**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 June 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)**  [Missing Graphic
      Reference]






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 August 10, 2007, 48,493,352 shares
      of
      common stock.












**PERFORMANCE
      HEALTH TECHNOLOGIES, INC.**


**FORM
      10-QSB**


**FOR
      THE QUARTER ENDED JUNE 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
            37ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            37ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            38ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            38ITEM
                5.
            OTHER
                INFORMATION
            38ITEM
                6.
            EXHIBITS
            38








**PART
      I—FINANCIAL INFORMATION**





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




**PERFORMANCE
      HEALTH TECHNOLOGIES, INC.**


**BALANCE
      SHEET**


**(Unaudited)**





**June
                30, 2007****ASSETS****CURRENT
                ASSETS:**Cash
                and Cash Equivalents
            
            $
            239,315Inventory
            
            
            26,001Prepaid
                Expenses
            
            
            133,064**Total
                Current Assets**
            
            
            398,380**FURNITURE
                & EQUIPMENT, net**
            
            
            9,525**OTHER
                ASSETS:**Debt
                Issuance Costs, net
            
            
            345,026Deferred
                Offering Costs
            
            
            482,940Security
                Deposits
            
            
            4,802**Total
                Other Assets**
            
            
            832,768**TOTAL
                ASSETS**
            
            $
            1,240,673**LIABILITIES
                & STOCKHOLDERS’
                DEFICIT****CURRENT
                LIABILITIES:**Accounts
                Payable
            
            $
            432,609Accrued
                Salaries and Interest
            
            
            293,789Accrued
                Expenses
            
            
            26,955Accrued
                Interest - Convertible Notes
            
            
            861,016Non-Convertible
                Notes Payable
            
            
            50,000Current
                Portion of Convertible Notes Payable, Net of Debt Discount of
                $404,640
            
            
            1,765,370Derivative
                Liability
            
            
            2,707,171**Total
                Current Liabilities**
            
            
            6,136,910**CONVERTIBLE
                NOTES PAYABLE, Net of****Debt
                Discount of $561,304**
            
            
            4,238,696**STOCKHOLDERS’
                DEFICIT:**Common
                Stock, $0.01 Par Value, 70,000,000 Shares Authorized,48,493,352
                Shares Issued and Outstanding
            
            
            484,934Paid-in
                Capital
            
            
            13,476,344Accumulated
                Deficit
            
            
            (23,096,211
            )**Total
                Stockholders’ Deficit**
            
            
            (9,134,933
            )**TOTAL
                LIABILITIES & STOCKHOLDERS’ DEFICIT**
            
            $
            1,240,673




See
      Notes
      to Financial Statements


2


**PERFORMANCE
      HEALTH TECHNOLOGIES, INC.**


**STATEMENTS
      OF OPERATIONS**


**(UNAUDITED)**





**For
                the Three Months Ended June 30,**
            
            
            **For
                the Six Months Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****SALES,
                NET**
            
            $
            —
            
            
            $
            1,657
            
            
            $
            589
            
            
            $
            3,935**COST
                OF SALES**
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            500**GROSS
                PROFIT**
            
            
            —
            
            
            
            1,657
            
            
            
            589
            
            
            
            3,435**OPERATING
                EXPENSES:**General
                and Administrative
            
            
            530,755
            
            
            
            188,688
            
            
            
            1,295,547
            
            
            
            398,887Sales
                and Marketing
            
            
            29,395
            
            
            
            20,483
            
            
            
            54,777
            
            
            
            68,394Research
                and Development
            
            
            29,889
            
            
            
            9,717
            
            
            
            51,750
            
            
            
            70,039**TOTAL
                OPERATING EXPENSES**
            
            
            590,039
            
            
            
            218,888
            
            
            
            1,402,074
            
            
            
            537,320**LOSS
                FROM OPERATIONS**
            
            
            (590,039
            )
            
            
            (217,231
            )
            
            
            (1,401,485
            )
            
            
            (533,885
            )**OTHER
                INCOME (EXPENSES):**Interest
                Income
            
            
            9
            
            
            
            6
            
            
            
            15
            
            
            
            14Interest
                Expense
            
            
            (785,177
            )
            
            
            (641,380
            )
            
            
            (1,527,054
            )
            
            
            (1,248,006
            )Amortization
                - Debt Issuance Costs
            
            
            (69,618
            )
            
            
            (150,859
            )
            
            
            (221,880
            )
            
            
            (308,445
            )Gain
                (Loss) on Derivative Liability
            
            
            88,750
            
            
            
            113,647
            
            
            
            456,784
            
            
            
            303,306**TOTAL
                OTHER INCOME (EXPENSES)**
            
            
            (766,036
            )
            
            
            (678,586
            )
            
            
            (1,292,135
            )
            
            
            (1,253,131
            )**LOSS
                BEFORE PROVISION FOR TAXES**
            
            
            (1,356,075
            )
            
            
            (895,817
            )
            
            
            (2,693,620
            )
            
            
            (1,787,016
            )**PROVISION
                FOR TAXES**
            
            
            (801
            )
            
            
            —
            
            
            
            (1,601
            )
            
            
            (800
            )**NET
                LOSS**
            
            $
            (1,356,876
            )
            
            $
            (895,817
            )
            
            $
            (2,695,221
            )
            
            $
            (1,787,816
            )**NET
                LOSS PER COMMON SHARE - BASIC  AND
                DILUTED**
            
            $
            (0.03
            )
            
            $
            (0.02
            )
            
            $
            (0.06
            )
            
            $
            (0.05
            )**Weighted
                Average Number of Shares**
            
            
            48,493,352
            
            
            
            37,251,861
            
            
            
            48,493,352
            
            
            
            37,251,861





See
      Notes
      to Financial Statements




3


**PERFORMANCE
      HEALTH TECHNOLOGIES, INC.**


**STATEMENTS
      OF CASH FLOWS**


**(UNAUDITED)**





**For
                the Six Months Ended June 30,****2007**
            
            
            **2006****Cash
                flows from operating activities**Net
                loss
            
            $
            (2,695,221
            )
            
            $
            (1,787,816
            )**Adjustments
                to reconcile net loss to net cash****used
                by operating activities:**Non
                cash interest expense
            
            
            1,229,780
            
            
            
            1,007,610Non
                cash consulting expense
            
            
            294,400
            
            
            
            —Non
                cash stock based compensation
            
            
            393,271
            
            
            
            54,694Depreciation
                and amortization
            
            
            225,970
            
            
            
            316,727Gain
                on derivative liability
            
            
            (456,784
            )
            
            
            (303,306
            )Deferred
                Offering Costs
            
            
            (149,235
            )
            
            
            (88,084
            )(Increase)
                decrease in accounts receivable
            
            
            —
            
            
            
            830(Increase)
                decrease in inventories
            
            
            (26,001
            )
            
            
            —(Increase)
                decrease in other assets
            
            
            3,271
            
            
            
            —(Increase)
                decrease in prepaid expenses
            
            
            (124,562
            )
            
            
            (40,000
            )Increase
                (decrease) in accounts payable
            
            
            246,807
            
            
            
            (14,141
            )Increase
                (decrease) in accrued liabilities
            
            
            46,667
            
            
            
            76,621Increase
                (decrease) in interest payable
            
            
            263,896
            
            
            
            236,021Total
                adjustments
            
            
            1,947,480
            
            
            
            1,246,972Net
                cash (used) by operating activities
            
            
            (747,741
            )
            
            
            (540,844
            )**Cash
                flows from investing activities:**Cash
                payments for the purchase of equipment
            
            
            (2,940
            )
            
            
            (1,805
            )Net
                cash (used) by investing activities
            
            
            (2,940
            )
            
            
            (1,805
            )**Cash
                flows from financing activities:**Net
                proceeds from issuance of convertible notes
            
            
            783,271
            
            
            
            743,250Principal
                payments on short term notes
            
            
            
            
            
            
            (50,000
            )Net
                proceeds from short term notes
            
            
            —
            
            
            
            50,000Net
                cash provided by financing activities
            
            
            783,271
            
            
            
            743,250**Net
                increase in cash and equivalents**
            
            
            32,590
            
            
            
            200,601**Cash
                and equivalents, beginning of period**
            
            
            206,725
            
            
            
            151,459**Cash
                and equivalents, end of period**
            
            $
            239,315
            
            
            $
            352,060**Supplemental
                disclosures of cash flow information:****Cash
                paid during the year for:**Interest
                expense
            
            $
            37,248
            
            
            $
            4,375Income
                tax
            
            $
            1,601
            
            
            $
            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 six months ended June
      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.





**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.





**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




5


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
      June 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 June
      30, 2007, cash and cash equivalents included $234,842 of cash held in commercial
      banks, petty cash fund of $250, and $4,223 of money market
      securities.





**Advertising**


The
      Company expenses advertising costs as they are incurred. Advertising expense
      for
      the three and six months ended June 30, 2007 amounted to $7,655 and $8,467,
      respectively. Advertising expense for the three and six months ended June 30,
      2006 amounted to $0 and $11,666, 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 six
      months ended June 30, 2007 amounted to $29,889 and $51,750, respectively. The
      total amount of research and development expenses incurred for the three and
      six
      months ended June 30, 2006 amounted to $9,717 and $70,039,
      respectively.





**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




6


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 six
      months ended June 30, 2007 was $168,782 and $393,271, respectively.





Stock
      based compensation expense for the three and six months ended June 30, 2006
      was
      $26,639 and $54,694, respectively.





No
      stock
      options were exercised during the three and six months ended June 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
      June
      30, 2007, we had net deferred offering costs of $482,940. These costs were
      primarily related to our Standby Equity Distribution Agreement or “SEDA”(Note
      12) and will be offset against the proceeds of the offering, when
      consummated.





**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 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




7


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.





8


**Note
      2 – Property, Plant and Equipment:**





Property,
      plant and equipment as of June 30, 2007 are as follows:





**June
                30, 2007**Equipment
                and Computers
            
            $
            50,640Less:
                Accumulated depreciation
            
            
            (41,115
            )$
            9,525





Depreciation
      expense charged to income for the three and six months ended June 30, 2007
      amounted to $2,138 and $4,090, respectively.





Depreciation
      expense charged to income for the three and six months ended June 30, 2006
      amounted to $6,353 and $8,282, 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:





**June
                30, 2007**2003/2004
                Private Placement
            
            $
            930,4762005
                Bridge Loan A
            
            
            200,0482005
                Bridge Loan B
            
            
            274,1142006
                Bridge Loans
            
            
            234,3002007
                Bridge Loans
            
            
            88,585Total
                Debt Issuance Costs
            
            
            1,727,523Less:  Accumulated
                Amortization
            
            
            (1,382,497
            )$
            345,026





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 six months ended June 30, 2007
      amounted to $69,618 and $221,880, respectively.





Amortization
      expense charged to income for the three and six months ended June 30, 2006
      amounted to $150,859 and $308,445, 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 June 30, 2007, the Company had
      classified the fair value of all warrants and conversion features as a
      derivative liability.





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 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 and is being amortized over the life of the convertible note. As of
      June
      30, 2007, there were $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




10


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 and 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 June 30, 2007, there were $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 and is being amortized over
      the life of the convertible note. As of June 30, 2007, there were $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 and is being amortized over the life of the
      convertible note.





11


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 and 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 July 13, 2007. The Company did
      not pay the 2006 D Notes on July 13, 2007. The Company is in the process of
      negotiating an extension of the 2006 D Notes with the holder. 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 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 and 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”).




12


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 and 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.





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 and 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




13


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 and is being amortized over
      the
      life of the convertible note.





On
      April
      4, 2006, the Company 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 $24,600 and is being amortized over the life of the convertible
      note.





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 June 30, 2007, $745,000 of these convertible notes have been
      converted to common stock.





A
      convertible note in accordance with the Company’s private placement memorandum
      dated October 24, 2003 of $4.8 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




14


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 June 30, 2007, $100,000 of the convertible notes have 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 June 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. 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.





Maturities
      of debt are as follows:





For
                the year ended December 31, 2007
            
            $
            1,655,010For
                the year ended December 31, 2008
            
            
            2,594,000For
                the year ended December 31, 2009
            
            
            2,771,000Thereafter
            
            
            —Total
            
            $
            7,020,010







15


The
      derivative liability consists of the following:





Date
            Description
            
            Balance12/31/06
            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
            
            
            474,6506/30/07
            Fair
                market value adjustment on conversion options
            
            
            (74,169
            )6/30/07
            Fair
                market value adjustment on the 2006 advisory contract
            
            
            (88,000
            )6/30/07
            Fair
                market value adjustment on warrant liabilities
            
            
            (294,615
            )Total
            
            
            $
            2,707,171




**Note
      5 – Accrued Salaries and Interest:**





Accrued
      salaries and interest represents salaries due to officers of the Company. During
      the three and six months ended June 30, 2007 the Company accrued salaries in
      the
      amounts of $21,875 and $43,750, respectively, and accrued interest expense
      on
      salaries of $7,140 and $11,201, respectively. At June 30, 2007 the officers
      were
      due $258,430 in accrued salaries along with interest on the accrued salaries
      of
      $35,359. Interest is accrued at a rate of 8.500% per annum.





**Note
      6 – Provision for Income Taxes:**





As
      of
      June 30, 2007, non-current deferred tax liabilities for taxable temporary
      differences total $0. Non-current deferred tax assets recognized for deductible
      temporary differences total $7,576,539.





The
      Company’s deferred tax assets and liabilities consist of the following at June
      30, 2007:





Deferred
                tax assets:Net
                operating loss carryforwards
            
            $
            7,363,922Excess
                of tax basis over financial statement of intangible assets
            
            
            211,697Excess
                of tax basis over financial statement of property, plant and
                equipment
            
            
            920Valuation
                allowance for deferred tax assets
            
            
            (7,576,539
            )$
            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,




16


2006,
      increased by $811,416 to $7,172,421 at March 31, 2007 and increased by $404,118
      to $7,576,539 at June 30, 2007.





Income
      tax expense for the six months ended June 30, 2007 and 2006 consisted of the
      following:





**June
                30, 2007**
            
            
            **June
                30, 2006**Current
                State Tax
            
            $
            1,601
            
            
            $
            800





As
      of
      June 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 June 30, 2007, the Company’s cash and cash equivalents exceeded federally
      insured limits by $147,907.





**Note
      8 – Cash Flow Disclosures:**





Non-cash
      investing and financing transactions for the six months ended June 30, 2007
      included the following:





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 six months ended  June
      30, 2006 included the following:





Convertible
      notes along with accrued interest totaling $619,302 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.




17


**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 six months ended June 30, 2007, management has committed to contribute
      $0
      and $0, respectively to the plan. For the three and six months ended June 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 six months ended June 30, 2007. Matching contributions to the 401K plan
      amounted to $0 and $0, respectively for the three and six months ended June
      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 $24,000 and $42,000 relating to this agreement were incurred
      during the three and six months ended June 30, 2007, respectively, along with
      15,000 stock options granted. Consulting fees of $11,000 and $20,000 relating
      to
      this agreement were incurred during the three and six months ended June 30,
      2006, respectively, along with 15,000 stock options granted.





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 $119,216
      relating to this agreement from January 1, 2007 through June 30,
      2007.





**Note
      11 – Stock Option Plan:**





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 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 six months ended June 30, 2007 was $393,271, 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).







18


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
            
            5
                years
            
            -0-
            
            4.7%
            
            82%








The
      status of the stock option plan is as follows at June 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
            
            
            549,999
            
            
            
            .30Exercised
            
            
            —
            
            
            
            —Canceled
            
            
            —
            
            
            
            —Outstanding
                at June 30, 2007
            
            
            11,755,332
            
            
            
            .25Exercisable
                at June 30, 2007
            
            
            7,235,324
            
            
            $
            0.25Exercisable
                at December 31, 2006
            
            
            6,521,996
            
            
            $
            0.25





**Note
      12 – Stockholders’ Equity:**





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 with Cornell Capital Partners, LP.  Pursuant to the Standby
      Equity Distribution Agreement, the Company may, at its discretion, periodically
      sell to Cornell Capital Partners, LP shares of common stock for a total purchase
      price of up to $10.0 million.  For each share of common stock
      purchased under the Standby Equity Distribution Agreement, Cornell Capital
      Partners, LP will pay the Company 95% of the lowest volume weighted average
      price of the Company’s common stock as quoted by Bloomberg, LP on the
      Over-the-Counter Bulletin Board or other principal market on which the Company’s
      common stock is traded for the 5 days immediately following the notice
      date.





The
      total
      number of shares issued to Cornell Capital Partners, LP under each advance
      request will be equal to the total dollar amount of the advance request divided
      by the purchase price determined during the five day




19


pricing
      period.  Cornell Capital Partners, LP will also retain 5% of each
      advance under the Standby Equity Distribution Agreement.  Cornell
      Capital Partners, LP’s obligation to purchase shares of the Company’s common
      stock under the Standby Equity Distribution Agreement is subject to certain
      conditions, including the Company maintaining an effective registration
      statement for shares of common stock sold under the Standby Equity Distribution
      Agreement and is limited to $500,000 every five trading days.  The
      amount and timing of all advances under the Standby Equity Distribution
      Agreement are at the discretion of the Company and the Company is not obligated
      to issue and sell any securities to Cornell Capital Partners, LP, unless and
      until it decides to do so.  Upon execution of the Standby Equity
      Distribution Agreement, Cornell Capital Partners, LP 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, the balance of the 2006 stock issuance costs
      were
      legal & consulting fees related to the Standby Equity Distribution Agreement
      and other registration related services. In addition, a portion of these
      services were related to the conversion of notes into common sock. 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.”





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, Cornell Capital Partners, LP was seeking initial
      compensation in the amount of $500,000. Cornell Capital Partners, LP 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.




20


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 June 30, 2007.





**Warrants**


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:  93.5 %, Risk-Free Rate: 4.7%, and
      Dividend Growth Rate: 5%.





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 is being amortized over the life of the convertible
      note.  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 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 six 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 six months ended June 30, 2007
      was
      $0 and $0, respectively. The total rent for the three and six months ended
      June
      30, 2006 was $13,110 and $26,221.  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 six months ended June 30, 2007 was $14,474 and
      $27,578, respectively.





PHT
      also
      has various equipment leases that are treated as operating leases for financial
      reporting purposes.





21


**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
      $2,695,221 during the six months ended June 30, 2007, and as of that date,
      the
      Company’s current liabilities exceeded its current assets by $5,738,530. 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**





The
      Company and Dawson James Securities (“Dawson James”) have entered into a
      Placement Agreement on July 2, 2007 (the “Placement Agreement”) pursuant to
      which Dawson James will act as a placement agent for the placement of up to
      $600,000 of the Company’s securities.  Dawson James will receive cash
      compensation equal to 12% of the gross offering price, plus an additional
      non-accountable expense allowance equal to 5% of the gross offering price,
      of
      the securities sold by or through Dawson James.  The Company will pay
      the legal fees incurred by Dawson James in connection with the offering which
      includes, but is not limited to, blue sky filing fees and issuance
      costs.  At each closing of the offering of the securities, Dawson
      James will also receive warrants to purchase such number of shares of common
      stock as equals 10% of the common stock issued to investors in the
      offering.  Such warrants will be exercisable at a price equal to 100%
      of the price of common stock in the offering.





The
      Company entered into a Financial Advisory and Investment Banking Agreement
      with
      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 issued 250,000 five year warrants to purchase
      Company common stock at $0.50 per share to Dawson James as consideration under
      the Financial Advisory Agreement.  In addition, the Financial Advisory
      Agreement provided 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.





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 became a reporting company under the Securities Exchange
      Act of 1934.





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






22


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.





Effective
      July 13, 2007, the holder of the 2007 C Note consented to an amendment of the
      maturity date of such Note until November 1, 2007.





Effective
      July 15, 2007, the holders of the 2006 G Notes consented to an amendment of
      the
      maturity date of such Notes until November 1, 2007.





**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.





**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




23


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 and 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 will 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.





**RESULTS
      OF OPERATIONS**





**SIX
      MONTHS ENDED JUNE 30, 2007**


**COMPARED
      TO SIX MONTHS ENDED JUNE 30, 2006**





**Revenues**during the six months ended on June 30, 2007 of $589 decreased by
      $3,346, or 85%, from $3,935 in the corresponding six months ended June 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 six months ended
      on June 30, 2007, the Company sold 2 Core:Tx units and 4 Core:Tx units during
      the six months ended on June 30, 2006.





**Cost
      of goods sold** in the six months ended June 30, 2007 of $0 decreased by
      $500, or 100%, from $500 in the corresponding six months ended June 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 six months ended June 30, 2007 of
      $51,750 decreased by $18,289, or 26%, from $70,039 in the corresponding six
      months ended June 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 six months
      ended June 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 first
      quarter 2007.   Management engaged outside contractors for
      research and development needs during the six months ended June 30, 2007 in
      the
      amount of $45,070.  This decrease was offset by an increase in travel
      expenses in the amount $4,855.




24


**General
      and Administrative Expenses**during the six months ended June 30, 2007
      of $1,295,547 increased by $896,660, or 225%, from $398,887 in the corresponding
      six months ended June 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 $393,271 for the six months ended
      June
      30, 2007 as compared to $54,694 for the six months ended June 30,
      2006.  The increase is also attributable to expenses for consulting
      and outside services relating to the management’s efforts to raise capital, and
      the registration of the Company’s securities with the Securities Exchange
      Commission.  Consulting expenses increased by $438,615 and accounting
      fees increased by $154,290 for the six months ended June 30, 2007 as compared
      to
      the six months ended June 2006.  These increases were offset by a
      decrease of $32,340 in general and administrative salaries.





**Sales
      and Marketing Expenses**during the six months ended June 30, 2007 of
      $54,777 decreased by $13,617, or 20%, from $68,394 in the corresponding six
      months ended June 30, 2006. The decrease is primarily attributable to the
      Company’s focus on product enhancements and registering the Company’s securities
      with the Securities Exchange Commission.  The Company lowered its
      marketing salaries and related payroll expenses by $10,071 during the six months
      ended June 30, 2007 as compared to the comparable period ended June 30,
      2006.  Advertising, market research and marketing supply expenses
      decreased by $16,692 during the six months ended June 30, 2007 as compared
      to
      the comparable period ended June 30, 2006.  The decreases were offset
      by an increase in trade show expenses in the amount of $12,255.




**Amortization**
      during the six months ended June 30, 2007 of $221,880 decreased by $86,565,
      or
      28%, from $308,445 during the corresponding six months ended June 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 six months ended June 30, 2007.




**Interest
      expense, net of interest income and interest expense related to beneficial
      conversion** during the six months ended June 30, 2007 of $1,527,054
      increased by $279,048, or 22%, from $1,248,006 during the corresponding six
      months ended June 30, 2006.  The increase is primarily attributable to
      an increase in interest expense on debt instruments in the amount of $12,495
      for
      the six months ended June 30, 2007 as compared to the comparable period ended
      June 30, 2006, an increase 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 six months
      ended June 30, 2007, offset by the debt discount on 2005 Bridge Loan A and
      2005
      Bridge Loan B fully amortizing during the six months ended June 30,
      2006.





**Gain
      on Derivative Liability** during the six months ended June 30, 2007 of
      $456,784 increased by $153,478, or 51% from $303,306 during the corresponding
      six months ended June 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 $(2,695,221) or $(0.06) per share for
      the six months ended June 30, 2007 as compared to a net loss of $(1,787,816)
      or
      $(0.05) per share for the corresponding six months ended June 30, 2006. The
      increase in net loss is primarily attributable to an increase in general and
      administrative expenses, an increase in interest expense on the amortization
      of
      the debt discount recorded on the Company’s convertible note
      instruments.





**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




25


licensing
      efforts yield a sustainable income stream. As of June 30, 2007 our accumulated
      deficit was $(23,096,211).




**THREE
      MONTHS ENDED JUNE 30, 2007 COMPARED TO**


**THREE
      MONTHS ENDED JUNE 30, 2006**





**Revenues**during the three months ended on June 30, 2007 of $0 decreased by
      $1,657, or 100%, from $1,657 in the corresponding three months ended June 30,
      2006 primarily resulting from a decrease in rental income of $949 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 quarter of 2006.  The decrease is also a
      result of no Core:Tx sales during the quarter ended June 30, 2007, a difference
      of $628 as compared to sales of the Core:Tx product during the corresponding
      period ended June 30, 2006.  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 June 30, 2007, the Company sold 0 Core:Tx units and
      2
      Core:Tx units during the three months ended on June 30, 2006.





**Research
      and Development Expenses** during the three months ended June 30, 2007 of
      $29,889 increased by $20,172, or 208%, from $9,717 in the corresponding three
      months ended June 30, 2006. The increase in research and development expenses
      is
      primarily attributable management’s move from salaried employees to outside
      contractors during 2006.  During the three months ended June 30, 2006,
      management in an effort to conserve resources, only paid $8,901 in salary and
      related expenses as compared to $23,770 expensed on outside contractors during
      the corresponding period in 2007, resulting in an increase of
      $14,869.  The Company also expensed $4,650 on travel during the six
      months ended June 30, 2007 as compared to $0 spent during the corresponding
      six
      month period in 2006.




**General
      and Administrative Expenses**during the three months ended June 30, 2007
      of $530,755 increased by $342,067, or 181%, from $188,688 in the corresponding
      three months ended June 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 $168,782 for the three months ended
      June 30, 2007 as compared to $26,639 for the three months ended June 30,
      2006.****The increase is also attributable to expenses for
      consulting and outside services relating to the management’s efforts to raise
      capital, and the registration of the Company’s securities with the Securities
      Exchange Commission.  Consulting expenses increased by $143,475 and
      accounting fees increased by $105,453 for the six months ended June 30, 2007
      as
      compared to the six months ended June 2006.  These increases were
      offset by a decrease of $30,210 in general and administrative
      salaries.





**Sales
      and Marketing Expenses**during the three months ended June 30, 2007 of
      $29,395 increased by $8,912, or 44%, from $20,483 in the corresponding three
      months ended June 30, 2006. The increase is primarily attributable to the
      Company’s focus on product enhancements and registering the Company’s securities
      with the Securities Exchange Commission.  The Company increased its
      marketing salaries and related payroll expenses by $4,570 during the six months
      ended June 30, 2007 as compared to the comparable period ended June 30,
      2006.  Advertising, sales consulting, and trade show expenses
      increased by $13,517.  These increases were offset by a decrease in
      market research in the amount of $9,200.




**Amortization**
      during the three months ended June 30, 2007 of $69,618 decreased by $81,241,
      or
      54%, from $150,859 during the corresponding three months ended June 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 June 30, 2007.




26


**Interest
      expense, net of interest income and interest expense related to beneficial
      conversion** during the three months ended June 30, 2007 of $785,177
      increased by $143,797, or 22%, from $641,380 during the corresponding three
      months ended June 30, 2006.  The increase is primarily attributable to
      an increase in interest expense on debt instruments in the amount of $18,553
      for
      the three months ended June 30, 2007 as compared to the comparable period ended
      June 30, 2006, an increase 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 six months
      ended June 30, 2007, offset by the debt discount on 2005 Bridge Loan A and
      2005
      Bridge Loan B fully amortizing during the six months ended June 30,
      2006.





**Gain
      on Derivative Liability** during the three months ended June 30, 2007 of
      $88,750 decreased by $24,897, or 22% from $113,647 during the corresponding
      three months ended June 30, 2006.  The decrease 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.  The
      Company experienced large gains on the valuation of the 2005 Bridge Loan A
      and
      2005 Bridge Loan B prior to their conversion to common stock in
      2006.





**Net
      loss to common shareholders** was $(1,356,876) or $(0.03) per share for
      the three months ended June 30, 2007 as compared to a net loss of $(895,817)
      or
      $(0.02) per share for the corresponding three months ended June 30, 2006. The
      increase in net loss is primarily attributable to an increase in general and
      administrative expenses and an increase in interest expense offset by a decrease
      in amortization 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 June 30, 2007 our accumulated deficit was
      $(23,096,211).





**LIQUIDITY
      AND FINANCIAL CONDITION**





**GENERAL**





At
      June
      30, 2007, cash and cash equivalents were $239,315. Total liabilities at June
      30,
      2007 were $1,240,673, consisting of current liabilities in the aggregate amount
      of $6,136,910 and long-term liabilities in the amount of $4,238,696. At June
      30,
      2007, assets included $133,064 in prepaid expenses, $26,001 in inventory, $9,525
      in furniture and equipment, net of depreciation; $345,026 in debt issuance
      costs, net of amortization; $482,940 in deferred offering costs, and other
      assets of $4,802. As of June 30, 2007, our working capital deficit was
      $(5,738,530) 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 June 30, 2007 was as follows:




**June
                30, 2007**Short-term
                note
            
            $
            50,000Short-term
                bridge loans
            
            
            2,170,010Convertible
                notes
            
            
            4,800,000




For
      more
      detailed information on long-term liabilities, see Note 4 to our Financial
      Statements contained herein.





27


**FINANCING
      TRANSACTIONS**





We
      have
      financed our operations since inception primarily through equity and debt
      financings and, loans from shareholders and other related parties. In January
      2006, we entered into a $10 million Standby Equity Distribution Agreement with
      Cornell Capital Partners, LP. We will need to register the shares to be issued
      under the Standby Equity Distribution Agreement before such shares can be issued
      to Cornell Capital in the future. Management and the Board of Directors is
      presently considering whether utilization of the Standby Equity Distribution
      Agreement is in the best interest of the Company.





We
      have
      recently entered into a number of financing transactions and are continuing
      to
      seek additional 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 or 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 $586,513
      on
      the continued development of the products. The Company also used approximately
      $409,408 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 $985,627 of professional fees in conjunction with the
      SEC
      registration. At June 30, 2007, $294,131 of these fees are unpaid and included
      in Accounts Payable.





Currently,
      the Company is burning approximately $70,000 per month on recurring expenses.
      Of
      the $70,000 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.





The
      following is a general description of our financing transactions entered into
      since the beginning of our quarter ended June 30, 2007.  See also the
      Notes to Financial Statements contained herein for a description of these and
      other financing transactions.





**PRIVATE
      PLACEMENTS**





*2007
      C  UNITS*.  On May 14, 2007, we 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, was payable on July 13,
      2007.  The 2007 C Note was extended until November 1,
      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.  As of August 1, 2007, there were $300,000 in principal
      of the 2007 C Notes outstanding.





*2007
      D UNITS.*  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




28


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 five year warrants (the
“Warrants”) to purchase one share of our common stock. The exercise price is
      $0.75 for 2,000 of the Warrants and $1.50 per share for the remaining 2,000
      Warrants. The 2007 D Notes bear interest at 10% per annum and will mature on
      June 15, 2008 (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, 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.  We repaid amounts due of less than $1,000 in cash to the
      exchanging noteholders for an aggregate $1,693.  As of August 1, 2007,
      there were $315,000 in principal of the 2007 D Notes outstanding.





*2007
      E UNITS.*  On June 27, 2007, we 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 five year warrants (the “Warrants”) to purchase one
      share of our common stock. The exercise price is $0.75 for 2,000 of the Warrants
      and $1.50 per share for the remaining 2,000 Warrants.  The 2007 E
      Notes bear interest at 10% per annum and will mature June 27, 2008 (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, 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.   As of August 1, 2007, there were $250,000 in principal
      of the 2007 E Notes outstanding.





**STANDBY
      EQUITY DISTRIBUTION AGREEMENT (CORNELL CAPITAL*)***





On
      January 23, 2006, we entered into a Standby Equity Distribution Agreement with
      Cornell Capital pursuant to which we may, at our discretion, periodically sell
      to Cornell Capital shares of our common stock for a total purchase price of
      up
      to $10 million.  We may request advances under the Standby Equity
      Distribution Agreement once the underlying shares are registered with the SEC.
      We have not yet registered such shares with the SEC and there can be no
      assurance that we will register such shares or draw down funds under the Standby
      Equity Distribution Agreement. Management and the Board of Directors is
      presently considering whether utilization of the Standby Equity Distribution
      Agreement is in the best interest of the Company.





**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




29


and
      $15,000 per month liquidated damages in the event such warrants are not
      registered within 60 days piggyback registration request.  As of
      August 1, 2007, the underlying shares related to all notes issued since August
      1, 2005 had registration rights.





We
      also
      entered into a registration rights agreement with Cornell Capital for the shares
      to be issued under the Standby Equity Distribution Agreement and the 2,000,000
      shares that we issued to Cornell Capital in connection with that
      agreement.  This registration rights agreement does not contain any
      penalties in the event we do not register these shares, however, we may not
      issue any of the shares to Cornell Capital under the Standby Equity Distribution
      Agreement unless such shares are registered.  We have not yet
      registered such shares with the SEC and there can be no assurance that we will
      register such shares or draw down funds under the Standby Equity Distribution
      Agreement.





**SECURITY
      INTEREST IN PUT NOTICES UNDER THE STANDBY EQUITY DISTRIBUTION
      AGREEMENT**





The
      repayment of the obligations under our 2006 A Notes, 2006 B Notes and 2006
      C
      Notes (see Note 4 to the Financial Statements) will 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 Cornell Capital within
      five
      days of the effectiveness of the registration statement related to the shares
      issuable under the Standby Equity Distribution Agreement. In the event we do
      not
      repay the notes when due and such registration statement is effective, the
      note
      holder will have the right to receive the cash payable by Cornell Capital to
      us
      for the shares sold by us from time to time to Cornell Capital under the Standby
      Equity Distribution Agreement. Except in the foregoing circumstances, we do
      not
      presently intend to use the funds available under the Standby Equity
      Distribution Agreement for the repayment of debt although we may utilize such
      funds for debt repayment if we have no other source of capital for such
      obligations.





**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 (see Note 4 to the
      Financial Statements). 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 $3.4 million in debt and equity financings we would have
      sufficient funds to meet our needs for working capital, repayment of debt
      (approximately $1.65 million expected to mature from June 30 to December 31,
      2007) and for capital expenditures over the next twelve months.





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
      earn 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).





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 June 30, 2007, we had
      an
      accumulated deficit of approximately $23.1 million.





We
      have
      financed our operations since inception primarily through equity financings
      and
      loans from our officers, directors and stockholders. We have recently entered
      into a Standby Equity Distribution Agreement. 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 or at all
      under
      the Standby Equity Distribution Agreement or otherwise. 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




31


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.





**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 $2.7 million for
      the
      six months ended June 30, 2007. We expect to incur substantial additional
      operating losses in the future. During the year ended December 31, 2006 and
      the
      six months ended June, 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 June 30,
      2007 were not sufficient to satisfy our current
      liabilities.**We had a working capital deficit of $5,738,530
      at June 30, 2007, which means that our current liabilities exceeded our current
      assets on June 30, 2007 by $5,738,530. 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 June 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 (see Note 4 to the Financial Statements). 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 $3.4 million in debt and equity financings we
      would have sufficient funds to meet our needs for working capital, repayment
      of
      debt (approximately $1.65 million expected to mature from June 30 to December
      31, 2007) and for capital expenditures over the next twelve months.





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.





On
      January 23, 2006, we entered into a Standby Equity Distribution Agreement with
      Cornell Capital pursuant to which we may, at our discretion, periodically sell
      to Cornell Capital shares of our common stock for a total purchase price of
      up
      to $10 million.  We may request advances under the Standby Equity
      Distribution Agreement once the underlying shares are registered with the SEC.
      We have not yet registered such shares with the SEC and there can be no
      assurance that we will register such shares or draw down funds under the Standby
      Equity Distribution Agreement. Management and the Board of Directors is
      presently considering whether utilization of the Standby Equity Distribution
      Agreement is in the best interest of the Company.




32


**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 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
      August 1, 2007, there were 48,493,352 shares of our common stock outstanding
      of
      which 41,049,344 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 7,444,008 shares have been
      outstanding for more than one year but less than two years and will be eligible
      for sale in the public market for sale beginning on October 11, 2007 under
      Rule
      144.





In
      addition, as of August 1, 2007, 19,200,000 shares issuable upon conversion
      of
      $4,800,000 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 will be eligible in the
      public market for sale beginning on October 11, 2007 under Rule 144 once the
      one
      year holding period has been satisfied.





In
      addition, as of August 1, 2007, we had warrants outstanding to purchase up
      to 28,161,563 shares of our common stock. Of such warrants, shares issuable
      upon
      the cashless exercise of 2,363,263 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 5,111,850
      warrants will be eligible in the public market for sale beginning on October
      11,
      2007  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. Shares eligible for sale under Rule 144
      may
      be sold beginning on October 11, 2007.





Upon
      vesting, 11,755,332 shares will also be issuable upon the exercise of presently
      outstanding stock options and 9,244,668 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 beginning on October 11,
      2007 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.




33


**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.





As
      of
      August 1, 2007, we had 48,493,352 shares of common stock issued and outstanding,
      $6,740,000 in principal of all outstanding convertible notes that may be
      converted into approximately 28.4 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 $6,740,000 in principal of convertible notes and
      28,161,563  warrants, $4,800,000 in principal of our convertible notes
      sold in 2003 and 2004 which currently have a conversion price of $0.25 per
      share
      and 9,825,113 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. We intend to file,
      through a market maker, an information statement pursuant to Section 15c-211
      with the National Association of Securities Dealers, Inc. for quotation of
      our
      common stock on the Over-the-Counter Bulletin Board. 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 August 1, 2007, we have 48,493,352 shares of common
      stock outstanding and no shares of preferred stock outstanding.





**Stock
      Options**





As
      of
      August 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) 5,414,999 shares of our common stock issuable upon exercise
      of
      outstanding stock options under the 2006 Plan at $0.25 to $0.30 per
      share.





34


**Warrants**





As
      of
      August 1, 2007, there were outstanding warrants to purchase 28,161,563 shares
      of
      our common stock at prices ranging from $0.025 to $1.50 per share.





**Convertible
      Notes**





**Conversion
      into Common Stock****.**As of August 1,
      2007, there were outstanding promissory notes convertible into shares of our
      common stock as follows:





**Principal**
            
            **Type
                of Note**
            **Conversion
                Terms**
            
            **Conversion
                Shares**$
            4,800,000
            
            2003
                Notes
            Convertible
                into common stock at $0.25 per share.
            
            
            19,200,000$
            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].
            
            
            1,050,001$
            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**$**
            **6,740,000**
            
            
            
            
            ****
            **28,397,624**





35


**Notes
      with a Continuously Adjusting Conversion
      Price****.**As set forth above, of our
      outstanding $6,740,000 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 $6,740,000 in principal of convertible notes, $4,800,000 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
      June 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 second quarter of fiscal 2007 or subsequent
      to
      the date of the evaluation by its management thereof.





36


**PART
      II.**


**OTHER
      INFORMATION**




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




None.




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





On
      May
      14, 2007, we 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, was originally payable on July 13, 2007 and has been
      extended until November 1, 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.  This issuance was exempt from registration requirements
      pursuant to Section 4(2) of the Securities Act of 1933.





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 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.  We repaid amounts due of less
      than $1,000 in cash to the exchanging noteholders for an aggregate
      $1,693.  This issuance was exempt from registration requirements
      pursuant to Section 4(2) of the Securities Act of 1933.





On
      June
      27, 2007, we 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




37


not
      less
      than $0.30 (the “Conversion Price”). The 2007 E Notes may be redeemed by us 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 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.





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 $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.





**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**




None.




**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)





10.74
            Form
                of Debt Exchange Agreement and Investor Questionnaire dated June
                15, 2007
                entered into in 2007 D private placement
                (2)





38


10.75
            Form
                of Convertible Note dated June 15, 2007
                (2)





10.76
            Form
                of $0.75 Warrants dated June 15, 2007
                (2)





10.77
            Form
                of $1.50 Warrants dated June 15, 2007
                (2)





10.80
            Form
                of Subscription Agreement and Investor Questionnaire
                entered into in 2007 E private placement
                (2)





10.81
            Form
                of Convertible Note issued in 2007 E private
                placement(2)





10.82
            Form
                of $0.75 Warrants issued in 2007E private placement
                (2)





10.83
            Form
                of $1.50 Warrants issued in 2007 E private placement
                (2)





10.84
            Form
                of Amendment to Convertible Notes dated April 4, 2006 (3)10.85
            Form
                of Amendment to Convertible Notes dated May 15, 2006, May 24, 2006
                and
              June
                30, 2006 (3)





10.86
            [Omitted]





10.87
            Form
                of Amendment to Convertible Notes dated December 27, 2006, January
                11,
                2007 and January 16, 2007 (3)





10.88
            Form
                of Amendment to Convertible Note dated May 14, 2007
                (3)





10.89
            Dawson
                James Financial Advisory Agreement dated July 2, 2007
                (3)10.90
            Dawson
                James Placement Agreement dated July 2, 2007 +10.91
            Warrant
                issued to Dawson James dated August 15, 2007 +





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)           Incorporated
      by reference to the Company’s Form 8-K filed July 18, 2007.





(2)
            Incorporated
                by reference to Amendment No. 1 to the Company’s Registration Statement on
                Form 10-SB filed July 2, 2007.





(3)
            Incorporated
                by reference to Amendment No. 2 to the Company’s Registration Statement on
                Form 10-SB filed August 6, 2007.





+           Exhibit
      filed herewith in this Report.


39


**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:  August
                20, 2007BY:
            
            /s/
                Robert D. Prunetti
              Robert
                D. Prunetti, President and Chief Executive Officer(Principal
                Executive Officer)BY:
            
            /s/
                James E. Bartolomei
              James
                E. Bartolomei, Chief Financial Officer(Principal
                Financial and Accounting Officer)










40