )      | $                                                                                        | (672,481           | )                                                                             | $      | 7,549,393 |   | $ | 8,993,291 |   |
|                                    |   |                                    |                          |                                  |   |                              |   |                                                                                     |                    |                                                                          |   |  |   |   |  |   |
| Intellectual                Property    |   |                                    | 16,638,049               |                                  |   | (1,879,779                   | )      |                                                                                     | -                  |                                                                          |   | 14,758,270 |   |   | 17,510,605 |   |
| Computer                Software        |   |                                    | 420,313                  |                                  |   | (263,016                     | )      |                                                                                     | -                  |                                                                          |   | 157,297 |   |   | 185,180 |   |
|                                    |   |                                    |                          |                                  |   |                              |   |                                                                                     |                    |                                                                          |   |  |   |   |  |   |
| Unamortized                intangibles: |   |                                    |                          |                                  |   |                              |   |                                                                                     |                    |                                                                          |   |  |   |   |  |   |
| Intellectual                Property    |   |                                    | 3,067,716                |                                  |   | -                            |   |                                                                                     | -                  |                                                                          |   | 3,067,716 |   |   | 3,592,264 |   |
|                                    |   |                                    |      |                                  |   |               |   |                                                                                     |     |                                                                          |   |     |   |   |     |   |
|                                    |   | $                                       | 29,653,750               |                                  | $      | (3,448,593                   | )      | $                                                                                        | (672,481           | )                                                                             | $      | 25,532,676 |   | $ | 30,281,340 |   |

----

| Year Ending September 30, |   | Annual Amount |      |
|------------------------------------------|--------|--------------------|-----------|
|                                     |   |               |      |
| 2009                                     |   | $                  | 1,657,000 |   |
| 2010                                     |   | $                  | 1,657,000 |   |
| 2011                                     |   | $                  | 1,657,000 |   |
| 2012                                     |   | $                  | 1,657,000 |   |
| 2013                                     |   | $                  | 1,657,000 |   |

----

**RECENT      PRONOUNCEMENTS**

----

**2.**
**OTHER      ASSETS**

|                                    |   | September 30(Unaudited) |    | June 30(Audited) |   |
|-----------------------------------------|--------|------------------------------|---------|-----------------------|--------|
| Bank guarantees          |   | $                            | 95,864  |                  | $      | 112,256 |   |
| Advances                and prepayments |   |                         | 6,429   |                  |   | 23,220 |   |
| Other                receivables        |   |                         | 24,633  |                  |   | 67,305 |   |
| Other                debtors            |   |                         | 481,791 |                  |   | 498,548 |   |
| Total                                   |   | $                            | 608,717 |                  | $      | 701,329 |   |

****3.**PROPERTY, PLANT AND EQUIPMENT**

|                                                        |   | **September 30, ****2008 ****(Unaudited)** |          | **June 30, 2008 ****(Audited)** |   |
|-------------------------------------------------------------|--------|-----------------------------------------------------------|---------------|------------------------------------------------|--------|
|                                                        |   |                                                      |          |                                           |   |
| Leasehold                improvements                       |   | $                                                         | 480,858       |                                           | $      | 557,408 |   |
| Less:                Accumulated depreciation               |   |                                                      | 108,136       |                                           |   | 118,234 |   |
|                                                        |   |                                                      | 372,722       |                                           |   | 439,174 |   |
|                                                        |   |                                                      |               |                                           |   |  |   |
| Motor                Vehicles                               |   |                                                      | 76,759        |                                           |   | 89,884 |   |
| Less:                Accumulated Depreciation               |   |                                                      | 33,216        |                                           |   | 36,316 |   |
|                                                        |   |                                                      | 43,543        |                                           |   | 53,568 |   |
|                                                        |   |                                                      |               |                                           |   |  |   |
| Office                Furniture & Equipment             |   |                                                      | 908,295       |                                           |   | 803,398 |   |
| Less:                Accumulated Depreciation               |   |                                                      | 163,424       |                                           |   | 177,720 |   |
|                                                        |   |                                                      | 744,871       |                                           |   | 625,678 |   |
|                                                        |   |                                                      |               |                                           |   |  |   |
| Computer                Hardware                            |   |                                                      | 397,802       |                                           |   | 462,013 |   |
| Less:                Accumulated Depreciation               |   |                                                      | 283,888       |                                           |   | 318,141 |   |
|                                                        |   |                                                      | 113,914       |                                           |   | 143,872 |   |
|                                                        |   |                                                      |               |                                           |   |  |   |
| Low                Value Pooled Fixed Assets                |   |                                                      | 168,120       |                                           |   | 188,491 |   |
| Less:                Accumulated Depreciation               |   |                                                      | 120,674       |                                           |   | 135,958 |   |
|                                                        |   |                                                      | 47,446        |                                           |   | 52,533 |   |
|                                                        |   |                                                      |               |                                           |   |  |   |
| **Total                Property, Plant and Equipment, net** |   | **$**                                                     | **1,322,496** |                                           | **$**  | **1,314,825** |   |

----

Included        in property and equipment are assets of approximately $275,798 and $163,348,        as        of September 30, 2008 and June 30, 2008, that are leased under non-cancelable        leases and accounted for as capital leases, which expire through October        2013.        The accumulated depreciation included in the property and equipment for these        leases is approximately $66,820 and $68,284 as of September 30, 2008 and        June        30, 2008.

**4.** **INTEREST      BEARING LIABILITIES**

|                                                     |   | **September 30,****2008****(Unaudited)** |          | **June 30, 2008****(Audited)** |   |
|----------------------------------------------------------|--------|-----------------------------------------------|---------------|------------------------------------------|--------|
| **Current,                as of the period ended**       |   |                                          |               |                                     |   |  |   |
| Capitalized                lease liability               |   | $                                             | 62,457        |                                     | $      | 45,037 |   |
| Secured                loan                              |   |                                          | 1,811,866     |                                     |   | 377,678 |   |
|                                                     |   | **$**                                         | **1,874,323** |                                     | **$**  | **422,715** |   |
|                                                     |   |                                          |               |                                     |   |  |   |
| **Non-current,                  as of the period ended** |   |                                          |               |                                     |   |  |   |
| Capitalized                lease liability               |   | $                                             | 168,718       |                                     | $      | 26,061 |   |
| Secured                loan                              |   |                                          | -             |                                     |   | 1,497,655 |   |
| Total                non-current                         |   | **$**                                         | **168,718**   |                                     | **$**  | **1,523,716** |   |

**5.**
**ACCOUNTS      PAYABLE AND ACCRUED EXPENSES**

|                                              |   | September 30(Unaudited) |       | June 30(Audited) |   |
|---------------------------------------------------|--------|------------------------------|------------|-----------------------|--------|
|                                              |   |                         |            |                  |   |  |   |
| Accounts                payable                   |   | $                            | 4,153,036  |                  | $      | 4,195,940 |   |
| Accrued                salaries                   |   |                         | 486,385    |                  |   | 611,049 |   |
| Accrued                professional fees          |   |                         | 69,137     |                  |   | 62,305 |   |
| Accrued                legal fee                  |   |                         | -          |                  |   | 89,083 |   |
| Other                current liabilities          |   |                         | 1,224,423  |                  |   | 290,800 |   |
| Accrued                DDR medication cost        |   |                         | 1,138,866  |                  |   | 1,204,760 |   |
| Accrued                DDR sales commission       |   |                         | 1,226,723  |                  |   | 1,204,760 |   |
| Accrued                DDR collection fee         |   |                         | 1,226,723  |                  |   | 1,204,760 |   |
| Provision                for patient refund       |   |                         | 202,755    |                  |   | 182,685 |   |
| Accrued                compensated absences  |   |                         | 772,205    |                  |   | 828,304 |   |
|  Total                                       |   | $                            | 10,500,253 |                  | $      | 9,874,446 |   |

----

**       6. LEGAL PROCEEDINGS**

**7.**
**LEASE      COMMITMENTS**

|                                        |   | **September                30****(Unaudited)** |        |
|---------------------------------------------|--------|------------------------------------------------|-------------|
|                                        |   |                                           |             |   |
| Due                during the period ended, |   |                                           |             |   |
|                                        |   |                                           |             |   |
| 2009                                        |   | $                                              | 489,638     |   |
| 2010                                        |   |                                           | 197,379     |   |
| 2011                                        |   |                                           | 96,269      |   |
| 2012                                        |   |                                           | 20,528      |   |
|                                        |   |                                           |             |   |
|                                        |   | **$**                                          | **803,814** |   |

----

**8.**
**CONCENTRATION**

**9.        **
**DISCONTINUED      OPERATION/ASSETS HELD FOR DISPOSITION**

***Whygo      Video Conferencing Pty Limited***

----

| **Assets                :-**                        |   |   |         |   |
|-----------------------------------------------------|--------|--------|---------|--------|
| Cash                and cash equivalents            |   | $      | 47,488  |   |
| Accounts                receivable, net             |   |   | 179,612 |   |
| Other                receivable                     |   |   | 2,557   |   |
| Other                current assets                 |   |   | 2,240   |   |
| Property,                Plant & Equipment, net |   |   | 2,931   |   |
| Total                Assets                         |   |   | 234,828 |   |
| **Liabilities                :-**                   |   |   |         |   |
| Accounts                payable and accrued expense |   |   | 95,599  |   |
|                                                |   |   |         |   |
| Total                Liabilities                    |   |   | 95,599  |   |

| **Net                sales**                                          |   | $      | 274,480 |   |
|-----------------------------------------------------------------------|--------|--------|---------|--------|
|                                                                  |   |   |         |   |
| Operating                expenses                                     |   |   |         |   |
| Selling,                general and administrative                    |   |   | 274,748 |   |
|      Total                operating expenses |   |   | 274,748 |   |
|                                                                  |   |   |         |   |
| **Loss                from operations**                               |   |   | (268    | )      |
|                                                                  |   |   |         |   |
| Non-operating                income (expenses) :-                     |   |   |         |   |
| Other                income                                           |   |   | 2,217   |   |
| Interest                income                                        |   |   | 304     |   |
|                                                                  |   |   |         |   |
| **Net                profit before income tax**                       |   |   | 2,253   |   |
|                                                                  |   |   |         |   |
| Provision                  for income tax                             |   |   | -       |   |
|                                                                  |   |   |         |   |
| **Net                profit from entity held for disposal**           |   | $      | 2,253   |   |

***AMI      Japan Kabushiki Gaisya***

----

| **Assets                :-**                        |   |   |         |   |
|-----------------------------------------------------|--------|--------|---------|--------|
| Cash                and cash equivalents            |   | $      | 19,087  |   |
| Other                current assets                 |   |   | 75,800  |   |
| Property,                Plant & Equipment, net |   |   | 115,123 |   |
| Intangible                assets                    |   |   | 168,773 |   |
| Total                Assets                         |   |   | 378,783 |   |
| **Liabilities                :-**                   |   |   |         |   |
| Accounts                payable and accrued expense |   |   | 851     |   |
|                                                |   |   |         |   |
| Total                Liabilities                    |   |   | 851     |   |

| **Net                sales**                                          |   | $      | 1,503   |   |
|-----------------------------------------------------------------------|--------|--------|---------|--------|
|                                                                  |   |   |         |   |
| Operating                expenses                                     |   |   |         |   |
| Selling,                general and administrative                    |   |   | 49,146  |   |
|      Total                operating expenses |   |   | 49,146  |   |
|                                                                  |   |   |         |   |
| **Loss                from operations**                               |   |   | (47,643 | )      |
|                                                                  |   |   |         |   |
| Non-operating                income (expenses) :-                     |   |   |         |   |
| Other                income                                           |   |   | 22      |   |
| Interest                income                                        |   |   | 21      |   |
|                                                                  |   |   |         |   |
| **Net                Loss before income tax**                         |   |   | (47,686 | )      |
|                                                                  |   |   |         |   |
| Provision                for Income tax                               |   |   | -       |   |
|                                                                  |   |   |         |   |
| **Net                loss from entity held for disposal**             |   | $      | (47,686 | )      |

----

**10.          **
**RELATED          PARTY TRANSACTIONS**

|                                                                                      |   | **September 30,****2008****(Unaudited)** |      | **June 30, 2008****(Audited)** |   |
|-------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|------------------------------------------|--------|
|                                                                                      |   |                                          |           |                                     |   |  |   |
| Related                party transactions comprised of the following:                     |   |                                          |           |                                     |   |  |   |
|                                                                                      |   |                                          |           |                                     |   |  |   |
| ***Advanced                Medical Institute of the United States,                Inc.*** |   |                                          |           |                                     |   |  |   |
| Relationship:                Under common management control by Jack Vaisman              |   |                                          |           |                                     |   |  |   |
| Receivable                from this related party                                         |   | $                                             | 815,839   |                                     | $      | 151,074 |   |
|                                                                                      |   |                                          |           |                                     |   |  |   |
| ***Prostate                Health Clinic Pty. Ltd. (an AU co.)***                         |   |                                          |           |                                     |   |  |   |
| Relationship:                Under common management control by Jack Vaisman              |   |                                          |           |                                     |   |  |   |
| Receivable                from this related party                                         |   |                                          | 1,580     |                                     |   | 1,850 |   |
|                                                                                      |   |                                          |           |                                     |   |  |   |
| Loan                to affiliate in Indonesia                                             |   |                                          | 522,303   |                                     |   | 598,110 |   |
|                                                                                      |   |                                          |      |                                     |   |   |   |
| Total                                                                                     |   | $                                             | 1,339,722 |                                     | $      | 751,034 |   |

**11.      **
**CONTINGENT      LIABILITY**

**12.      **
**INCOME      TAXES**

| September                30, 2008 |   | U.S. |   | State  |   | International |   | Total |    |
|-----------------------------------|--------|------|--------|--------|--------|---------------|--------|-------|---------|
| Current                           |   | $    | 0      |   | $      | 0             |   | $     | 146,548 |   | $ | 146,548 |   |
| Deferred                          |   | $    | 0      |   | $      | 0             |   | $     | 227,299 |   | $ | 227,299 |   |
| Total                             |   | $    | 0      |   | $      | 0             |   | $     | 373,847 |   | $ | 373,847 |   |

| September                30, 2007 |   | U.S. |   | State  |   | International |   | Total |    |
|-----------------------------------|--------|------|--------|--------|--------|---------------|--------|-------|---------|
| Current                           |   | $    | 0      |   | $      | 0             |   | $     | 86,225  |   | $ | 86,225 |   |
| Deferred                          |   | $    | 0      |   | $      | 0             |   | $     | 123,985 |   | $ | 123,985 |   |
| Total                             |   | $    | 0      |   | $      | 0             |   | $     | 210,210 |   | $ | 210,210 |   |

----

|                                                       |   | September 30,2008  |   | June 30,2008 |   |
|------------------------------------------------------------|--------|------------------------------|--------|-------------------|--------|
|                                                       |   |                         |        |              |   |  |   |
| Federal                statutory tax rate                  |   |                         | 34     | %                 |   | 34 | % |
| Increase                (decrease) in rate resulting from: |   |                         |   |              |   |   |   |
| Non                US income taxed at different rates      |   |                         | (1     | )%                |   | (1 | )% |
|                                                       |   |                         | 33     | %                 |   | 33 | % |
| Temporary                Difference                        |   |                         | 44     | %                 |   | 108 | % |
| Effective                Tax Rate                          |   |                         | 77     | %                 |   | 141 | % |

|                                                  |   | September 30, 2008 |        | Future taxrate % |   | Deferred taxliability |                | June 30, 2008 |       | Future taxrate % |   | Deferred taxliability |   |
|-------------------------------------------------------|--------|------------------------------|-------------|----------------------------|--------|----------------------------|---------------------|-------------------------|------------|----------------------------|--------|----------------------------|--------|
| Owing to                patients via ACFC        |   | $                            | 23,957,609  |                       |   | 30                         | %    | $                       | 7,187,283  |                       | $      | 24,444,765                 |   |   | 30 | %    | $ | 7,333,430 |   |
| Provision                DDR cancellation             |   |                         | (12,745,935 | )                          |   | 30                         | %                   |                    | (3,823,781 | )                          |   | (13,746,000                | )      |   | 30 | % |   | (4,123,800 | ) |
| Provision                un-dispensed DDR medications |   |                         | (1,138,866  | )                          |   | 30                         | %                   |                    | (341,660   | )                          |   | (1,253,000                 | )      |   | 30 | % |   | (375,900 | ) |
| Accrued                ACFC collection and commission |   |                         | (2,453,447  | )                          |   | 30                         | %                   |                    | (736,034   | )                          |   | (2,506,000                 | )      |   | 30 | % |   | (751,800 | ) |
| Provision                for patient refund           |   |                         | (202,755    | )                          |   | 30                         | %                   |                    | (60,827    | )                          |   | (190,000                   | )      |   | 30 | % |   | (57,000 | ) |
| Amortization                of patents                |   |                         | 1,686,290   |                       |   | 30                         | %                   |                    | 505,887    |                       |   | 714,329                    |   |   | 30 | % |   | 214,299 |   |
| Other                miscellaneous                    |   |                         | (544,919    | )                          |   | 30                         | %                   |                    | (163,475   | )                          |   | 279,946                    |   |   | 30 | % |   | 83,983 |   |
| Total                                                 |   | $                            | 8,557,977   |                       |   | 30                         | %                   | $                       | 2,567,393  |                       | $      | 7,744,040                  |   |   | 30 | % | $ | 2,323,212 |   |

**13. **
**OTHER      COMPREHENSIVE INCOME (LOSS)**

|                                                            |   | *Accumulated**Other**Comprehensive**Income* |       |
|-----------------------------------------------------------------|--------|---------------------------------------------|------------|
| Balance                at June 30, 2007                         |   | $                                           | 3,171,506  |   |
| Change                for year ended June 30, 2008              |   |                                        | 3,800,994  |   |
| Balance                at June 30, 2008                         |   | $                                           | 6,972,500  |   |
| Change                for three months ended September 30, 2008 |   |                                        | (4,854,822 | ) |
| Balance                at September 30, 2008                    |   | $                                           | 2,117,678  |   |

**ACQUISITIONS**

----

**15.      **
**RECLASSIFICATION**

Certain      comparative amounts have been reclassified to conform to the current      presentation.

**ITEM      2.**
**MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS**

***Preliminary          Note Regarding Forward-Looking Statements***

***Overview***

**CRITICAL      ACCOUNTING POLICIES AND ESTIMATES**

----

----

|                                                          |   |                                                           |     |                                                           |   |
|---------------------------------------------------------------|--------|----------------------------------------------------------------|----------|----------------------------------------------------------------|--------|
|                                                          |   | **Three****Months****ended****September                  30,** |     | **Three****Months****ended****September                  30,** |   |
|                                                          |   |                                                           | **2008** |                                                           |   | **2007** |   |
| Revenue                                                       |   |                                                           | 100      | %                                                              |   | 100 | % |
| Cost                  of revenue                              |   |                                                           | 22.5     | %                                                              |   | 24.2 | % |
| Gross                  profit                                 |   |                                                           | 77.5     | %                                                              |   | 75.8 | % |
| Selling,                  general and administrative expenses |   |                                                           | 74.0     | %                                                              |   | 71.8 | % |
| Other                  income and expenses                    |   |                                                           | (0.1     | )%                                                             |   | (0.3 | )% |
| Discontinued                  operation                       |   |                                                           | (0.3     | )%                                                             |   | (2.4 | )% |
| Income                  before income tax                     |   |                                                           | 3.1      | %                                                              |   | 1.3 | % |
| Income                  tax expenses                          |   |                                                           | 2.4      | %                                                              |   | 1.9 | % |
| Net                  income                                   |   |                                                           | 0.7      | %                                                              |   | (0.6 | )% |
|                                                          |   |                                                           |     |                                                           |   |   |   |

**LIQUIDITY      AND CAPITAL RESOURCES**

**THREE      MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,      2007**

|                                                            |   |                                                                          |   |                                                                          |   |
|-----------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|
|                                                            |   | **Three                    Months ended****September                    30,** |   | **Three                    Months ended****September                    30,** |   |
|                                                            |   | **2008**                                                                      |   | **2007**                                                                      |   |
| Revenue                                                         |   |                                                                          | 100    | %                                                                             |   | 100 | % |
| Cost                    of revenue                              |   |                                                                          | 22.5   | %                                                                             |   | 24.2 | % |
| Gross                    profit                                 |   |                                                                          | 77.5   | %                                                                             |   | 75.8 | % |
| Selling,                    general and administrative expenses |   |                                                                          | 74.0   | %                                                                             |   | 71.8 | % |
| Other                    income and expenses                    |   |                                                                          | (0.1   | %)                                                                            |   | (0.3 | %) |
| Discontinued                    operation                       |   |                                                                          | (0.3   | %)                                                                            |   | (2.4 | %) |
| Income                    before income tax                     |   |                                                                          | 3.1    | %                                                                             |   | 1.3 | % |
| Income                    tax expenses                          |   |                                                                          | 2.4    | %                                                                             |   | 1.9 | % |
| Net                    income                                   |   |                                                                          | 0.7    | %                                                                             |   | (0.6 | %) |
|                                                            |   |                                                                          |   |                                                                          |   |   |   |

***Revenue.***

----

***Cost            of Revenue.***

**Gross            Profit.**

***Selling,            General and Administrative Expenses.***

***Other            Income.***

***Net            Income Before Income Tax and Income Tax Expenses.***

----

***Net            Income***

**OFF-BALANCE      SHEET ARRANGEMENTS**

**ITEM      3.**
**QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

***Currency        Fluctuations and Foreign Currency Risk.***

----

***Interest            Rate Risk.***

***Credit            Risk.***

**ITEM        4(T). CONTROLS        AND PROCEDURES **

*Disclosure        Controls and Procedures *

*Changes          in internal controls over financial reporting*

** **

**ITEM      1.**
**LEGAL      PROCEEDINGS.**
** **

**ITEM      1A.**
**RISK      FACTORS**

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

**ITEM      3.**
**DEFAULTS      UPON SENIOR SECURITIES.**

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

**ITEM      5.**
**OTHER      INFORMATION.**

----

**ITEM      6.**
**EXHIBITS.**
** **

| **Exhibit                Number** |   | **Description**                                                                                                                                                                                                                                                            |
|-----------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |   |                                                                                                                                                                                                                                                                       |
| 31.1                              |   | Certification                of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of                the                Securities Exchange Act of 1934, as adopted pursuant to Section 302                of the                Sarbanes-Oxley Act of 2002.     |
|                              |   |                                                                                                                                                                                                                                                                       |
| 31.2                              |   | Certification                of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A)                of the                Securities Exchange Act of 1934, as adopted pursuant to Section 302                of the                Sarbanes-Oxley Act of 2002. |
|                              |   |                                                                                                                                                                                                                                                                       |
| 32.1                              |   | Certification                of Chief Executive Officer and the Chief Financial Officer Pursuant                to 18                U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of                2002).                                                           |

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**SIGNATURES**

| Date:                November 19, 2008 | By:                          | /s/                 Jacov (Jack) Vaisman |
|----------------------------------------|----------------------------------------|-----------------------------------------------|
|                                   | Jacov                (Jack) Vaisman    |
|                                   | Chief                Executive Officer |

| Date:                November 19, 2008 | By:                          | /s/                Dilip Shrestha |
|----------------------------------------|----------------------------------------|-----------------------------------|
|                                   | Dilip                Shrestha          |
|                                   | Chief                Financial Officer |

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