UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-QSB/A


Amendment No.
1





(Mark
One)





[X]
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the quarterly period ended March 31,
2008





[  
      ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT





For the
transition period from ____________ to ______________





Commission
file number: 000-51804





PEDIATRIC PROSTHETICS,
INC.


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





IDAHO
            68-0566694(State
      or other jurisdiction of
            (IRS
      Employer Identification No.)incorporation
      or organization)





12926 Willow Chase Drive,
Houston, Texas 77070


(Address
of principal executive offices)





(281)
897-1108


(Registrant's
telephone number)








Check
whether the registrant (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 [X] No [ 
]





As of
June 17, 2008, 117,925,789 shares of Common Stock of the issuer were outstanding
("Common Stock").





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





Transitional
Small Business Disclosure Format Yes [  ] No [X]




The
Registrant is filing this Amended Report on Form 10-QSB to include restated
financial statements to record stock based compensation for shares issued in
February 2008 for investor relations services and to correct some typographic
errors for amounts previously filed for the 2007 financial
statements.





















PART
I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL
STATEMENTS







PEDIATRIC PROSTHETICS, INC.UNAUDITED
      BALANCE SHEETSMarch
      31, 2008 and June 30, 2007March
      31, 2008
            
            
            June
      30, 2007ASSETS
            
            (Restated)Current
      assets:Cash
      and cash equivalents
            
            $
            9,205
            
            
            $
            25,557Trade
      accounts receivable, net of reserve of $491,680 and
              $395,915,
      respectively
            
            
            490,526
            
            
            
            249,418Prepaid
      expenses and other current assets
            
            
            36,920
            
            
            
            11,420Current
      portion of deferred financing costs
            
            
            160,295
            
            
            
            152,111Total
      current assets
            
            
            696,946
            
            
            
            438,506Furniture
      and equipment, net of accumulated depreciation of $88,521
              and
      $71,965, respectively
            
            
            30,323
            
            
            
            46,879Deferred
      financing costs, net of accumulated amortization of $251,807
              and
      $140,450, respectively
            
            
            28,079
            
            
            
            139,436Total
      assets
            
            $
            755,348
            
            
            $
            624,821LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Trade
      accounts payable
            
            $
            203,152
            
            
            $
            243,068Accrued
      liabilities
            
            
            150,309
            
            
            
            143,985Current
      portion of convertible debt
            
            
            -
            
            
            
            75,000Due
      to related party
            
            
            500
            
            
            
            500Derivative
      financial instruments
            
            
            1,425,671
            
            
            
            2,974,683Total
      current liabilities
            
            
            1,779,632
            
            
            
            3,437,236Convertible
      debt, net of discount of $900,913 and $810,486
respectively
            
            
            496,558
            
            
            
            189,514Deferred
      rent
            
            
            6,742
            
            
            
            10,060Total
      liabilities
            
            
            2,282,932
            
            
            
            3,636,810Commitments
      and contingencies
            
            
            -
            
            
            
            -Stockholders'
      deficit:Preferred
      stock, par value $0.001; authorized10,000,000; 
      issued and outstanding 1,000,000 shares
            
            
            1,000
            
            
            
            1,000Common
      stock, par value $0.001; authorized 950,000,000;issued
      and outstanding 116,368,573 and 100,274,889 shares,
      respectively
            
            
            116,369
            
            
            
            100,275Additional
      paid-in capital
            
            
            8,789,385
            
            
            
            8,542,869Accumulated
      deficit
            
            
            (10,434,338
            )
            
            
            (11,656,133
            )Total
      stockholders’ deficit
            
            
            (1,527,584
            )
            
            
            (3,011,989
            )Total
      liabilities and stockholders' deficit
            
            $
            755,348
            
            
            $
            624,821The
      accompanying notes are an integral part of these financial
      statements.












F-1















PEDIATRIC PROSTHETICS, INC.UNAUDITED
      STATEMENTS OF OPERATIONSFor
      the Three and Nine Months Ended March 31,2008 and 2007Three
      Months Ended
            
            
            Nine
      Months EndedMarch
      31
            
            
            March
      312008
            
            
            2007
            
            
            2008
            
            
            2007(Restated)
            
            
            
            
            
            (Restated)Revenue
            
            $
            319,528
            
            
            $
            133,323
            
            
            $
            746,154
            
            
            $
            595,086Operating
      expenses:Cost
      of sales, except for items stated separately below
            
            
            42,111
            
            
            
            62,707
            
            
            
            122,356
            
            
            
            199,743Selling,
      general and administrative expenses
            
            
            173,687
            
            
            
            406,155
            
            
            
            816,337
            
            
            
            1,334,606Depreciation
      expense
            
            
            5,259
            
            
            
            6,038
            
            
            
            16,556
            
            
            
            18,035Total
      operating expenses
            
            
            221,057
            
            
            
            474,900
            
            
            
            955,249
            
            
            
            1,552,384Income
      (loss) from operations
            
            
            98,471
            
            
            
            (341,577
            )
            
            
            (209,095
            )
            
            
            (957,298
            )Other
      income (expenses):Interest
      income
            
            
            18
            
            
            
            -
            
            
            
            18
            
            
            
            1Interest
      expense
            
            
            (130,741
            )
            
            
            (70,141
            )
            
            
            (457,627
            )
            
            
            (229,726
            )Gain
      on derivative financial instruments
            
            
            -
            
            
            
            411,778
            
            
            
            1,875,767
            
            
            
            2,764,979Other
      income
            
            
            246
            
            
            
            -
            
            
            
            12,732
            
            
            
            -Total
      other income, expense net
            
            
            (130,477
            )
            
            
            341,637
            
            
            
            1,430,890
            
            
            
            2,535,254Net
      income (loss)
            
            $
            (32,006
            )
            
            $
            60
            
            
            $
            1,221,795
            
            
            $
            1,577,956Net
      income (loss) per common share:Basic
            
            $
            (0.00
            )
            
            $
            0.00
            
            
            $
            0.01
            
            
            $
            0.02Diluted
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.01
            )Weighted
      average shares of common stock outstanding:Basic
            
            
            106,467,093
            
            
            
            98,274,889
            
            
            
            104,273,305
            
            
            
            98,274,889Diluted
            
            
            106,467,093
            
            
            
            120,753,460
            
            
            
            195,124,480
            
            
            
            120,753,460The
      accompanying notes are an integral part of these financial
      statements.

















F-2











PEDIATRIC PROSTHETICS, INC.UNAUDITED
      STATEMENTS OF CASH FLOWSFor
      the Nine Months Ended March 31, 2008 and 20072008
            
            
            2007Cash
      Flows From Operating Activities:
            
            (Restated)Net
      income
            
            $
            1,221,795
            
            
            $
            1,577,956Adjustments
      to reconcile net income to net cash used byoperating
      activities:Depreciation
      expense
            
            
            16,556
            
            
            
            18,035Deferred
      rent
            
            
            (3,318
            )
            
            
            (1,409
            )Stock-based
      compensation
            
            
            105,508
            
            
            
            506,997Provision
      for doubtful accounts
            
            
            95,765
            
            
            
            120,094Amortization
      of debt discount
            
            
            290,901
            
            
            
            96,269Amortization
      of debt issue costs
            
            
            111,357
            
            
            
            102,424Gain
      on derivative financial instruments
            
            
            (1,875,767
            )
            
            
            (2,764,979
            )Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (336,873
            )
            
            
            (126,101
            )Other
      assets
            
            
            (18,684
            )
            
            
            (10,496
            )Accounts
      payable
            
            
            (39,916
            )
            
            
            (11,716
            )Accrued
      liabilities
            
            
            6,324
            
            
            
            (7,726
            )Net
      cash used by operating activities
            
            
            (426,352
            )
            
            
            (500,652
            )Cash
      Flows From Investing Activities:Purchase
      of furniture and equipment
            
            
            -
            
            
            
            (11,814
            )Net
      cash used by investing activities
            
            
            -
            
            
            
            (11,814
            )Cash
      Flows From Financing Activities:Proceeds
      from issuance of debt
            
            
            500,000
            
            
            
            400,000Payment
      of debt issuance cost
            
            
            (15,000
            )
            
            
            (73,000
            )Repayment
      of convertible debt
            
            
            (75,000
            )
            
            
            (10,000
            )Net
      cash provided by financing activities
            
            
            410,000
            
            
            
            317,000Net
      decrease in cash and cash equivalents
            
            
            (16,352
            )
            
            
            (195,466
            )Cash
      and cash equivalents, beginning of period
            
            
            25,557
            
            
            
            274,641Cash
      and cash equivalents, end of period
            
            $
            9,205
            
            
            $
            79,175Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for interest expense
            
            $
            10,859
            
            
            $
            6,500Cash
      paid for income taxes
            
            $
            -
            
            
            $
            -Non-Cash
      Disclosures:Conversion
      of convertible debt and related derivative liability into common
      stock
            
            $
            157,102
            
            
            $
            -Discount
      related to issuance of convertible debt
            
            $
            381,328
            
            
            $
            291,396Shares
      re-issued to officer
            
            $
            4,000
            
            
            $
            -The
      accompanying notes are an integral part of these financial
      statements.






F-3


PEDIATRIC PROSTHETICS, INC.


NOTES
TO UNAUDITED FINANCIAL STATEMENTS








1.
BASIS OF PRESENTATION
AND CRITICAL ACCOUNTING POLICIES




GENERAL





Pediatric
Prosthetics, Inc. ("Pediatric") is a company involved in the design, fabrication
and fitting of custom-made artificial limbs.  Pediatric's focus is
infants and children and the comprehensive care and training needed by those
infants and children and their parents.





USE
OF ESTIMATES





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





INTERIM
FINANCIAL STATEMENTS





The
unaudited condensed financial statements included herein have been prepared by
Pediatric pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments that are, in the
opinion of management, necessary to fairly present such information. All such
adjustments are of a normal recurring nature. Although Pediatric believes that
the disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including a description of
significant accounting policies normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (US GAAP), have been condensed or omitted pursuant to
such rules and regulations. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in
Pediatric's Annual Report on Form 10-KSB for the year ended June 30, 2007. The
results of operations for interim periods are not necessarily indicative of the
results for any subsequent quarter or the entire fiscal year ending June 30,
2008.





2.
GOING CONCERN
CONSIDERATIONS





Since its
inception, Pediatric has suffered significant losses and has been dependent on
outside investors to provide the cash resources to sustain its
operations.  For the nine months ended March 31, 2008, Pediatric
reported net income of $1,221,795 and negative cash flows from operations of
$426,352.





Although
Pediatric had net income of $1,221,795 for the nine months ended March 31, 2008,
such net income was the result of non-cash changes in the value of derivative
financial instruments and not the result of core operations.  Negative
operating results have produced a working capital deficit of $1,082,686 and a
stockholders' deficit of $1,527,584 at March 31, 2008.  Pediatric's
negative financial results and its current financial position raise substantial
doubt about Pediatric's ability to continue as a going concern.  The
financial statements do not reflect any adjustments relating to the
recoverability and classification of recorded asset amounts or liability amounts
that might be necessary should Pediatric be unable to continue in
existence.









F-4





PEDIATRIC
      PROSTHETICS, INC.NOTES
      TO UNAUDITED FINANCIAL STATEMENTS





2.
GOING CONCERN
CONSIDERATIONS, continued





Pediatric
is currently implementing it's plans to deal with going concern
issues.  Management believes that Pediatric, through private
placements of its common stock, will be able to raise the capital to expand
operations to a level that will ultimately produce positive cash flows from
operations.





Pediatric's
long-term viability as a going concern is dependent on certain key factors,
including its ability to:





·
            Obtain
      adequate sources of outside financing to support near term operations and
      to allow Pediatric to continue forward with current strategic
      plans.





·
            Increase
      its customer base and broaden its service
  capabilities.





·
            Ultimately
      achieve adequate profitability and cash flows to sustain continuing
      operations.








3.
CONVERTIBLE
DEBT





On July
27, 2007, Pediatric sold an aggregate of $500,000 in Callable Secured
Convertible Notes (“Debentures"), to various third parties (the “Purchasers”).
The sale of the Debentures represented the third and final tranche of funding in
connection with a Securities Purchase Agreement entered into with the Purchasers
on May 30, 2006 for a total of $1,500,000 of such Debentures.  In
connection with the issuance of the Debentures, we paid a consultant debt issue
costs totaling $15,000, which will be amortized over the term of the Debentures
and we also repaid $75,000 of previously issued convertible debt with
cash.





The
Debentures are convertible into common stock at a 40% discount to the average of
the three lowest intraday trading prices for which the common stock trades on
the market or exchange over the most recent twenty (20) day trading period,
ending one day prior to the date a conversion notice is received (the “Trading
Price”), and bear interest at the rate of six percent (6%) per annum, payable
quarterly in arrears, provided that no interest shall be due and payable for any
month in which the trading price of common stock is greater than $0.10375 for
each day that the common stock trades. Any amounts not paid under the
Debentures, which are due May 31, 2009, bear interest at the rate of fifteen
percent (15%) per annum until paid.  The following is a summary of
convertible debt as of March 31, 2008 and June 30, 2007:








March
      31, 2008
            
            June
      30, 2007Convertible
      debentures
            
            $
            1,500,000
            
            $
            1,075,000Debt
      converted to common stock
            
            
            (102,529)
            
            
            -Unamortized
      debt discount
            
            
            (900,913)
            
            
            (810,486
            )Convertible
      debentures, net
            
            
            496,558
            
            
            264,514Convertible
      debentures, net (current)
            
            
            -
            
            
            (75,000
            )Convertible
      debentures, net (long-term)
            
            $
            496,558
            
            $
            189,514Total
            
            $
            496,558
            
            $
            264,514






F-5







PEDIATRIC
      PROSTHETICS, INC.NOTES
      TO UNAUDITED FINANCIAL STATEMENTS





3.
CONVERTIBLE DEBT
continued





In
accordance with Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), the
debt conversion feature provision (the "Debt Feature") contained in the terms of
the Notes is not clearly and closely related to the characteristics of the Note.
Accordingly, the Debt Feature qualified as an embedded derivative instrument at
issuance and, because it does not qualify for any scope exception within SFAS
133, it was required by SFAS 133 to be accounted for separately from the debt
instrument and recorded as a derivative financial instrument.





Pursuant
to the terms of the Notes, these notes are convertible at the option of the
holder, at anytime on or prior to maturity. The Debt Feature represents an
embedded derivative that is required to be accounted for apart from the
underlying Notes.  At issuance of the Notes of $500,000 for the nine
months ended March 31, 2008, the Debt Feature had an estimated initial fair
value of $381,328, which was recorded as a discount to the note and will be
accreted over the term of the debt using the effective interest
method.





During
the nine months ended March 31, 2008, the Purchasers converted $97,715 of
Debentures to common stock resulting in the issuance of 8,250,900 common shares.
A proportionate relief of the derivative liability related to the converted
Debentures was recorded to additional paid in capital in the amount of
$49,573.





4.
EQUITY





In
February 2008, Pediatric reissued its President, Linda Putback-Bean an
aggregate of 4,000,000 shares of our common stock which she cancelled on or
around September 30, 2005, to reduce the number of issued shares of Pediatric
and to increase the number of authorized but unissued shares of Pediatrics to
allow us sufficient shares of common stock to pay various consultants for
services rendered. The shares were earned prior to their original issuance in
December 2004.




In
February 2008, Pediatric issued 3,000,000 shares of common stock for investor
relations services to be provided for a period of six months.  The shares
were valued at $42,000 which will be amortized over the six-month period. 
We recorded $14,000 of share based compensation for the three months ended March
31, 2008.





5.
SUBSEQUENT
EVENTS





In June
2008, we sold $150,000 in Callable Secured Convertible Notes to New Millennium
Capital Partners II, LLC, which are due and payable on June 2,
2011.  The debentures bear interest at the rate of 6% per annum,
payable quarterly in arrears, provided that no interest shall be due and payable
for any month in which the trading value of our common stock is greater than
$0.05 for each day that our common stock trades.  Any amounts not paid
when due bear interest at the rate of 15% per annum until paid.  The
conversion price of the debentures is equal to 40% of the average of the lowest
three trading prices for the common stock during the twenty trading day period
ending one trading day prior to the date of conversion.  Additionally,
we granted New Millennium warrants to purchase 20,000,000 shares of our common
stock at an exercise price of $0.001 per share. We also agreed to grant New
Millennium registration rights in connection with the shares of common stock
which the debentures are convertible into and the shares of common stock which
the warrants are exercisable pursuant to a registration rights
agreement.  We secured the debentures by granting New Millennium a
security interest in, among other things, all of our goods, equipment,
machinery, inventory, computers, furniture, contract rights, receivables,
software, copyrights, licenses, warranties, service contracts and intellectual
property to secure the repayment of the debentures.




6. RESTATEMENT




We
restated the financial statements to record stock-based compensation
related to shares issued in February 2008 for investor relations services. 
The impacts of the restatement are as follows:








Amount
              Previously
              Reported
            
            
            Adjusted
              AmountPrepaid expenses and
      other current assets
            
            $
            8,920
            
            
            $
            36,920Common
    stock
            
            
            109,369
            
            
            
            116,369Additional paid-in
      capital
            
            
            8,754,385
            
            
            
            8,789,385Selling general and
      administrative expenses
            
            
            159,686
            
            
            
            173,687









F-6


ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS





CERTAIN
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB (THIS "FORM 10-QSB"),
CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL,
OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR
"ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES.
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF PEDIATRIC PROSTHETICS, INC., AN IDAHO CORPORATION ("PEDIATRIC",
"THE COMPANY", "WE", "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-QSB/A, UNLESS ANOTHER
DATE IS STATED, ARE TO MARCH 31, 2008.





BUSINESS
HISTORY





Pediatric
Prosthetics, Inc. (the "Company," "we," and "us") is engaged in the custom
fitting and fabrication of custom made prosthetic limbs for both upper and lower
extremities to infants and children throughout the United States. We also
provide our services to families from the international community when the
parents can bring the child to the United States for fitting. We buy
manufactured components from a number of manufacturers and combine those
components to fabricate custom measured, fitted and designed prosthetic limbs
for our patients. We also create "anatomically form-fitted suspension sockets"
that allow the prosthetic limbs to fit comfortably and securely with each
patient's unique residual limb. These suspension sockets must be hand crafted to
mirror the surface contours of a patient's residual limb, and must be
dynamically compatible with the underlying bone, tendon, ligament, and muscle
structures in the residual limb.





We are
accredited by the Texas Department of Health as a fully accredited prosthetics
provider. We began operations as a fully accredited prosthetic facility on March
18, 2004.





We have a
website at www.kidscanplay.com,
which contains information which we do not desire to be incorporated by
reference into this filing.





We
generate an average of approximately $6,000 of gross profit per fitting of the
prosthetics devices; however, the exact amount of gross profit we will receive
for each fitting will depend on the exact mix of arms versus legs fitted and the
number of re-fittings versus new fittings. From July 1, 2005 until
December 31, 2005, we made twenty-seven fittings; from January 1, 2006
until June 30, 2006, we made thirty-six fittings; from July 1, 2006 to June 30,
2007, we made fifty-nine fittings, from July 1, 2007 until December 31, 2007, we
made thirty-seven fittings, one of which was pro bono, and from January 1, 2008
through June 15, 2008, we made forty-one fittings, two of which were pro bono.
We currently average between 4 and 5 fittings per month.





May 2006 Securities Purchase
Agreement





On May
30, 2006 (the "Closing"), we entered into a Securities Purchase Agreement
("Purchase Agreement") with AJW Partners, LLC; AJW Offshore, Ltd.; AJW Qualified
Partners, LLC; and New Millennium Capital Partners II, LLC (each a "Purchaser"
and collectively the "Purchasers"), pursuant to which the Purchasers agreed to
purchase $1,500,000 in convertible debt financing from us. Pursuant to the
Purchase Agreement, we agreed to sell the investors $1,500,000 in Callable
Secured Convertible Notes (the "Debentures," the “Notes” or the “Convertible
Notes”), which are to be payable in three tranches, $600,000 of which was
received by the Company on or around May 31, 2006, in connection with the entry
into the Purchase
Agreement; $400,000 which was received in February 2007, upon the filing of our
registration statement to register shares of common stock which the Debentures
are convertible into as well as the shares of common stock issuable in
connection with the exercise of the Warrants (defined below); and $500,000 which
was received in August 2007, shortly after the effectiveness of our registration
statement on July 27, 2007.














-2-











On February
16, 2007 (the "Second Closing”), we sold an aggregate of $400,000 in Debentures
to the Purchasers. The sale of the Debentures represented the second tranche of
funding in connection with our Purchase Agreement.





On July
27, 2007 (the "Third Closing"), we sold an aggregate of $500,000 in Debentures
to the Purchasers, which funds were received by us on July 31, 2007. The
sale of the Debentures represented the third and final tranche of funding in
connection with our Purchase Agreement.





The
Debentures are convertible into our common stock at a 40% discount to the
average of the three lowest intraday trading prices over the most recent twenty
(20) day trading period in which our common stock trades on the market or
exchange , ending one day prior to the date a conversion notice is received (the
“Conversion Price”). Additionally, in connection with the Securities Purchase
Agreement, we agreed to issue the Purchasers warrants to purchase an aggregate
of 50,000,000 shares of our common stock at an exercise price of $0.10 per share
(the "Warrants"). We originally agreed to register all of the shares of common
stock which the Debentures are convertible into and the shares of common stock
which the Warrants are exercisable for; however, pursuant to the Second Waiver
of Rights Agreement, described below, the Purchasers agreed to amend the terms
of the Registration Rights Agreement such that we were only required to register
9,356,392 shares underlying the Debentures on our Form SB-2 registration
statement, which was declared effective on July 20, 2007. We secured the
Debentures pursuant to the Security Agreement and Intellectual Property Security
Agreement, described below.





We also
agreed in the Purchase Agreement to use our best efforts to increase our key man
life insurance on our President and Director, Linda Putback-Bean and our Vice
President and Director Kenneth W. Bean, which we have been able to increase to
$3,000,000 and $2,000,000, respectively.





Pursuant
to the Purchase Agreement, we agreed to sell the Purchasers an aggregate of
$1,500,000 in Debentures, which Debentures mature May 31,
2009 and bear interest at the rate of six percent (6%) per annum, payable
quarterly in arrears, provided that no interest shall be due and payable for any
month in which the trading value of our common stock is greater than $0.10375
for each day that our common stock trades. Any amounts not paid under the
Debentures when due bear interest at the rate of fifteen percent (15%) per annum
until paid. The conversion price of the Debentures is equal to 60% of the
average of the three lowest intraday trading prices over the most recent twenty
(20) day trading period in which our common stock trades on the market or
exchange, ending one day prior to the date a conversion notice is received (the
"Conversion Price").





Furthermore,
the Purchasers have agreed to limit their conversions of the Debentures to no
more than the greater of (1) $80,000 per calendar month; or (2) the average
daily volume calculated during the ten business days prior to a conversion, per
conversion.





Pursuant
to the Debentures, the Conversion Price is automatically adjusted if, while the
Debentures are outstanding, we issue or sell, any shares of common stock for no
consideration or for a consideration per share (before deduction of reasonable
expenses or commissions or underwriting discounts or allowances in connection
therewith) less than the Conversion Price then in effect, with the consideration
paid per share, if any being equal to the new Conversion Price; provided
however, that each Purchaser has agreed to not convert any amount of principal
or interest into shares of common stock, if, as a result of such conversion,
such Purchaser and affiliates of such Purchaser will hold more than 4.99% of our
outstanding common stock.





Upon the
occurrence of and during the continuance of an Event of Default (as defined in
the Debentures), the Purchasers can make the Debentures immediately due and
payable, and can make us pay the greater of (a) 130%
of the total remaining outstanding principal amount of the Debentures, plus
accrued and unpaid interest thereunder, or (b) the total dollar value of the
number of shares of common stock which the funds referenced in section (a) would
be convertible into (as calculated in the Debentures), multiplied by the highest
closing price for our common stock during the period we are in default. If we
fail to pay the Purchasers such amount within five (5) days of the date such
amount is due, the Purchasers can require us to pay them in shares of common
stock at the greater of the amount of shares of common stock which (a) or (b) is
convertible into, at the Conversion Rate then in effect.












-3-




Pursuant
to the Debentures, we have the right, assuming (a) no Event of Default has
occurred or is continuing, (b) that we have a sufficient number of authorized
but unissued shares of common stock, (c) that our common stock is trading at or
below $0.20 per share, and (d) that we are then able to prepay the Debentures as
provided in the Debentures, to make an optional prepayment of the outstanding
amount of the Debentures equal to 120% of the amount outstanding under the
Debentures (plus any accrued and unpaid interest thereunder) during the first
180 days after the Closing, 130% of the outstanding amount of the Debentures
(plus any accrued and unpaid interest thereunder) between 181 and 360 days after
the Closing, and 140% thereafter, after giving ten (10) days written notice to
the Purchasers.





Additionally,
pursuant to the Debentures, we have the right, in the event the average daily
price of our common stock for each day of any month the Debentures are
outstanding is below $0.20 per share, to prepay a portion of the outstanding
principal amount of the Debentures equal to 101% of the principal amount of the
Debentures divided by thirty-six (36) plus one month's interest. Additionally,
the Purchasers have agreed in the Debentures to not convert any principal or
interest into shares of common stock in the event we exercise such prepayment
right.





At the
Closing, we entered into a Security Agreement and an Intellectual Property
Security Agreement (collectively, the "Security Agreements"), with the
Purchasers, whereby we granted the Purchasers a security interest in, among
other things, all of our goods, equipment, machinery, inventory, computers,
furniture, contract rights, receivables, software, copyrights, licenses,
warranties, service contracts and intellectual property to secure the repayment
of the Debentures.





Stock Purchase
Warrants





In
connection with the Closing, we sold Warrants for the purchase of 50,000,000
shares of our common stock to the Purchasers, which warrants are exercisable for
shares of our common stock at an exercise price of $0.10 per share (the
"Exercise Price"). Each Purchaser, however, has agreed not to exercise any of
the Warrants into shares of common stock, if, as a result of such exercise, such
Purchaser and affiliates of such Purchaser will hold more than 4.99% of our
outstanding common stock.





The
Warrants expire, if unexercised at 6:00 p.m., Eastern Standard Time on May 30,
2013. The Warrants also include reset rights, which provide for the Exercise
Price of the Warrants to be reset to a lower price if we (a) issue any warrants
or options (other than in connection with our Stock Option Plans), which have an
exercise price of less than the then market price of the common stock, as
calculated in the Warrants, at which time the Exercise Price of the Warrants
will be equal to the exercise price of the warrants or options granted, as
calculated in the Warrants; or (b) issue any convertible securities, which have
a conversion price of less than the then market price of the common stock, as
calculated in the Warrants, at which time the Exercise Price of the Warrants
will be equal to the conversion price of the convertible securities, as
calculated in the Warrants.





Pursuant
to the Warrants, until we register the shares of common stock which the Warrants
are exercisable for, the Warrants have a cashless exercise feature, where the
Purchasers can exercise the Warrants and pay for such exercise in shares of
common stock, in lieu of paying the exercise price of such Warrants in
cash.





Registration Rights
Agreement





Pursuant
to the Registration Rights Agreement entered into at the Closing, we agreed to
file a registration statement on Form SB-2, to register two (2) times the number
of shares of common stock which the Debentures
are convertible into (to account for changes in the Conversion Rate and the
conversion of interest on the Debentures) as well as the shares of common stock
issuable in connection with the exercise of the Warrants, within sixty (60) days
of the Closing which we were not able to accomplish, but which date was amended
from sixty (60) days from the Closing until January 15, 2007, in connection with
the Waiver of Rights Agreement, and until February 15, 2007, in connection with
the Second Waiver of Rights Agreement (both described below), which filing date
was met by us. Additionally, the number of shares of common stock we were
required to register on the Registration Statement has been amended to include
only 9,356,392 shares of common stock underlying the Debentures, due to
amendments to the Registration Rights Agreement affected by the Second Waiver of
Rights Agreement.  We gained effectiveness of the Registration
Statement on July 20, 2007.














-4-


Waiver of Rights
Agreement





On
October 25, 2006, with an effective date of July 31, 2006, we entered into a
Waiver of Rights Agreement with the Purchasers, whereby the Purchasers agreed to
waive our prior defaults under the Securities Purchase Agreement and
Registration Rights Agreement. In connection with the Waiver of Rights
Agreement, the Purchasers agreed to amend the Securities Purchase Agreement to
state that we are required to use our best efforts to timely file our periodic
reports with the Commission, which amendment waived the previous default caused
by our failure to timely file our annual report on Form 10-KSB with the
Commission. The Waiver of Rights Agreement also amended the Securities Purchase
Agreement to provide for us to use our best efforts to obtain shareholder
approval to increase our authorized shares of common stock as was required by
the Securities Purchase Agreement, which amendment waived our failure to obtain
shareholder approval to increase our authorized shares of common stock by August
15, 2006. Finally, the Waiver of Rights Agreement amended the dates we were
required to file our registration statement from July 31, 2006 to January 15,
2007, which filing date was not met, and the date our registration statement was
required to be effective with the Commission from October 22, 2006 to April 16,
2007. The amendments affected by the Waiver of Rights Agreement were later
modified pursuant to the Second Waiver of Rights Agreement, described
below.





Second Waiver of Rights
Agreement





On April
17, 2007, with an effective date of January 15, 2007, we entered into a Second
Waiver of Rights Agreement (the “Second Waiver”) with the Purchasers. Pursuant
to the previous Waiver of Rights Agreement we entered into with the Purchasers
in October 2006 (the “First Waiver”), we agreed to use our best efforts to
obtain shareholder approval to increase our authorized shares by December 15,
2006; to file a registration statement with the SEC covering the Underlying
Shares no later than January 15, 2007, and to obtain effectiveness of such
registration statement with the SEC by April 16, 2007.





Pursuant
to the Second Waiver, the Purchasers agreed to waive our failure to file a
registration statement by the prior January 15, 2007, deadline (we filed the
registration statement on February 9, 2007), agreed we are not in default of the
Rights Agreement; agreed to waive our inability to maintain effective controls
and procedures as was required pursuant to the Purchase Agreement, that we are
required to use our “best efforts” to maintain effective controls and procedures
moving forward; to waive the requirement pursuant to the Purchase Agreement that
we keep solvent at all times (defined as having more assets than liabilities);
to waive the requirement pursuant to the Purchase Agreement that we obtain
authorization to obtain listing of our common stock on the Over-the-Counter
Bulletin Board (“OTCBB”), and to allow for us to use our “best efforts” to
obtain listing of our common stock on the OTCBB, which listing we obtained
effective May 25, 2007.





We also
agreed with the Purchasers, pursuant to the Second Waiver, to amend the Rights
Agreement to reduce the number of shares we are required to register pursuant to
the Rights Agreement, from all of the Underlying Shares, to only 9,356,392 of
the shares issuable upon conversion of the Notes and to amend the date we are
required to obtain effectiveness of our registration statement by from April 16,
2007, to August 13, 2007, which registration statement was declared effective on
July 20, 2007.  The 9,356,392 shares of common stock we are required
to register pursuant to the Second Waiver is equal to the amount remaining after
calculating approximately 30% of our then public float (17,909,961 shares, with
our public float equal to
approximately 58,866,538 shares as of the date of the Second Waiver), and
subtracting the 8,553,569 shares of common stock held by other shareholders,
which were being registered in our Registration Statement, which gave us a total
of 9,356,392 shares available to be registered for the Purchasers. Because we
believe that the registration of shares totaling only approximately 30% of our
public float clearly does not represent a primary offering of our securities, we
and the Purchasers believe that the registration of only 9,356,392 shares
underlying the Notes would expedite the review and effectiveness of our
Registration Statement.
















-5-


It is
anticipated that the Purchasers will rely on Rule 144 under the Securities Act
of 1933, as amended in the future for any sales of shares issuable in connection
with the conversion of the Notes and/or exercise of the Warrants which are no
longer required to be registered on a registration statement by us pursuant to
the amendments above.





In
consideration for their entry into the Second Waiver, we granted the Purchasers
additional warrants to purchase 1,000,000 shares of our common stock at an
exercise price of $0.10 per share, which warrants shall expire if unexercised on
the same date as the original Warrants expire if unexercised, May 30, 2013,
which warrants were granted to the Purchasers as follows:





AJW
      Partners, LLC
            102,000AJW
      Offshore, Ltd.
            606,000AJW
      Qualified Partners, LLC
            279,000New
      Millennium Capital Partners II, LLC
            13,000Total
            1,000,000








June 2008
Funding





On or
about June 2, 2008 (the "June 2008 Closing"), we entered into a Securities
Purchase Agreement ("Purchase Agreement") with New Millennium Capital Partners
II, LLC ("New Millennium"), pursuant to which New Millennium agreed to purchase
an aggregate of $150,000 in Callable Secured Convertible Notes (the "June 2008
Debentures"), which are due and payable on June 2, 2011. Additionally, in
connection with the Securities Purchase Agreement, we granted New Millennium
warrants to purchase an aggregate of 20,000,000 shares of our common stock at an
exercise price of $0.001 per share (the "Warrants"). We also agreed to grant New
Millennium registration rights in connection with the shares of common stock
which the June 2008 Debentures are convertible into and the shares of common
stock which the Warrants are exercisable pursuant to a Registration Rights
Agreement. We secured the June 2008 Debentures pursuant to the Security
Agreement and Intellectual Property Security Agreement, described
below.  Additionally, the amount outstanding under the June 2008
Debentures was guaranteed by our wholly owned subsidiary, Pediatric Prosthetics,
Inc., a Texas corporation pursuant to a Subsidiary Guaranty.





The
$150,000 we received from New Millennium at the June 2008 Closing in connection
with the sale of the June 2008 Debentures is anticipated to be used as
follows:




●
      Auditor, Accounting and Attorneys Fees
            $75,000●
      Payables to Suppliers of Inventory
            $20,000●
      Promotional, Marketing and Travel Costs
            $15,000●
      Working Capital
            $40,000Total
            $150,000
















-6-




Callable Secured Convertible
Notes





Pursuant
to the Purchase Agreement, we agreed to sell New Millennium $150,000 in June
2008 Debentures, which June 2008 Debentures bear interest at the rate of six
percent (6%) per annum, payable quarterly in arrears, provided that no interest
shall be due and payable for any month in which the trading value of our common
stock is greater than $0.05 for each day that our common stock trades. Any
amounts not paid under the June 2008 Debentures when due bear interest at the
rate of fifteen percent (15%) per annum until paid. The conversion price of the
June 2008 Debentures is equal to 40% of the average of the lowest three (3)
Trading Prices (as defined below) for the common stock during the twenty (20)
Trading Day (as defined below) period ending one Trading Day prior to the date
of conversion (the “Conversion Price”). “Trading Price” means, for any security
as of any date, the intraday trading price on the Over-the-Counter Bulletin
Board (the “OTCBB”), or if not traded on the OTCBB or other exchange or market,
the average of the intraday trading prices of any market makers for such
security that are listed on the “pink sheets” by the National Quotation Bureau,
Inc.  “Trading Day” shall mean any day on which the common stock is
traded for any period on the OTCBB, or on the principal securities exchange or
other securities market on which the common stock is then being
traded.





Also
pursuant to the June 2008 Debentures, the Conversion Price is automatically
adjusted if, while the June 2008 Debentures are outstanding, we issue or sell,
any shares of common stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Conversion Price
then in effect, with the consideration paid per share, if any being equal to the
new Conversion Price; provided however, that each Purchaser has agreed to not
convert any amount of principal or interest into shares of common stock, if, as
a result of such conversion, such Purchaser and affiliates of such Purchaser
will hold more than 4.99% of our outstanding common stock.





Upon the
occurrence of and during the continuance of an Event of Default under the June
2008 Debentures (as defined therein), New Millennium can make the June 2008
Debentures immediately due and payable, and can make us pay the greater of (a)
130% of the total remaining outstanding principal amount of the Debenture, plus
accrued and unpaid interest thereunder, or (b) the total dollar value of the
number of shares of common stock which the funds referenced in section (a) would
be convertible into (as calculated in the Debenture), multiplied by the highest
closing price for our common stock during the period we are in default. If we
fail to pay New Millennium such amount within five (5) days of the date such
amount is due, New Millennium can require us to pay them in the number of shares
of common stock equal to (b) divided by the Conversion Price then in
effect.





Pursuant
to the June 2008 Debentures, we have the right, in the event our common stock is
trading at or below $0.10 per share, to prepay the outstanding principal amount
of the June 2008 Debentures in an amount equal to (i) 120% for prepayments
occurring within one hundred eighty (180) days of the issue date, (ii) 130% for
prepayments occurring between one hundred eighty-one (181) and three hundred
sixty (360) days of the issue date, or (iii) 140% for prepayments occurring
after the three hundred sixtieth (360th) day following the issue date, of the
principal amount of the June 2008 Debentures plus any unpaid interest, plus any
unpaid default interest, plus any amounts owed pursuant to the Registration
Rights Agreement.





Additionally,
pursuant to the June 2008 Debentures, we have the right, in the event the
average daily price of our common stock for each day of any month the June 2008
Debentures are outstanding is below $0.10 per share, to prepay a portion of the
outstanding principal amount of the June 2008 Debentures equal to 101% of the
principal amount of such June 2008 Debentures divided by thirty-six (36) plus
one month's interest, which payment will stay all conversions for that
month.





At the
June 2008 Closing, we entered into a Security Agreement and an Intellectual
Property Security Agreement (collectively, the "Security Agreements"), with New
Millennium, whereby we granted New Millennium a security interest in, among
other things, all of our goods, equipment, machinery, inventory, computers,
furniture, contract rights, receivables, software, copyrights, licenses,
warranties, service contracts and intellectual property to secure the repayment
of the June 2008 Debentures.














-7-




Stock Purchase
Warrants





In
connection with the June 2008 Closing, we granted an aggregate of 20,000,000
Warrants to New Millennium, which warrants are exercisable for shares of our
common stock at an exercise price of $0.001 per share (the "Exercise Price").
Each Purchaser, however, has agreed not to exercise any of the Warrants into
shares of common stock, if, as a result of such exercise, such Purchaser and
affiliates of such Purchaser will hold more than 4.9% of our outstanding common
stock.





The
Warrants expire, if unexercised at 6:00 p.m., Eastern Standard Time on June 2,
2015. The Warrants also include reset rights, which provide for the Exercise
Price of the Warrants to be reset to a lower price if we (a) issue or sell any
shares of common stock for no consideration or for a consideration per share
less than the market price on the date of issuance; (b) issue any warrants or
options (other than in connection with our Stock Option Plans), which have an
exercise price of less than the then market price of the common stock, as
calculated in the Warrants, at which time the Exercise Price of the Warrants
will be equal to the exercise price of the warrants or options granted, as
calculated in the Warrants; or (c) issue any convertible securities, which have
a conversion price of less than the then market price of the common stock, as
calculated in the Warrants, at which time the Exercise Price of the Warrants
will be equal to the conversion price of the convertible securities, as
calculated in the Warrants.





Pursuant
to the Warrants, until we register the shares of common stock which the Warrants
are exercisable for, the Warrants have a cashless exercise feature, where New
Millennium can exercise the Warrants and pay for such exercise in shares of
common stock, in lieu of paying the exercise price of such Warrants in
cash.





Registration Rights
Agreement





Pursuant
to the Registration Rights Agreement entered into at the June 2008 Closing, we
agreed to provide New Millennium demand registration rights, exercisable any
time after the expiration of six months from the date of the June 2008 Closing
for the shares of common stock which the June 2008 Debentures are convertible
into and the shares of common stock issuable in connection with the exercise of
the Warrants (the “Registrable Securities”), provided however that we are not
required to file a registration statement at any time that New Millennium can
rely on Rule 144 for the sale of the Registrable Securities.  If New
Millennium exercises its demand registration rights, we are required to file a
registration statement on or prior to thirty (30) days from the date of receipt
of written demand of New Millennium (the “Filing Date”), to register the number
of Registrable Securities equal to thirty percent (30%) of our then public
float.





If the
registration statement is not filed by the Filing Date or declared effective by
the SEC on or prior to one hundred forty-five (145) days from the date of
receipt of written demand of New Millennium, or  after the registration
statement has been declared effective by the SEC, sales of all of the
Registrable Securities cannot be made pursuant to the registration statement, or
 the common stock is not listed or included for quotation on the
Over-the-Counter Bulletin Board (the "OTCBB") or any equivalent replacement
exchange, then we are required to make payments to New Millennium in connection
with their inability and/or delay to sell their securities. The payments are to
be equal to the then outstanding amount of the principal amount of the
Debenture, multiplied by $0.02, multiplied by the number of months after such
one hundred and forty-five (145) day period and/or the date sales are not able
to be effected under the registration statement, pro rated for partial months.
For example, for each month that passes in which we fail to obtain effectiveness
of our registration statement, after the end of the one hundred and forty-five
(145) day period, we would owe New Millennium an aggregate of $3,000 in penalty
payments, based on $150,000 then outstanding under the June 2008
Debentures.












-8-


In the
event that New Millennium sells substantially all of the shares then registered
under an effective registration statement, the Company will be required to be
file additional registration statements.





Third Waiver of Rights
Agreement




In
connection with the June 2008 Closing, we and the Purchasers entered into a
Third Waiver of Rights Agreement (the “3rd
Waiver”).  Pursuant to the 3rd Waiver,
the Purchasers agreed to waive any and all anti-dilution, reset rights, rights
to prior notice of and/or rights of first refusal in connection with the June
2008 Closing and funding, which they may have had pursuant to the $1,500,000 in
three tranches of Callable Secured Convertible Notes (the “Prior Notes”) which
we sold to the Purchasers and the Warrants to purchase shares of our common
stock at an exercise price of $0.10 per share, which we previously granted the
Purchasers.  Pursuant to the 3rd Waiver,
the Purchasers also agreed to and approved the June 2008 Closing and the funding
in connection with the June 2008 Closing.





The Market
Place





According
to the Limb Loss Research and Statistics Program ("LLR&SP"), a multi-year
statistical study done by the American Amputee Coalition in 2001, in concert
with the Johns Hopkins Medical School, and the United States Center of Disease
Control, approximately 1,000 children are born each year with a limb loss in the
United States. The LLR&SP can be found at www.amputee-coalition.org. During
their high growth years, ages 1 through age 12, these children will be
candidates for re-fitting once per year as they grow. We calculate that there
are presently approximately up to 12,000 pre-adolescent (younger than age 12)
children in the United States in need of prosthetic rehabilitation, based on the
fact that there are approximately 1,000 children born each year with a limb-loss
in the United States.





Competition





Although
there are many prosthetic provider companies in the United States, to the best
of our knowledge, there is no other private sector prosthetics provider in the
country specializing in fitting infants and children. The delivery of prosthetic
care in the United States is extremely fragmented and is based upon a local
practitioner "paradigm." Generally, a local practitioner obtains referrals for
treatment from orthopedic physicians in their local hospitals based on
geographic considerations. Management believes the inherent limitation of this
model for pediatric fittings is that the local practitioner may never encounter
more than a very few small children with a limb loss, even during an entire
career. The result is that the local practice is a "general practice", and in
prosthetics that is considered an "adult practice" because of the overwhelming
percentage of adult patients. In any given year, according to The American
Amputee Coalition, over 150,000 new amputations are performed, suggesting the
need for prosthetic rehabilitation. The overwhelming majority of those
amputations are performed upon adults. For children ages 1-14, there will be
approximately 1,200 limb losses per year due primarily to illness, vascular
problems, and congenital accidents. Children, especially small children, cannot
provide practitioners the critical verbal feedback they usually receive from
their adult patients.





Management
believes the challenge to effectively treat children with a limb-loss in the
United States is compounded by the time constraints of local practitioners
working primarily with their adult patients and a limited overall number of
board certified prosthetists. To engage in the intensive patient-family focus
required to fit the occasional infant or small child puts enormous time pressure
on local practitioners trying to care for their adult patients.





Though
not competitors in a business sense, the Shriner's Hospital system, a non-profit
organization with 22 orthopedic hospitals throughout North America, has
historically extended free prosthetic rehabilitation in addition to providing
medical and surgical services to children at no charge. The free care offered by
Shriner's may put downward pressure on the prices we charge for our services
and/or lower the number of potential clients in the marketplace, which may in
turn lower our revenues.










-9-





PLAN
OF OPERATIONS





We have
established working relationships with fifteen (15) Host Affiliates operating in
approximately 21 states. In establishing the relationships with the fifteen Host
Affiliates, we also provided one-on-one pediatric training to fifteen
prosthetists who are employed by those Host Affiliates. We currently plan to
hire one more certified prosthetist and two additional support personnel during
the next twelve months, funding permitting, of which there can be no
assurance.





As of
June 2008, we believe we can operate for at least the next three months with no
additional funding, due to the funds raised through the June 2008
Closing.  Our current recurring cash overhead is approximately $60,000
per month. We believe we will require additional funds of approximately $450,000
to continue our planned business operations and marketing efforts for the next
twelve months. We plan to raise additional funding through the sale of debt or
equity securities, of which there can be no assurance.





We
received $600,000 on May 30, 2006 (less closing costs and structuring fees),
from the sale of certain Convertible Debentures described above, an additional
$400,000 through the sale of additional Convertible Debentures in connection
with our filing of our Registration Statement with the SEC, and a final $500,000
in connection with the sale of Debentures when our Registration Statement was
declared effective on or around July 20, 2007.  Increases in our
advertising and marketing budget during the year ended June 30, 2007, allowed us
to undertake the following advertising and marketing activities:





o
            The
      composition of and distribution of certain feature newspaper articles;
      and




o
            Publicity
      and marketing campaign, pursuant to which we previously issued 7,000,000
      shares of common stock to certain
consultants.




On June
2, 2008, pursuant to our entry into a Securities Purchase Agreement, we sold
$150,000 in June 2008 Debentures to New Millennium, which funds are anticipated
to be used as follows:




●
      Auditor, Accounting and Attorneys Fees
            $75,000●
      Payables to Suppliers of Inventory
            $20,000●
      Promotional, Marketing and Travel Costs
            $15,000●
      Working Capital
            $40,000Total
            $150,000




Additionally,
we believe the increases in our advertising and marketing budget and the
$150,000 raised in June 2008, will allow us to undertake the following
activities during the next twelve (12) months, funding permitting, of which
there can be no assurance:





o
            The
      production, filming, editing and narration of informational videos on the
      value of modern prosthetic options for children, which videos describe the
      success stories we have had in helping children overcome limb loss by
      fitting such children with artificial limbs, as well as the distribution
      of such videos to fellow pediatric professionals such as nurses, physical
      therapists, doctors and hospital-based family counselors nationally, at a
      cost of approximately $10,000;





o
            Costs
      associated with a national internet marketing campaign utilizing state of
      the art  Search Engine Optimization Planning (“S.E.O.P”) and pay
      per click advertising at a cost of approximately $50,000, which has
      been operational since August 2007, at a cost of approximately $4,000 per
      month, increasing to $7,000 per month, funding
  permitting;








o
            Travel
      and associated costs involved with appearances on television shows,
      medical conventions and nursing schools at a cost of approximately
      $20,000; and travel and components expenses related to pro-bono fittings
      in various cities across the United States of approximately $100,000, and
      the establishment of a national internet chat-room for parents and kids
      with a limb-loss at a cost of approximately $10,000;
ando
            Sponsorship
      costs of non-profit organizations such as the "Amputee Coalition of
      American" and the Para-Olympics, at a cost of approximately
      $50,000.







-10-




COMPARISON
OF OPERATING RESULTS





RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2007





We had
revenue of $319,528 for the three months ended March 31, 2008, compared to
revenue of $133,323 for the three months ended March 31, 2007, an increase in
revenue of $186,205 or 140% from the prior period. The increase in revenue was
mainly due to a larger number of fittings and more complex fittings, which
generated higher revenues for the Company during the three months ended March
31, 2008, compared to the three months ended March 31, 2007.




We had
total operating expenses of $221,057 for the three months ended March 31, 2008,
compared to total operating expenses of $474,900 for the three months ended
March 31, 2007, a decrease in total operating expenses of $253,843 or 53.5% from
the previous period. The decrease in total operating expenses was mainly due to
a $232,468 or 57.2% decrease in selling, general and administrative expenses to
$173,687 for the three months ended March 31, 2008, compared to $406,155 for the
three months ended March 31, 2007, which decrease was mainly due to higher than
normal administrative expenses during the three months ended March 31, 2007, in
connection with certain one-time legal and accounting fees associated with the
revision of and filing of our amended Form 10-SB, Form SB-2, Schedule 14c and
Form 8-K filings and correspondence filings, which expenses were not represented
during the three months ended March 31, 2008, and a $20,596 or 32.8%
decrease in cost of sales, to $42,111 for the three months ended March 31, 2008,
compared to $62,707 for the three months ended March 31, 2007, mainly in
connection with greater component sales and travel expenses during the three
months ended March 31, 2008, compared to the three months ended March 31,
2007. The decrease in our cost of sales for the three months ended March
31, 2008, compared to the same period in 2007 was mainly due to a reduced number
of re-fittings during the three month period ended March 31, 2008, compared to
the same period in 2007, which re-fittings require less new components and
generate higher margins for the Company.  Also included in total
operating expenses was depreciation expense of $5,259 for the three months ended
March 31, 2008, compared to $6,038 for the three months ended March 31,
2007.




Our cost
of sales as a percentage of revenue for the three months ended March 31, 2008
was 13.2%, compared to 47.0% for the three months ended March 31, 2007, a
decrease in cost of sales as a percentage of revenues of 33.8% from the prior
period, which was mainly due to the increase in revenue and the decrease in cost
of sales.




We had
income from operations of $98,471 for the three months ended March 31, 2008,
compared to a loss from operations of $341,577 for the three months ended March
31, 2007, an increase in income from operations of $440,048 or 129% from the
prior period. The increase in income from operations was primarily the result of
the increase in revenue and the decrease in selling, general and administrative
expenses, as described above.




We had
total other expense, net, of $130,477 for the three months ended March 31, 2008,
compared to total other income, net of $341,637 for the three months ended March
31, 2007, which represented a $472,114 decrease in net other income from the
prior period.  The decrease in net other income was mainly due to an
increase of $60,600 or 86.4% in interest expense, to $130,741 for the three
months ended March 31, 2008, compared to $70,141 for the three months ended
March 31, 2007, and a $411,778 decrease in gain on derivative financial
instrument from the prior period. The 86.4% increase in interest expense was
mainly in connection with the amortization of the deferred financing cost and
accretion of debt discount related to the Convertible Notes.




We had
net loss of $32,006 for the three months ended March 31, 2008, compared to net
income of $60 for the three months ended March 31, 2007, a decrease in net
income of $32,066 from the previous period. The decrease was mainly
attributable to the decrease in total other income; partially offset by the
increase in revenue and the decrease in selling, general and administrative
expenses for the three month period ended March 31, 2008 compared to the
three month period ended March 31, 2007.
















-11-




RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE NINE
MONTHS ENDED MARCH 31, 2007





We had
revenue of $746,154 for the nine months ended March 31, 2008, compared to
revenue of $595,086 for the nine months ended March 31, 2007, an increase in
revenue of $151,068 or 25.4% from the prior period. The increase in revenue was
mainly due to a larger number of fittings and re-fittings, which generated
higher revenues for the Company during the
nine months ended March 31, 2008, compared to the nine months ended March 31,
2007.





We had
total operating expenses of $955,249 for the nine months ended March 31, 2008,
compared to total operating expenses of $1,552,384 for the nine months ended
March 31, 2007, a decrease in total operating expenses of $597,135
or 44.7% from the previous period. The decrease in total operating expenses was
mainly due to a $518,269 or 38.8% decrease in selling, general and
administrative expenses, to $816,337 for the nine months ended March 31, 2008,
compared to $1,334,606 for the nine months ended March 31, 2007, mainly resulting from a
decrease in share based compensation for the nine months ended March 31, 2008
and higher than normal administrative expenses during the nine months ended
March 31, 2007, in connection with certain one-time legal and accounting fees
associated with the revision of and filing of our amended Form 10-SB, Form SB-2,
Schedule 14c, reports on Form 8-K and correspondence filings, and a $77,387 or
38.7% decrease in cost of sales, to $122,356 for the nine months ended March 31,
2008, compared to $199,743 for the nine months ended March 31, 2007, which was
mainly due to a larger number of re-fittings during the nine month period ended
March 31, 2008, compared to the same period in 2007, which re-fittings require
less new components and generate higher margins for the Company.  Also
included in total operating expenses was depreciation expense of $16,556 for the
nine months ended March 31, 2008, compared to $18,035 for the nine months
ended March 31, 2007.





Our cost
of sales as a percentage of revenue for the nine months ended March 31, 2008 was
16.4%, compared to 33.6% for the nine months ended March 31, 2007, a decrease in
cost of sales as a percentage of revenues of 17.2% from the prior period, which
was mainly the result of the increase in revenues and the decrease in cost of
sales for the nine months ended March 31, 2008, compared to the nine months
ended March 31, 2007.





We had a
loss from operations of $209,095 for the nine months ended March 31, 2008,
compared to $957,298 for the nine months ended March 31, 2007, a decrease in
loss from operations of $748,203 or 78.2% from the prior period.  The
decrease in loss from operations was mainly the result of lower share-based
compensation expense and legal and accounting expenses during the nine months
ended March 31, 2008, compared to the nine months ended March 31,
2007.  Share-based compensation decreased as a result of consulting
contracts expiring during the nine months ended March 31, 2008.  Legal
and accounting expenses decreased as a result of higher than normal
administrative expenses during the nine months ended March 31, 2007, in
connection with certain one-time legal and accounting fees associated with the
revision of and filing of our amended Form 10-SB, Form SB-2, Schedule 14c,
reports on Form 8-K and correspondence filings, compared to the three months
ended March 31, 2008.





We had
total other income, net, of $1,430,890 for the nine months ended March 31, 2008,
compared to $2,535,254 for the nine months ended March 31, 2007, which
represented a decrease in other income of $1,104,364 or 43.6% from the prior
period. The decrease was mainly due to an increase of $227,901 in interest
expense to $457,627 for the nine months ended March 31, 2008, as compared to
interest expense of $229,726 for the nine months ended March 31, 2007, which
interest was mainly in connection with the amortization of the deferred
financing cost and accretion of debt discount related to the Convertible Notes,
and a $889,212 or 32.2% decrease in change in value of derivative financial
instruments, to $1,875,767 for the nine months ended March 31, 2008, compared to
$2,764,979 for the nine months ended March 31, 2007.





We had
net income of $1,221,795 for the nine months ended March 31, 2008, compared to
$1,577,956 for the nine months ended March 31, 2007, a decrease of $356,161 or
29.2% from the prior period. The decrease in net income was mainly due to the
decrease in other income, net, offset by the increase in revenue
and the decrease in cost of sales and selling, general and administrative
expenses for the nine months ended March 31, 2008, compared to the nine months
ended March 31, 2007.














-12-


Investors
should keep in mind that our net income for the nine months ended March 31, 2008
and 2007, was the result of changes in the value of our derivative financial
instruments and not the result of our core operations.  Without the
changes to net income due to the changes in the fair value of derivative
instruments, we would have had a net loss for the period.





LIQUIDITY
AND CAPITAL RESOURCES





We had
total assets of $755,348 as of March 31, 2008, which included current assets of
$696,946, furniture and equipment, net of accumulated depreciation, of $30,323,
and deferred financing cost, net of amortization, of $28,079. Current assets
included cash and cash equivalents of $9,205, trade and accounts receivable, net
of $490,526, prepaid expenses and other current assets of $36,920, and current
portion of deferred financing cost of $160,295.




We had
total liabilities of $2,282,932 as of March 31, 2008, which included current
liabilities of $1,779,632; consisting of trade accounts payable of $203,152;
accrued liabilities of $150,309; which included deferred salary payable to our
officers; amounts due to related party of $500, which amounts were owed to our
Chief Executive Officer, Linda Putback-Bean, in connection with the initial
funding of our corporate bank account, which amounts have not been repaid to
date; derivative financial instruments of $1,425,671, in connection with our
Convertible Debentures and Warrants; and non-current liabilities consisting of
deferred rent of $6,742 and long term portion of convertible debt, net of
discount of $496,558.





We had a
working capital deficit of $1,082,686 and an accumulated deficit of $10,434,338
as of March 31,
2008.





We had
net cash used by operating activities of $426,352 for the nine months ended
March 31, 2008.





We had
$410,000 of net cash provided by financing activities for the nine months ended
March 31, 2008, which was due to $500,000 from the sale of Debentures to the
Purchasers, offset by $15,000 of expenses associated with the sale of the
Debentures and the repayment of $75,000 of convertible debt.





Our trade
accounts receivable are often for substantial amounts that can generate
challenges by insurance companies and, in certain cases, the need to pursue
collections directly from the patients. These challenges have continually
increased the collection period for our receivables. We believe that our trade
accounts receivable balances will increase at a greater rate than revenue growth
until such revenue growth subsides for a meaningful period of time.





These
collection challenges in trade accounts receivable are expected to present
liquidity issues in future periods if we do not substantially increase sales
and/or raise funds from other sources.  Historically, our Host Affiliates,
which represent the majority of our receivables, have been slow to collect
receivables and/or answer billing appeals, which in turn has led to our large
accounts receivable balances.  During the nine months ended March 31, 2008,
we conducted approximately three, three-day classes, which were attended by six
total Host Affiliates to help our Host Affiliates with their collection issues.
We believe that those classes, and any similar classes we may arrange in the
future, will help us improve our collections moving forward.





We expect
our accounts payable to grow with the increase in our business over time.
Accrued liabilities include accrued salaries and accrued stock based
compensation, and as with accounts payable, the balance of accrued liabilities
will increase based on the growth of our business. Timely payment of accounts
payable and accrued liabilities will require that we raise additional debt or
equity funding in the near term.














-13-


As of
June 2008, we believe we can operate for at least the next three months with no
additional funding, due to the funds raised through the June 2008
Closing.  Our current recurring cash overhead is approximately $60,000
per month. We believe we will require additional funds of approximately $450,000
to continue our planned business operations and marketing efforts for the next
twelve months. We currently anticipate that our operations will continue to grow
as a result of our increased advertising and marketing expenditures, which has
allowed a greater number of potential clients to become aware of our operations
and services and that the increase in revenues and gross profits associated
with such growth will substantially fund future operations.





As of the
filing of this report, we owed approximately $1,394,471 to the Purchasers in
connection with the principal amount of the outstanding Debentures (not
including any accrued and unpaid interest on such Debentures).   We
also owe an additional $150,000 to New Millennium in connection with the June
2008 Debentures.  The Debentures are convertible into shares of our
common stock at a discount to the market price of our common stock of between
40% in connection with the May 2006 Debentures, and 60% in connection with the
June 2008 Debentures.  If the Purchasers do not fully convert the
Debentures into shares of our common stock, we will need to repay approximately
$494,471 of the Debentures on May 30, 2009, $400,000 of the Debentures on
February 16, 2010, $500,000 of the Debentures on July 27, 2010, and $150,000 of
the Debentures on June 2, 2011, not including any accrued and unpaid interest on
such Debentures.





We do not
currently have sufficient funds to repay the outstanding principal amount of the
Debentures and/or stay the conversions of such Debentures as provided
above.  The shares of common stock which the Debentures are
convertible into and which the Warrants are exercisable for may be sold without
restriction pursuant to Rule 144, as amended, and the Purchasers have expressed
their desire to convert an increasing number of shares upon conversion of the
Debentures. As a result, the sale of these shares may adversely affect the
market price, if any, of our common stock.





If we are
required to raise additional funding, we will likely do so through the sale of
debt or equity securities. Other than the funding transaction described above,
no additional financing has been secured and the Company has no commitments from
officers, directors or affiliates to provide funding.




Critical
Accounting Policies





Our
discussion and analysis of our financial condition and results of operations is
based upon our unaudited financial statements, which have been prepared in
accordance with accounting principals generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of any contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to
uncollectible receivable, investment values, income taxes, the recapitalization
and contingencies. We base our estimates on various assumptions that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.




Recently issued accounting
pronouncements. The Company does not expect the adoption of any recently
issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flows.
















-14-





RISK
FACTORS





Any
investment in shares of our common stock involves a high degree of risk. You
should carefully consider the following information in these risks before you
decide to buy our common stock. If any of the following risks actually occur,
our business would likely suffer. In such circumstances, the market price of our
common stock could decline, and you may lose all or part of the money you paid
to buy our common stock.





WE
HAVE EXPERIENCED SUBSTANTIAL OPERATING LOSSES AND MAY INCUR ADDITIONAL OPERATING
LOSSES IN THE FUTURE.





During
the fiscal years ended June 30, 2007 and 2006, we generated net income of
$843,103 and a net loss of $4,413,417, respectively, and experienced negative
cash flows from operations of $554,271 and $436,226, respectively. During the
nine months ended March 31, 2008, we had net income of $1,430,890, which net
income was mainly the result of changes in the value of our derivative financial
instruments and not the result of our core operations, and negative cash flows
from operations of $426,352. Additionally, we had negative working capital of
$1,082,686 and a total accumulated deficit of $10,434,338 as of March 31,
2008. Our historical losses have been related to two primary factors as follows:
1) we are not currently generating sufficient revenue to cover our fixed costs
and we believe that the break-even point from a cash flow standpoint may require
that we fit as many as 100 clients, up from 59 fitted in fiscal 2007; and 2) we
have issued a significant number of our shares of common stock to compensate
employees and consultants and those stock issuances have resulted in non-cash
charges to income of $585,946 and $482,360 during the years ended June 30, 2007
and 2006, costs that we believe will not be recurring in such large amounts in
future periods. In the event we are unable to increase our gross margins, reduce
our costs and/or generate sufficient additional revenues, we may continue to
sustain losses and our business plan and financial condition will be materially
and adversely affected.





THERE
IS DOUBT REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN.





Since our
inception, we have suffered significant net losses. During the nine months ended
March 31, 2008 we had a loss from operations of $209,095 and we had a working
capital deficit of $1,082,686 as of March 31, 2008. Furthermore, we had an
accumulated deficit of $10,434,338 at March 31, 2008. Due to our negative
financial results and our current financial position, there is substantial doubt
about our ability to continue as a going concern.





WE
OWE THE PURCHASERS A SUBSTANTIAL AMOUNT OF MONEY WHICH WE DO NOT
HAVE.





We raised
$1,500,000 from the sale of Debentures pursuant to a Securities Purchase
Agreement entered into with the Purchasers in 2006 and an additional $150,000
from the sale of Debentures to New Millennium in June 2008.  The
Debentures are convertible into shares of our common stock at a discount to the
market price of our common stock of between 40% in connection with the May 2006
Debentures, and 60% in connection with the June 2008 Debentures.  If
the Purchasers do not fully convert the Debentures into shares of our common
stock, we will need to repay $600,000 of the Debentures on May 30, 2009,
$400,000 of the Debentures on February 16, 2010, $500,000 of the Debentures on
July 27, 2010, and $150,000 of the Debentures on June 2, 2011.  We do
not currently have and may not have sufficient funds to repay these Debentures
when due.





We can
provide no assurance that additional financing will be available on favorable
terms, if at all. If we are not able to raise the capital necessary to continue
our business operations and repay the Debentures, we may be forced to abandon or
curtail our business plan and/or suspend our operations. If we fail to raise
money, we could be forced to abandon or curtail our business operations, which
could cause any investment in the Company to become worthless.
















-15-




OUR
BUSINESS DEPENDS UPON OUR ABILITY TO MARKET OUR SERVICES TO AND SUCCESSFULLY FIT
CHILDREN BORN WITH A LIMB-LOSS.





Our
growth prospects depend upon our ability to identify and subsequently fit the
small minority of children born with a limb-loss. The LLR&SP Report
(referred to above) indicates that approximately 26 out of every 100,000 live
births in the United States result in a possible need for prosthetic
rehabilitation. In addition, our business model demands that we continue to
successfully fit infants and children each year as they outgrow their
prostheses. Because of the relatively small number of these children born each
year and the fact that each child is different, there can be no assurance that
we will be able to identify and market our services to such children (or the
parents or doctors of such children) and/or that we will be able to successfully
fit such children with prosthetic devices if retained. If we are unable to
successfully market our services to the small number of children born with a
limb-loss each year and/or successfully fit such children if marketed to, our
results of operations and revenues could be adversely affected and/or may not
grow.





DUE
TO IMPROVED HEALTHCARE, THERE COULD BE FEWER AND FEWER CHILDREN EACH YEAR WITH
PRE-NATAL LIMB-LOSS.





Since the
majority of our first-time prospective fittings are assumed to be with children
with a pre-natal limb-loss, breakthroughs in pre-natal safety regimens and
treatment could end the need for the vast majority of future fittings of
pediatric prosthetics. As such, there can be no assurance that the number of
children requiring our services will continue to grow in the future, and in fact
the number of such children may decline as breakthroughs occur.





CHANGES
IN GOVERNMENT REIMBURSEMENT LEVELS COULD ADVERSELY AFFECT OUR NET SALES, CASH
FLOWS AND PROFITABILITY.





We
derived a significant percentage of our net sales for the years ended June 30,
2006 and 2007, from reimbursements for prosthetic services and products from
programs administered by Medicare, or Medicaid. Each of these programs sets
maximum reimbursement levels for prosthetic services and products. If these
agencies reduce reimbursement levels for prosthetic services and products in the
future, our net sales could substantially decline. Additionally, reduced
government reimbursement levels could result in reduced private payor
reimbursement levels because fee schedules of certain third-party payors are
indexed to Medicare. Furthermore, the healthcare industry is experiencing a
trend towards cost containment as government and other third-party payors seek
to impose lower reimbursement rates and negotiate reduced contract rates with
service providers. This trend could adversely affect our net sales. Medicare
provides for reimbursement for prosthetic products and services based on prices
set forth in fee schedules for ten regional service areas. Additionally, if the
U.S. Congress were to legislate modifications to the Medicare fee schedules, our
net sales from Medicare and other payors could be adversely and materially
affected. We cannot predict whether any such modifications to the fee schedules
will be enacted or what the final form of any modifications might be. As such,
modifications to government reimbursement levels could reduce our revenues
and/or cause individuals who would have otherwise retained our services to look
for cheaper alternatives.





IF
WE CANNOT COLLECT OUR ACCOUNTS RECEIVABLE OUR BUSINESS, RESULTS OF OPERATIONS,
AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED.





As of
March 31, 2008, our accounts receivable over 120 days old represented a
significant portion of our total accounts receivable outstanding. If we cannot
collect our accounts receivable, our business, results of operations, and
financial condition could be adversely affected.












-16-




IF
WE ARE UNABLE TO MAINTAIN GOOD RELATIONS WITH OUR SUPPLIERS, OUR EXISTING
PURCHASING COSTS MAY BE JEOPARDIZED, WHICH COULD ADVERSELY AFFECT OUR GROSS
MARGINS.





Our gross
margins have been, and will continue to be, dependent, in part, on our ability
to continue to obtain favorable terms from our suppliers. These terms may be
subject to changes in suppliers' strategies from time to time, which could
adversely affect our gross margins over time. The profitability of our business
depends, in part, upon our ability to maintain good relations with these
suppliers, of which there can be no assurance.





WE
DEPEND ON THE CONTINUED EMPLOYMENT OF OUR TWO PROSTHETISTS WHO WORK AT OUR
HOUSTON PATIENT-CARE FACILITY AND THEIR RELATIONSHIPS WITH REFERRAL SOURCES AND
PATIENTS. OUR ABILITY TO PROVIDE PEDIATRIC PROSTHETIC SERVICES AT OUR
PATIENT-CARE FACILITY WOULD BE IMPAIRED AND OUR NET SALES REDUCED IF WE WERE
UNABLE TO MAINTAIN THESE EMPLOYMENT AND REFERRAL RELATIONSHIPS.





Our net
sales would be reduced if either of our two (2) practitioners leaves us. In
addition, any failure of these practitioners to maintain the quality of care
provided or to otherwise adhere to certain general operating procedures at our
facility, or among our Host Affiliates, or any damage to the reputation of any
of our practitioners could damage our reputation, subject us to liability and/or
significantly reduce our net sales.





WE
FACE REVIEWS, AUDITS AND INVESTIGATIONS UNDER OUR CONTRACTS WITH FEDERAL AND
STATE GOVERNMENT AGENCIES, AND THESE AUDITS COULD HAVE ADVERSE FINDINGS THAT MAY
NEGATIVELY IMPACT OUR BUSINESS.





We
contract with various federal and state governmental agencies to provide
prosthetic services. Pursuant to these contracts, we are subject to various
governmental reviews, audits and investigations to verify our compliance with
the contracts and applicable laws and regulations, including reviews from
Medicare and Texas Medicaid, in connection with rules and regulations we are
required to follow and comply with as a result of our position as a Medicare and
Texas Medicaid approved provider. Any adverse review, audit or investigation
could result in:





o
            refunding
      of amounts we have been paid pursuant to our government
      contracts;o
            imposition
      of fines, penalties and other sanctions on us;o
            loss
      of our right to participate in various federal
programs;o
            damage
      to our reputation in various markets; oro
            material
      and/or adverse effects on the business, financial condition and results of
      operations.




WE
HAVE NEVER PAID A CASH DIVIDEND AND IT IS LIKELY THAT THE ONLY WAY OUR
SHAREHOLDERS WILL REALIZE A RETURN ON THEIR INVESTMENT IS BY SELLING THEIR
SHARES.





We have
never paid cash dividends on any of our securities. Our Board of Directors does
not anticipate paying cash dividends in the foreseeable future. We currently
intend to retain future earnings to finance our growth. As a result, the ability
of our investors to generate a profit our common stock will likely depend on
their ability to sell our stock at a profit, of which there can be no
assurance.




WE
MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE, WHICH COULD CAUSE
DILUTION TO OUR THEN EXISTING SHAREHOLDERS.





We may
seek to raise additional equity capital in the future. Any issuance of
additional shares of our common stock will dilute the percentage ownership
interest of all our then shareholders and may dilute the book value per share of
our common stock, which would likely cause a decrease in value of our common
stock.












-17-




WE
MAY ISSUE ADDITIONAL SHARES OF PREFERRED STOCK WHICH PREFERRED STOCK MAY HAVE
RIGHTS AND PREFERENCES GREATER THAN OUR COMMON STOCK.




The Board
of Directors has the authority to issue up to 10,000,000 shares of Preferred
Stock. As of June 17, 2008, 1,000,000 shares of the Series A Convertible
Preferred Shares have been issued.





Additional
shares of preferred stock, if issued, could be entitled to preferences over our
outstanding common stock. The shares of preferred stock, when and if issued,
could adversely affect the rights of the holders of common stock, and could
prevent holders of common stock from receiving a premium for their common stock.
An issuance of preferred stock could result in a class of securities outstanding
that could have preferences with respect to voting rights and dividends and in
liquidation over the common stock, and could (upon conversion or otherwise)
enjoy all of the rights of holders of common stock. Additionally, we may issue a
series of preferred stock in the future, which may convert into common stock,
which conversion would cause immediate dilution to our then shareholders. The
Board of Directors’ authority to issue preferred stock could discourage
potential takeover attempts and could delay or prevent a change in control
through merger, tender offer, proxy contest or otherwise by making such attempts
more difficult to achieve or more costly and/or otherwise cause the value of our
common stock to decrease in value.





OUR
MANAGEMENT CONTROLS A SIGNIFICANT PERCENTAGE OF OUR CURRENTLY OUTSTANDING COMMON
STOCK AND THEIR INTERESTS MAY CONFLICT WITH THOSE OF OUR
SHAREHOLDERS.





As of
June 17, 2008, our President and Chief Executive Officer, Linda Putback-Bean
beneficially owned 34,210,251 shares of common stock or approximately 29% of our
outstanding common stock. Additionally, Ms. Putback-Bean owns 900,000 shares of
our Series A Convertible Preferred Stock which represents 90% of the issued and
outstanding shares of preferred stock. Dan Morgan, our Vice President/Chief
Prosthetist owns 9,198,861 shares of our common stock as well as the remaining
100,000 shares of our Series A Convertible Preferred Stock which represents 10%
of the Series A Convertible Preferred Stock. Thus, management owns 100% of our
Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock
is convertible on a one-to-one basis for our common stock but has voting rights
of 20-to-1, giving our management the right to vote a total of 63,409,112 shares
of our voting shares, representing the 34,210,251 shares held by Ms.
Putback-Bean, the 900,000 shares of Series A Convertible Preferred Stock which
has the right to vote 18,000,000 shares of common stock, the 9,198,861 shares of
common stock held by Mr. Morgan, and the 100,000 shares of Series A Convertible
Preferred Stock which has the right to vote 2,000,000 shares of common stock,
for a total of approximately 46% of our total voting power based on 137,925,789
voting shares, which includes the 117,925,789 shares of common stock outstanding
and the 20,000,000 shares which our Series A Convertible Preferred Stock are
able to vote. This concentration of a significant percentage of voting power
provides our management substantial influence over any matters that require a
shareholder vote, including, without limitation, the election of Directors
and/or approving or preventing a merger or acquisition, even if their interests
may conflict with those of other shareholders. Such control could also have the
effect of delaying or preventing a change in control or otherwise discouraging a
potential acquirer from attempting to obtain control of the Company. Such
control could have a material adverse effect on the market price of our common
stock or prevent our shareholders from realizing a premium over the then
prevailing market prices for their shares of common stock.





WE
MAY BE REQUIRED TO IMMEDIATELY PAY THE $1,650,000 IN OUTSTANDING DEBENTURES
AND/OR BE FORCED TO PAY SUBSTANTIAL PENALTIES TO THE DEBENTURE HOLDERS UPON THE
OCCURRENCE OF AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT.





Upon the
occurrence of and during the continuance of any Event of Default under the
Debentures, which includes the following events:





o
            Our
      failure to pay any principal or interest on the Debentures when
      due;

















-18-




o
            Our
      failure to issue shares of common stock to the Purchasers in connection
      with any conversion as provided in the
  Debentures;





o
            Our
      Registration Statement ceases to be effective for more than ten (10)
      consecutive days or more than twenty (20) days in any twelve (12) month
      period;





o
            Our
      entry into bankruptcy or the appointment of a receiver or
      trustee;




o
            Our
      breach of any covenants in the Debentures or Purchase Agreement, or our
      breach of any representations or warranties included in any of the other
      agreements entered into in connection with the Closing;
  or





o
            If
      any judgment is entered against us or our property for more than
      $100,000,




the
Purchasers can make the Debentures immediately due and payable, and can make us
pay the greater of (a) 130% of the total remaining outstanding principal amount
of the Debentures, plus accrued and unpaid interest thereunder, or (b) the total
dollar value of the number of shares of common stock which the funds referenced
in section (a) would be convertible into (as calculated in the Debentures),
multiplied by the highest closing price for our common stock during the period
we are in default. As we do not currently have sufficient cash on hand to repay
the debentures, if an Event of Default occurs under the Debentures, we could be
forced to curtail or abandon our operations and/or sell substantially all of our
assets in order to repay all or a part of the Debentures.





THE
DEBENTURES ARE CONVERTIBLE INTO SHARES OF OUR COMMON STOCK AT A DISCOUNT TO
MARKET.





The
conversion price of $1,500,000 of the Debentures is equal to 60% of the trading
price of our common stock and the conversion price of $150,000 of the Debentures
is equal to 40% of the trading price of our common stock, which will likely
cause the value of our common stock, if any, to decline in value as subsequent
conversions are made, as described in greater detail under the Risk Factors
below.





THE
ISSUANCE AND SALE OF COMMON STOCK UPON CONVERSION OF THE CONVERTIBLE NOTES AND
EXERCISE OF THE WARRANTS MAY DEPRESS THE MARKET PRICE OF OUR COMMON
STOCK.





As
sequential conversions of the Debentures and sales of such converted shares take
place, the price of our common stock may decline, and as a result, the holders
of the Debentures will be entitled to receive an increasing number of shares in
connection with their conversions, which shares could then be sold in the
market, triggering further price declines and conversions for even larger
numbers of shares, to the detriment of our investors. The shares of common stock
which the Debentures are convertible into and which the Warrants are exercisable
for may be sold without restriction pursuant to Rule 144, as amended and the
Purchasers have expressed their desire to convert an increasing number of shares
underlying the Debentures. As a result, the sale of these shares may adversely
affect the market price, if any, of our common stock.





In
addition, the common stock issuable upon conversion of the Debentures and
exercise of the Warrants may represent overhang that may also adversely affect
the market price of our common stock. Overhang occurs when there is a greater
supply of a company's stock in the market than there is demand for that stock.
When this happens the price of the company's stock will decrease, and any
additional shares which shareholders attempt to sell in the market will only
further decrease the share price. The various Debentures will be convertible
into shares of our common stock at a discount to market of 40% in connection
with the original amount of $1,500,000 in Debentures and 60% in connection with
the June 2008 Debentures, of the average of the three lowest intraday trading
prices which our common stock trades on the market or exchange which it then
trades over the most recent twenty (20) day trading period, ending one day prior
to the date a conversion notice is received, and such discount to market,
provides the holders with the ability to sell
their common stock at or below market and still make a profit. In the event of
such overhang, holders will have an incentive to sell their common stock as
quickly as possible. If the share volume of our common stock cannot absorb the
discounted shares, then the value of our common stock will likely
decrease.














-19-




THE
ISSUANCE OF COMMON STOCK UPON CONVERSION OF THE DEBENTURES AND UPON EXERCISE OF
THE WARRANTS WILL CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION.





The
issuance of common stock upon conversion of the Debentures and exercise of the
Warrants will result in immediate and substantial dilution to the interests of
other stockholders since the Debenture holders may ultimately receive and sell
the full amount issuable on conversion or exercise. Although the Debenture
holders may not convert the Debentures and/or exercise their Warrants if such
conversion or exercise would cause them to own more than 4.99% of our
outstanding common stock, this restriction does not prevent the Debenture
holders from converting and/or exercising some of their holdings, selling those
shares, and then converting the rest of their holdings, while still staying
below the 4.99% limit. In this way, the Debenture holders could sell more than
this limit while never actually holding more shares than this limit allows. If
the Debenture holders choose to do this it will cause substantial dilution to
the then holders of our common stock.





THE
CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR DEBENTURES COULD REQUIRE
US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH MAY ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK AND CAUSE DILUTION TO OUR EXISTING
STOCKHOLDERS.





Our
existing stockholders will experience substantial dilution of their investment
upon conversion of the Debentures and exercise of the Warrants. The various
Debentures will be convertible into shares of our common stock at a discount to
market of 40% in connection with the original amount of $1,500,000 in Debentures
and 60% in connection with the June 2008 Debentures, of the trading value of our
common stock. As a result, the number of shares issuable could prove to be
significantly greater in the event of a decrease in the trading price of our
common stock, which decrease would cause substantial dilution to our existing
stockholders. As sequential conversions and sales take place, the price of our
common stock may decline and if so, the holders of the Debentures would be
entitled to receive an increasing number of shares, which could then be sold,
triggering further price declines and conversions for even larger numbers of
shares, which would cause additional dilution to our existing stockholders and
would likely cause the value of our common stock to decline.




THE
CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR DEBENTURES MAY ENCOURAGE
INVESTORS TO SELL SHORT OUR COMMON STOCK, WHICH COULD HAVE A DEPRESSIVE EFFECT
ON THE PRICE OF OUR COMMON STOCK.





The
various Debentures will be convertible into shares of our common stock at a
discount to market of 40% in connection with the original amount of $1,500,000
in Debentures and 60% in connection with the June 2008 Debentures, of the
average of the three lowest intraday trading prices which our common stock
trades on the market or exchange which it then trades over the most recent
twenty (20) day trading period, ending one day prior to the date a conversion
notice is received (the “Conversion Price”). The significant downward pressure
on the price of our common stock as the Debenture holders convert and sell
material amounts of our common stock could encourage investors to short sell our
common stock. This could place further downward pressure on the price of our
common stock. In addition, not only the sale of shares issued upon conversion of
the Debentures or exercise of the Warrants, but also the mere perception
that these sales could occur, may adversely affect the market price of our
common stock.












-20-




THE
TRADING PRICE OF OUR COMMON STOCK ENTAILS ADDITIONAL REGULATORY REQUIREMENTS,
WHICH MAY NEGATIVELY AFFECT SUCH TRADING PRICE.





Our
common stock is currently listed on the Pink Sheets, an over-the-counter
electronic quotation service, which stock currently trades below $5.00 per
share. We anticipate the trading price of our common stock will continue to be
below $5.00 per share. As a result of this price level, trading in our common
stock would be subject to the requirements of certain rules promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
rules require additional disclosure by broker-dealers in connection with any
trades generally involving any non-NASDAQ equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Such rules
require the delivery, before any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must determine the suitability of the penny stock for the purchaser and receive
the purchaser's written consent to the transaction before sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our common stock. As a
consequence, the market liquidity of our common stock could be severely affected
or limited by these regulatory requirements.





IN
THE FUTURE, WE WILL INCUR SIGNIFICANT INCREASED COSTS AS A RESULT OF OPERATING
AS A FULLY REPORTING COMPANY UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, AND OUR MANAGEMENT WILL BE REQUIRED TO DEVOTE SUBSTANTIAL TIME TO NEW
COMPLIANCE INITIATIVES.





Moving
forward, we anticipate incurring significant legal, accounting and other
expenses in connection with our status as a fully reporting public company. The
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently
implemented by the SEC have imposed various new requirements on public
companies, including requiring changes in corporate governance practices. As
such, and as a result of the filing of our Form 10-SB to become a publicly
reporting company, our management and other personnel will need to devote a
substantial amount of time to these new compliance initiatives. Moreover, these
rules and regulations will increase our legal and financial compliance costs and
will make some activities more time-consuming and costly. For example, we expect
these new rules and regulations to make it more difficult and more expensive for
us to obtain director and officer liability insurance, and we may be required to
incur substantial costs to maintain the same or similar coverage. In addition,
the Sarbanes-Oxley Act requires, among other things, that we maintain effective
internal controls for financial reporting and disclosure of controls and
procedures. In particular, commencing in fiscal 2008, we must perform system and
process evaluation and testing of our internal controls over financial reporting
to allow management and our independent registered public accounting firm to
report on the effectiveness of our internal controls over financial reporting,
as required by Section 404 of the Sarbanes-Oxley Act during fiscal 2009. Our
testing, or the subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal controls over financial
reporting that are deemed to be material weaknesses. Our compliance with Section
404 will require that we incur substantial accounting expense and expend
significant management efforts. We currently do not have an internal audit
group, and we will need to hire additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge.
Moreover, if we are not able to comply with the requirements of Section 404 in a
timely manner, or if we or our independent registered public accounting firm
identifies deficiencies in our internal controls over financial reporting that
are deemed to be material weaknesses, the market price of our stock could
decline, and we could be subject to sanctions or investigations by the SEC or
other regulatory authorities, which would require additional financial and
management resources.





Government Regulation





We are
subject to a variety of federal, state and local governmental regulations. We
make every effort to comply with all applicable regulations through compliance
programs, manuals and personnel training. Despite these efforts, we cannot
guarantee that we will be in absolute compliance with all regulations at all
times. Failure to comply with applicable governmental regulations may result in
significant penalties, including
exclusion from the Medicare and Medicaid programs, which could have a material
adverse effect on our business. We have initiated certain purchasing and
efficiency programs in the past. The most important efficiency program we have
instituted to date was entering into contracts with our Host affiliates. By
acquiring laboratory access from such Host Affiliates, and acquiring the Host
Affiliates help in billing and collections from third party payers such as
insurance companies and their respective state-centered Medicaid programs, we
have also cut down our travel costs, and our costs of added staff to invoice and
collect receivables. Additionally, in an attempt to maximize our efficiency, we
modified our "just in time" inventorying of components for prosthetic devices to
allow sufficient time for us to send such components via less expensive ground
freight instead of higher priced overnight delivery. Finally, we have instituted
a ten day lead-time policy on our airline reservations to achieve lower
air-fares to our patients, when we are required to travel across the country,
except in cases of emergencies.












-21-




HIPAA
Violations. The Health Insurance Portability and Accountability Act ("HIPAA")
provides for criminal penalties for, among other offenses, healthcare fraud,
theft or embezzlement in connection with healthcare, false statements related to
healthcare matters, and obstruction of criminal investigation of healthcare
offenses. Unlike the federal anti-kickback laws, these offenses are not limited
to federal healthcare programs. In addition, HIPAA authorizes the imposition of
civil monetary penalties where a person offers or pays remuneration to any
individual eligible for benefits under a federal healthcare program that such
person knows or should know is likely to influence the individual to order or
receive covered items or services from a particular provider, practitioner or
supplier. Excluded from the definition of "remuneration" are incentives given to
individuals to promote the delivery of preventive care (excluding cash or cash
equivalents), incentives of nominal value and certain differentials in or
waivers of coinsurance and deductible amounts. These laws may apply to certain
of our operations. Our billing practices could be subject to scrutiny and
challenge under HIPAA.





Physician
Self-Referral Laws. We are also subject to federal and state physician
self-referral laws. With certain exceptions, the federal Medicare/Medicaid
physician self-referral law (the "Stark II" law) (Section 1877 of the Social
Security Act) prohibits a physician from referring Medicare and Medicaid
beneficiaries to an entity for "designated health services" - including
prosthetic and orthotic devices and supplies - if the physician or the
physician's immediate family member has a financial relationship with the
entity. A financial relationship includes both ownership or investment interests
and compensation arrangements. A violation occurs when any person presents or
causes to be presented to the Medicare or Medicaid program a claim for payment
in violation of Stark II. With respect to ownership/investment interests, there
is an exception under Stark II for referrals made to a publicly traded entity in
which the physician has an investment interest if the entity's shares are traded
on certain exchanges, including the New York Stock Exchange, and had
shareholders' equity exceeding $75.0 million for its most recent fiscal year, or
an average of $75.0 million during the three previous fiscal years.




With
respect to compensation arrangements, there are exceptions under Stark II that
permit physicians to maintain certain business arrangements, such as personal
service contracts and equipment or space leases, with healthcare entities to
which they refer. We believe that our compensation arrangements comply with
Stark II, either because the physician's relationship fits within a regulatory
exception or does not generate prohibited referrals. Because we have financial
arrangements with physicians and possibly their immediate family members, and
because we may not be aware of all those financial arrangements, we must rely on
physicians and their immediate family members to avoid making referrals to us in
violation of Stark II or similar state laws. If, however, we receive a
prohibited referral without knowing that the referral was prohibited, our
submission of a bill for services rendered pursuant to a referral could subject
us to sanctions under Stark II and applicable state laws.





Certification
and Licensure. Most states do not require separate licensure for practitioners.
However, several states currently require practitioners to be certified by an
organization such as the American Board for Certification ("ABC"). Our
Prosthetists are certified by the State of Texas and by the ABC. When we fit
children in other States which have state licensure laws, we work, under the
supervision of licensed Prosthetists in those states.












-22-




The
American Board for Certification Orthotics and Prosthetics conducts a
certification program for practitioners and an accreditation program for
patient-care centers. The minimum requirements for a certified practitioner are
a college degree, completion of an accredited academic program, one to four
years of residency at a patient-care center under the supervision of a certified
practitioner and successful completion of certain examinations. Minimum
requirements for an accredited patient-care center include the presence of a
certified practitioner and specific plant and equipment requirements. While we
endeavor to comply with all state licensure requirements, we cannot assure that
we will be in compliance at all times with these requirements. Failure to comply
with state licensure requirements could result in civil penalties, termination
of our Medicare agreements, and repayment of amounts received from Medicare for
services and supplies furnished by an unlicensed individual or
entity.





Confidentiality
and Privacy Laws. The Administrative Simplification Provisions of HIPAA, and
their implementing regulations, set forth privacy standards and implementation
specifications concerning the use and disclosure of individually identifiable
health information (referred to as "protected health information") by health
plans, healthcare clearinghouses and healthcare providers that transmit health
information electronically in connection with certain standard transactions
("Covered Entities"). HIPAA further requires Covered Entities to protect the
confidentiality of health information by meeting certain security standards and
implementation specifications. In addition, under HIPAA, Covered Entities that
electronically transmit certain administrative and financial transactions must
utilize standardized formats and data elements ("the transactions/code sets
standards"). HIPAA imposes civil monetary penalties for non-compliance, and,
with respect to knowing violations of the privacy standards, or violations of
such standards committed under false pretenses or with the intent to sell,
transfer or use individually identifiable health information for commercial
advantage, criminal penalties.  The privacy standards and transactions/code
sets standards went into effect on April 16, 2003 and required compliance by
April 21, 2005. We believe that we are subject to the Administrative
Simplification Provisions of HIPAA and have taken steps necessary to meet
applicable standards and implementation specifications; however, these
requirements have had a significant effect on the manner in which we handle
health data and communicate with payors. Our added costs of complying with the
HIPAA requirements relate primarily to attaining the on-going educational
credits needed for our Prosthetists to remain current with the professional
standards of practice. These credits are achieved by attending work-shops and
seminars in various locations throughout North America. During fiscal year ended
June 30, 2007 we spent approximately $14,350 complying with these on-going
educational needs. However, since our original formation, we have been aware of
impending HIPAA regulations, and have set up our systems and procedures to
comply with HIPAA requirements in view of such regulations. As a result, added
costs due to compliance with HIPAA guidelines have been minimal and
immaterial.





In
addition, state confidentiality and privacy laws may impose civil and/or
criminal penalties for certain unauthorized or other uses or disclosures of
individually identifiable health information. We are also subject to these laws.
While we endeavor to assure that our operations comply with applicable laws
governing the confidentiality and privacy of health information, we could face
liability in the event of a use or disclosure of health information in violation
of one or more of these laws.





ITEM 3. CONTROLS AND
PROCEDURES





(a)
Evaluation of disclosure controls and procedures. Our Chief Executive Officer
and Principal Financial Officer, after evaluating the effectiveness of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this Quarterly Report on Form 10-QSB/A (the "Evaluation Date"), has concluded
that as of the Evaluation Date, our disclosure controls and procedures were not
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The controls were not effective as we were not
able to timely file this Quarterly Report.




(b)
Changes in internal control over financial reporting. There were no changes in
our internal control over financial reporting during our most recent fiscal
quarter that materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.












-23-




PART II - OTHER
INFORMATION





ITEM 1. LEGAL
PROCEEDINGS





From time
to time, we may become party to litigation or other legal proceedings that we
consider to be a part of the ordinary course of our business. We are not
currently involved in legal proceedings that could reasonably be expected to
have a material adverse effect on our business, prospects, financial condition
or results of operations. We may become involved in material legal proceedings
in the future.





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





Between
January 1, 2008 and May 13, 2008, the Purchasers individually provided us notice
of their intention to convert an aggregate of approximately $6,614 of principal
of the May 30, 2006, Debentures into an aggregate of approximately 2,442,784
shares of our common stock (the “Shares”) based on a Conversion Price of between
$0.006 and $0.001 per share, as of the date of each of the Notices of
Conversions.   We subsequently issued the Purchasers the Shares, which
Shares were either registered by us on our Form SB-2 Registration Statement
declared effective by the Commission on July 20, 2007 and/or sold pursuant to
Rule 144.





As a
result of the conversions, we owed an aggregate of approximately $1,394,471 to
the Purchasers in connection with the principal amount of the outstanding May
30, 2006 Debentures as of the date of this filing (not including any accrued and
unpaid interest on such Debentures) and an additional $150,000 to New Millennium
in connection with the June 2008 Closing.





In
February 2008, the Company reissued its President, Linda Putback-Bean an
aggregate of 4,000,000 shares of the Company’s common stock which she cancelled
on or around September 30, 2005, to reduce the number of issued shares of the
Company and to increase the number of authorized but unissued shares of the
Company to allow the Company sufficient shares of common stock to pay various
consultants for services rendered. The shares were earned prior to their
original issuance in December 2004.  We claim an exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended,
for the above issuance, since the issuance did not involve a public offering,
the recipient took the securities for investment and not resale and the Company
took appropriate measures to restrict transfer.





Additionally,
in February 2008, the Company issued 3,000,000 restricted shares of common stock
to Wakabayashi Fund, LLC, a Japanese Limited Liability Company (“Wakabayashi”),
in connection with the Company’s entry into an investor relations agreement with
Wakabayashi, pursuant to which Wakabayashi agreed to provide investor relations
services for a six month period.  We claim an exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended,
for the above issuance, since the issuance did not involve a public offering,
the recipient took the securities for investment and not resale and the Company
took appropriate measures to restrict transfer.





On or
about June 2, 2008, we entered into a Securities Purchase Agreement, with New
Millennium to sell $150,000 in Callable Secured Convertible Notes, which bear
interest at the rate of 6% per annum (the "Debentures"). We claim an exemption
from registration provided by Rule 506 of Regulation D for the above
issuance.





In
connection with the sale of the June 2008 Debenture, we granted New Millennium
Stock Purchase Warrants to purchase an aggregate of 20,000,000 shares of our
common stock at an exercise price of $0.001 per share, which warrants expire if
unexercised on June 2, 2015. We claim an exemption from registration provided by
Rule 506 of Regulation D for the issuance of the warrants.








ITEM 3. DEFAULTS UPON SENIOR
SECURITIES.





None.












-24-


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





None.





ITEM 5. OTHER
INFORMATION





None.





ITEM 6.
EXHIBITS





Exhibit
      Number
            Description
      of ExhibitExhibit
      3.1(A)
            Articles
      of Incorporation (Pediatric Prosthetics, Inc.-Texas) dated September 15,
      2003Exhibit
      3.2(4)
            Restated
      Articles of Incorporation of the Company  (March 9,
    2001)Exhibit
      3.3(4)
            Reinstatement
      (June 29, 2003)Exhibit
      3.4(A)
            Amendment
      to Articles of Incorporation of the Company (October 31,
    2003)Exhibit
      3.5(A)
            Amendment
      to Articles of Incorporation of the Company (November 7,
    2003)(Series
      A Convertible Preferred Stock Designation of Rights)Exhibit
      3.6(6)
            Amendment
      to Articles of Incorporation of the Company (March 15,
    2007)Exhibit
      3.7(4)
            Bylaws
      of the Company





Exhibit
      10.1(4)
            Sample
      Host Affiliate AgreementExhibit
      10.2(2)
            Settlement
      Agreement with Secured Releases, LLCExhibit
      10.3(3)
            Securities
      Purchase AgreementExhibit
      10.4(3)
            Callable
      Secured Convertible Note with AJW Offshore, Ltd.Exhibit
      10.5(3)
            Callable
      Secured Convertible Note with AJW Partners, LLCExhibit
      10.6(3)
            Callable
      Secured Convertible Note with AJW Qualified Partners,
  LLCExhibit
      10.7(3)
            Callable
      Secured Convertible Note with New Millennium Capital Partners II,
      LLCExhibit
      10.8(3)
            Stock
      Purchase Warrant with AJW Offshore, Ltd.Exhibit
      10.9(3)
            Stock
      Purchase Warrant with AJW Partners, LLCExhibit
      10.10(3)
            Stock
      Purchase Warrant with AJW Qualified Partners, LLCExhibit
      10.11(3)
            Stock
      Purchase Warrant with New Millennium Capital Partners II,
    LLCExhibit
      10.12(3)
            Security
      AgreementExhibit
      10.13(3)
            Intellectual
      Property Security AgreementExhibit
      10.14(3)
            Registration
      Rights AgreementExhibit
      10.15(4)
            Consulting
      Agreement with National Financial Communications
    Corp.
















-25-






Exhibit
      10.16(4)
            Warrant
      Agreement with Lionheart Associates, LLC doing business as Fairhills
      CapitalExhibit
      10.17(4)
            Investor
      Relations Consulting Agreement with Joe GordonExhibit
      10.18(5)
            Waiver
      of Rights AgreementExhibit
      10.20(6)
            Kertes
      Convertible Note and WarrantExhibit
      10.21(6)
            Global
      Media AgreementExhibit
      10.22(7)
            Second
      Closing - Callable Secured Convertible Note with AJW Offshore,
      Ltd.Exhibit
      10.23(7)
            Second
      Closing - Callable Secured Convertible Note with AJW Partners,
      LLCExhibit
      10.24(7)
            Second
      Closing - Callable Secured Convertible Note with AJW Qualified Partners,
      LLCExhibit
      10.25(7)
            Second
      Closing - Callable Secured Convertible Note with New Millennium Capital
      Partners II, LLCExhibit
      10.26(8)
            Second
      Waiver of Rights AgreementExhibit
      10.27(9)
            Stock
      Purchase Warrant with AJW Offshore, Ltd.Exhibit
      10.28(9)
            Stock
      Purchase Warrant with AJW Partners, LLCExhibit
      10.29(9)
            Stock
      Purchase Warrant with AJW Qualified Partners, LLCExhibit
      10.30(9)
            Stock
      Purchase Warrant with New Millennium Capital Partners,
  LLCExhibit
      10.31(10)
            Third
      Closing - Callable Secured Convertible Note with AJW Offshore,
      Ltd.Exhibit
      10.31(10)
            Third
      Closing - Callable Secured Convertible Note with AJW Partners,
      LLCExhibit
      10.32(10)
            Third
      Closing - Callable Secured Convertible Note with AJW Qualified Partners,
      LLCExhibit
      10.33(10)
            Third
      Closing - Callable Secured Convertible Note with New Millennium Capital
      Partners II, LLCExhibit
      10.34(11)
            June
      2008 Securities Purchase AgreementExhibit
      10.35(11)
            June
      2008 Callable Secured Convertible Note with New Millennium Capital
      Partners II, LLCExhibit
      10.36(11)
            June
      2008 Stock Purchase Warrant with New Millennium Capital Partners II,
      LLCExhibit
      10.37(11)
            June
      2008 Registration Rights Agreement


Exhibit
      10.38(11)
            June
      2008 Security Agreement














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Exhibit
      10.39(11)
            June
      2008 Intellectual Property Security AgreementExhibit
      10.40(11)
            June
      2008 Subsidiary GuarantyExhibit
      10.41(11)
            June
      2008 Third Waiver of Rights AgreementExhibit
      31.1*
            Certificate
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002Exhibit
      31.2*
            Certificate
      of the Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002Exhibit
      32.1*
            Certificate
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002Exhibit
      32.2*
            Certificate
      of the Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002





* Filed
Herein.





(A) Filed
as exhibits to our Form 10-SB, filed with the Commission on February 13, 2006,
and incorporated herein by reference.





(1) Filed
as an exhibit to our report on Form 8-K filed with the Commission on March 20,
2007, and incorporated herein by reference.





(2) Filed
as an exhibit to our quarterly report on Form 10-QSB, filed with the Commission
on July 5, 2006, and incorporated herein by reference.





(3) Filed
as exhibits to our report on Form 8-K, filed with the Commission on June 2,
2006, and incorporated herein by reference.





(4) Filed
as exhibits to our Form 10-SB, filed with the Commission on July 14, 2006, and
incorporated herein by reference.





(5) Filed
as an exhibit to our Form 10-KSB filed with the Commission on October 27, 2006,
and incorporated herein by reference.





(6) Filed
as exhibits to our Form SB-2 Registration Statement filed with the Commission on
February 9, 2007, and incorporated herein by reference.





(7) Filed
as exhibits to our report on Form 8-K filed with the Commission on February 26,
2007, and incorporated herein by reference.





(8) Filed
as an exhibit to our report on Form 8-K filed with the Commission on April 18,
2007, and incorporated herein by reference.




(9) Filed
as exhibits to our Form SB-2A Registration Statement filed with the Commission
on April 30, 2007, and incorporated herein by reference.





(10)
Filed as exhibits to our Form 8-K, filed with the Commission on August 1, 2007,
and incorporated herein by reference.





(11)
Filed as exhibits to our Form 8-K, filed with the Commission on June 11, 2008,
and incorporated herein by reference.














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SIGNATURES





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





PEDIATRIC
      PROSTHETICS, INC.DATED:  June
      23, 2008
            By: /s/ Linda
      Putback-BeanLinda
      Putback-BeanChief
      Executive Officer(Principal
      Executive Officer)







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