**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**











**FORM
      10-QSB**







**(Mark
      One)**


**x**
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934.**




**For
      the Quarterly Period ended September 30, 2007**




**OR**




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




**For
      the transition period
      from 
      to**




**Commission
      File Number 000-52647**







**PERFORMANCE
      HEALTH TECHNOLOGIES, INC.**


**(Name
      of Small Business Issuer in Its Charter)**







**DELAWARE**
            
            **841474432****(State
                or Other Jurisdiction of**
              **Incorporation
                or Organization)**
            
            **(I.R.S.
                Employer**
              **Identification
                No.)**




**427
      RIVERVIEW PLAZA, TRENTON, NEW JERSEY 08611**


**(Address
      of Principal Executive Offices) (Zip Code)**




**(609)  656-0800**


**(Issuer’s
      Telephone Number, Including Area Code)**









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




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




APPLICABLE
      ONLY TO CORPORATE ISSUERS




State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of the latest practicable date: As of November 9, 2007, 53,150,229 shares
        of
        common stock.







**PERFORMANCE
        HEALTH TECHNOLOGIES, INC.**
 **FORM
        10-QSB**
 **FOR
        THE QUARTER ENDED SEPTEMBER 30, 2007**
  **INDEX**
 
 **PAGE****PART
                  1—FINANCIAL INFORMATION**ITEM
                  1.
              FINANCIAL
                  STATEMENTSBalance
                  Sheet
              2Statements
                  of Operations
              3Statements
                  of Cash Flows
              4Notes
                  to Financial Statements
              5ITEM
                  2.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              23ITEM
                  3.
              CONTROLS
                  AND PROCEDURES
              36**PART
                  II—OTHER INFORMATION**ITEM
                  1.
              LEGAL
                  PROCEEDINGS
              36ITEM
                  2.
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              36ITEM
                  3.
              DEFAULTS
                  UPON SENIOR SECURITIES
              39ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              39ITEM
                  5.
              OTHER
                  INFORMATION
              39ITEM
                  6.
              EXHIBITS
              40
 
 
   1
 **PART
        I—FINANCIAL INFORMATION**
 
 **ITEM
        1.    FINANCIAL STATEMENTS**
  **PERFORMANCE
        HEALTH TECHNOLOGIES, INC.**
 **BALANCE
        SHEET**
 **(Unaudited)**
 
 **September
                  30, 2007****ASSETS****CURRENT
                  ASSETS:**Cash
                  and Cash Equivalents
              
              $
              141,722Inventory
              
              
              27,544Prepaid
                  Expenses
              
              
              235,786**Total
                  Current Assets**
              
              
              405,052**FURNITURE
                  & EQUIPMENT, net**
              
              
              7,771**OTHER
                  ASSETS:**Debt
                  Issuance Costs, net
              
              
              351,978Security
                  Deposits
              
              
              4,802**Total
                  Other Assets**
              
              
              356,780**TOTAL
                  ASSETS**
              
              $
              769,603**LIABILITIES
                  & STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES:**Accounts
                  Payable
              
              $
              525,504Accrued
                  Salaries and Interest
              
              
              321,862Accrued
                  Expenses
              
              
              38,532Accrued
                  Interest - Convertible Notes
              
              
              923,382Non-Convertible
                  Notes Payable
              
              
              50,000Current
                  Portion of Convertible Notes Payable, Net of Debt Discount of
                  $452,687
              
              
              2,051,023Derivative
                  Liability
              
              
              2,847,416**Total
                  Current Liabilities**
              
              
              6,757,719**CONVERTIBLE
                  NOTES PAYABLE, Net of****Debt
                  Discount of $479,842**
              
              
              3,412,158**STOCKHOLDERS'
                  DEFICIT:**Common
                    Stock, $0.01 Par Value, 500,000,000 Shares Authorized,52,658,426 Shares Issued and Outstanding
              
              
              526,585Paid-in
                  Capital
              
              
              14,741,521Accumulated
                  Deficit
              
              
              (24,668,380
              )**Total
                  Stockholders' Deficit**
              
              
              (9,400,274
              )**TOTAL
                  LIABILITIES & STOCKHOLDERS' DEFICIT**
              
              $
              769,603
  See
        Notes
        to Financial Statements
 2
 **PERFORMANCE
        HEALTH TECHNOLOGIES, INC.**
 **STATEMENTS
        OF OPERATIONS**
 **(UNAUDITED)**
   **For
                  the Three Months Ended September 30,**
              
              
              **For
                  the Nine Months Ended September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****SALES,
                  NET**
              
              $
              —
              
              
              $
              914
              
              
              $
              589
              
              
              $
              4,849**COST
                  OF SALES**
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              500**GROSS
                  PROFIT**
              
              
              —
              
              
              
              914
              
              
              
              589
              
              
              
              4,349**OPERATING
                  EXPENSES:**General
                  and Administrative
              
              
              604,867
              
              
              
              498,352
              
              
              
              2,383,354
              
              
              
              897,239Sales
                  and Marketing
              
              
              60,420
              
              
              
              42,776
              
              
              
              115,197
              
              
              
              111,170Research
                  and Development
              
              
              15,759
              
              
              
              —
              
              
              
              67,509
              
              
              
              70,039**TOTAL
                  OPERATING EXPENSES**
              
              
              681,046
              
              
              
              541,128
              
              
              
              2,566,060
              
              
              
              1,078,448**LOSS
                  FROM OPERATIONS**
              
              
              (681,046
              )
              
              
              (540,214
              )
              
              
              (2,565,471
              )
              
              
              (1,074,099
              )**OTHER
                  INCOME (EXPENSES):**Interest
                  Income
              
              
              12
              
              
              
              4
              
              
              
              27
              
              
              
              18Interest
                  Expense
              
              
              (453,202
              )
              
              
              (759,563
              )
              
              
              (1,980,256
              )
              
              
              (2,007,569
              )Amortization
                  - Debt Issuance Costs
              
              
              (76,774
              )
              
              
              (159,850
              )
              
              
              (298,654
              )
              
              
              (468,295
              )Gain
                  (Loss) on Derivative Liability
              
              
              122,770
              
              
              
              51,478
              
              
              
              579,554
              
              
              
              354,784**TOTAL
                  OTHER INCOME (EXPENSES)**
              
              
              (407,194
              )
              
              
              (867,931
              )
              
              
              (1,699,329
              )
              
              
              (2,121,062
              )**LOSS
                  BEFORE PROVISION FOR TAXES**
              
              
              (1,088,240
              )
              
              
              (1,408,145
              )
              
              
              (4,264,800
              )
              
              
              (3,195,161
              )**PROVISION
                  FOR TAXES**
              
              
              (986
              )
              
              
              —
              
              
              
              (2,587
              )
              
              
              (800
              )**NET
                  LOSS**
              
              $
              (1,089,226
              )
              
              $
              (1,408,145
              )
              
              $
              (4,267,387
              )
              
              $
              (3,195,961
              )**NET
                  LOSS PER COMMON SHARE - BASIC  AND
                  DILUTED**
              
              $
              (0.02
              )
              
              $
              (0.03
              )
              
              $
              (0.09
              )
              
              $
              (0.08
              )**Weighted
                  Average Number of Shares**
              
              
              48,649,764
              
              
              
              42,070,131
              
              
              
              48,544,918
              
              
              
              40,063,297
   See
        Notes
        to Financial Statements
 3
 **PERFORMANCE
        HEALTH TECHNOLOGIES, INC.**
 **STATEMENTS
        OF CASH FLOWS**
 **(UNAUDITED)**
 
 **For
                  the Nine Months Ended September 30,****2007**
              
              
              **2006****Cash
                  flows from operating activities**Net
                  loss
              
              $
              (4,267,387
              )
              
              $
              (3,195,961
              )**Adjustments
                    to reconcile net loss to net cash**used by operating
                    activities:Non
                  cash interest expense
              
              
              1,605,718
              
              
              
              1,679,253Non
                  cash consulting expense
              
              
              299,364
              
              
              
              220,800Non
                  cash stock based compensation
              
              
              658,202
              
              
              
              104,749Depreciation
                  and amortization
              
              
              304,498
              
              
              
              478,436Gain
                  on derivative liability
              
              
              (579,554
              )
              
              
              (354,784
              )(Increase)
                  decrease in accounts receivable
              
              
              —
              
              
              
              830(Increase)
                  decrease in inventories
              
              
              (27,544
              )
              
              
              —(Increase)
                  decrease in other assets
              
              
              3,271
              
              
              
              (4,544
              )(Increase)
                  decrease in prepaid expenses
              
              
              (197,501
              )
              
              
              (25,370
              )(Increase)
                  decrease in deferred offering costs
              
              
              333,704
              
              
              
              (98,084
              )Increase
                  (decrease) in accounts payable
              
              
              333,946
              
              
              
              8,442Increase
                  (decrease) in accrued liabilities
              
              
              79,480
              
              
              
              103,047Increase
                  (decrease) in interest payable
              
              
              333,099
              
              
              
              320,612Total
                  adjustments
              
              
              3,146,683
              
              
              
              2,433,387Net
                  cash provided (used) by operating activities
              
              
              (1,120,704
              )
              
              
              (762,574
              )**Cash
                  flows from investing activities:**Cash
                  payments for the purchase of equipment
              
              
              (2,940
              )
              
              
              (5,905
              )Net
                  cash (used) by investing activities
              
              
              (2,940
              )
              
              
              (5,905
              )**Cash
                  flows from financing activities:**Net
                  proceeds from issuance of convertible notes
              
              
              1,058,641
              
              
              
              745,750Principal
                  payments on short term notes
              
              
              —
              
              
              
              (50,000
              )Net
                  proceeds from short term notes
              
              
              —
              
              
              
              50,000Net
                  cash provided by financing activities
              
              
              1,058,641
              
              
              
              745,750**Net
                  increase (decrease) in cash and equivalents**
              
              
              (65,003
              )
              
              
              (22,729
              )**Cash
                  and equivalents, beginning of period**
              
              
              206,725
              
              
              
              151,459**Cash
                  and equivalents, end of period**
              
              $
              141,722
              
              
              $
              128,730**Supplemental
                  disclosures of cash flow information:****Cash
                  paid during the year for:**Interest
                  expense
              
              $
              37,248
              
              
              $
              7,705Income
                  tax
              
              $
              2,587
              
              
              $
              800
   See
        Notes
        to Financial Statements
 4
 **PERFORMANCE
        HEALTH TECHNOLOGIES, INC.**
  **NOTES
        TO FINANCIAL STATEMENTS**
  **Note
        1 – Summary of Significant Accounting Policies:**
 
 **Basis
        of Presentation**
 The
        accompanying unaudited consolidated financial statements of Performance Health
        Technologies, Inc. (“PHT” or the “Company”) have been prepared in accordance
        with generally accepted accounting principles for interim financial information
        and the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
        Accordingly, they do not include all information and footnotes required by
        general accounting principles for complete financial statements. In the opinion
        of management, all adjustments (consisting of normal recurring accruals)
        considered necessary in order to make the interim financial statements not
        misleading have been included. Results for the three and nine months ended
        September 30, 2007 are not necessarily indicative of the results that may
        be
        expected for the year ending December 31, 2007. These interim consolidated
        financial statements should be read in conjunction with the consolidated
        financial statements and footnotes thereto of the Company and management’s
        discussion and analysis of financial condition and results of operations
        included in the registration statement on Form 10-SB.
 
 **Organization**
 Performance
        Health Technologies, Inc. (“PHT,” the “Company,” “we” or “us”) incorporated on
        June 15, 1998 in the state of Delaware. PHT develops and markets computer-based
        rehabilitation and health maintenance products. The
        Company is
        based in Trenton, NJ.
 
 On
        July
        13, 2007, the Company became a reporting company under the Securities Exchange
        Act of 1934.
 In
        October 2007, a NASD member firm filed a Form 211 Application with the NASD
        pursuant to SEC Rule 15c 2-11 on behalf of the Company for the purpose of
        obtaining an OTC Bulletin Board listing of the Company’s Common Stock. The NASD
        responded to the October filing with a request for additional information
        which
        the Company is in the process of compiling.
 
 **Revenue
        and Cost Recognition**
 Revenue
        is recognized as services are rendered or products are delivered, the price
        to
        the buyer is fixed and determinable, and collectibility is reasonably
        assured.
 
 **Income
        Taxes**
 Income
        taxes are provided for the tax effects of transactions reported in the financial
        statements and consist of taxes currently due plus deferred taxes. Deferred
        taxes are recognized for differences between the bases of assets and liabilities
        for financial statement and income tax purposes. The differences relate
        primarily to depreciable and amortizable assets (use of different depreciation
        and amortization methods and lives for financial statement and income tax
        purposes) and allowance for doubtful receivables (deductible for financial
        statement purposes but not for income tax purposes). The deferred tax assets
        and
        liabilities represent the future tax return consequences of those differences,
        which will be deductible or taxable when the assets and liabilities are
        recovered or settled. Deferred taxes also are recognized for operating losses
        and tax credits that are available to offset future taxable income.
 
 **Use
        of Estimates**
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and the disclosure of contingent assets and liabilities at the
        date
        of the financial statements, as well as reported amounts of revenues and
        expenses during the reporting period.  Actual results could differ
        from those estimates.
   5
 **Fair
        Value of Financial Instruments**
 Fair
        value estimates, assumptions and methods used to estimate fair value of the
        Company’s financial instruments are made in accordance with the requirements of
        SFAS No. 107, “Disclosure about Fair Value of Financial
        Instruments.”  The Company has used available information to derive
        its estimates.  However, because these estimates are made as of a
        specific point in time, they are not necessarily indicative of amounts the
        Company could realize currently.  The use of different assumptions or
        estimating methods may have a material effect on the estimated fair value
        amounts.  The Company estimates that there are no material variations
        between fair value and book value of our financial assets or liabilities
        as of
        September 30, 2007.  The carrying amounts of cash and cash
        equivalents, accounts payable, accrued expenses and short-term notes payable
        approximate fair value due to the short-term nature of the
        instruments.  Long-term liabilities are comprised of the convertible
        notes which approximate fair value based on borrowing rates available to
        the
        Company.
 
 **Property
        and Equipment**
 Property
        and equipment is stated at cost. Depreciation is provided utilizing both
        the
        straight-line and accelerated methods over the estimated useful lives of
        the
        assets as follows:
 
 Equipment
                  & Computers
              3-5
                  years
 
 **Long
        Lived Assets**
 In
        accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets,” the Company records impairment losses on long-lived assets
        used in operations when indicators of impairment are present and the
        undiscounted cash flows estimated to be generated by those assets are less
        than
        the assets’ carrying amounts.  SFAS No. 144 also addresses the
        accounting for long-lived assets that are expected to be disposed
        of.
 
 **Inventory**
 Inventory
        is stated at the lower of cost or market using the first-in, first-out (FIFO)
        valuation method and consists primarily of finished goods.
 
 **Cash
        and Cash Equivalents**
 For
        purposes of the Statement of Cash Flows, all highly liquid investments with
        a
        maturity of three months or less are included in cash equivalents. As of
        September 30, 2007, cash and cash equivalents included $137,236 of cash held
        in
        commercial banks, petty cash fund of $250, and $4,236 of money market
        securities.
 
 **Advertising**
 The
        Company expenses advertising costs as they are incurred. Advertising expense
        for
        the three and nine months ended September 30, 2007 amounted to $3,004 and
        $11,471, respectively. Advertising expense for the three and nine months
        ended
        September 30, 2006 amounted to $8,703 and $20,369, respectively.
 
 **Debt
        Issuance Costs**
 Debt
        Issuance Costs are amortized using the straight-line method over the term
        of the
        notes.
 
 **Research
        and Development Costs**
 Expenses
        for research and development are charged to expense when incurred. The total
        amount of research and development expenses incurred during the three and
        nine
        months ended September 30, 2007 amounted to $15,759 and $67,509, respectively.
        The total amount of research and development expenses incurred for the three
        and
        nine months ended September 30, 2006 amounted to $0 and $70,039,
        respectively.
 
 6
 **Employee
        Stock Options**
 In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share Based
        Payment”.  SFAS No. 123R is a revision of SFAS No. 123, “Accounting
        for Stock Based Compensation”, and supersedes APB 25.  Among other
        items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method
        of
        accounting, and requires companies to recognize the cost of employee services
        received in exchange for awards of equity instruments, based on the grant
        date
        fair value of those awards, in the financial statements.  On January
        1, 2006, the Company adopted SFAS 123R.  The provisions of SFAS 123R
        became effective the first annual reporting period beginning after December
        15,
        2005. The Company adopted the requirements of SFAS 123R using the “modified
        prospective” method.  Under the “modified prospective” method,
        compensation cost is recognized in the financial statements beginning with
        the
        effective date, based on the requirements of SFAS 123R for all share-based
        payments granted after that date, and based on the requirements of SFAS 123
        for
        all vested awards granted prior to the effective date of SFAS 123R, and based
        on
        the requirements of SFAS 123R for all unvested awards granted prior to the
        effective date of SFAS 123R.
 
 Beginning
        in the 2006 calendar year, with the adoption of SFAS 123R, the Company included
        stock-based compensation in general and administrative for the cost of stock
        options.  Stock based compensation expense for the three and nine
        months ended September 30, 2007 was $264,931 and $658,202, respectively.
        Stock
        based compensation expense for the three and nine months ended September
        30,
        2006 was $50,055 and $104,749, respectively.
 
 No
        stock
        options were exercised during the three and nine months ended September 30,
        2007.
 
 **Estimating
        the Fair Market Value of our Common Stock**
 The
        fair
        market value of our common stock is a significant estimate used in determining
        the value of our various equity related instruments (options, warrants,
        conversion features, etc.). In determining the fair market value of our stock
        we
        consider such things as the most recent equity transaction, changes in the
        Company’s financial position, progressions in product development and the
        effects of dilutive debt conversions.
 
 **Deferred
        Offering Costs**
 Amounts
        paid or accrued for costs associated with an anticipated public offering
        will be
        expensed and not recorded as a reduction of the net proceeds, if the offering
        is
        not consummated. Upon successful completion of such an offering, these expenses
        will be recorded as a reduction of the net proceeds.
 
 At
        September 30, 2007, the Company had net deferred offering costs of
        $0.
 
 **Recent
        Accounting Pronouncements**
 In
        March
        2006, FASB issued FASB 156, “Accounting for Servicing of Financial Assets – An
        amendment of FASB No. 140.”  FASB 156 requires the recognition of a
        servicing asset or servicing liability under certain circumstances when an
        obligation to service a financial asset by entering into a servicing
        contract.  FASB 156 also requires all separately recognized servicing
        assets and servicing liabilities to be initially measured at fair value
        utilizing the amortization method or fair market value method.  FASB
        156 is effective at the beginning of the first fiscal year that begins after
        September 15, 2006.  FASB 156 did not have a material impact on the
        Company’s financial statements.
 
 In
        July
        2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise’s financial statements. This Interpretation prescribes a recognition
        threshold and measurement attribute for the financial statement recognition
        and
        measurement of a tax position taken or expected to be taken in a tax return.
        Specifically, FIN 48 requires the recognition in financial statements of
        the
        impact of a tax position, if that position is more likely than not of being
        sustained
   7
 on
        audit,
        based on the technical merits of the position. Additionally, FIN 48 provides
        guidance on the de-recognition of previously recognized deferred tax items,
        classification, accounting for interest and penalties, and accounting in
        interim
        periods related to uncertain tax positions, as well as, requires expanded
        disclosures. FIN 48 is effective for fiscal years beginning after December
        15,
        2006, with the cumulative effect of the change in accounting principle recorded
        as an adjustment to opening retained earnings.  FASB Interpretation
        No. 48 did not have a material impact on the Company’s financial
        statements.
 
 In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
        Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”),
        which provides interpretive guidance on the consideration of the effects
        of
        prior year misstatements in quantifying current year misstatements for the
        purpose of a materiality assessment. SAB 108 is effective for us as of December
        31, 2007.  SAB 108 is not expected to have a material impact on the
        Company’s financial statements.
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (“SFAS
        157”). SFAS 157 defines fair value and establishes a framework for measuring
        fair value in accordance with generally accepted accounting principles. This
        Statement also applies to other accounting pronouncements that require or
        permit
        a fair value measure. As defined by this Statement, the fair value of an
        Asset
        or Liability would be based on an “exit price” basis rather than an “entry
        price” basis. Additionally, the fair value should be market-based and not an
        entity-based measurement. SFAS 157 is effective for fiscal years beginning
        after
        November 15, 2007.  SFAS 157 is not expected to have a material impact
        on the Company’s financial statements.
 
 In
        October 2006, the FASB issued FSP No. FAS 123(R)-5, “Amendment of FASB Staff
        Position FAS 123(R)-1”. This FSP concluded that for instruments that were
        originally issued as employee compensation and then modified, and for which
        such
        modification is made to the terms of the instrument solely to reflect an
        equity
        restructuring that occurs when the holders are no longer employees, no change
        in
        the recognition or the measurement (due to a change in classification) of
        those
        instruments will result if certain conditions are met. The FSP is to be applied
        in the first reporting period beginning after October 10,
        2006.   FAS 123(R)-5 did not have a material impact on the
        Company’s financial statements.
 
 In
        October 2006, the FASB issued FSP No 123(R)-6, “Technical Corrections of FASB
        Statement No. 123(R)”. This FSP made four technical corrections to eliminate
        certain inconsistencies in FASB Statement No. 123(R), Share-Based Payment.
        This
        FSP should be applied in the first reporting period beginning after October
        20,
        2006.  FAS 123(R)-6 did not have a material impact on the Company’s
        financial statements.
 
 In
        December 2006, the FASB issued FSP No. AUG AIR-1, “Accounting for Major
        Maintenance Activities”. This FSP prohibits the use of the accrue-in-advance
        method of accounting for planned major maintenance activities in annual and
        interim financial reporting periods. The guidance in the FSP is applicable
        to
        entities in all industries and must be applied to the first fiscal year
        beginning after December 15, 2006.  FSP No. AUG AIR-1 did not have a
        material impact on the Company’s financial statements.
 
 In
        January 2007, the FASB issued Derivatives Implementation Group Statement
        133
        Implementation Issue No. B40, “Embedded Derivatives: Application of Paragraph
        13(b) to Securitized Interested in Prepayable Financial Assets”. This Issue
        provides a narrow scope exception from paragraph 13(b) of Statement No. 133
        for
        securitized interests that contain only an embedded derivative that is tied
        to
        the prepayment risk of the underlying prepayable financial assets. The guidance
        in this Issue is generally effective upon initial adoption of Statement No.
        155.  Derivatives Implementation Group Statement 133 Implementation
        Issue No. B40 did not have a material impact on the Company’s financial
        statements.
 
 In
        February 2007, the FASB issued SFAS
        No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
        This statement provides companies with an option to report selected financial
        assets and liabilities
  8
 at
        fair value. Generally accepted
        accounting principles have required different measurement attributes for
        different assets and liabilities that can create artificial volatility in
        earnings. The Standard’s objective is to reduce both complexity in accounting
        for financial instruments and the volatility in earnings caused by measuring
        related assets and liabilities differently. This Statement is effective as
        of
        the beginning of an entity’s first fiscal year beginning after November 15,
        2007. SFAS 159 is not expected to have a material impact on the Company’s
        financial statements.
 
 **Note
        2 – Property, Plant and Equipment:**
 
 Property,
        plant and equipment as of September 30, 2007 are as follows:
 
 **September
                    30, 2007**Equipment
                    and Computers
                
                $
                50,640Less:
                    Accumulated depreciation
                
                
                (42,869
                )$
                7,771
 Depreciation
        expense charged to income for the three and nine months ended September 30,
        2007
        amounted to $1,754 and $5,844, respectively.
 
 Depreciation
        expense charged to income for the three and nine months ended September 30,
        2006
        amounted to $1,858 and $10,141, respectively.
 
 **Note
        3 – Debt Issuance Costs:**
 
 We
        have
        incurred certain costs related to financing activities since
        inception.  These costs consisted primarily of legal fees, placement
        agent fees, and commissions which are related to the placement of debt
        securities.  Debt issuance costs were paid in the form of
        cash.
 
 Debt
        issuance costs consisted of the following:
  **September
                    30, 2007**2003/2004
                    Private Placement
                
                $
                930,4762005
                    Bridge Loan A
                
                
                200,0482005
                    Bridge Loan B
                
                
                274,1142006
                    Bridge Loans
                
                
                234,3002007
                    Bridge Loans
                
                
                172,311Total
                    Debt Issuance Costs
                
                
                1,811,249Less:  Accumulated
                    Amortization
                
                
                (1,459,271
                )$
                351,978
  In
        conjunction with each of our 2007 and 2006 debt issuances (bridge loans),
        we
        incurred Placement, Marketing and Due Diligence Fees to North Coast Securities
        Corporation totaling approximately 20% of the gross loan amount. In addition,
        most of the issuers were paid an origination fee of 5% of the gross loan
        amount.
        These fees along with any legal fees that were specifically attributable
        to the
        issuances of such loans are included in the issuances stated above.
 
 Amortization
        expense charged to income for the three and nine months ended September 30,
        2007
        amounted to $76,774 and $298,654, respectively.
 
 Amortization
        expense charged to income for the three and nine months ended September 30,
        2006
        amounted to $159,850 and $468,295, respectively.
 
 9
 **Note
        4 –Notes:**
 
 **Convertible
        Notes:**
 
 The
        Company accounts for the value of warrants and the intrinsic value of beneficial
        conversion rights arising from the issuance of convertible debt instruments
        with
        nondetachable conversion rights that are in-the-money at the commitment date
        pursuant to EITF Issue. 98-5, EITF Issue No. 00-19 and EITF Issue No.
        00-27.  Such values are determined by first allocating an appropriate
        portion of the proceeds received from the debt instruments to the warrants
        or
        any other detachable instrument included in the exchange.  The
        intrinsic value of the beneficial conversion rights at the commitment date
        may
        also be recorded as additional paid-in capital and debt discount as of that
        date
        or, if the terms of the debt instrument are contingently adjustable, may
        only be
        recorded if a triggering event occurs and the contingency is
        resolved.  Since the conversion rights associated with the convertible
        notes were initially exercisable into an indeterminable number of common
        shares,
        the Company has determined that under the guidance of EITF 00-19, the Company
        could not conclude that it had sufficient authorized and unissued shares
        to
        net-share settle any warrants or options issued to
        non-employees.  Therefore, as of September 30, 2007, the Company had
        classified the fair value of all warrants and conversion features as a
        derivative liability.
 
 From
        August 15, 2007 through September 30, 2007, the Company sold $333,700 of
        equity
        units (“2007 F Units”) in a private placement.  Each 2007 F Unit
        consists of an unsecured convertible promissory note in the principal amount
        of
        $1,000 (the “2007 F Notes”) and 4,000 warrants (the “Warrants”) to purchase one
        share of Company common stock. The 2007 F Notes bear interest at 10% per
        annum
        and will mature one year from the date of issuance (the “Maturity Date”). The
        2007 F Notes are convertible into shares of Company common stock at a price
        equal to the lesser of (i) $0.75 or (ii) 70% of the average of the closing
        bid
        price for our common stock for the 20 days preceding the Conversion Notice,
        as
        reported by the exchange on which our common stock is then traded but in
        any
        event not less than $0.30 (the “Conversion Price”). The 2007 F Notes may be
        redeemed by the Company, upon ten trading days prior notice, during which
        time
        the Noteholder may convert the 2007 F Notes into Company common
        stock.  If the 2007 F Notes have not been redeemed or converted as of
        the Maturity Date, the principal and interest due thereunder will be paid
        by the
        Company in shares of our common stock valued at the then applicable Conversion
        Price.  The exercise price is $0.75 for 2,000 of the Warrants and
        $1.50 per share for the remaining 2,000 Warrants. The Warrants will be
        exercisable for a period of five years from the date of issuance. The shares
        issuable upon conversion of the Notes and exercise of the Warrants have
        piggyback registration rights.  There is no penalty provision in the
        event we do not register such shares.  The conversion feature and the
        warrants were valued using a Black Scholes Option Pricing Model, utilizing
        the
        following assumptions:  Volatility:  82.0%, Risk-Free Rate:
        4.7%, and Dividend Growth Rate: 0%.  The warrants were detached and
        accounted for as a derivative liability.   The warrants were
        recorded as a discount of $ 136,817 which is being amortized over the life
        of
        the convertible note. As of September 30, 2007, there was $333,700 in principal
        of the 2007 F Notes outstanding
 
 On
        June
        27, 2007, the Company sold $250,000 of equity units (“2007 E Units”) in a
        private placement.  Each 2007 E Unit consists of an unsecured
        convertible promissory note in the principal amount of $1,000 (the “2007 E
        Notes”) and 4,000 warrants (the “Warrants”) to purchase one share of our common
        stock. The 2007 E Notes bear interest at 10% per annum and will mature one
        year
        from the date of issuance (the “Maturity Date”). The 2007 E Notes are
        convertible into shares of our common stock at a price equal to the lesser
        of
        (i) $0.75 or (ii) 70% of the average of the closing bid price for our common
        stock for the 20 days preceding the Conversion Notice, as reported by the
        exchange on which our common stock is then traded but in any event not less
        than
        $0.30 (the “Conversion Price”). The 2007 E Notes may be redeemed by us once the
        Company is a reporting Company under the Exchange Act, upon ten trading days
        prior notice, during which time the Noteholder may convert the 2007 E Notes
        into
        our common stock.  If the 2007 E Notes have not been redeemed or
        converted as of the Maturity Date, the principal and interest due thereunder
        will be paid by us in shares of our common stock valued at the then applicable
        Conversion Price.  The exercise price is $0.75 for
   10
 2,000
        of
        the Warrants and $1.50 per share for the remaining 2,000 Warrants. The Warrants
        will be exercisable for a period of five years from the date of issuance.
        The
        shares issuable upon conversion of the Notes and exercise of the warrants
        have
        piggyback registration rights.  There is no penalty provision in the
        event we do not register such shares.   The conversion feature
        and the stock purchase warrants were valued using a Black Scholes Option
        Pricing
        Model using the following assumptions: Volatility: 82%, Straight Bond Yield:
        5.0%, Risk-free Rate:  4.7% and Dividend Growth Rate: 0. The warrants
        were detached and accounted for as a derivative liability.   The
        warrants were recorded as a discount of $ 102,500 which is being amortized
        over
        the life of the convertible note. As of September 30, 2007, there was $250,000
        in principal of the 2007 E Notes outstanding.
 
 On
        June
        15, 2007, the holders of $300,000 of principal of our non-convertible 2006
        E
        Notes, 2006 F Notes and 2007 B Notes exchanged principal and interest due
        thereunder for $315,000 of equity units (“2007 D Units”) in a private exchange
        transaction.  Each 2007 D Unit consists of an unsecured convertible
        promissory note in the principal amount of $1,000 (the “2007 D Notes”) and 4,000
        warrants (the “Warrants”) to purchase one share of our common stock. The 2007 D
        Notes bear interest at 10% per annum and will mature one year from the date
        of
        issuance (the “Maturity Date”). The 2007 D Notes are convertible into shares of
        our common stock at a price equal to the lesser of (i) $0.75 or (ii) 70%
        of the
        average of the closing bid price for our common stock for the 20 days preceding
        the Conversion Notice, as reported by the exchange on which our common stock
        is
        then traded but in any event not less than $0.30 (the “Conversion Price”). The
        2007 D Notes may be redeemed by us once the Company is a reporting company
        under
        the Exchange Act, upon ten trading days prior notice, during which time the
        Noteholder may convert the 2007 D Notes into our common stock.  If the
        2007 D Notes have not been redeemed or converted as of the Maturity Date,
        the
        principal and interest due thereunder will be paid by us in shares of our
        common
        stock valued at the then applicable Conversion Price.  The exercise
        price is $0.75 for 2,000 of the Warrants and $1.50 per share for the remaining
        2,000 Warrants. The Warrants will be exercisable for a period of five years
        from
        the date of issuance. The shares issuable upon conversion of the Notes and
        exercise of the warrants have piggyback registration rights.  There is
        no penalty provision in the event we do not register such shares. The conversion
        feature and the stock purchase warrants were valued using a Black Scholes
        Option
        Pricing Model using the following assumptions: Volatility: 82.0%, Straight
        Bond
        Yield: 5.0%, Risk-free Rate:  4.7% and Dividend Growth Rate: 0. The
        warrants were detached and accounted for as a derivative
        liability.   The warrants were recorded as a discount of $ 129.2
        thousand which is being amortized over the life of the convertible note.
        There
        are amounts due of less than $1,000 in cash to the exchanging noteholders
        for an
        aggregate $1,693.  As of September 30, 2007, there was $315,000 in
        principal of the 2007 D Notes outstanding.
 
 On
        May 14, 2007, the Company sold
        $300,000 of equity units (the “2007 C Units”) in a private placement. The 2007 C
        Units consist of a 15% convertible note in the principal amount of $300,000
        (the
        "2007 C Note") and 1,500,000 five year warrants to purchase our common stock
        at
        an exercise price of $0.30 (the “2007 C Warrants”). The holder of the 2007 C
        Note may elect to convert the balance of the 2007 C Note into shares of our
        common stock at a price equal to $0.50 per share.  The principal
        balance of the 2007 C Note, along with accrued and unpaid interest, is payable
        July 13, 2007. This note was extended to November 01, 2007. The 2007 C Note
        bears interest at 15% per annum.  Any unpaid amounts of interest are
        payable in cash at maturity. We paid a total of $7,398 in prepaid interest
        to
        the 2007 C Noteholder on the date of closing, representing two months worth
        of
        interest on the 2007 C Note plus a 5% origination fee of $15,000. The 2007
        C
        Note is secured by a security interest in all of the assets of the Company,
        which the investor agreed to subordinate in favor of financing from a bank
        or
        other traditional lending institution. The Warrants will be exercisable for
        a
        period of five years from the date of issuance. The shares issuable upon
        conversion of the Notes and exercise of the warrants have piggyback registration
        rights.  There is no penalty provision in the event we do not register
        such shares.  The conversion feature and the stock purchase warrants
        were valued using a Black Scholes Option Pricing Model using the following
        assumptions: Volatility: 82.0%, Straight Bond Yield: 5.0%, Risk-free
        Rate:  4.7% and Dividend Growth Rate: 0. The warrants were
        detached and
        accounted for as a derivative liability.   The warrants were
        recorded as a discount of $ 243,000 which is
  11
 being
        amortized over the life of the
        convertiblenote. As of
        September 30, 2007, there was $300,000 in principal of the 2007 C Notes
        outstanding.
 
 During
        January of 2007, the Company sold $101,000 of equity units (the "2006 G Units")
        in a private placement in an offshore transaction under Regulation S of the
        Securities Act of 1933. Each 2006 G Unit, with a purchase price of $1,000
        per
        unit, consists of a 10% convertible note in the principal amount of $1,000
        (the
        "10% 2006 G Notes"), 2,000 five year warrants to purchase our common stock
        at an
        exercise price of $0.75 and 2,000 five year warrants to purchase our common
        stock at an exercise price of $1.50. The principal balance of each 10% 2006
        G
        Note, along with accrued and unpaid interest, is payable 120 days after
        issuance.  This note was extended to November 01, 2007. The holders of
        each 10% 2006 G Note may elect to convert the principal balance of the 10%
        2006
        G Notes into shares of our common stock at a price equal to the lesser of
        (i)
        $0.75 or (ii) 70% of the average of the closing bid price for the Company's
        common stock for the 20 days preceding the conversion notice, as reported
        by the
        exchange on which the Company's common stock is then traded, but in any event
        not less than $0.30 (the "Conversion Rate"). This conversion feature was
        recorded as a discount of $13,900 and is being amortized over the life of
        the
        convertible note.   Each 10% 2006 G Note bears interest at 10%
        per annum payable at maturity or at the time of conversion in arrears, in
        cash,
        or at the option of the noteholder in common stock at the conversion rate.
        As of
        the date of this report, there was $250,000 in principal of 10% 2006 G Notes
        outstanding.  The conversion feature and the stock purchase warrants
        were valued using a Black Scholes Option Pricing Model using the following
        assumptions: Volatility: 82.0%, Straight Bond Yield: 5.0%, Risk-free Rate:
        4.7%
        and Dividend Growth Rate: 0. The warrants were detached and accounted for
        as a
        derivative liability. The warrants were recorded as a discount of $53,100
        which
        is being amortized over the life of the convertible note.
 
 On
        December 27, 2006 the Company sold $149,000 of equity units (the "2006 G
        Units")
        in a private placement in an offshore transaction under Regulation S of the
        Securities Act of 1933. Each 2006 G Unit, with a purchase price of $1,000
        per
        unit, consists of a 10% convertible note in the principal amount of $1,000
        (the
        "10% 2006 G Notes"), 2,000 five year warrants to purchase our common stock
        at an
        exercise price of $0.75 and 2,000 five year warrants to purchase our common
        stock at an exercise price of $1.50. The principal balance of each 10% 2006 G
        Note, along with accrued and unpaid interest, is payable 120 days after
        issuance.  This note was extended to November 01, 2007. The holders of
        each 10% 2006 G Note may elect to convert the principal balance of the 10%
        2006
        G Notes into shares of our common stock at a price equal to the lesser of
        (i)
        $0.75 or (ii) 70% of the average of the closing bid price for the Company's
        common stock for the 20 days preceding the conversion notice, as reported
        by the
        exchange on which the Company's common stock is then traded, but in any event
        not less than $0.30 (the "Conversion Rate"). This conversion feature was
        recorded as a discount of $19,400 and is being amortized over the life of
        the
        convertible note.   Each 10% 2006 G Note bears interest at 10%
        per annum payable at maturity or at the time of conversion in arrears, in
        cash,
        or at the option of the noteholder in common stock at the conversion
        rate.  The conversion feature and the stock purchase warrants were
        valued using a Black Scholes Option Pricing Model using the following
        assumptions: Volatility: 93.5%, Straight Bond Yield: 5.0%, Risk-free Rate:
        4.7%
        and Dividend Growth Rate: 0. The warrants were detached and accounted for
        as a
        derivative liability. The warrants were recorded as a discount of $75,100
        which
        is being amortized over the life of the convertible note.
 
 On
        October 13, 2006 the Company sold $250,000 of equity units (the “2006 D Units”)
        in a private placement.  The 2006 D Units consist of a 13% convertible
        note (the “2006 D Notes”) in the principal amount of $250,000 and 625,000 five
        year warrants to purchase our common stock at an exercise price of $.50.
        The
        principal balance of the 2006 D Note, along with accrued and unpaid interest,
        is
        payable on the earlier of (i) 30 days after the effective date of a registration
        statement filed by the Company that includes the warrant shares, or (ii)
        April
        13, 2007.  This note was extended to November 30, 2008. The holder of
        the 2006 D Note may elect to convert the principal balance of the 2006 D
        Note
        into shares of our common stock at a price equal to the lesser of (i) $0.50,
        or
        (ii) 70% of the average of the closing bid price for the Company’s common stock
        for the 20 days preceding the conversion notice, as reported by the exchange
        on
        which the Company’s common stock is then traded (the “Conversion
        Rate”).  This conversion feature was recorded as a
   12
 discount
        of $149,800 and is being amortized over the life of the convertible
        note.   The Note bears interest at 13% per annum payable at
        maturity or at the time of conversion in arrears, in cash, or at the option
        of
        the noteholder in common stock at the conversion rate. The Company paid a
        total
        of $8,125 in prepaid interest to the 2006 D noteholder on the date of closing,
        representing 90 days’ worth of interest on the 2006 D Note.  The 2006
        D noteholder also received $12,500 at the closing as additional
        consideration.  The 2006 D Notes are secured by a security interest in
        all of the assets of the Company, which the investor agreed to subordinate
        in
        favor of financing from a bank or other traditional lending institution.
        The
        conversion feature and the stock purchase warrants were valued using a Black
        Scholes Option Pricing Model using the following assumptions: Volatility:
        93.5%,
        Straight Bond Yield: 5.0%, Risk-free Rate:  4.7% and Dividend Growth
        Rate: 0. The warrants were detached and accounted for as a derivative liability.
        The warrants were recorded as a discount of $98,750 which is being amortized
        over the life of the convertible note.
 
 On
        June
        30, 2006, the Company sold $250,000 of equity units (the “2006 C Units”) in a
        private placement.  Each 2006 C Unit, with a purchase price of $1,000
        per unit consists of a 10% convertible note (the “2006 C Notes”) in the
        principal amount of $1,000 and 6,000 warrants to purchase our common stock.
        The
        principal balance of each 2006 C Note, along with accrued and unpaid interest,
        is payable 6 months after the date of issuance.  This note was
        extended to November 01, 2007. The holder of each 2006 C Note may elect to
        convert the principal balance of the Convertible Note into shares of common
        stock.  The 2006 C Notes are convertible at a price equal to the
        lesser of (i) $0.60 (the “Conversion Price”) or (ii) 70% of the average of the
        closing bid price for the Company’s common stock for the 20 days preceding the
        Conversion Notice, as reported by the exchange on which the Company’s common
        stock is then traded (the “Conversion Rate”).  This conversion feature
        was recorded as a discount of $170,200 and is being amortized over the life
        of
        the convertible note.  The conversion feature and the stock purchase
        warrants were valued using a Black Scholes Option Pricing Model using the
        following assumptions: Volatility:93.5%, Straight Bond Yield: 5.0%, Risk-free
        Rate:  4.7% and Dividend Growth Rate: 0.  The need for
        bifurcation and fair market value will be assessed on each balance sheet
        date
        over the maturity of the note. Each 2006 C Note bears interest at 10% per
        annum
        payable at maturity or at the time of conversion in arrears, in cash, or
        at the
        option of the noteholder in common stock at the conversion rate.
 
 Each
        investor participating in the
        Offering received a Warrant to purchase 6,000 shares of common stock for
        every
        $1,000 invested.  The exercise price of 3,000 of the warrants is $.60
        per share and the exercise price for 3,000 warrants is $1.25 per
        share.  The warrants are exercisable for a period of five years from
        the date of issuance.  The warrants were detached and accounted for as
        a derivative liability.   The warrants were recorded as a
        discount of $201,750 which is being amortized over the life of the convertible
        note.
 
 On
        May
        24, 2006, the Company sold $250,000 of equity units (the “2006 B Units”) in a
        private placement.  Each 2006 B Unit, with a purchase price of $1,000
        per unit consists of a 10% convertible note (the “2006 B Notes”) in the
        principal amount of $1,000 and 6,000 warrants to purchase our common stock.
        The
        principal balance of each 2006 B Note, along with accrued and unpaid interest,
        is payable 6 months after the date of issuance.  This note was
        extended to November 01, 2007. The holder of each 2006 B Note may elect to
        convert the principal balance of the 2006 B Note into shares of common
        stock.  The 2006 B Notes are convertible at a price equal to the
        lesser of (i) $0.50 (the “Conversion Price”) or (ii) 70% of the average of the
        closing bid price for the Company’s common stock for the 20 days preceding the
        Conversion Notice, as reported by the exchange on which the Company’s common
        stock is then traded (the “Conversion Rate”).  This conversion feature
        was recorded as a discount of $175.6 thousand and is being amortized over
        the
        life of the convertible note.  The conversion feature and the stock
        purchase warrants were valued using a Black Scholes Option Pricing Model
        using
        the following assumptions: Volatility:93.5%, Straight Bond Yield: 5.0%,
        Risk-free Rate:  4.7% and Dividend Growth Rate: 0.  The need
        for bifurcation and fair market value will be assessed on each balance sheet
        date over the maturity of the note.   Each 2006 B Note bears
        interest at 10% per annum payable at maturity or at the time of conversion
        in
        arrears, in cash, or at the option of the noteholder in common stock at the
        conversion rate.
 
 13
 Each
        investor participating in the Offering received a Warrant to purchase 6,000
        shares of common stock for every $1,000 invested.  The exercise price
        of 3,000 of the warrants is $.50 per share and the exercise price for 3000
        warrants is $1.00 per share.  The warrants are exercisable for a
        period of five years from the date of issuance.  The warrants were
        detached and accounted for as a derivative liability.   The
        warrants were recorded as a discount of $214,500 which is being amortized
        over
        the life of the convertible note.
 
 On
        May
        15, 2006, the Company sold $250,000 of equity units (the “2006 A Units”) in a
        private placement.  Each 2006 A Unit, with a purchase price of $1,000
        per unit consists of a 10% convertible note (the “2006 A Notes”) in the
        principal amount of $1,000 and 6,000 warrants to purchase our common stock.
        The
        principal balance of each 2006 A Note, along with accrued and unpaid interest,
        is payable 6 months after the date of issuance.  This note was
        extended to November 01, 2007. The holder of each 2006 A Note may elect to
        convert the principal balance of the 2006 A Note into shares of common
        stock.  The 2006 A Notes are convertible at a price equal to the lower
        of (i) 70% of the average closing price of our common stock on the exchange
        on
        which the Company’s stock is trading for the 20 trading days immediately
        preceding the day upon which we receive a conversion notice from the Noteholder
        or (ii) $.30 per share (the “Conversion Rate”).  This conversion
        feature was recorded as a discount of $175,600 and is being amortized over
        the
        life of the convertible note.  The conversion feature and the stock
        purchase warrants were valued using a Black Scholes Option Pricing Model
        using
        the following assumptions: Volatility:93.5%, Straight Bond Yield: 5.0%,
        Risk-free Rate:  4.7% and Dividend Growth Rate: 0.  The need
        for bifurcation and fair market value will be assessed on each balance sheet
        date over the maturity of the note. Each 2006 A Note bears interest at 10%
        per
        annum payable at maturity or at the time of conversion in arrears, in cash,
        or
        at the option of the noteholder in common stock at the conversion
        rate.
 
 Each
        investor participating in the Offering received a Warrant to purchase 6,000
        shares of common stock for every $1,000 invested. The exercise price of the
        warrants is $.50 per share.  The warrants are exercisable for a period
        of five years from the date of issuance. The warrants were detached and
        accounted for as a derivative liability.   The warrants were
        recorded as a discount of $285,000 which is being amortized over the life
        of the
        convertible note.
 
 On
        April
        4, 2006, we sold $50,000 of equity units (the "April 2006 Units") in a private
        placement. Each April 2006 Unit, with a purchase price of $1,000 per unit
        consists of a 15% convertible note (the "15% April 2006 Notes") in the principal
        amount of $1,000 and 3,000 warrants to purchase our common stock. The original
        maturity date of the 15% April 2006 Note has been extended to November 01,
        2007,
        at which time the principal and accrued interest is due. The holder of the
        15%
        April 2006 Note may elect to convert the principal balance of the 15% April
        2006
        Note into shares of our common stock at a price equal to $0.30 per share
        (the
        "Conversion Rate"). Each 15% April 2006 Note bears interest at 15% per annum
        payable at maturity or at the time of conversion in arrears, in cash, or
        at the
        option of the noteholder in common stock (at the Conversion Rate). We paid
        a
        total of $2,466 in prepaid interest to the 15% April 2006 Noteholder on the
        date
        of closing, representing four months worth of interest on the 15% April 2006
        Note. As of June 30, 2007, there were $50,000 in principal of 15% April 2006
        Notes outstanding.  The conversion feature and the stock purchase
        warrants were valued using a Black Scholes Option Pricing Model using the
        following assumptions: Volatility:93.5%, Straight Bond Yield: 5.0%, Risk-free
        Rate:  4.7% and Dividend Growth Rate: 0.  The need for
        bifurcation and fair market value will be assessed on each balance sheet
        date
        over the maturity of the note.
 
 The
        investor received a warrant to purchase a total of 150,000 shares of common
        stock having an exercise price of $0.30 per share. The warrants are exercisable
        for a period of five years from the date of issuance. The warrants were detached
        and accounted for as a derivative liability. The warrants were recorded as
        a
        discount of $24,000 which is being amortized over the life of the convertible
        note.
   14
 A
        convertible note in accordance with the Company’s private placement memorandum
        dated February 24, 2005 of $750,000 is due on the earlier of the first
        anniversary of the closing for the convertible note or the occurrence of
        a
        fundamental change in capital structure.  The convertible note is
        convertible into approximately 3.75 million shares of common stock at an
        effective conversion price equal to 80% of the price of common stock in the
        next
        equity offering conducted by us or, if no such offering occurs, at the rate
        of
        one share per $2.00 converted.  This conversion feature was recorded
        as at a discount of $604,400 and is being amortized over the life of the
        convertible note.  The conversion feature and the stock purchase
        warrants were valued using a Black Scholes Option Pricing Model using the
        following assumptions: volatility:97.6%, Straight Bond Yield: 5.0%, Risk-free
        Rate:  4.7% and Dividend Growth Rate: 0.  The need for
        bifurcation and fair market value will be assessed on each balance sheet
        date
        over the maturity of the note.  The notes are available for conversion
        into approximately 5,000 shares of the Company’s common stock for each $1,000
        note.   The notes are issued at par and pay interest of 10%
        annually.  The interest is payable at the option of the Company, in
        cash, or common stock, or a combination of cash and common stock.  The
        holder may elect at any time after purchase prior to maturity or redemption
        to
        convert the note into the Company’s common stock.  The convertible
        notes are unsecured obligations of the Company. As of September 30, 2007,
        $745,000 of the convertible notes has been converted to common
        stock.
 
 A
        convertible note in accordance with the Company’s private placement memorandum
        dated October 24, 2003 of $4.9 million is due on the earlier of the fifth
        anniversary of the closing for the convertible notes or the occurrence of
        a
        fundamental change in capital structure.  The convertible notes are
        convertible into approximately 19.2 million shares of common stock at $0.25
        per
        share.  The notes are available for conversion into approximately
        4,000 shares of the Company’s common stock for each $1,000
        note.   The notes are issued at par and pay interest of 8.5%
        annually.  The interest is payable at the option of the Company, in
        cash, common stock, or a combination of cash and common stock.  The
        holder may elect at any time after purchase prior to maturity or redemption
        to
        convert the note into the Company’s common stock.  The convertible
        notes are unsecured obligations of the Company. As of September 30, 2007,
        $1,008,000 of the convertible notes has been converted to common
        stock.
 
 In
        connection with the issuance of all of our convertible notes, we granted
        demand
        and piggy-back registration rights with respect to the shares issuable for
        interest or upon conversion of such notes. The registration rights cease
        at the
        time the shares are eligible for sale under Rule 144 of the Securities Act.
        As
        of December 31, 2006, the underlying shares related to the 2003 Convertible
        Notes issued in 2003 and 2004 were eligible for sale under Rule 144 and the
        underlying shares related to all notes issued since January 1, 2005 had
        registration rights.
 
 All
        derivative liabilities are assessed at each balance sheet date and are marked
        to
        market.  At September 30, 2007, the following assumptions were
        utilized using the Black Scholes option pricing model:  Volatility:
        82.0%, Straight Bond Yield: 5.0%, Risk-free Rate:  4.7% and Dividend
        Growth Rate: 0.
 
 **Non-Convertible
        Notes:**
 
 On
        March
        27, 2007, the Company sold $50,000 of non-convertible 13% promissory notes
        (the
        "13% 2007 A Notes") to a lender in a private transaction. The principal balance
        of the 13% 2007 A Notes, along with accrued and unpaid interest, is payable
        on
        September 1, 2007.  This note was extended to March 01, 2008. The 13%
        2007 A Notes bear interest at 13% per annum payable in cash at maturity in
        arrears.  We paid a total of $1,625 in prepaid interest to the 13%
        2007 A Noteholder on the date of closing, representing three months worth
        of
        interest on the 13% 2007 A Notes plus a 5% origination fee of
        $2,500.
 
 15
 Maturities
        of debt are as follows:
  For
                    the year ended December 31, 2007
                
                $
                1,355,010For
                    the year ended December 31, 2008
                
                
                2,645,700For
                    the year ended December 31, 2009
                
                
                2,445,000Total
                
                $
                6,445,710
   The
        derivative liability consists of the following:
 
 **Date**
              
              **Description**
              
              **Balance**12/31/06
              
              Conversion
                  option 2006 Bridge Loans at fair market value
              
              $
              602,34112/31/06
              
              Warrant
                  liability on 2005 Bridge Loans at fair market value
              
              
              331,12212/31/06
              
              Warrant
                  liability on 2006 Bridge Loans issuance at fair market
                  value
              
              
              854,62112/31/06
              
              Warrant
                  liability on 2006 advisory contract at fair market value
              
              
              712,0003/31/07
              
              Conversion
                  option on 2006  Bridge Loans issued during 2007
              
              
              13,9203/31/07
              
              Warrant
                  liability on 2006 Bridge Loans issued during 2007
              
              
              53,1266/30/07
              
              Conversion
                  option on 2007  Bridge Loans
              
              
              122,1756/30/07
              
              Warrant
                  liability on 2007 Bridge Loans
              
              
              474,6509/30/07
              
              Conversion
                  option on 2007  Bridge Loans
              
              
              71,8089/30/07
              
              Warrant
                  liability on 2007 Bridge Loans
              
              
              156,4579/30/07
              
              Warrant
                  liability on 2007 advisory contract at fair market value
              
              
              34,7509/30/07
              
              Fair
                  market value adjustment on conversion options
              
              
              (120,206
              )9/30/07
              
              Fair
                  market value adjustment on the 2006 advisory contract
              
              
              (104,000
              )9/30/07
              
              Fair
                  market value adjustment on warrant liabilities
              
              
              (354,598
              )9/30/07
              
              Fair
                  market value adjustment on the 2007 advisory contract
              
              
              (750
              )Total
              
              
              
              $
              2,847,416
 
  **Note
        5 – Accrued Salaries and Interest:**
 
 Accrued
        salaries and interest represents salaries due to officers of the Company.
        During
        the three and nine months ended September 30, 2007 the Company accrued salaries
        in the amounts of $21,875 and $65,625, respectively, and accrued interest
        on the
        salaries of $6,199 and $17,400, respectively. At September 30, 2007 the officers
        were due $280,305 in accrued salaries along with interest on the accrued
        salaries of $41,557. Interest is accrued at a rate of 8.500% per
        annum.
 
 **Note
        6 – Provision for Income Taxes:**
 
 As
        of
        September 30, 2007, non-current deferred tax liabilities for taxable temporary
        differences total $0. Non-current deferred tax assets recognized for deductible
        temporary differences total $8,046,389.
 
 16
 The
        Company’s deferred tax assets and liabilities consist of the following at
        September 30, 2007:
  Deferred
                    tax assets:Net
                    operating loss carryforwards
                
                $
                7,841,550Excess
                    of tax basis over financial statement of intangible assets
                
                
                203,759Excess
                    of tax basis over financial statement of property, plant and
                    equipment
                
                
                1,080Valuation
                    allowance for deferred tax assets
                
                
                (8,046,389
                )$
                0
 A
        valuation allowance has been established to eliminate the net deferred tax
        benefit since it is uncertain if the tax benefits will be realized. This
        allowance was increased by $1,175,697 to $6,361,005 at December 31, 2006,
        increased by $811,416 to $7,172,421 at March 31, 2007, increased by $404,118
        to
        $7,576,539 at June 30, 2007 and increased by $469,850 to $8,046,389 at September
        30, 2007.
 
 Income
        tax expense for the nine months ended September 30, 2007 and 2006 consisted
        of
        the following:
 ****
 **September
                    30, 2007**
                
                
                **September
                    30, 2006**Current
                    State Tax
                
                $
                2,587
                
                
                $
                800
 As
        of
        September 30, 2007, the Company had net operating loss carryforwards of
        $19,163,745 that can be deducted against future taxable income. These tax
        carryforward amounts expire as follows:
  **Year
                      Ending**
                    **December
                      31,**12/31/19
                  
                  $
                  1,101,28212/31/20
                  
                  
                  2,862,19112/31/21
                  
                  
                  1,032,22612/31/22
                  
                  
                  2,036,11412/31/23
                  
                  
                  2,099,39412/31/24
                  
                  
                  2,675,93112/31/25
                  
                  
                  2,723,50912/31/26
                  
                  
                  4,633,098$
                  19,163,745
   **Note
        7 – Concentration of Credit Risk:**
 
 The
        Company maintains its cash balances in two financial institutions.  As
        of September 30, 2007, the Company’s cash and cash equivalents exceeded
        federally insured limits by $23,090.
 
 **Note
        8 – Cash Flow Disclosures:**
 Non-cash
        investing and financing transactions for the nine months ended September
        30,
        2007 included the following:
 
 Convertible
        notes along with accrued interest totaling $1,041,897 were converted into
        common
        stock.
 
 Debt
        issuance costs paid in the form of stock warrants in the amount of $19,640
        were
        valued at fair market value using a Black Scholes pricing model.
 
 17
 On
        June
        15, 2007, the holders of $300,000 of principal of our non-convertible 2006
        E
        Notes, 2006 F Notes and 2007 B Notes exchanged principal and interest due
        thereunder for $315,000 of equity units (“2007 D Units”) in a private exchange
        transaction.
 
 Non-cash
        investing and financing transactions for the nine months ended September
        30,
        2006 included the following:
 
 Convertible
        notes along with accrued interest totaling $1,930,240 were converted into
        common
        stock.
 
 The
        Company recorded a charge to stock issuance costs in the amount of $510,000
        in
        exchange for common stock.
 
 **Note
        9 – 401K and Profit Sharing Plan:**
 
 The
        Company maintains a 401K and Profit Sharing Plan.  Contributions to
        the Profit Sharing Plan are at management’s discretion.  For the three
        and nine months ended September 30, 2007, management has committed to contribute
        $0 and $0, respectively to the plan. For the three and nine months ended
        September 30, 2006, management has committed to contribute $0 and $0,
        respectively to the plan.
 
 Matching
        corporate contributions to the 401K plan are at management’s discretion and only
        apply to those employees who choose to participate.  Matching
        contributions to the 401K plan amounted to $0 and $0, respectively for the
        three
        and nine months ended September 30, 2007. Matching contributions to the 401K
        plan amounted to $0 and $0, respectively for the three and nine months ended
        September 30, 2006.
 
 **Note
        10 – Related Party Transactions**:
 
 **Consulting**
 In
        June
        2006, the Company renegotiated its consulting agreement with Phoenix Ventures,
        a
        related party. The agreement calls for monthly consulting fees of $6,000
        along
        with 2,500 stock options (options starting January 01, 2006) granted per
        month.
        Consulting fees of $18,000 and $54,000 relating to this agreement were incurred
        during the three and nine months ended September 30, 2007, respectively along
        with 22,500 stock options granted. Consulting fees of $18,000 and $38,000
        relating to this agreement were incurred during the three and nine months
        ended
        September 30, 2006 respectively along with 22,500 stock options
        granted.  On September 12, 2007 Phoenix Ventures was granted an
        additional 12,000 stock options.
 
 In
        June
        2006, the Company entered into a services agreement with Bartolomei Pucciarelli,
        LLC, a related party.  Fees will be paid to Bartolomei Pucciarelli,
        LLC on an hourly basis for financial reporting and related
        services.  The Company incurred fees of approximately $172,107
        relating to this agreement from January 1, 2007 through September 30, 2007.
        On
        September 17, 2007 Bartolomei Pucciarelli, LLC was granted 100,000 stock
        options
        for services rendered.
 
 **Note
        11 – Stock Option Plan:**
 
 As
        of
        July 12, 2007, the Company’s 2006 Stock Incentive Plan, as amended (the “2006
        Plan”) was approved by the holders of a majority of the Company’s common stock
        by written consent.  Pursuant to the terms of the 2006 Plan, an
        aggregate of 12 million shares of Company common stock may be awarded to
        individuals under the 2006 Plan.  The 2006 Plan terminates in
        2016.  Notice of the approval of the 2006 Plan by the stockholders was
        sent to all of the stockholders of the Company.
 
 The
        Company issued employee stock options through stock-based compensation
        plans.  Effective January 1, 2006, the Company adopted the fair value
        method of recording stock-based compensation, as defined in
   18
 SFAS
        No.
        123(R) “Stock-Based Payments”, under the modified prospective transition method
        for stock options awarded to employees after the date of adoption and for
        previously issued stock options that were not vested as of January 1, 2006
        which
        were issued under the Company’s stock based compensation plan.  Under
        the modified prospective transition method, the Company is required to recognize
        compensation expense for options granted commencing January 1, 2006 and
        thereafter.  Additionally, the fair value of existing unvested awards
        at the date of adoption is recorded in compensation expense over the remaining
        requisite service period.  Prior to January 1, 2006, the Company
        applied Accounting Principles Board Opinion (APB) No. 25 “Accounting for Stock
        Issued to Employees” and related interpretations in accounting for stock options
        and other stock-based compensation.  APB No. 25 required the use of
        the intrinsic value method, which measured compensation cost as the excess,
        if
        any, of the quoted market price of the stock at the measurement date over
        the
        amount an employee must pay to acquire the stock.
 
 Compensation
        cost recognized for the nine months ended September 30, 2007 was $658,202,
        and
        is the same as that which would have been recognized had the recognition
        provision of SFAS No. 123(R) been applied in previous years.  Results
        for prior periods have not been restated.  The Company recognizes a
        non-employee who sits on the board of directors and is compensated by the
        Company solely for the individual’s role as a director as an employee under SFAS
        123(R).
 
 The
        following assumptions were used in the Black Scholes pricing model for the
        2007
        option issuance:
 
 Fair
                  Market Value
              
              Exercise
                  Price
              
              Maturity
              
              Dividend
                  Yield
              
              Interest
                  Rate
              
              Volatility$0.25
              
              $0.30
              
              10
                  years
              
              -0-
              
              4.7%
              
              82%
 
 
 The
        status of the stock option plan is as follows at September 30,
        2007:
 
 **Number**
              
              
              **Weighted****Of**
              
              
              **Average****Shares**
              
              
              **Exercise****Price**Outstanding
                  at January 1, 2006
              
              
              5,909,836
              
              
              $
              0.25Granted
              
              
              5,820,000
              
              
              $
              0.25Exercised
              
              
              —
              
              
              
              —Canceled
              
              
              524,503
              
              
              
              —Outstanding
                  at December 31, 2006
              
              
              11,205,333
              
              
              $
              0.25Granted
              
              
              1,161,999
              
              
              
              .30Exercised
              
              
              —
              
              
              
              —Canceled
              
              
              —
              
              
              
              —Outstanding
                  at September 30, 2007
              
              
              12,367,332
              
              
              
              .25Exercisable
                  at September 30, 2007
              
              
              7,693,657
              
              
              $
              0.25Exercisable
                  at December 31, 2006
              
              
              6,521,996
              
              
              $
              0.25
 
  **Note
        12 – Stockholders’ Equity:**
 
 On
        July
        13, 2007, the Company filed an Amendment to its Amended and Restated Certificate
        of Incorporation with Secretary of State of Delaware to increase the number
        of
        authorized shares of the Company’s common stock to 500,000,000 shares and
        preferred stock to 100,000,000 shares.
 
 19
 During
        2007, the Company converted $908,000 of the Company’s 2003 convertible debt and
        $133,897 of accrued interest on the 2003 convertible debt into 4,165,074
        shares
        of the Company’s common stock.
 
 On
        December 7, 2006, the Company converted $100,000 of the Company’s 2003
        convertible debt and accrued interest on the 2003 convertible debt into 570,000
        shares of the Company’s common stock.
 
 During
        2006, the Company’s converted $745,000 of the Company’s 2005 A bridge loan
        convertible debt and corresponding accrued interest into 5,121,875 shares
        of the
        Company’s common stock.
 
 During
        2006, the Company converted $957,000 of the Company’s 2005 B bridge loan
        convertible debt and corresponding accrued interest into 5,361,250 shares
        of the
        Company’s common stock.
 
 Accrued
        interest and maturity of the conversion liability on the above three notes
        amounted to $1,113,243. This amount was converted to common stock and is
        included in the shares listed above.
 
 On
        January 23, 2006, the Company entered into a Standby Equity Distribution
        Agreement (SEDA) with YA Global Partners, LP (formerly known as Cornell Capital
        Partners, LP.)(“YA Partners”). Pursuant to the Standby Equity Distribution
        Agreement, the Company may, at its discretion, periodically sell to YA Partners
        shares of common stock for a total purchase price of up to $10.0
        million.  See Note 17 (Subsequent Events) for a description of the
        current status of the SEDA. Upon execution of the Standby Equity Distribution
        Agreement, YA Partners received 2,000,000 shares of the Company’s common stock
        as a commitment fee under the Standby Equity Distribution
        Agreement.  The Company also issued 40,000 shares of the Company’s
        common stock to Newbridge Securities Corporation under a placement agent
        agreement relating to the Standby Equity Distribution
        Agreement.  These shares were accounted for at fair market value and
        were recorded to stock issuance costs in 2006.
 
 The
        stock
        issuance costs referenced above consisted of; $510,000 represented the recording
        of the 2,040,000 shares of common stock issued in conjunction with the Standby
        Equity Distribution Agreement, were legal & consulting fees related to the
        Standby Equity Distribution Agreement and other registration related services.
        Legal services are provided on an hourly basis and the consulting fees were
        paid
        to investment bankers for services related to equity transactions during
        the
        year.
 
 During
        2005, the Company converted $416,476 of accrued interest on the Company’s
        October 23, 2003 private placement into 208,239 shares of the Company’s common
        stock.  The interest was converted at a rate of one share of common
        stock for every two dollars converted in accordance with the private placement
        memorandum.
 
 During
        2005, the Company compensated a director with 66,008 shares of the Company’s
        common stock.  The common stock was valued at fair market value at the
        time of issuance.  As of the date of issuance, the value of the
        Company’s common stock was $1.33.
 
 During
        2005, the Company issued 74,500 shares of the Company’s common stock to outside
        contractors in return for various services to the Company.  These
        shares were valued using a best estimate of the price that would be paid
        in cash
        for similar services rendered.
 
 In
        an
        effort to determine the fair market value of our common stock, which is not
        readily determinable or actively traded, we applied SFAS No. 157 “Fair Value
        Measurements” to derive the historical and the current fair market value of our
        common stock.  SFAS No. 157 states, “This Statement emphasizes that
        fair value is a market-based measurement, not an entity specific
        measurement.  Therefore, fair value measurement should be determined
        based on the assumptions that market participants would use in pricing the
        asset.”
 
 20
 Fair
        market value during 2003/2004 was set at $1.33.  We derived this fair
        market value by analyzing the conversion rate of the 2003/2004 private placement
        agreement.  Offerees were invited to purchase a $1,000 unit, and in
        return, the offering received a conversion rate of 1 share of our common
        stock
        for every $2.00 plus 250 share of our Company’s common stock.  For a
        $1,000 Unit, the offerees potentially receive 750 shares of our Company’s common
        stock.
 
 Fair
        market value during 2006 was set at $.25 as a result of the following
        considerations: As part of the negotiations of the aforementioned Standby
        Equity
        Distribution Agreement, YA Partners was seeking initial compensation in the
        amount of $500,000. YA Partners agreed to accept 2,000,000 shares of our
        common
        stock as such compensation. This transaction resulted in a fair market value
        of
        $.25 per share. The amount of shares issued as compensation was the result
        of an
        arms length negotiation between unrelated parties and this is the only capital
        transaction during the time period under consideration.  Furthermore
        we also considered the fair market value of our common stock in the previous
        issuances, the changes in the Company’s financial position, progressions in
        product development and the effects of dilutive debt conversions in determining
        the fair market value of our stock during 2006.  Accordingly, we
        believe that $.25 is the best indication of fair market value for our stock
        during 2006 and through September 30, 2007.
 
 **Warrants**
 Dawson
        James served as placement agent for the Company in the private placement
        of the
        2007 F Units.  As partial consideration for services rendered as
        placement agent, during 2007 the Company issued Dawson James five years warrants
        to purchase up to 121,235 shares of Company common stock at $0.30 per share,
        expiring throughout 2012.  The warrants were valued using a Black
        Scholes Option Pricing Model, utilizing the following
        assumptions:  Volatility:  82.0%, Risk-Free Rate: 4.7%, and
        Dividend Growth Rate: 0%.
 
 On
        August
        15, 2007, the Company issued Warrants to purchase 250,000 shares of the
        Company’s common stock, $0.01 par value.  The exercise price of the
        warrants is $0.50 per share and the warrants expire August 15, 2012. The
        warrants were valued using a Black Scholes Option Pricing Model, utilizing
        the
        following assumptions:  Volatility:  82.0%, Risk-Free Rate:
        4.7%, and Dividend Growth Rate: 0%.
 
 The
        aforementioned warrants were issued in conjunction with a twelve month
        consulting agreement with Dawson James Securities, Inc. (Dawson James.)
        Accordingly, the cost of these warrants has been recorded as a prepaid expense
        with the appropriate charges to income as time passes. The warrants were
        also
        accounted for as a derivative liability. The warrants were recorded as a
        discount of $34,750 and are being amortized over the life of the consulting
        agreement.  Under this agreement Dawson James is contracted to assist
        the Company with investment banking and public relations services.
 
 On
        July
        1, 2006, the Company issued Warrants to purchase 4,000,000 shares of the
        Company’s common stock, $0.01 par value.  The exercise price of the
        warrants is $0.25 per share and the warrants expire July 1, 2011. The warrants
        were valued using a Black Scholes Option Pricing Model, utilizing the following
        assumptions:  Volatility:  97.6%, Risk-Free Rate: 4.7%, and
        Dividend Growth Rate: 0%.
 
 The
        aforementioned warrants were issued
        in conjunction with a ten month consulting agreement with North Coast Securities
        Corporation (North Coast). Accordingly, the cost of these warrants has been
        recorded as a prepaid expense with the appropriate charges to income as time
        passes. The warrants were also accounted for as a derivative liability. The
        warrants were recorded as a discount of $736,000 and are being amortized
        over
        the life of the consulting agreement.  Under this agreement North
        Coast is contracted to assist the Company with investment banking and public
        relations services.
 
 **Note
        13 - Earnings (Loss) Per Share:**
 
 Basic
        earnings (loss) per share is computed by dividing net income (loss) by the
        weighted-average number of common shares outstanding for the period. Diluted
        earnings (loss) per share is computed giving effect to all
  21
 potential
        dilutive common stock, including options and convertible debentures. For
        all
        periods presented, options and convertible debentures were not included in
        the
        computation of diluted loss per share because the effect would be antidilutive.
        These items could be dilutive in the future.
 
 **Note
        14 – Leasing Arrangements:**
 
 **Colorado
        Facility**
 On
        February 03, 2006, the Company renewed their lease for a period of nine months
        for their facility in Boulder, CO.  The lease required a base rent of
        $3,271.04 per month and monthly common area maintenance charges of $1,099.07
        beginning on May 01, 2006. The term of this lease agreement expired October
        31,
        2006. The total rent paid for the three and nine months ended September 30,
        2007
        was $0 and $0, respectively. The total rent for the three and nine months
        ended
        September 30, 2006 was $13,110 and $39,331.  This lease was not
        renewed.
 
 **Trenton,
        New Jersey  Facility**
 In
        September of 2006, the Company assumed a lease for their facility in Trenton,
        NJ.  The lease requires a base rent of $3,738.46 (increasing to
        $3,897.54 on January 1, 2007) per month along with its proportionate share
        of
        taxes, common area maintenance charges and insurance beginning on September
        01,
        2006. The term of this lease agreement expires December 31, 2007. The total
        rent
        incurred for the three and nine months ended September 30, 2007 was $13,203
        and
        $40,781, respectively.
 
 PHT
        also
        has various equipment leases that are treated as operating leases for financial
        reporting purposes.
 
 **Note
        15 – Officers and Directors:**
 
 In
        February of 2006 Robert Prunetti was elected CEO and President of the
        Company.
 
 **Note
        16 – Commitments, Contingencies and Uncertainties**:
 
 **Going
        Concern**
 As
        shown
        in the accompanying financial statements, the Company incurred a net loss
        of
        $4,267,387 during the nine months ended September 30, 2007, and as of that
        date,
        the Company’s current liabilities exceeded its current assets by $6,352,667.
        Those factors raise substantial doubt about the Company’s ability to continue as
        a going concern. Management of the Company plans to raise additional capital
        through private placement offerings. The ability of the Company to continue
        as a
        going concern is dependent on its ability to raise additional capital through
        private placement offerings. The financial statements do not include any
        adjustments that might be necessary if the Company is unable to continue
        as a
        going concern.
 
 **Note
        17 – Subsequent Events**
 In
          October 2007 the holders of $108,000 in principal of the Company’s 2003
          convertible notes and accrued interest on the 2003 convertible notes converted
          such notes and interest into 491,803 shares of the Company’s common
          stock.
 On
        October 18, 2007 and November 5, 2007, the Company sold $266,300 and $36,000,
        respectively, of equity units (“2007 F Units”) in a private
        placement.  Each 2007 F Unit consists of an unsecured convertible
        promissory note in the principal amount of $1,000 (the “2007 F Notes”) and 4,000
        warrants (the “Warrants”) to purchase one share of Company common stock. The
        2007 F Notes bear interest at 10% per annum and will mature one year from
        the
        date of issuance (the “Maturity Date”). The 2007 F Notes are convertible into
        shares of Company common stock at a price equal to the lesser of (i) $0.75
        or
        (ii) 70% of the average of the closing bid price for our common stock for
        the 20
        days preceding the Conversion Notice, as reported by the exchange on which
        our
        common stock is then traded but in any event not less than $0.30 (the
“Conversion Price”). The 2007 F Notes may be redeemed by the Company, upon ten
        trading days prior notice, during which time the Noteholder may convert the
        2007
        F Notes into Company common stock.  If the 2007 F Notes have not been
        redeemed or converted as of the Maturity Date, the principal and interest
        due
        thereunder will be paid by the Company in shares of our common stock valued
        at
        the then applicable Conversion Price.  The
   22
 exercise
        price is $0.75 for 2,000 of the Warrants and $1.50 per share for the remaining
        2,000 Warrants. The Warrants will be exercisable for a period of five years
        from
        the date of issuance. The shares issuable upon conversion of the Notes and
        exercise of the Warrants have piggyback registration rights.  There is
        no penalty provision in the event the Company does not register such
        shares.
 
 Dawson
        James served as placement agent for the Company in the private placement
        of the
        2007 F Units sold on October 18, 2007.  As partial consideration for
        services rendered as placement agent the Company issued to Dawson James on
        October 18, 2007 five years warrants to purchase up to 88,767 shares of Company
        common stock at $0.30 per share, having an expiration date of October 18,
        2012.
 
 North
        Coast Securities Corporation served as placement agent for the Company in
        the
        private placement of the 2007 F Units sold on November 5, 2007.  As
        partial consideration for services rendered as placement agent the Company
        issued to North Coast November 5, 2007 five years warrants to purchase on
        up to
        12,000 shares of Company common stock at $0.30 per share, having an expiration
        date of November 5, 2012.
 
 On
        November 14, 2007, the Company entered into a Termination Agreement with
        YA
        Global (the “SEDA Termination Agreement”) pursuant to which the parties
        terminated the standby equity distribution agreement, the registration rights
        agreement and the placement agent agreement, each dated as of January 23,
        2006.
        Pursuant to the SEDA Termination Agreement, YA Global will retain the 2,000,000
        shares of Company Common Stock issued in January 2006 (See Note 12) and
        Newbridge Securities Corporation will retain the 40,000 shares of Company
        Common
        Stock issued in January 2006 (See Note 12).  No shares were issued
        under the standby equity distribution agreement.
 
 The
        Company’s currently pursuing other financing in lieu of the standby equity
        distribution agreement financing.
   **ITEM
                  2.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATION**
  Information
        included in this Form 10-QSB may contain forward-looking statements. This
        information may involve known and unknown risks, uncertainties and other
        factors
        which may cause our actual results, performance or achievements to be materially
        different from the future results, performance or achievements expressed
        or
        implied by any forward-looking statements. Forward-looking statements, which
        involve assumptions and describe our future plans, strategies and expectations,
        are generally identifiable by use of the words “may,” “will,” “should,”
“expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the
        negative of these words or other variations on these words or comparable
        terminology.
 
 This
        Form
        10-QSB contains forward-looking statements, including statements regarding,
        among other things, (a) our projected sales and profitability, (b) our growth
        strategies, (c) anticipated trends in our industry, (d) our future financing
        plans and (e) our anticipated needs for working capital.  Actual
        events or results may differ materially from those discussed in forward-looking
        statements as a result of various factors, including, without limitation,
        the
        risks outlined under “Risk Factors” and matters described in this Form 10-QSB
        generally. In light of these risks and uncertainties, there can be no assurance
        that the forward-looking statements contained in this Form 10-QSB will in
        fact
        occur.
 
 The
        following discussion and analysis should be read together with the financial
        statements and the accompanying notes thereto included elsewhere in this
        Form
        10-QSB.
   
 23
 **GENERAL**
 
 We
        develop and market performance evaluation and rehabilitation products that
        monitor and guide exercise and give real-time motivational feedback. Over
        the
        past nine years, our medical and computer experts have brought together advanced
        software and medical technology in order to create MotionTrack, our versatile
        proprietary technology platform. Our goal is to transform the way individuals
        exercise, train, and rehab from injuries by creating innovative products
        using
        MotionTrack that merges technology with exercise for more accurate and
        controlled therapy, injury recovery, and personal training and
        fitness.
 
 Our
        products have been tested, accepted, and endorsed by leaders in the medical,
        rehabilitation and athletic communities. Our SportsRAC Shoulder, Knee and
        Forearm systems are installed in physical therapy clinics, and university
        athletic departments and with professional sports teams throughout the United
        States and Canada.
 
 In
        January 2005, we released Core:Tx for Physical Therapists (Core:Tx PT), the
        first product to incorporate MotionTrack technology, a wireless motion and
        position sensing system. This system is the culmination of several years
        of
        development effort, including three new patent applications. Core:Tx for
        Professionals, an improved version of Core:Tx PT is currently being marketed
        to
        the clinical physical therapy market. An enhanced and targeted version of
        the
        product for stroke survivors was released directly to consumers in the fourth
        quarter of 2005. Since the launch of the Core:Tx for Stroke Survivors product
        and the marketing of Core:Tx for Professionals, we have been evaluating other
        rehabilitation markets, as well as potential new market segments and plan
        to
        begin an intensive effort of marketing Core:Tx products to athletes, health
        and
        fitness enthusiasts, fitness centers, rehabilitation patients and rehabilitation
        clinics. We expect to use a broad range of distribution networks designed
        to
        target specific categories of sports at differing skill levels and differing
        rehabilitation needs.
 
 The
        inherent versatility designed into the MotionTrack technology affords the
        opportunity to explore numerous additional markets, including personal fitness,
        athletic training, and occupational health and safety. Accordingly, we intend
        to
        develop and market additional PC-based products that will function with an
        upgraded MotionTrack technology system and communicate with a higher performing
        Core:Tx device. This new family of Core:Tx products will focus on training
        for
        the health & fitness consumer market, designed to be especially easy to
        understand and use, and will be manufactured at a lower price point. These
        products will be Internet ready, and include the ability to collect and
        distribute human motion data among multiple users.
 
 Future
        development and successful brand identity will be linked to our ability to
        create high-performance exercise evaluation and monitoring products based
        on our
        MotionTrack technology platform. We intend to produce and market rehabilitation
        and fitness aids for both a clinical (rehabilitation or therapy) setting
        as well
        as for use in the home and at the gym. Additionally, we seek to license and
        distribute our MotionTrack technology in pre-existing fitness and rehabilitation
        products that currently lack the ability to track and monitor motion and
        position in real-time.






24
 **RESULTS
        OF OPERATIONS**
 
 **NINE
        MONTHS ENDED SEPTEMBER 30, 2007**
 **COMPARED
        TO NINE MONTHS ENDED SEPTEMBER 30, 2006**
 
 **Revenues**during the nine months ended on September 30, 2007 of $589 decreased
        by
        $4,260, or 88%, from $4,849 in the corresponding nine months ended September
        30,
        2006 primarily resulting from a decrease in rental income of $2,629 under
        the
        SportsRAC product, a system designed to aid shoulder, forearm, and knee injury
        rehabilitation, which was discontinued during the first quarter of 2005,
        but the
        Company continued to receive rental payments under existing contracts throughout
        2005 and during the first two quarters of 2006.  Management has
        completed the Core: TX PT enhancements and re-commenced selling activities
        in
        the third quarter of 2007. However, it is likely that recorded sales will
        not
        occur until the fourth quarter of 2007.
 
 During
        the nine months ended on September 30, 2007, the Company sold approximately
        2
        Core:Tx units and 6 Core:Tx units during the nine months ended on September
        30,
        2006.
 
 **Cost
        of goods sold** in the nine months ended September 30, 2007 of $0
        decreased by $500, or 100%, from $500 in the corresponding nine months ended
        September 30, 2006. During management’s transition in 2006, the Company moved
        primary locations from Colorado to New Jersey.  During this process,
        management was unable to account for products that the previous management
        team
        provided to potential sales distribution channels as demonstration products
        (the
        costs of which were expensed).  Products sold during 2007 were
        assembled from pieces of recovered demo units. Accordingly, the cost of goods
        sold for 2007 is significantly lower than it would be had the units sold
        been
        manufactured under normal circumstances**.**
  **Research
        and Development Expenses** during the nine months ended September 30,
        2007 of $67,509 decreased by $2,530, or 4%, from $70,039 in the corresponding
        nine months ended September 30, 2006. The decrease in research and development
        expenses is primarily attributable management’s move from salaried employees to
        outside contractors.  Research and development salaries during the
        nine months ended September 30, 2006 was $61,819 and corresponding payroll
        taxes
        in the amount of $5,297 as compared to no research and development salaries
        during the nine months ended September 30, 2007.  Management engaged
        outside contractors for research and development needs during the nine months
        ended September 30, 2007 in the amount of $59,150.  This decrease was
        offset by an increase in travel expenses in the amount $4,855.
  **General
        and Administrative Expenses**during the nine months ended September 30,
        2007 of $2,383,354 increased by $1,486,115, or 166%, from $897,239 in the
        corresponding nine months ended September 30, 2006.  This increase is
        partially attributable to the adoption of FASB 123(R) which requires stock
        based
        payments to be valued at fair market and recorded in
        operations.  Compensation expense in the form of stock options was
        $658,202 for the nine months ended September 30, 2007 as compared to $104,749
        for the nine months ended September 30, 2006.  The increase is also
        attributable to expenses for consulting, legal and outside services relating
        to
        Management’s efforts to raise capital, and the registration of the company with
        the Securities Exchange Commission.  Consulting and legal expenses
        increased by $795,821 and accounting fees increased by $195,186 for the nine
        months ended September 30, 2007 as compared to the nine months ended September
        30, 2006.  These increases were offset by a decrease of $70,009 in
        general and administrative salaries.
 
 **Sales
        and Marketing Expenses**during the nine months ended September 30, 2007
        of $115,197 increased by $4,027, or 4%, from $111,170 in the corresponding
        nine
        months ended September 30, 2006.  The increase is primarily
        attributable to an increase in trade show and consulting expenses in the
        amount
        of $45,973, offset by a decrease in marketing salaries and related payroll
        expenses of $10,415 and decreases in advertising, market research and marketing
        supply expenses of $30,452 during the nine months ended September 30, 2007
        as
        compared to the comparable period ended September 30, 2006.
 
 25
 **Amortization** during
        the nine months ended September 30, 2007 of $298,654 decreased by $169,641,
        or
        36%, from $468,295 during the corresponding nine months ended September 30,
        2006.  The decrease is primarily attributable to amortization expense
        on the debt issuance costs associated with the 2005 bridge loans that were
        fully
        amortized during 2006.  No amortization expense was recorded on these
        issuances during the nine months ended September 30, 2007.
  **Interest
        expense, net of interest income and interest expense related to beneficial
        conversion** during the nine months ended September 30, 2007 of
        $1,980,229 decreased by $27,322, or 1%, from $2,007,551 during the corresponding
        nine months ended September 30, 2006.  The decrease is primarily
        attributable to a decrease in the debt discount on the conversion features
        and
        warrant liabilities embedded in the 2006 private placement offerings that
        were
        issued during the third and fourth quarters of 2006 and during the nine months
        ended September 30, 2007, offset by the debt discount on 2005 Bridge Loan
        A and
        2005 Bridge Loan B fully amortizing during the nine months ended September
        30,
        2006 and a decrease in interest expense on debt instruments in the amount
        of
        $70,036 for the nine months ended September 30, 2007 as compared to the
        comparable period ended September 30, 2006.
 
 **Gain
        on Conversion Liability** during the nine months ended September 30,
        2007 of $579,554 increased by $224,770, or 63% from $354,784 during the
        corresponding nine months ended September 30, 2006.  The increase is
        primarily attributable to the valuation of the derivative liability at the
        end
        of the reporting period in accordance with SFAS 133, which requires embedded
        derivatives to be marked to market at each balance sheet date.
 
 **Net
        loss to common shareholders** was $(4,267,387) or $(0.09) per share for
        the nine months ended September 30, 2007 as compared to a net loss of
        $(3,195,961) or $(0.08) per share for the corresponding nine months ended
        September 30, 2006. The increase in net loss is primarily attributable to
        an
        increase in general and administrative expenses as described above, partially
        offset by a decrease in Other Expenses.
 
 **Accumulated
        Deficit**. Since inception, we have incurred substantial operating losses
        and expect to incur substantial additional operating losses over the next
        few
        years unless the sales from our products and licensing efforts yield a
        sustainable income stream. As of September 30, 2007 our accumulated deficit
        was
        $(24,668,380).
 
 **THREE
        MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO**
 **THREE
        MONTHS ENDED SEPTEMBER 30, 2006**
 
 **Revenues**during the three months ended on September 30, 2007 of $0 decreased
        by
        $914, or 100%, from $914 in the corresponding three months ended September
        30,
        2006.  The decrease is a result of no Core:Tx sales during the quarter
        ended September 30, 2007. Management has completed the Core: TX enhancements
        and
        has re-commenced selling activities in the third quarter of 2007. However,
        it is
        likely that recorded sales will not occur until the fourth quarter of
        2007.
 
 During
        the three months ended on September 30, 2007, the Company sold no Core:Tx
        units
        and 3 Core:Tx units during the three months ended on September 30,
        2006.
 
 **Research
        and Development Expenses** during the three months ended September 30,
        2007 of $15,759 increased by $15,759, or 100%, from $0 in the corresponding
        three months ended September 30, 2006. The increase in research and development
        expenses is primarily attributable to management’s move from salaried employees
        to outside contractors during 2006.  During the three months ended
        September 30, 2006, management in an effort to conserve resources, only paid
        $0
        in salary and related expenses as compared to $15,759 expensed on outside
        contractors during the corresponding period in 2007, resulting in an increase
        of
        $15,759.
  26
 **General
        and Administrative Expenses**during the three months ended September 30,
        2007 of $604,867 increased by $106,515, or 21%, from $498,352 in the
        corresponding three months ended September 30, 2006.  This increase
        was primarily attributable to the adoption of FASB 123(R) which requires
        stock
        based payments to be valued at fair market and recorded in
        operations.  Compensation expense in the form of stock options was
        $264,931 for the three months ended September 30, 2007 as compared to $50,055
        for the three months ended September 30, 2006.****The
        increase is also attributable to expenses for outside services relating to
        the
        Management’s efforts to raise capital, and the registration of the company with
        the Securities Exchange Commission.  Accounting fees increased by
        $40,896 for the three months ended September 30, 2007 as compared to the
        three
        months ended September 30, 2006.  These increases were offset by a
        decrease of $114,708 in Consulting expenses and $37,669 in general and
        administrative salaries.
 
 **Sales
        and Marketing Expenses**during the three months ended September 30, 2007
        of $60,420 increased by $17,644, or 41%, from $42,776 in the corresponding
        three
        months ended September 30, 2006.  The Company increased its sales
        consulting and related expenses by $32,490 during the three months ended
        September 30, 2007 as compared to the comparable period ended September 30,
        2006.  This increase was offset by a decrease in advertising, market
        research and trade show expenses in the amount of $14,519.
  **Amortization** during
        the three months ended September 30, 2007 of $76,774 decreased by $83,076,
        or
        52%, from $159,850 during the corresponding three months ended September
        30,
        2006.  The decrease is primarily attributable to amortization expense
        on the debt issuance costs associated with the 2005 bridge loans that were
        fully
        amortized during 2006.  No amortization expense was recorded on these
        issuances during the three months ended September 30, 2007.
  **Interest
        expense, net of interest income and interest expense related to the beneficial
        conversion** during the three months ended September 30, 2007 of $453,190
        decreased by $306,369, or 40%, from $759,559 during the corresponding three
        months ended September 30, 2006.  The decrease is primarily
        attributable to a decrease in the debt discount on the conversion features
        and
        warrant liabilities embedded in the 2006 private placement offerings fully
        amortizing during the nine months ended September 30, 2007. The decrease
        was
        offset by an increase in the debt discount on the conversion features and
        warrant liabilities embedded in the 2007 private placement offerings that
        were
        issued during the nine months ended September 30, 2007 and an increase in
        interest expense on debt instruments in the amount of $57,540 for the three
        months ended September 30, 2007 as compared to the comparable period ended
        September 30, 2006.
 
 **Gain
        or Loss on Conversion Liability** during the three months ended
        September 30, 2007 of $122,770 increased by $71,292, or 138% from $51,478
        during
        the corresponding three months ended September 30, 2006.  The increase
        is primarily attributable to the valuation of the derivative liability at
        the
        end of the reporting period in accordance with SFAS 133, which requires embedded
        derivatives to be marked to market at each balance sheet date.
 
 **Net
        loss to common shareholders** was $(1,089,226) or $(0.02) per share for
        the three months ended September 30, 2007 as compared to a net loss of
        $(1,408,145) or $(0.03) per share for the corresponding three months ended
        September 30, 2006. The decrease in net loss is primarily attributable to
        a
        decrease in interest expense on the amortization of the debt discount recorded
        on the company’s convertible note instruments and amortization expenses offset
        by an increase in general and administrative expenses and research and
        development expenses.
 
 **Accumulated
        Deficit**. Since inception, we have incurred substantial operating losses
        and expect to incur substantial additional operating losses over the next
        few
        years unless the sales from our products and licensing efforts yield a
        sustainable income stream. As of September 30, 2007 our accumulated deficit
        was
        $(24,668,380).
  27
 **LIQUIDITY
        AND FINANCIAL CONDITION**
 
 **GENERAL**
 
 At
        September 30, 2007, cash and cash equivalents were $141,722. Total liabilities
        at September 30, 2007 were $10,169,877, consisting of current liabilities
        in the
        aggregate amount of $6,757,719 and long-term liabilities in the amount of
        $3,412,158. At September 30, 2007, assets included $235,786 in prepaid expenses,
        $27,544 in inventory, $7,771 in furniture and equipment, net of depreciation;
        $351,978 in debt issuance costs, net of amortization; and other assets of
        $4,802. As of September 30, 2007, our working capital deficit was $(6,352,667)
        as compared to $(3,587,985) at December 31, 2006. We expect to incur substantial
        operating losses as we continue our commercialization efforts.
 
 Our
        debt
        at September 30, 2007 was as follows:
  **September
                  30, 2007**Short-term
                  note
              
              $
              50,000Short-term
                  bridge loans
              
              
              2,503,710Convertible
                  notes
              
              
              3,892,000
  For
        more
        detailed information on long-term liabilities, see Note 4 to our Financial
        Statements contained herein.
 
 **FINANCING
        TRANSACTIONS**
 
 We
        have
        financed our operations since inception primarily through equity and debt
        financings and, loans from shareholders and other related parties. We have
        entered into a number of financing transactions during 2005, 2006 and 2007
        and
        are continuing to seek other financing initiatives. We will need to raise
        additional capital to meet our working capital needs, to complete our product
        commercialization process and to execute our marketing strategy. Such capital
        is
        expected to come from convertible debt securities and the sale of our common
        stock. No assurances can be given that such financing will be available in
        sufficient amounts or at all.
 
 The
        Company used the proceeds from the 2005, 2006 and 2007 private placement
        offerings to fund continued research and development of the Core: Tx Stroke
        and
        Core:Tx for Professionals products. The Company used approximately $602,000
        on
        the continued development of the products. The Company also used approximately
        $470,000 on selling and marketing campaigns. The remaining proceeds from
        the
        issuances have been used to fund the Company’s general operating costs and a
        portion of the expenses associated with the registration of the Company as
        a
        reporting company under the Securities Exchange Act of 1934. The Company
        has
        incurred approximately $1,000,000 of professional fees in conjunction with
        the
        SEC registration. At September 30, 2007, $449,348 of these fees are unpaid
        and
        included in Accounts Payable.
 
 Currently,
        the Company is burning approximately $100,000 per month on recurring expenses.
        Of the $100,000 monthly burn rate, 80% is comprised of general and
        administrative costs, and 20% is comprised of continued product refinement
        and
        support costs. In addition to the monthly burn rate discussed above, the
        Company
        expects to spend $75,000 to develop a marketing plan which will include an
        enhanced web site, an outreach program to health care professionals in order
        to
        obtain market penetration, and a marketing DVD to support these
        initiatives.
 
 28
 The
        following is a general description of our financing transactions entered
        into
        since the beginning of our quarter ended September 30, 2007.  See also
        the Notes to Financial Statements contained herein for a description of these
        and other financing transactions.
 
 ***2007
        F UNITS.***
 
 *2007
        F  UNITS*.  During the quarter ended September 30, 2007, the
        Company sold $333,700 of equity units (“2007 F Units”) in a private
        placement.  Each 2007 F Unit consists of an unsecured convertible
        promissory note in the principal amount of $1,000 (the “2007 F Notes”) and 4,000
        warrants (the “Warrants”) to purchase one share of Company common stock. The
        2007 F Notes bear interest at 10% per annum and will mature one year from
        the
        date of issuance (the “Maturity Date”). The 2007 F Notes are convertible into
        shares of Company common stock at a price equal to the lesser of (i) $0.75
        or
        (ii) 70% of the average of the closing bid price for our common stock for
        the 20
        days preceding the Conversion Notice, as reported by the exchange on which
        our
        common stock is then traded but in any event not less than $0.30 (the
“Conversion Price”). The 2007 F Notes may be redeemed by the Company, upon ten
        trading days prior notice, during which time the Noteholder may convert the
        2007
        F Notes into Company common stock.  If the 2007 F Notes have not been
        redeemed or converted as of the Maturity Date, the principal and interest
        due
        thereunder will be paid by the Company in shares of our common stock valued
        at
        the then applicable Conversion Price.  The exercise price is $0.75 for
        2,000 of the Warrants and $1.50 per share for the remaining 2,000 Warrants.
        The
        Warrants will be exercisable for a period of five years from the date of
        issuance. The shares issuable upon conversion of the Notes and exercise of
        the
        Warrants have piggyback registration rights.  There is no penalty
        provision in the event we do not register such shares.  The conversion
        feature and the warrants were valued using a Black Scholes Option Pricing
        Model,
        utilizing the following assumptions:  Volatility:  82.0%,
        Risk-Free Rate: 4.7%, and Dividend Growth Rate: 0%.  The warrants were
        detached and accounted for as a derivative liability.   The
        warrants were recorded as a discount of $136,817 and are being amortized
        over
        the life of the convertible note. As of September 30, 2007, there was $333,700
        in principal of the 2007 F Notes outstanding.
 
 **STANDBY
        EQUITY DISTRIBUTION AGREEMENT**
 
 On
        January 23, 2006, we entered into a standby equity distribution agreement
        with
        YA Global Investments, L.P. (formerly known as Cornell Capital Partners,
        L.P.)
        which provided for the periodic sale by us to YA Global of shares of our
        common
        stock for a total purchase price of up to $10 million, subject to the conditions
        and limitations set forth in that agreement.  In consideration of the
        commitment of YA Global to purchase up to $10 million of our shares of common
        stock pursuant to the standby equity distribution agreement as described
        herein
        YA Global received a one-time commitment fee in the form of 2,000,000 shares
        of
        our common stock equaling approximately $500,000 (the “YA Global
        Shares”).  We engaged Newbridge Securities Corporation, a registered
        broker-dealer, to advise us in connection with the standby equity distribution
        agreement. For its services to us in connection with this transaction, Newbridge
        Securities Corporation received a fee of $10,000 by the issuance of 40,000
        shares of our common stock (the “Newbridge Shares”).
 
 On
        November 14, 2007, we entered into a Termination Agreement with YA Global
        (the
“SEDA Termination Agreement”) pursuant to which the parties terminated the
        standby equity distribution agreement, the registration rights agreement
        and the
        placement agent agreement, each dated as of January 23, 2006. Pursuant to
        the
        SEDA Termination Agreement, YA Global will retain the 2,000,000 YA Global
        Shares
        and Newbridge Securities Corporation will retain the 40,000 Newbridge
        Shares.  No shares were issued under the standby equity distribution
        agreement.  We are currently pursuing other financing in lieu of the
        standby equity distribution agreement financing.
   
 29
 **REGISTRATION
        RIGHTS**
 
 In
        connection with the issuance in private placements of our common shares and
        convertible notes and certain of our warrants, we granted demand and piggy-back
        registration rights to the investors and the placement agent with respect
        to
        issued shares or the shares issuable for interest or upon conversion of such
        notes or upon exercise of the warrants, as applicable.  The
        registration rights are contained in the subscription agreements pursuant
        to
        which we issued such securities or in stand-alone registration
        statements.  Certain of such agreements provide that the registration
        rights will cease at the time the shares are eligible for sale under Rule
        144k
        of the Securities Act.   None of our registration rights
        agreements contain any penalties for failure to register such shares other
        than
        our Financial Advisory and Consulting Agreement with Dawson James which provides
        for piggyback registration of warrants issued to Dawson James under such
        agreement and $15,000 per month liquidated damages in the event such warrants
        are not registered within 60 days piggyback registration request.  As
        of November 19, 2007, the underlying shares related to all notes issued since
        November 19, 2005 had registration rights.
 
 **SECURITY
        INTEREST IN PUT NOTICES UNDER THE STANDBY EQUITY DISTRIBUTION
        AGREEMENT**
 
 The
        2006
        A Notes, 2006 B Notes and 2006 C Notes each were to be secured by a grant
        of a
        security interest in the put notices that may be issued in the future by
        us
        under the standby equity distribution agreement with YA Global within five
        days
        of the effectiveness of the registration statement related to the shares
        issuable under the standby equity distribution agreement. On November 14,
        2007
        we terminated the standby equity distribution agreement and accordingly the
        2006
        A Notes, 2006 B Notes and the 2006 C Notes will not have any security interest
        in the put notices.
 
 **MANAGEMENT’S
        PLANS TO OVERCOME OPERATING AND LIQUIDITY
        DIFFICULTIES**
 
 We
        develop and market performance evaluation and rehabilitation products that
        monitor and guide exercise and give real-time motivational feedback. Over
        the
        past nine years, our medical and computer experts have brought together advanced
        software and medical technology in order to create MotionTrack, our versatile
        proprietary technology platform. Our goal is to enter into an emerging category
        of electronic personal training and therapeutic products using MotionTrack
        technology, developed initially for injury prevention and rehabilitation
        products.
 
 Our
        operating plan seeks to minimize our capital requirements, but expansion
        of our
        production capacity to meet increasing sales and refinement of our manufacturing
        process and equipment will require additional capital. We expect that operating
        and production expenses will increase significantly as we continue to ramp
        up
        our production, enhance our technology and develop, produce, sell and license
        products for commercial applications.
 
 We
        have
        recently entered into a number of financing transactions. We are continuing
        to
        seek other financing initiatives. We need to raise additional capital to
        meet
        our working capital needs, for the repayment of debt and for capital
        expenditures. Such capital is expected to come from the sale of debt and/or
        equity securities through private placement offerings and/or the sale of
        common
        stock. We believe that if we raise approximately $5.6 million in debt and
        equity
        financings we would have sufficient funds to meet our needs for working capital
        ($1.2 million), repayment of debt (approximately $2.6 million expected to
        mature
        from September 30, 2007 to September 30, 2008), accounts payable and accrued
        expenses (approximately $1.8 million) and for capital expenditures
        (approximately $0.1 million) over the next twelve months.  As of
        September 30, 2007, we have cash balances in excess of $0.1
        million.
 
 No
        assurance can be given that we will be successful in completing any financings
        at the minimum level necessary to fund our capital equipment, debt repayment
        or
        working capital requirements, or at all. If we are
   30
 unsuccessful
        in completing these financings, we will not be able to meet our working capital,
        debt repayment or capital equipment needs or execute our business plan. In
        such
        case we will assess all available alternatives including a sale of our assets
        or
        merger, the suspension of operations and possibly liquidation, auction,
        bankruptcy, or other measures.
 
 **SALES
        ACTIVITIES AND PRODUCT DEVELOPMENT**
 
 We
        have
        recently entered into a Software Licensing Agreement with Stayhealthy, Inc.
        and
        a Sales and Marketing contract with Interactive Metronome, Inc. and expect
        to
        begin earning revenues relating to these agreements/contracts during the
        fourth
        quarter of 2007. The amount of expected revenues from these agreements/contacts
        is undeterminable as of the date of this Report.
 
 Interactive
        Metronome, Inc. (IM) provides continuing professional education for licensed
        physical therapists. Their offerings include products that are utilized by
        therapists for rehabilitative treatments. IM has tested our Core:Tx PT product
        during recent months and has committed to introduce and market this product
        during education and training sessions as well as trade association conferences
        and seminars beginning in October, 2007.
 
 Stayhealthy,
        Inc. markets computer driven kiosks that measure and record various health
        related statistics. Stayhealthy has begun testing a version of our Core:Tx
        product on their computer platform and we are presently completing minor
        product
        modifications for a seamless interaction. Once these modifications are complete,
        Stayhealthy should begin placing orders for the units (expected in the fourth
        quarter of 2007 or the first quarter of 2008).
 
 Management
        has begun to evaluate the feasibility of marketing an updated version of
        our
        original product, SportsRAC. This initiative was sparked by feedback received
        from existing users of SportsRAC, We anticipate that the updated version
        of
        SportsRAC would utilize our existing Core:Tx platform. At this time management
        believes that an updated SportsRAC product would appeal to a different market
        segment than the existing Core:Tx products.
 
 **GOING
        CONCERN MATTERS**
 
 Our
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates our continuation of operations, realization of assets
        and
        liquidation of liabilities in the ordinary course of business. Since inception,
        we have incurred substantial operating losses and expect to incur additional
        operating losses over the next several periods. As of September 30, 2007,
        we had
        an accumulated deficit of approximately $24.7 million.
 
 We
        have
        financed our operations since inception primarily through equity financings
        and
        loans from our officers, directors and stockholders. No assurances can be
        given
        that the additional capital necessary to meet our working capital needs or
        to
        sustain or expand our operations will be available in sufficient amounts
        through
        our capital raising activities discussed above. Continuing our operations
        in
        2007 and into 2008 is dependent upon obtaining such further
        financing.
 
 Our
        accompanying financial statements do not include any adjustments that might
        result from the outcome of this uncertainty.
 
 **CRITICAL
        ACCOUNTING POLICIES**
 
 The
        SEC
        defines “critical accounting policies” as those that require application of
        management’s most difficult, subjective or complex judgments, often as a result
        of the need to make estimates about the effect of matters that are inherently
        uncertain and may change in subsequent periods. Our significant accounting
        policies are described in Note 1 in the Notes to the Financial Statements.
        Not
        all of these significant accounting policies require management to make
        difficult, subjective or complex judgments or estimates. However, the policies
        set out in Note 1 could be deemed to be critical within the SEC
        definition.
 
 31
 **RISK
        FACTORS**
 
 **We
        are subject to various risks that may materially harm our business, financial
        condition and results of operations.  You should carefully consider
        the risks and uncertainties described below and in our Registration Statement
        on
        Form 10-SB, as amended, and the other information in this filing before deciding
        to purchase our common stock.  If any of these risks or uncertainties
        actually occurs, our business, financial condition or operating results could
        be
        materially harmed. In that case, the trading price of our common stock could
        decline and you could lose all or part of your investment.**
  **We
        have had limited product sales, a history of operating losses and have been
        unprofitable since inception.**We have had limited sales of
        our products to date. We incurred net losses of approximately $5.3 million
        during the year ended December 31, 2006 and approximately $4.3 million for
        the
        nine months ended September 30, 2007. We expect to incur substantial additional
        operating losses in the future. During the year ended December 31, 2006 and
        the
        nine months ended September 30, 2007, we generated revenues from product
        sales
        in the amounts of approximately $5,278 and $589, respectively. We cannot
        assure
        you that we will continue to generate revenues from operations or achieve
        profitability in the near future or at all.
 
 **We
        have a working capital loss, which means that our current assets on September
        30, 2007 were not sufficient to satisfy our current
        liabilities.**We had a working capital deficit of $6,352,667
        at September 30, 2007, which means that our current liabilities exceeded
        our
        current assets on September 30, 2007 by $6,352,667. Current assets are assets
        that are expected to be converted to cash or otherwise utilized within one
        year
        and, therefore, may be used to pay current liabilities as they become due.
        Our
        working capital deficit means that our current assets on September 30, 2007
        were
        not sufficient to satisfy all of our current liabilities on that
        date.
 
 **We
        may not be able to obtain the significant financing that we need to continue
        to
        operate.**We have recently entered into a number of financing
        transactions. We are continuing to seek other financing initiatives. We need
        to
        raise additional capital to meet our working capital needs, for the repayment
        of
        debt and for capital expenditures. Such capital is expected to come from
        the
        sale of debt and/or equity securities through private placement offerings
        and/or
        the sale of common stock.
 
 We
        believe that if we raise approximately $5.6 million in debt and equity
        financings we would have sufficient funds to meet our needs for working capital
        ($1.2 million), repayment of debt (approximately $2.6 million expected to
        mature
        from September 30, 2007 to September 30, 2008), accounts payable and accrued
        expenses (approximately $1.8 million) and for capital expenditures
        (approximately $0.1 million) over the next twelve months.  As of
        September 30, 2007, we have cash balances in excess of $0.1
        million.
 
 No
        assurance can be given that we will be successful in completing any financings
        at the minimum level necessary to fund our capital equipment, debt repayment
        or
        working capital requirements, or at all. If we are unsuccessful in completing
        these financings, we will not be able to meet our working capital, debt
        repayment or capital equipment needs or execute our business plan. In such
        case
        we will assess all available alternatives including a sale of our assets
        or
        merger, the suspension of operations and possibly liquidation, auction,
        bankruptcy, or other measures.
 
 **Future
        sales of shares of our common stock by existing security holders in the public
        market, or the possibility or perception of such future sales, could adversely
        affect the market price of our stock and our ability to raise funds in new
        stock
        offers.**  To date there has not been any public market for our
        common stock, and we cannot predict what effect, if any, market sales of
        shares
        of common stock or the
   32
 availability
        of shares of common stock for sale will have on the market price of our common
        stock. Nevertheless, sales of substantial amounts of common stock, including
        shares issued upon the exercise of outstanding convertible notes, warrants
        and
        options, in the public market, or the perception that these sales could occur,
        could materially and adversely affect the market price of our common stock
        and
        could impair our future ability to raise capital through the sale of our
        equity
        or equity-related securities at a time and price that we deem
        appropriate.
 
 As
        of
        November 1, 2007, there were 53,150,229 shares of our common stock outstanding
        of which 48,318,751 shares have been outstanding for more than two years
        and are
        eligible for sale under Rule 144k under the Securities Act of 1933, as amended,
        or the Securities Act, in the public market without restriction or registration
        (other than shares held by affiliates) and 4,831,508 shares have been
        outstanding for more than one year but less than two years and are eligible
        for
        sale in the public market under Rule 144.
 
 In
        addition, as of November 1, 2007, 15,136,000 shares issuable upon conversion
        of
        $3,784,000 in principal of convertible notes sold in 2003 and 2004 are eligible
        for sale under Rule 144k in the public market without restriction or
        registration (other than shares held by affiliates) and shares issuable upon
        the
        conversion of our convertible notes issued in 2006 and 2007 will be eligible
        in
        the public market for sale under Rule 144 once the one year holding period
        has
        been satisfied.
 
 In
        addition, as of November 1, 2007, we had warrants outstanding to purchase
        up to 32,131,565 shares of our common stock. Of such warrants, shares issuable
        upon the cashless exercise of 3,113,263 warrants are eligible for sale under
        Rule 144k in the public market without restriction or registration (other
        than
        shares held by affiliates) and shares issuable upon the cashless exercise
        of
        2,988,263 warrants will be eligible in the public market for sale under Rule
        144.
 
 All
        of
        the shares available for sale under Rule 144k may be immediately resold in
        the
        public market, except that any shares held by our “affiliates,” as that term is
        defined under Rule 144 of the Securities Act, may be sold only in compliance
        with the limitations of Rule 144k.
 
 Upon
        vesting, 12,367,333 shares will also be issuable upon the exercise of presently
        outstanding stock options and 8,632,667 additional shares have been reserved
        for
        future issuance under our existing stock option plans. Pursuant to Rule 701
        of
        the Securities Act, as currently in effect, any of our employees, directors,
        consultants or advisors who purchase shares of our common stock from us pursuant
        to options granted prior to the under our existing stock option plans or
        other
        written agreement is eligible to resell those shares in reliance on Rule
        144,
        but without compliance with some of the restrictions, including the holding
        period, contained in Rule 144. Additionally, we intend to file one or more
        registration statements on Form S-8 under the Securities Act to register
        the
        sale of shares issued or issuable upon the exercise of all these stock
        options.
 
 In
        the
        future, we may issue our securities in connection with financings, acquisitions
        or other investments. The amount of our common stock issued in connection
        with
        any financing, acquisition or other investment could constitute a material
        portion of our then outstanding common stock. Such issuances could result
        in
        dilution of our common shareholders.
 
 **The
        holders of our outstanding convertible notes have the option of converting
        the
        convertible notes into shares of our common stock. The holders of our warrants
        may also exercise their common share purchase warrants. If the convertible
        notes
        are converted or the share purchase warrants are exercised, there will be
        dilution of your shares of our common stock.**There are a
        large number of shares underlying our convertible debentures and warrants
        that
        may be available for future sale and the sale of these shares may depress
        the
        market price of our common stock.
 
 33
 As
        of
        November 1, 2007, we had 53,150,229 shares of common stock issued and
        outstanding, $6,549,000 in principal of all outstanding convertible notes
        that
        may be converted into approximately 26.3 million shares of common stock and
        outstanding warrants to purchase 28,161,563 shares of common stock. The issuance
        of shares upon conversion of the convertible notes and exercise of warrants
        may
        result in substantial dilution to the interests of other stockholders since
        the
        holders may ultimately convert and sell the full amount issuable on
        conversion.
 
 Of
        our
        outstanding $6,549,000 in principal of convertible notes and
        32,131,565 warrants, $3,784,000 in principal of our convertible notes sold
        in 2003 and 2004 which currently have a conversion price of $0.25 per share
        and
        10,100,847 of our outstanding warrants which currently have exercise prices
        of
        $0.25 to $0.30, are subject to anti-dilution protection upon the occurrence
        of
        certain events. If, among other things, we offer, sell or otherwise dispose
        of
        or issue any of our common stock (or any equity, debt or other instrument
        that
        is at any time over its life convertible into or exchangeable for our common
        stock) at an effective price per share that is less than the conversion price
        of
        the convertible note or the exercise price of the warrant, the conversion
        price
        of the convertible note or the exercise price of the warrants will be reduced,
        depending on the number of shares of common stock that we issue at that lower
        price, to a price which is less than the current conversion price or the
        exercise price.
 
 **MARKET
        INFORMATION AND OTHER MATTERS**
 
 **Market
        Information**
 
 Our
        common stock is not currently traded on any public market. On July 13, 2007,
        the
        Company became a reporting company under the Securities Exchange Act of 1934.
        In
        October 2007, a NASD member firm filed a Form 211 Application with the NASD
        pursuant to SEC Rule 15c 2-11 on behalf of the Company for the purpose of
        obtaining an OTC Bulletin Board listing of the Company’s Common Stock. The NASD
        responded to the October filing with a request for additional information
        which
        the Company is in the process of compiling. Once a trading market is
        established, there can be no assurance that it will be active. An absence
        of an
        active trading market could adversely affect our stockholders’ ability to sell
        our common stock in short time periods, or possibly at all. Our common stock
        is
        likely to experience in the future, significant price and volume fluctuations
        that could adversely affect the market price of our common stock without
        regard
        to our operating performance. In addition, we believe that factors such as
        fluctuations in our financial results and changes in the overall economy
        or the
        condition of the financial markets could cause the price of our common stock
        to
        fluctuate  substantially.
 
 **Authorized
        and Outstanding Shares**
 
 Our
        Certificate of Incorporation authorizes 500,000,000 shares of our common
        stock,
        $0.01 par value per share and 100,000,000 shares of our preferred stock,
        $0.01
        par value per share. As of November 1, 2007, we have 53,150,229 shares of
        common
        stock outstanding and no shares of preferred stock outstanding.
 
 **Stock
        Options**
 
 As
        of
        November 1, 2007, there were (i) 6,340,444 shares of our common stock issuable
        upon exercise of outstanding stock options under the 1999 Plan at $0.25 per
        share and (ii) 6,027,000 shares of our common stock issuable upon exercise
        of
        outstanding stock options under the 2006 Plan at $0.25 to $0.30 per
        share.
 
 **Warrants**
 
 As
        of
        November 1, 2007, there were outstanding warrants to purchase 32,131,565
        shares
        of our common stock at prices ranging from $0.025 to $1.50 per
        share.
  
 34
 **Convertible
        Notes**
 
 **Conversion
        into Common Stock****.**As of November 1,
        2007, there were outstanding promissory notes convertible into shares of
        our
        common stock as follows:
 
 **Principal**
              
              **Type
                  of Note**
              
              **Conversion
                  Terms**
              
              **Conversion
                  Shares**$3,784,000
              
              2003
                  Notes
              
              Convertible
                  into common stock at $0.25 per share.
              
              15,136,000$50,000
              
              April
                  2006 Notes
              
              Convertible
                  into common stock at $0.30 per share.
              
              166,667$250,000
              
              2006
                  A Notes
              
              Convertible
                  into common stock at the lower of $0.30 and 70% of the average
                  closing bid
                  price for the 20 trading days before conversion [at an assumed
                  market
                  price of $0.25 the assumed conversion price is $0.175].
              
              1,428,572$250,000
              
              2006
                  B Notes
              
              Convertible
                  into common stock at the lower of $0.50 and 70% of the average
                  closing bid
                  price for the 20 trading days before conversion [at an assumed
                  market
                  price of $0.25 the assumed conversion price is $0.175].
              
              1,428,572$250,000
              
              2006
                  C Notes
              
              Convertible
                  into common stock at the lower of $0.60 and 70% of the average
                  closing bid
                  price for the 20 trading days before conversion [at an assumed
                  market
                  price of $0.25 the assumed conversion price is $0.175].
              
              1,428,572$250,000
              
              2006
                  D Notes
              
              Convertible
                  into common stock at the lower of $0.50 and 70% of the average
                  closing bid
                  price for the 20 trading days before conversion [at an assumed
                  market
                  price of $0.25 the assumed conversion price is $0.175].
              
              1,428,572$250,000
              
              2006
                  G Notes
              
              Convertible
                  into common stock at the lower of $0.75 and 70% of the average
                  closing bid
                  price for the 20 trading days before conversion but in no event
                  less than
                  $0.30 [at an assumed market price of $0.25 the assumed conversion
                  price is
                  $0.30].
              
              833,334$300,000
              
              2007
                  C Note
              
              Convertible
                  into common stock at $0.50 per share.
              
              600,000$315,000
              
              2007
                  D Notes
              
              Convertible
                  into common stock at the lower of $0.75 and 70% of the average
                  closing bid
                  price for the 20 trading days before conversion but in no event
                  less than
                  $0.30 [at an assumed market price of $0.25 the assumed conversion
                  price is
                  $0.30].
              
              1,050,000$250,000
              
              2007
                  E Notes
              
              Convertible
                  into common stock at the lower of $0.75 and 70% of the average
                  closing bid
                  price for the 20 trading days before conversion but in no event
                  less than
                  $0.30 [at an assumed market price of $0.25 the assumed conversion
                  price is
                  $0.30].
              
              833,334$600,000
              
              2007
                  F Notes
              
              Convertible
                  into common stock at the lower of $0.75 and 70% of the average
                  closing bid
                  price for the 20 trading days before conversion but in no event
                  less than
                  $0.30 [at an assumed market price of $0.25 the assumed conversion
                  price is
                  $0.30].
              
              2,000,000**$6,549,000**
              
              
              
              
              
              **26,333,623**
 
 35
 **Notes
        with a Continuously Adjusting Conversion
        Price****.**As set forth above, of our
        outstanding $6,549,000 in principal of all outstanding convertible notes,
        $1,000,000 in principal of convertible notes sold in 2006 are convertible
        into
        shares of our common stock at the lesser of fixed prices ranging from $0.30
        to
        $0.60 and a 30% discount to the trading price of the common stock prior to
        the
        conversion.  Our obligation to issue shares upon conversion of
        $1,000,000 of principal of outstanding convertible notes sold in 2006 which
        have
        a continuously adjustable conversion price is essentially limitless. These
        notes
        are convertible at the lesser of fixed prices ranging from $0.30 to $0.60
        and
        70% of the closing price of our common stock prior to the conversion. We
        have
        assumed in this Report on Form 10-QSB a trading price of our common stock
        $0.25,
        which means these notes would convert into 5,714,286 shares of common stock
        at
        an assumed conversion price of $0.175 (70% of $0.25). The number of shares
        of
        common stock issuable upon conversion of these notes will be substantially
        higher if the market price of our stock is below $0.25, which will cause
        dilution to our existing stockholders.
 
 **Notes
        with Anti-dilution Protection****.**Of our
        outstanding $6,549,000 in principal of convertible notes, $3,784,000 in
        principal of our 2003 Notes which currently have a conversion price of $0.25
        per
        share are subject to anti-dilution protection upon the occurrence of certain
        events. If, among other things, we offer, sell or otherwise dispose of or
        issue
        any of our common stock (or any equity, debt or other instrument that is
        at any
        time over its life convertible into or exchangeable for our common stock)
        at an
        effective price per share that is less than the conversion price of the
        convertible note, the conversion price of the convertible note will be reduced,
        depending on the number of shares of common stock that we issue at that lower
        price, to a price which is less than the current conversion price or the
        exercise price.
 
 See
        the
        Notes to the Financial Statements for additional terms of these convertible
        notes.
 
 **ITEM
                  3.**
              **CONTROLS
                  AND PROCEDURES**
  As
        of
        September 30, 2007, an evaluation was carried out under the supervision and
        with
        the participation of management, including its Chief Executive Officer and
        Chief
        Financial Officer, of the effectiveness of disclosure controls and procedures.
        Based on that evaluation, the Chief Executive Officer and Chief Financial
        Officer have concluded that disclosure controls and procedures are effective
        to
        ensure that information required to be disclosed by the Company in reports
        that
        the Company file or submit under the Securities Exchange Act of 1934 is
        recorded, processed, summarized and reported within the time periods specified
        in SEC rules and forms. No changes in the Company’s internal control over
        financial reporting that have materially affected, or are reasonably likely
        to
        materially affect, its internal control over financial reporting, including
        any
        corrective actions with regard to significant deficiencies and material
        weaknesses, occurred during the third quarter of fiscal 2007 or subsequent
        to
        the date of the evaluation by its management thereof.
 
 **PART
        II.**
 **OTHER
        INFORMATION**
  **ITEM
                  1.**
              **LEGAL
                  PROCEEDINGS**
  None.
  **ITEM
                  2.**
              **UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS**
 
 The
        Company entered into a Financial Advisory and Investment Banking Agreement
        with
        Dawson James Securities (“Dawson James”) effective July 2, 2007 for a term of
        one year (the “Financial Advisory Agreement”). Pursuant to the Financial
        Advisory Agreement, the Company paid to Dawson James a fee of $100,000 in
        exchange for certain financial advisory services to be provided during the
        term
        of the Financial Advisory Agreement and on August 15, 2007 the Company issued
        250,000 five year warrants exercisable at
   36
 $0.50
        per
        share to Dawson James as consideration under the Financial Advisory
        Agreement.  In addition, the Financial Advisory Agreement provides for
        payment of a fee equal to 5% of the total consideration received by the Company
        either in a debt or equity financing arrangement with an investor introduced
        to
        the Company by Dawson James, or in the event of a sale, merger or sale of
        significant assets of the Company and/or its affiliates with an investor
        introduced to the Company by Dawson James.  This issuance was exempt
        from registration requirements pursuant to Section 4(2) of the Securities
        Act of
        1933.
 
 On
        August
        15, 2007, September 4, 2007, September 28, 2007,  October 18, 2007 and
        November 5, 2007, the Company sold $77,200, $108,500, $148,000, $266,300
        and
        $36,000, respectively, of equity units (“2007 F Units”) in a private
        placement.  Each 2007 F Unit consists of an unsecured convertible
        promissory note in the principal amount of $1,000 (the “2007 F Notes”) and 4,000
        warrants (the “Warrants”) to purchase one share of Company common stock. The
        2007 F Notes bear interest at 10% per annum and will mature one year from
        the
        date of issuance (the “Maturity Date”). The 2007 F Notes are convertible into
        shares of Company common stock at a price equal to the lesser of (i) $0.75
        or
        (ii) 70% of the average of the closing bid price for our common stock for
        the 20
        days preceding the Conversion Notice, as reported by the exchange on which
        our
        common stock is then traded but in any event not less than $0.30 (the
“Conversion Price”). The 2007 F Notes may be redeemed by the Company, upon ten
        trading days prior notice, during which time the Noteholder may convert the
        2007
        F Notes into Company common stock.  If the 2007 F Notes have not been
        redeemed or converted as of the Maturity Date, the principal and interest
        due
        thereunder will be paid by the Company in shares of our common stock valued
        at
        the then applicable Conversion Price.  The exercise price is $0.75 for
        2,000 of the Warrants and $1.50 per share for the remaining 2,000 Warrants.
        The
        Warrants will be exercisable for a period of five years from the date of
        issuance. The shares issuable upon conversion of the Notes and exercise of
        the
        Warrants have piggyback registration rights.  There is no penalty
        provision in the event we do not register such shares.  This issuance
        was exempt from registration requirements pursuant to Regulation D.
 
 Dawson
        James served as placement agent for us in the private placement of the 2007
        F
        Units sold on August 15, 2007, September 4, 2007, September 28, 2007 and
        October
        18, 2007.  As partial consideration for services rendered as placement
        agent the Company issued to Dawson James five years warrants (i) on August
        15,
        2007 to purchase up to 25,734 shares of Company common stock at $0.30 per
        share,
        having an expiration date of August 15, 2012; (ii) on September 4, 2007 to
        purchase up to 36,167 shares of Company common stock at $0.30 per share,
        having
        an expiration date of September 4, 2012; (iii) on September 28, 2007 to purchase
        up to 49,334 shares of Company common stock at $0.30 per share, having an
        expiration date of September 28, 2012; and (iv) on October 18, 2007 to purchase
        up to 88,767 shares of Company common stock at $0.30 per share, having an
        expiration date of October 18, 2012. The issuances of these warrants were
        exempt
        from registration requirements pursuant to Section 4(2) of the Securities
        Act of
        1933.
 
 North
        Coast Securities Corporation served as placement agent for us in the private
        placement of the 2007 F Units sold on November 5, 2007.  As partial
        consideration for services rendered as placement agent the Company issued
        to
        North Coast on November 5, 2007 five years warrants to purchase up to 12,000
        shares of Company common stock at $0.30 per share, having an expiration date
        of
        November 5, 2012. The issuances of these warrants were exempt from registration
        requirements pursuant to Section 4(2) of the Securities Act of
        1933.
  For
        the
        $77,200 of 2007 F Units sold on August 15, 2007, the total offering price
        and
        the total commissions paid to broker-dealers were $77,200 and $13,124,
        respectively. Broker-dealer commissions consisted of:
 
 ·
              a
                  commission of 12% of the gross offering proceeds raised by the
                  broker-dealer;
 ·
              a
                  non-accountable expense allowance of 5% of the gross offering proceeds
                  raised by the broker-dealer; and
  ·
              five
                  year warrants to purchase 25,734 shares of common stock with an
                  exercise
                  piece of $0.30 per share [based on a formula of warrants equal
                  to the
                  number of shares of Company
 
 37
 
 common
                      stock as equals 10% of the number of shares of common stock
                      that would be
                      issuable to investors in the offering assuming conversion of
                      the 2007 F
                      Notes at the closing date, with an exercise price equal to
                      100% of the
                      assumed conversion price of the 2007 F Notes on such
                      date]
 Such
        fees
        were deducted from offering proceeds to the extent applicable.
 
 For
        the
        $108,500 of 2007 F Units sold on September 4, 2007, the total offering price
        and
        the total commissions paid to broker-dealers were $108,500 and $18,445,
        respectively. Broker-dealer commissions consisted of:
 
 ·
              a
                  commission of 12% of the gross offering proceeds raised by the
                  broker-dealer;
 ·
              a
                  non-accountable expense allowance of 5% of the gross offering proceeds
                  raised by the broker-dealer; and
 ·
              five
                  year warrants to purchase 36,167 shares of common stock with an
                  exercise
                  piece of $0.30 per share [based on a formula of warrants equal
                  to the
                  number of shares of Company common stock as equals 10% of the number
                  of
                  shares of common stock that would be issuable to investors in the
                  offering
                  assuming conversion of the 2007 F Notes at the closing date, with
                  an
                  exercise price equal to 100% of the assumed conversion price of
                  the 2007 F
                  Notes on such date]
 
 For
        the
        $148,000 of 2007 F Units sold on September 28, 2007, the total offering price
        and the total commissions paid to broker-dealers were $148,000 and $25,160,
        respectively. Broker-dealer commissions consisted of:
 
 ·
              a
                  commission of 12% of the gross offering proceeds raised by the
                  broker-dealer;
 ·
              a
                  non-accountable expense allowance of 5% of the gross offering proceeds
                  raised by the broker-dealer; and
 ·
              five
                  year warrants to purchase 49,334 shares of common stock with an
                  exercise
                  piece of $0.30 per share [based on a formula of warrants equal
                  to the
                  number of shares of Company common stock as equals 10% of the number
                  of
                  shares of common stock that would be issuable to investors in the
                  offering
                  assuming conversion of the 2007 F Notes at the closing date, with
                  an
                  exercise price equal to 100% of the assumed conversion price of
                  the 2007 F
                  Notes on such date]
 
 For
        the
        $266,300 of 2007 F Units sold on October 18, 2007, the total offering price
        and
        the total commissions paid to broker-dealers were $266,300 and $45,271,
        respectively. Broker-dealer commissions consisted of:
 
 ·
              a
                  commission of 12% of the gross offering proceeds raised by the
                  broker-dealer;
 ·
              a
                  non-accountable expense allowance of 5% of the gross offering proceeds
                  raised by the broker-dealer; and
 ·
              five
                  year warrants to purchase 88,767 shares of common stock with an
                  exercise
                  piece of $0.30 per share [based on a formula of warrants equal
                  to the
                  number of shares of Company common stock as equals 10% of the number
                  of
                  shares of common stock that would be issuable to investors in the
                  offering
                  assuming conversion of the 2007 F Notes at the closing date, with
                  an
                  exercise price equal to 100% of the assumed conversion price of
                  the 2007 F
                  Notes on such date]
  38
 For
        the
        $36,000 of 2007 F Units sold on November 5, 2007, the total offering price
        and
        the total commissions paid to broker-dealers were $36,000 and $5,400,
        respectively. Broker-dealer commissions consisted of:
 
 ·
              a
                  commission of 12% of the gross offering proceeds raised by the
                  broker-dealer;
 ·
              a
                  non-accountable expense allowance of 3% of the gross offering proceeds
                  raised by the broker-dealer; and
 ·
              five
                  year warrants to purchase 12,000 shares of common stock with an
                  exercise
                  piece of $0.30 per share [based on a formula of warrants equal
                  to the
                  number of shares of Company common stock as equals 10% of the number
                  of
                  shares of common stock that would be issuable to investors in the
                  offering
                  assuming conversion of the 2007 F Notes at the closing date, with
                  an
                  exercise price equal to 100% of the assumed conversion price of
                  the 2007 F
                  Notes on such date]
 
 **ITEM
                  3.**
              **DEFAULTS
                  UPON SENIOR
                  SECURITIES**
  None.
  **ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF
                  SECURITYHOLDERS**
  As
        of
        July 12, 2007, the Company’s 2006 Stock Incentive Plan, as amended (the “2006
        Plan”) was approved by the holders of a majority of the Company’s common stock
        by written consent.  Pursuant to the terms of the 2006 Plan, an
        aggregate of 12 million shares of Company common stock may be awarded to
        individuals under the 2006 Plan.  The 2006 Plan terminates in
        2016.  Notice of the approval of the 2006 Plan by the stockholders was
        sent to all of the stockholders of the Company.
 
 On
        July
        13, 2007, the Company filed an Amendment to its Amended and Restated Certificate
        of Incorporation with the Secretary of State of the State of Delaware to
        increase the number of authorized shares of the Company’s common stock to
        500,000,000 shares and preferred stock to 100,000,000 shares (the
“Amendment”).  The Amendment was approved by the Company’s Board of
        Directors and the holders of a majority of the Company’s common stock by written
        consent as of July 12, 2007.  Notice of the Amendment was sent to all
        of the stockholders of the Company.
 
 **ITEM
                  5.**
              **OTHER
                  INFORMATION**
 
 See
        Item
        2 above.
 
 On
        January 23, 2006, we entered into a standby equity distribution agreement
        with
        YA Global Investments, L.P. (formerly known as Cornell Capital Partners,
        L.P.)
        which provided for the periodic sale by us to YA Global of shares of our
        common
        stock for a total purchase price of up to $10 million, subject to the conditions
        and limitations set forth in that agreement.  In consideration of the
        commitment of YA Global to purchase up to $10 million of our shares of common
        stock pursuant to the standby equity distribution agreement as described
        herein
        YA Global received a one-time commitment fee in the form of 2,000,000 shares
        of
        our common stock equaling approximately $500,000 (the “YA Global
        Shares”).  We engaged Newbridge Securities Corporation, a registered
        broker-dealer, to advise us in connection with the standby equity distribution
        agreement. For its services to us in connection with this transaction, Newbridge
        Securities Corporation received a fee of $10,000 by the issuance of 40,000
        shares of our common stock (the “Newbridge Shares”).
 
 On
        November 14, 2007, we entered into a Termination Agreement with YA Global
        (the
“SEDA Termination Agreement”) pursuant to which the parties terminated the
        standby equity distribution agreement, the registration rights agreement
        and the
        placement agent agreement, each dated as of January 23, 2006.
  39
 Pursuant
        to the SEDA Termination Agreement, YA Global will retain the 2,000,000 YA
        Global
        Shares and Newbridge Securities Corporation will retain the 40,000 Newbridge
        Shares.  No shares were issued under the standby equity distribution
        agreement.  We are currently pursuing other financing in lieu of the
        standby equity distribution agreement financing.
 
 **ITEM
                  6.**
              **EXHIBITS**
  The
        following Exhibits are filed as part of this Report or incorporated herein
        by
        reference:
 
 3.3
              Amended
                  and Restated Certificate of Incorporation of the Company, filed
                  on July
                  13, 2007(1)  10.89
              Dawson
                  James Financial Advisory Agreement dated July 2, 2007
                  (1)  10.90
              Dawson
                  James Placement Agreement dated July 2, 2007
                  (2)  10.91
              Financial
                  Advisory Agreement Warrant Issued  to Dawson James dated August
                  15, 2007 (2)  10.99
              Form
                  of Subscription Agreement and Investor Questionnaire entered into
                  in 2007
                  F private placement (3)
 10.100
              Form
                  of 10% Convertible Note issued in 2007 F private placement
                  (3)
 
 10.101
              Form
                  of $0.75 Warrant issued in 2007 F private placement
                  (3)
 
 10.102
              Form
                  of $1.50 Warrant issued to 2007 F Convertible Note investors
                  (3)
 
 10.103
              Form
                  of Warrant issued to Dawson James Securities as compensation under
                  placement agreement dated July 2, 2007
                  (3)
 
 10.104
              Form
                  of Warrant issued to North Coast Securities Corporation as compensation
                  under placement agreement dated May 15, 2007
                  (4)
 
 10.105
              Termination
                  Agreement with YA Global Investments, L.P. (f/k/a Cornell Capital
                  Partners, L.P.) dated November 14, 2007
                  (4)  31.1
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes
                  Oxley
                  Act of 2002 +
 31.2
              
              Certification
                  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 +  32.1
              
              Certification
                  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                  +  32.2
              
              Certification
                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                  +
 ______________________
 (1)
              Filed
                  as an exhibit to Amendment No. 2 to the Company’s Registration Statement
                  on Form 10-SB filed August 6, 2007 and incorporated herein by
                  relevance.
 
 (2)
              Filed
                  as an Exhibit to the Company’s Form 10-QSB for the period ended June 30,
                  2007.
 
 (3)
              Filed
                  as an exhibit to Amendment No. 3 to the Company’s Registration Statement
                  on Form 10-SB filed September 27, 2007 and incorporated herein
                  by
                  reference.
 
 (4)
              Filed
                  as an exhibit to Amendment No. 4 to the Company’s Registration Statement
                  on Form 10-SB filed November 19, 2007 and incorporated herein by
                  reference
 
 +          
         Exhibit filed herewith in this Report.
 
 
 40
 
 **SIGNATURES**
  In
        accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
        the
        registrant caused this report to be signed on its behalf by the undersigned,
        thereunto duly authorized.
   **PERFORMANCE
                  HEALTH TECHNOLOGIES, INC.**Date:  
                     November 19, 2007
              By:
              /s/ Robert
                D. PrunettiRobert
                  D. Prunetti, President and Chief Executive Officer(Principal
                  Executive Officer)
   By:
              /s/ James
                E. BartolomeiJames
                  E. Bartolomei, Chief Financial Officer(Principal
                  Financial and Accounting Officer)
            41