**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB**


(Mark
      One)





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





For
      the
      quarterly period ended December 31, 2006





[  
                ]
            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
      February 5, 2007, 98,274,889 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]











**PART
        I. FINANCIAL INFORMATION**
 
 **ITEM
        1.**  **FINANCIAL
        STATEMENTS**
 
 **PEDIATRIC
                  PROSTHETICS, INC.****UNAUDITED
                  FINANCIAL STATEMENTS****For
                  the Three and Six Months Ended December 31, 2006 and
                  2005**
 
  
  
 **PEDIATRIC
                  PROSTHETICS, INC.****TABLE
                  OF CONTENTS****Page**Unaudited
                  Balance Sheets as of December 31, 2006 and June 30, 2006
              
              
              F-3Unaudited
                  Statements Of Operations for the three and sixmonths
                  ended December 31, 2006 and 2005
              
              
              
              
              
              F-4Unaudited
                  Statement Of Changes in Stockholders’ Deficit for the six months
                  endedDecember
                  31, 2006
              
              
              
              
              
              F-5Unaudited
                  Statements Of Cash Flows for six months endedDecember
                  31, 2006 and 2005
              
              
              
              
              
              F-6Notes
                  To Unaudited Financial Statements
              
              
              
              
              
              F-7F-2
   
 
   **PEDIATRIC
                    PROSTHETICS, INC.****UNAUDITED
                    BALANCE SHEETS****December
                    31, 2006 and June 30, 2006****December
                    31, 2006**
                
                **June
                    30, 2006****ASSETS**Current
                    assets:Cash
                    and cash equivalents
                
                $
                22,857
                
                $
                274,641Trade
                    accounts receivable, net
                
                
                380,393
                
                
                268,642Prepaid
                    expenses and other current assets
                
                
                11,825
                
                
                13,396Current
                    portion of deferred financing costs, net
                
                
                119,665
                
                
                109,693Total
                    current assets
                
                
                534,740
                
                
                666,372Furniture
                    and equipment, net
                
                
                58,954
                
                
                59,138Deferred
                    financing costs
                
                
                169,530
                
                
                239,334Total
                    assets
                
                $
                763,224
                
                $
                964,844**LIABILITIES
                    AND STOCKHOLDERS' DEFICIT**Current
                    Liabilities:Trade
                    accounts payable
                
                $
                196,511
                
                $
                143,167Accrued
                    liabilities
                
                
                268,079
                
                
                257,680Current
                    portion of convertible debt, net of discount of$25,000
                    at June 30, 2006
                
                
                75,000
                
                
                60,000Due
                    to related party
                
                
                500
                
                
                500Derivative
                    financial instruments
                
                
                2,766,164
                
                
                5,119,365Total
                    current liabilities
                
                
                3,306,254
                
                
                5,580,712Convertible
                    debt, net of discount of $543,358 and $592,716 atDecember
                    31, 2006 and June 30, 2006, respectively
                
                
                56,642
                
                
                7,284Deferred
                    rent
                
                
                11,871
                
                
                12,575Total
                    liabilities
                
                
                3,374,767
                
                
                5,600,571Commitments
                    and contingencies:Stockholders'
                    deficit:Preferred
                    stock, par value $0.001; authorized10,000,000; 1,000,000
                    issued and outstanding
                
                
                1,000
                
                
                1,000Common
                    stock, par value $0.001; authorized 100,000,000shares;
                    issued and outstanding 98,274,889 shares
                
                
                98,275
                
                
                98,275Additional
                    paid-in capital
                
                
                8,210,615
                
                
                7,764,327Accumulated
                    deficit
                
                
                (10,921,433
                )
                
                (12,499,329
                )Total
                    stockholders’ deficit
                
                
                (2,611,543
                )
                
                (4,635,727
                )Total
                    liabilities and stockholders' deficit
                
                $
                763,224
                
                $
                964,844The
                    accompanying notes are an integral part of these financial
                    statementsF-3
   
 **PEDIATRIC
                  PROSTHETICS,
                  INC.****UNAUDITED
                  STATEMENTS OF OPERATIONS****For
                  the Three and Six Months Ended December 31, 2006 and
                  2005****Three
                  Months Ended**
              
              **Six
                  Months Ended****December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Revenue
              
              $
              241,138
              
              $
              165,695
              
              $
              436,368
              
              $
              269,743Operating
                  expenses:Cost
                  of sales, except for itemsstated
                  separately below
              
              
              35,640
              
              
              73,599
              
              
              111,641
              
              
              110,815Selling,
                  general andadministrative
                  expenses
              
              
              385,212
              
              
              268,713
              
              
              928,451
              
              
              436,823Depreciation
                  expense
              
              
              6,038
              
              
              5,427
              
              
              11,997
              
              
              10,115Total
                  operating expenses
              
              
              426,890
              
              
              347,739
              
              
              1,052,089
              
              
              557,753Loss
                  from operations
              
              
              (185,752
              )
              
              (182,044
              )
              
              (615,721
              )
              
              (288,010
              )Other
                  income and (expenses):Interest
                  income
              
              
              -
              
              
              -
              
              
              1
              
              
              -Interest
                  expense
              
              
              (69,093
              )
              
              (9,480
              )
              
              (159,585
              )
              
              (15,511
              )Loss
                  on disposal of equipment
              
              
              -
              
              
              (2,811
              )
              
              -
              
              
              (2,811
              )Gain
                  on extinguishment of debt
              
              
              -
              
              
              310,799
              
              
              -
              
              
              310,799Change
                  in value of derivativefinancial
                  instruments
              
              
              1,150,661
              
              
              -
              
              
              2,353,201
              
              
              -Total
                  other income, net
              
              
              1,081,568
              
              
              298,508
              
              
              2,193,617
              
              
              292,477Net
                  income
              
              $
              895,816
              
              $
              116,464
              
              $
              1,577,896
              
              $
              4,467Net
                  income per common share - basicand
                  diluted
              
              $
              0.01
              
              $
              0.00
              
              $
              0.02
              
              $
              0.00Weighted
                  average shares of commonstock
                  outstanding - basic and diluted
              
              
              98,274,889
              
              
              95,954,539
              
              
              98,274,889
              
              
              93,481,713The
                  accompanying notes are an integral part of these financial
                  statementsF-4
   
 
   **PEDIATRIC
                    PROSTHETICS,
                    INC.****UNAUDITED
                    STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT****For
                    the Six Months Ended December 31, 2006****Additional****Preferred
                    Stock**
                
                **Common
                    Stock**
                
                **Paid-In**
                
                **Accumulated****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **Capital**
                
                **Deficit**
                
                **Total**Balance
                    at June 30, 2006
                
                
                1,000,000
                
                $
                1,000
                
                
                98,274,889
                
                $
                98,275
                
                $
                7,764,327
                
                $
                (12,499,329
                )
                $
                (4,635,727
                )Amortization
                    of stock-basedcompensation
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                446,288
                
                
                -
                
                
                446,288Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,577,896
                
                
                1,577,896Balance
                    at March 31, 2006
                
                
                1,000,000
                
                $
                1,000
                
                
                98,274,889
                
                $
                98,275
                
                $
                8,210,615
                
                $
                (10,921,433
                )
                $
                (2,611,543
                )The
                    accompanying notes are an integral part of these financial
                    statementsF-5
 
  
 
 **PEDIATRIC
                  PROSTHETICS, INC.****UNAUDITED
                  STATEMENTS OF CASH FLOWS****For
                  the Six Months Ended December 31, 2006 and 2005****2006**
              
              **2005**Cash
                  Flows From Operating ActivitiesNet
                  income
              $
              1,577,896
              
              $
              4,467Adjustments
                  to reconcile net income to net cash used byoperating
                  activitiesDepreciation
                  expense
              
              11,997
              
              
              10,115Loss
                  on disposal of equipment
              
              -
              
              
              2,811Deferred
                  rent
              
              (704
              )
              
              -Stock-based
                  compensation
              
              446,288
              
              
              119,108Provision
                  for doubtful accounts
              
              15,838
              
              
              22,921Amortization
                  of debt issue costs
              
              134,190
              
              
              -Change
                  in value of derivative financial instruments
              
              (2,353,201
              )
              
              -Gain
                  on extinguishment of debt
              
              -
              
              
              (310,799
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              (127,589
              )
              
              (65,372
              )Prepaid
                  expenses and other current assets
              
              1,571
              
              
              644Accounts
                  payable
              
              53,344
              
              
              36,645Accrued
                  liabilities
              
              10,399
              
              
              8,964Net
                  cash used by operating activities
              
              (229,971
              )
              
              (170,496
              )Cash
                  Flows From Investing ActivitiesPurchase
                  of furniture and equipment
              
              (11,813
              )
              
              -Net
                  cash used by investing activities
              
              (11,813
              )
              
              -Cash
                  Flows From Financing Activities:Payment
                  in settlement of convertible debt
              
              -
              
              
              (30,000
              )Payment
                  of convertible debt
              
              (10,000
              )
              
              -Proceeds
                  from common stock, net of expenses
              
              -
              
              
              210,000Net
                  cash provided (used) by financing activities
              
              (10,000
              )
              
              180,000Net
                  increase (decrease) in cash and cash equivalents
              
              (251,784
              )
              
              9,504Cash
                  and cash equivalents, beginning of period
              
              274,641
              
              
              29,818Cash
                  and cash equivalents, end of period
              $
              22,857
              
              $
              39,322Supplemental
                  Disclosure of Cash Flow InformationCash
                  paid for interest expense
              $
              3,000
              
              $
              11,731Cash
                  paid for income taxes
              
              -
              
              
              -The
                  accompanying notes are an integral part of these financial
                  statementsF-6
    
 
 **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 2006 Annual Report. 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, 2007.
 
 
 **2.**  **GOING
        CONCERN CONSIDERATIONS**
 
 Since
        its
        inception, Pediatric has suffered significant net losses and has been dependent
        on outside investors to provide the cash resources to sustain its operations.
        During the years ended June 30, 2006 and 2005, Pediatric reported net losses
        of
        $4,413,417 and $4,356,519, respectively, and negative cash flows from operations
        of $436,226 and $298,454, respectively. For the six months ended December
        31,
        2006 Pediatric reported net income of $1,577,896 and negative cash flows
        from
        operations of $229,971.
 
 Although
        Pediatric has net income of $1,571,896 for the six months ended December
        31,
        2006, such net income was the result of 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 $2,771,514 and a
        stockholders' deficit of $2,611,543 at December 31, 2006. 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-7
   
 **PEDIATRIC
                  PROSTHETICS, INC.****NOTES
                  TO UNAUDITED FINANCIAL STATEMENTS**
 
 **2.**  **GOING
        CONCERN CONSIDERATIONS, continued**
 
 Pediatric
        is currently implementing it plans to deal with going concern issues. The
        first
        step in that plan was its recapitalization into a public shell on October
        10,
        2003. Management believes that the recapitalization and its current plan
        to
        become a fully reporting public company will allow Pediatric, through private
        placements of its common stock, to raise the capital to expand operations
        to a
        level that will ultimately produce positive cash flows from
        operations.
 
 Pediatirc's
        long-term viability as a going concern is dependent on certain key factors,
        as
        follows:
 
 ·
              Pediatric's
                  ability to obtain adequate sources of outside financing to support
                  near
                  term operations and to allow Pediatric to continue forward with
                  current
                  strategic plans.
 
 ·
              Pediatric's
                  ability to increase its customer base and broaden its service
                  capabilities.
 
 ·
              Pediatric's
                  ability to ultimately achieve adequate profitability and cash flows
                  to
                  sustain continuing operations.
 
 
    
 
 
 
 F-8
 
 
 
 **ITEM
        2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION**
 
 THIS
        REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
        27A OF
        THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE SECURITIES
        EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
        MATERIALLY FROM THOSE SET FORTH ON THE FORWARD LOOKING STATEMENTS AS A RESULT
        OF
        THE RISKS SET FORTH IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
        COMMISSION, GENERAL ECONOMIC CONDITIONS, AND CHANGES IN THE ASSUMPTIONS USED
        IN
        MAKING SUCH FORWARD LOOKING STATEMENTS.
 
 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 $8,000 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 approximately twenty-seven fittings and from January 1,
        2006,
        until June 30, 2006, we made approximately thirty-six fittings, and from
        July 1,
        2006 until February 15, 2007, we made approximately thirty-nine fittings,
        two of
        which were pro bono. We averaged approximately four or five fittings per
        month
        through December 2005 and have averaged approximately five to six fittings
        per
        month since January 2006.
 
  
  
 
  
  **History
        of the Company**
  
 We
        were
        formed as an Idaho corporation on January 29, 1954, under the name Uranium
        Mines, Inc. From January 1954 onward, we experienced various restructurings
        and
        name changes, including a name change effective March 9, 2001, to Grant Douglas
        Acquisition Corp. On October 10, 2003, a separate Texas corporation Pediatric
        Prosthetics, Inc. ("Pediatric Texas"), entered into an acquisition agreement
        with us, whereby Pediatric Texas agreed to exchange 100% of its outstanding
        stock for 8,011,390 shares of our common stock and 1,000,000 shares of our
        Series A Convertible Preferred Stock (the "Exchange"). We remained as the
        surviving accounting entity following the Exchange and Grant Douglas Acquisition
        Corp., the surviving legal entity, adopted a name change to Pediatric
        Prosthetics, Inc. on October 31, 2003 in connection with the Exchange. In
        connection with the Exchange, the shareholders of Pediatric Texas (who became
        our shareholders subsequent to the Exchange) agreed to assume $443,632 in
        liabilities related to the assumption of a $350,000 convertible note and
        $93,632
        of accrued interest on such note that was held by us prior to the Exchange.
        From
        November 2003 through June of 2005 we repaid $148,955 of note principal through
        the issuance of common stock with a fair market value of $2,688,734 and
        recognized a $2,539,779 loss on extinguishment of debt. During the year ended
        June 30, 2006, we negotiated the extinguishment of the remaining convertible
        note of $201,045 and accrued interest of $139,754 for a one time cash payment
        of
        $30,000 and recognized a gain on extinguishment of debt of
        $310,799.
 
 We
        had
        been a non-operating, non-reporting, corporate shell, without assets or
        operations since February 6, 2001, but had traded our common stock on the
        Pinksheets under the symbol "GDRG," prior to the Exchange, and had limited
        operations, consisting solely of hiring Dan Morgan, our current Vice President
        and Chief Prosthestist, and seeking a merger and/or acquisition candidate,
        and
        had no sales and made no fittings, prior to February 6, 2001. We had not
        been a
        reporting company prior to the share exchange. We entered into the Exchange
        to
        acquire an operating business, Pediatric, and the shareholders of Pediatric
        entered into the Exchange to trade Pediatric's common stock on the
        Pinksheets.
 
 Pediatric,
        the Texas corporation, had limited operations prior to the share exchange
        with
        us through a partnership solely controlled by the owners of Pediatric. Upon
        the
        initial funding following the share exchange, in November of 2003 we began
        start-up activities associated with establishing a prosthetics "patient-care
        facility" according to the regulations set forth by the Texas Department
        of
        Health. We also began recruiting our core team of employees, equipping our
        prosthesis manufacturing laboratory, and building out and furnishing our
        facility at 12926 Willow Chase Drive in Houston, Texas, in compliance with
        the
        Texas Board of Health and local occupancy permit requirements. Our "patient-care
        facility" was approved and accredited by the Texas Board of Health on March
        18,
        2004. We were approved at that time for the clinical fitting of and fabrication
        of prosthetic devices for the general public, and for the billing of third
        party
        payors, such as health insurance companies for those services.
  
 
 
  
 SERVICE
        AGREEMENT WITH GLOBAL MEDIA
 
 In
        February 2006, the Company entered into a service agreement (the "Service
        Agreement") with Global Media Fund Inc. ("Global"), whereby Global agreed
        to
        distribute certain newspaper features, which Global has guaranteed will be
        placed in at least 100 newspapers and radio features regarding the Company,
        which Global has guaranteed will be placed in at least 400 radio stations.
        In
        consideration for executing the Service Agreement, the Company issued Global
        250,000 restricted shares of common stock in March 2006. The terms of the
        agreement call for the Company to issue Global a remaining value of shares
        equal
        to $125,000, which will to be paid by issuances of common stock on May 1,
        2006,
        August 1, 2006, November 1, 2006 and February 1, 2007, which shares we
        anticipate issuing once we are able to increase our authorized but unissued
        shares of common stock, as described herein. The Service Agreement provides
        that
        the Company will issue shares based on the contract payments of $28,125 per
        payment; however the agreement contains a stock valuation provision that
        will
        provide Global with shares that are discounted by 10% of the five day average
        quoted market prices prior to the issuance dates, therefore Global will receive
        common stock valued at $31,250 per installment. We also granted Global piggyback
        registration rights in connection with the shares issued to Global pursuant
        to
        the Service Agreement. If we fail to issue Global any consideration owed
        pursuant to the Service Agreement when due, Global may terminate the Service
        Agreement with thirty (30) days written notice to us at which time Global
        will
        keep all consideration issued as of that date. We have the right to cancel
        the
        Service Agreement at anytime with thirty (30) days written notice to Global,
        at
        which time Global will keep all consideration issued as of that
        date.
 
 On
        or
        about June 2, 2006, we issued Global 446,427 shares of common stock valued
        at
        $31,250, in connection with the May 1, 2006, payment of $28,125 on the Service
        Agreement. The value of our common stock in connection with the issuance
        of the
        additional shares to Global shall be equal to the value of the common stock
        to
        be issued divided by 90% of the average of the closing value of the common
        stock
        on the five trading days prior to the date such stock is to be issued on
        the
        Pinksheets trading market, or Over-The-Counter Bulletin Board, wherever our
        common stock is then traded. For example, the average of the closing price
        of
        our common stock for the five trading days prior to the May 1, 2006 payment
        on
        the Pinksheets was $0.07 per share. Therefore, the amount of shares we issued
        Global for such May 1, 2006 payment was $28,125 divided by $0.063 ($0.07
        x
        0.90), which was equal to approximately 446,427 shares of common stock which
        had
        a fair market value of $31,250.
 
 On
        March
        1, 2006, and March 21, 2006, we entered into two separate loans for $17,500,
        with two shareholders to provide us with an aggregate of $35,000 in funding.
        The
        loans bear interest at the rate of 12% per annum until paid. Both loans became
        due in May, but have since been extended. In December 2006, $10,000 was repaid
        on one of the loans, leaving $25,000 outstanding under the loans as of the
        date
        of this report. Additionally, the remaining $25,000 owed pursuant to the
        loans
        are convertible into an aggregate of 714,286 shares of our common stock,
        with
        each $0.035 of each outstanding loan being able to convert into one share
        of our
        common stock.
  
 
  
 In
        April
        2006, we borrowed $50,000 from a shareholder of the Company and issued a
        promissory note and warrants in connection with such loan. The promissory
        note
        bears interest at the rate of 12% per annum, and was due and payable on
        September 29, 2006. The promissory note was renewed for an additional six
        months, at the option of the holder, through March 2007. This loan is also
        convertible into an aggregate of 1,428,571 shares of common stock at the
        rate of
        one share for each $0.035 owed. The shareholder also received as consideration
        for the $50,000 promissory note, 1,428,571 warrants, which are exercisable
        for
        shares of common stock at an exercise price of $0.045 per share, and which
        expire on May 22, 2008.
 
 In
        May
        2006, we entered into a services agreement with Stock Enterprises, a privately
        held financial and investor relations services firm ("Stock"), whereby Stock
        agreed to provide us investor relations services on a non-exclusive basis
        for
        the period of one (1) year, and we agreed to issue Stock 2,000,000 restricted
        shares of our common stock, which shares have not been issued to Stock to
        date.
  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
        Securities Purchase Agreement, we agreed to sell the investors $1,500,000
        in
        Callable Secured Convertible Notes (the "Debentures"), 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 Securities Purchase
        Agreement; $400,000 upon the filing of a 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), which registration statement we have filed to date; and
        $500,000 upon the effectiveness of such registration statement. The Debentures
        are convertible into our common stock at a discount to the then trading value
        of
        our common stock as described in greater detail below. 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 agreed
        to
        register the shares of common stock which the Debentures are convertible
        into
        and the shares of common stock which the Warrants are exercisable for, on
        a Form
        SB-2 registration statement. 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 on or before fifteen (15) business
        days
        from the Closing. In June 2006, we submitted applications and had physical
        exams
        to increase our key man life insurance through the agent the Purchasers
        recommended to us, but so far have not received the
        policies or paid any premiums in connection with the increased key man life
        insurance to date.
 
 
 
  
 The
        $600,000 we received from the Purchasers at the Closing, in connection with
        the
        sales of the Debentures was distributed as follows:
 
 o
              $100,000
                  to Lionheart Associates, LLC doing business as Fairhills Capital
                  ("Lionheart" or “Fairhills”), as a finder's fee in connection with the
                  funding (we also have agreed to pay Lionheart an additional $50,000
                  upon
                  the payment of the next tranche of the funding by the
                  Purchasers);o
              $18,000
                  to OTC Financial Network, as a finder's fee in connection with
                  the funding
                  (we also have agreed to pay OTC Financial Network an additional
                  $27,000
                  upon the payment of additional tranches of funding by the
                  Purchasers);o
              $75,000
                  in legal fees and closing payments to our counsel, the Purchaser's
                  counsel
                  and certain companies working on the Purchaser's
                  behalf;o
              $10,000
                  to be held in escrow for the payment of additional key man life
                  insurance
                  on Linda Putback-Bean and Kenneth W. Bean; ando
              $370,000
                  to us, which we spent on legal and accounting fees in connection
                  with the
                  filing of our amended Form 10-SB, outstanding reports on Form 10-QSB,
                  and
                  Form SB-2 registration statement, as well as marketing and promotional
                  fees and inventory costs, as well as other general working capital
                  purposes.
 
 We
        plan
        to use the $900,000 in proceeds from the sale of the additional Convertible
        Debentures, including the $400,000 we plan to receive within the next week,
        due
        to our filing of our registration statement with the Commission on February
        9,
        2007, which filing triggered the sale of an additional $400,000 in debentures,
        and the $500,000 we plan to receive once the registration statement is declared
        effective with the Commission, of which there can be no assurance, as
        follows:
 
 o
              $200,000
                  - Accounting, auditing and attorney’s fees in connection with our periodic
                  reports, the Form 10-SB registration statement and the Form SB-2
                  registration statement to register the shares issuable upon conversion
                  of
                  the Convertible Debentures;o
              $125,000
                  - Inventory for our prosthetics operations;o
              $75,000
                  - Equipment and building improvements;o
              $300,000
                  - Promotional, marketing and travel costs associated with our increased
                  marketing campaign;
  
 
 
 
 o
              $100,000
                  - Closing costs and finders fees in connection with the funding;
                  ando
              $100,000
                  - General working capital, including certain amounts for officers
                  and
                  directors salaries, rent and office
                  expenses.
 
 CALLABLE
        SECURED CONVERTIBLE NOTES
 
 Pursuant
        to the Purchase Agreement, we agreed to sell the Purchasers an aggregate
        of
        $1,500,000 in Debentures, which Debentures have a three year term 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 50% of the trading price of
        our
        common stock on any trading day, during which we receive a notice of conversion
        from the Purchasers (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.
 
 "Events
        of Default" under the Debentures include:
  1.
                  Our
                      failure to pay any principal or interest when due;2.
                  Our
                      failure to issue shares of common stock to the Purchasers in
                      connection
                      with any conversion as provided in the Debentures;3.
                  Our
                      failure to file a Registration Statement covering the shares
                      of common
                      stock which the Debentures are convertible into within sixty
                      (60) days of
                      the Closing (July 31, 2006), or obtain effectiveness of such
                      Registration
                      Statement within one hundred and forty-five (145) days of the
                      Closing
                      (October 22, 2006), which dates have been amended to January
                      15, 2007
                      (which filing date was not met by us, but which failure has
                      since been
                      waived by the Purchasers) and April 16, 2007, respectively
                      in connection
                      with the Waiver of Rights Agreement, described in greater detail
                      below, or
                      if such Registration Statement once effective, ceases to be
                      effective for
                      more than ten (10) consecutive days or more than twenty (20)
                      days in any
                      twelve (12) month period;4.
                  Our
                      entry into bankruptcy or the appointment of a receiver or
                      trustee;
  5.
                Our
                    breach of any covenants in the Debentures or Purchase Agreement,
                    if such
                    breach continues for a period of ten (10) days after written
                    notice
                    thereof by the Purchasers, or our breach of any representations
                    or
                    warranties included in any of the other agreements entered into
                    in
                    connection with the Closing;6.
                If
                    any judgment is entered against us or our property for more than
                    $100,000,
                    and such judgment is unvacated, unbonded or unstayed for a period
                    of
                    twenty (20) days, unless otherwise consented to by the Purchasers,
                    which
                    consent will not be unreasonably withheld; or7.
                If
                    we fail to maintain the listing of our common stock on the OTCBB
                    or an
                    equivalent replacement exchange, the Nasdaq National Market,
                    the Nasdaq
                    SmallCap Market, the New York Stock Exchange, or the American
                    Stock
                    Exchange within 180 days from the date of
                    Closing.
 
 Upon
        the
        occurrence of and during the continuance of an Event of Default, 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.
 
 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 an aggregate of 50,000,000 Warrants
        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
        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 (described below),
        which
        date such Registration Statement was not filed by, but which registration
        statement has been filed as of the date of filing of this report, and to
        obtain
        effectiveness of such registration statement by April 16, 2007. However,
        we do
        not currently have enough authorized but unissued shares to allow for such
        conversion and/or exercise by the Purchasers and therefore have filed an
        information statement with the SEC to allow for shareholder approval to affect
        an increase in our authorized shares in connection with such registration
        statement filing.
 
 If
        we do
        not obtain effectiveness of our registration statement with the SEC by April
        16,
        2007, or if after the registration statement has been declared effective
        by the
        SEC, sales of common stock cannot be made pursuant to the registration
        statement, or our common stock ceases to be traded on the Over-the-Counter
        Bulletin Board (the "OTCBB") or any equivalent replacement exchange, then
        we are
        required to make payments to the Purchasers 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 Debentures, multiplied
        by
        $0.02, multiplied by the number of months after April 16, 2007 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 April 16, 2007,
        we
        would owe the Purchasers an aggregate of $20,000 in penalty payments, based
        on
        $1,000,000 then outstanding under the Debentures ($600,000 in debentures
        sold to
        the Purchasers at the Closing, plus $400,000 in Debentures sold to the
        Purchasers upon filing the registration statement).
 
 RECENT
        EVENTS
 
 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 by us, due to comments received on our
        10-SB
        filing, which has cleared comments to date, and the date our registration
        statement was required to be effective with the Commission from October 22,
        2006
        to April 16, 2007.
  
 
  
 **PLAN
        OF OPERATIONS**
 
 During
        October 2005, management contracted with three (3) consultants to commence
        a
        national multi-media publicity campaign based upon the success stories of
        the
        children for which we have provided services. Management's goal is to provide
        awareness of our commitment to provide superior pediatric prosthetic care
        on a
        national level. We paid the consultants an aggregate of 7,000,000 shares
        of our
        common stock in connection with such contracts.
 
 We
        have
        established working relationships with fourteen Host Affiliates operating
        in
        approximately 21 states. In establishing the relationships with the fourteen
        Host Affiliates, we also provided one-on-one pediatric training to fourteen
        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
        December 2006, based on our current monthly gross profits generated in
        connection with fitting prosthetic limbs, which approximately totals our
        monthly
        overhead of $54,000, we believe we will be able to continue our operations
        throughout fiscal 2007, assuming we sell an additional $500,000 in Convertible
        Debentures to the Purchasers pursuant to the Securities Purchase Agreement,
        due
        to the $400,000 in Convertible Debentures we plan to sell to the Purchasers
        within the next week, due to our filing of our required registration statement
        with the Commission, which registration statement filing triggers the sale
        of an
        additional $400,000 in debentures pursuant to the Securities Purchase Agreement
        entered into with the Purchasers. However, if we are unable to gain
        effectiveness of the registration statement to register the shares of common
        stock issuable upon conversion of the Convertible Debentures and are therefore
        unable to sell the additional tranche of Convertible Debentures, we anticipate
        being forced to curtail our marketing efforts disclosed above. If we are
        required to raise additional funding other than through the sale of the
        additional tranches of Convertible Debentures, we anticipate such funds to
        be
        raised through the sale of debt and/or equity securities. We received $600,000
        on May 30, 2006 (less closing costs and structuring fees), from the sale
        of
        certain Convertible Debentures described above and anticipate receiving an
        additional $400,000 through the sale of additional Convertible Debentures
        within
        the next week due to our filing of a registration statement with the Commission
        to register the shares convertible into common stock pursuant to the Convertible
        Debentures. Assuming we receive these additional funds subsequent to the
        filing
        of this report and are able to sell the additional tranche of Convertible
        Debentures, we expect to increase our fiscal 2007 cash advertising and marketing
        budget five fold over our fiscal 2006 advertising budget. We believe the
        five
        fold increase in our advertising and marketing budget will generate a
        substantial ramp-up of our monthly prosthetic fittings rate and resulting
        gross
        profits due to a growing national awareness of our specialization in
        personalized pediatric services, combined with the re-fitting of the growing
        number of clients we have already fitted.
  
 
  
 The
        increases in our advertising and marketing budget have already allowed us
        to
        undertake the following advertising and marketing activities:
 o
                The
                    composition of and distribution of certain feature newspaper
                    articles
                    through our agreement with Global, pursuant to which we agreed
                    to pay
                    Global an aggregate of $150,000 worth of our common stock, based
                    on the
                    trading value of our common stock on certain payment dates, as
                    described
                    in greater detail above under “Recent Events,” of which $48,750 in common
                    stock has been issued to date; ando
                Publicity
                    and marketing campaign, pursuant to which we previously issued
                    7,000,000
                    shares of common stock to certain
                    consultants.
  Additionally,
        we believe the increases in our advertising and marketing budget will allow
        us
        to undertake the following activities during the next twelve (12) months,
        assuming the Purchasers purchase the additional $500,000 in additional
        Convertible Debentures, and that we sell the $400,000 in additional Convertible
        Debentures, which the Purchasers are required to purchase due to our filing
        of
        our registration statement:
  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 $300,000;o
                Costs
                    associated with publicizing and scholarships for our four day
“whole
                    family summer get-together” for children with a limb-loss and their
                    families, at a cost of approximately $50,000;o
                Travel
                    and associated costs involved with appearances on television
                    shows,
                    medical conventions and nursing schools at a cost of approximately
                    $20,000; 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.
  As
        stated
        above, we anticipate receiving approximately $900,000 in subsequent tranches
        in
        connection with the funding agreement described above, however, investors
        should
        keep in mind that any amounts of funding we receive pursuant to the funding
        will
        be reduced by fees paid to the lending source in connection with closing
        costs
        and legal and accounting costs associated with our need to file amendments
        and
        obtain effectiveness of this Form SB-2 Registration Statement.
  
 
  
 Moving
        forward, we plan to work towards becoming traded on the Over-The-Counter
        Bulletin Board (“OTCBB”) by responding to the Commission’s comments to this Form
        SB-2 registration statement, obtaining shareholder approval to increase our
        authorized shares of common stock to allow for sufficient authorized but
        unissued shares of common stock for the holders of the Convertible Debentures
        and Warrants to convert such Debentures and exercise such Warrants. Furthermore,
        we hope to request and/or encourage a broker-dealer to act as a market maker
        for
        our common stock so that we can gain approval to quote our common stock on
        the
        OTCBB during fiscal 2007, which we believe will increase the liquidity of
        our
        common stock, of which there can be no assurance. As of the filing of this
        Report, we have not engaged any specific market makers regarding the quoting
        of
        our common stock on the OTCBB.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 [Remainder
        of page left intentionally blank.]
  
 
  
 **COMPARISON
        OF OPERATING RESULTS**
 
 **RESULTS
        OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THE
        THREE
        MONTHS ENDED DECEMBER 31, 2005**
 
 We
        had
        revenue of $241,138 for the three months ended December 31, 2006, compared
        to
        revenue of $165,695 for the three months ended December 31, 2005, an increase
        in
        revenue of $75,443 or 45.5% from the prior period. The increase in revenue
        for
        the three months ended December 31, 2006, compared to the three months ended
        December 31, 2005, was mainly due to increased fees received from our Host
        Affiliates in connection with increased fittings due to our national awareness
        and marketing program, which we began during the fiscal year ended 2006
        (described above), as well as a significant number of re-fittings of existing
        patients due to such patients’ physical growth.
 
 We
        had
        total operating expenses of $426,890 for the three months ended December
        31,
        2006, compared to total operating expenses of $347,739 for the three months
        ended December 31, 2005, an increase in total operating expenses of $79,151
        or
        22.8% from the previous year’s period. The increase in total operating expenses
        was mainly due to a $116,499 or 43.3% increase in selling, general and
        administrative expenses for the three months ended December 31, 2006, compared
        to the three months ended December 31, 2005, which increase was due to increased
        marketing expenses in connection with our advertising and marketing campaign
        (described above), and increases in our legal and accounting expenses in
        connection with our amended Form 10-SB registration statement, as well as
        the
        preparation by our legal counsel, and the review of by our auditors, of our
        other public filings and required financial statements, which expenses were
        not
        present during the three months ended December 31, 2005, as we were not a
        public
        reporting company at that time, as well as an increase of $611 in depreciation
        expense, to $6,038 for the three months ended December 31, 2006, compared
        to
        $5,427 for the three months ended December 31, 2005, in connection with an
        increase in our depreciable asset base during the year ended June 30, 2006,
        offset by a $37,959 decrease in our cost of sales, to $35,640 for the three
        months ended December 31, 2006, compared to $73,599 for the three months
        ended
        December 31, 2005, which decrease in cost of sales was directly attributable
        to
        a larger portion of our fittings being “re-fittings” of previously fitted
        prosthesis, due to our pediatric patients growth, during the three months
        ended
        December 31, 2006, compared to the prior period in 2005, which re-fittings
        required less expensive components than each original fitting.
 
 Selling,
        general and administrative expenses as a percentage of revenue for the three
        months ended December 31, 2006 were 160%, compared to selling, general and
        administrative expenses as a percentage of revenue of 162% for the three
        months
        ended December 31, 2005, which represented a decrease in selling, general
        and
        administrative expenses as a percentage of revenue of 2% from the prior period.
        This decrease was mainly due to the 45.5% increase in revenue for the three
        months ended December 31, 2006, offset by the 43.3% increase in selling,
        general
        and administrative expenses for the three months ended December 31, 2006.
        We
        expect our selling, general and administrative expenses as a percentage of
        revenue to initially be higher than future percentages due to early stage
        startup costs associated with building an administrative
        infrastructure
  
 
 
  
 We
        had a
        loss from operations of $185,752 for the three months ended December 31,
        2006,
        compared to a loss from operations of $182,044 for the three months ended
        December 31, 2005, an increase of $3,708 or 2% from the prior period. The
        increase in loss from operations was mainly caused by the 22.8% increase
        in
        total operating expenses for the three months ended December 31, 2006, compared
        to the prior year’s period.
 
 We
        had
        total other income, net of $1,081,568 for the three months ended December
        31,
        2006, compared to total income, net of $298,508 for the three months ended
        December 31, 2005, which represented an increase in other income of $783,060
        or
        262.3% from the prior period. The increase in net other income was mainly
        due to
        the $1,150,661 increase in the change in value of the derivative financial
        instruments for the three months ended December 31, 2006, that was not
        represented for the three months ended December 31, 2005, which was offset
        by an
        increase of $59,613 of interest expense also in connection with our outstanding
        Convertible Debentures, to interest expense of $69,093 for the three months
        ended December 31, 2006, compared to interest expense of $9,480 for the three
        months ended December 31, 2005, as well as $310,799 in gain on extinguishment
        of
        debt during the six months ended December 31, 2005, which gain was not present
        during the three months ended December 31, 2006.
 
 The
        gain
        on extinguishment of debt for the three months ended December 31, 2005, was
        in
        connection with a Settlement Agreement and Release, we entered into in November
        2005, with Secured Releases, LLC ("Secured" and the "Release"). Pursuant
        to the
        Release, we and Secured agreed to settle our claims against each other in
        connection with a convertible promissory note issued in February 2001. In
        connection with the Release, we agreed to pay Secured $30,000, which has
        been
        paid to date and we and Secured agreed to release each other, our officers,
        directors, shareholders, members, agents, employees, representatives and
        assigns
        from any and all causes of action, suits, claims, demands, obligations,
        liabilities, damages of any nature, whatsoever, known or unknown in connection
        with the promissory note or any other dealings, negotiations or transactions
        between us and Secured. Under the settlement agreement, we paid $30,000 for
        the
        compete discharge of $201,045 of convertible debt and $139,754 of related
        accrued interest, resulting in a gain on extinguishment of debt of $310,799
        for
        the three months ended December 31, 2005.
 
 We
        had
        net income of $895,816 for the three months ended December 31, 2006, compared
        to
        net income of $116,464 for the three months ended December 31, 2005, an increase
        in net income of $779,352 or 669% from the previous period. The increase
        in net
        income was mainly due to the $1,081,568 net increase in total other income,
        which was mainly due to the $1,150,661 change in the value of derivative
        financial instruments in connection with the fair value of our Convertible
        Debentures and our $75,443 or 45.5% increase in revenues, which was offset
        by
        our $79,151 or 22.8% increase in total operating expenses for the three months
        ended December 31, 2006, compared to the three months ended December 31,
        2005.
        Investors should keep in mind that our net income for the three months ended
        December 31, 2006, was the result of changes in the value of our derivative
        financial instruments and not the result of our core operations.
  
 
 
  
 **RESULTS
        OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THE
        SIX
        MONTHS ENDED DECEMBER 31, 2005**
 
 We
        had
        revenue from operations of $436,368 for the six months ended December 31,
        2006,
        compared to revenue of $269,743 for the six months ended December 31, 2005,
        an
        increase in revenue of $166,625 or 61.8% from the prior period. The increase
        in
        revenue for the six months ended December 31, 2006, compared to the six months
        ended December 31, 2005, was mainly due to increased fees received from our
        Host
        Affiliates in connection with increased fittings due to our national awareness
        and marketing program, which we began during the fiscal year ended 2006
        (described above), as well as a significant number of re-fittings of existing
        patients due to such patients’ physical growth.
 
 We
        had
        total operating expenses of $1,052,089 for the six months ended December
        31,
        2006, compared to total operating expenses of $557,753 for the six months
        ended
        December 31, 2005, an increase in total operating expenses of $494,336 or
        88.6%
        from the previous year’s period. The increase in total operating expenses was
        mainly due to a $491,628 or 112.5% increase in selling, general and
        administrative expenses for the six months ended December 31, 2006, compared
        to
        the six months ended December 31, 2005, which increase was due to increased
        marketing expenses in connection with our advertising and marketing campaign
        (described above), and increases in our legal and accounting expenses in
        connection with our amended Form 10-SB registration statement filings and
        the
        preparation of our public filings, which expenses were not present during
        the
        six months ended December 31, 2005, as we were not a public reporting company
        at
        that time, as well as an increase of $1,882 or 18.6% in depreciation expense,
        to
        $11,997 for the six months ended December 31, 2006, compared to $10,115 for
        the
        six months ended December 31, 2005, in connection with an increase in our
        depreciable asset base during the year ended June 30, 2006, and an $826 increase
        in cost of sales, to $111,641 for the six months ended December 31, 2006,
        compared to $110,815 for the six months ended December 31, 2005, which increase
        in cost of sales was directly attributable to increased purchases of parts
        and
        components in connection with our increased sales for the six months ended
        December 31, 2006, compared to the prior period.
 
 Selling,
        general and administrative expenses as a percentage of revenue for the six
        months ended December 31, 2006 were 213%, compared to selling, general and
        administrative expenses as a percentage of revenue of 162% for the six months
        ended December 31, 2005, which represented an increase in selling, general
        and
        administrative expenses as a percentage of revenue of 51% from the prior
        period.
        This increase was mainly due to the 112.5% increase in selling, general and
        administrative expenses for the six months ended December 31, 2006, which
        was
        not sufficiently offset by the 61.8% increase in revenue from operations
        for the
        six months ended December 31, 2006. We expect our selling, general and
        administrative expenses as a percentage of revenue to initially be higher
        than
        future percentages due to early stage startup costs associated with building
        an
        administrative infrastructure.
  
 
  
 We
        had a
        loss from operations of $615,721 for the six months ended December 31, 2006,
        compared to a loss from operations of $288,010 for the six months ended December
        31, 2005, an increase of $327,711 or 113.8% from the prior period. The increase
        in loss from operations was mainly caused by the $494,336 or 88.6% increase
        in
        total operating expenses (which was mainly due to the 112.5% increase in
        selling, general and administrative expenses) for the six months ended December
        31, 2006, compared to the six months ended December 31, 2005, which was not
        sufficiently offset by the 61.8% increase in revenue for the six months ended
        December 31, 2006, compared to the prior period.
 
 We
        had
        total other income, net of $2,193,617 for the six months ended December 31,
        2006, compared to total other income, net of $292,477 for the six months
        ended
        December 31, 2005, which represented an increase in other income, net of
        $1,901,140 or 650% from the prior period. The increase in other income, net
        was
        mainly due to the $2,353,201 increase in the change in value of the derivative
        financial instruments that was not represented for the six months ended December
        31, 2005, which was offset by an increase of $144,074 of interest expense
        also
        in connection with our outstanding Convertible Debentures, to interest expense
        of $159,585 for the six months ended December 31, 2006, compared to interest
        expense of $15,511 for the six months ended December 31, 2005, and a decrease
        in
        gain on extinguishment of debt of $310,799, in connection with the Release,
        described above.
 
 We
        had
        net income of $1,577,896 for the six months ended December 31, 2006, compared
        to
        net income of $4,467 for the six months ended December 31, 2005, an increase
        in
        net income of $1,573,429 from the previous period. The increase in net income
        was mainly due to the $1,901,140 increase in total other income, which was
        mainly due to the $2,353,201 of change in the value of the derivative financial
        instruments in connection with the fair value of our Convertible Debentures
        and
        our $166,625 or 61.8% increase in revenues, which was offset by our $491,628
        or
        112.5% increase in general and administrative expenses for the six months
        ended
        December 31, 2006, compared to the six months ended December 31, 2005. Investors
        should keep in mind that our net income for the six months ended December
        31,
        2006, was the result of changes in the value of our derivative financial
        instruments and not the result of our core operations.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 We
        had
        total assets of $763,224 as of December 31, 2006, compared with total assets
        of
        $964,844 as of June 30, 2006, which represented a $201,620 or 20.9% decrease
        in
        total assets from June 30, 2006.
 
 Total
        assets as of December 31, 2006, included current assets of $534,740, furniture
        and equipment, net of accumulated depreciation, of $58,954, and deferred
        financing cost of $169,530. Current assets included cash and cash equivalents
        of
        $22,857, trade and accounts receivable, net of $380,393, prepaid expenses
        and
        other current assets of $11,825, and current portion of net deferred financing
        cost of $119,665.
  
 
 
  
 We
        had
        total liabilities of $3,374,767 as of December 31, 2006, compared to total
        liabilities of $5,600,571 at June 30, 2006, representing a decrease in total
        liabilities of $2,225,804 or 39.7%.
 
 Total
        liabilities as of December 31, 2006 included current liabilities of $3,306,254,
        consisting of trade accounts payable of $196,511; accrued liabilities of
        $268,079, which included deferred salary payable to our officers; current
        portion of convertible debt of $75,000 which includes the loans entered into
        in
        March 2006 and April 2006, as described in greater detail below; 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; and derivative financial
        instruments of $2,766,164, in connection with our Convertible Debentures
        and
        Warrants (explained in greater detail above); and non-current liabilities
        consisting of deferred rent of $11,871 and long term portion of convertible
        debt
        of $56,642.
 
 We
        had a
        working capital deficit of $2,771,514 and an accumulated deficit of $10,921,433
        as of December 31, 2006.
 
 We
        had
        total net cash used by operating activities of $229,971 for the six months
        ended
        December 31, 2006, which was mainly due to $2,353,201 of change in value
        of
        derivative liability, offset by $1,577,896 of net income and $446,288 of
        stock-based compensation, which included amounts amortized in connection
        with
        Global Media and other stock-based consulting agreements, as described above.
 
 We
        had
        net cash used in investing activities of $11,813 for the six months ended
        December 31, 2006, which was used solely in connection with the purchase
        of
        furniture and equipment.
 
 We
        had
        $10,000 in net cash used by financing activities for the six months ended
        December 31, 2006, which included $10,000 paid on an outstanding convertible
        note held by a shareholder of the Company.
 
 Since
        we
        began business, our trade accounts receivable balance has consistently risen
        over time. The primary reason for this constant increase in receivables is
        that
        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 our days in receivables because our sales have continually increased.
        We believe that our trade accounts receivable balances will continue to increase
        at a greater rate than revenue growth until such revenue growth subsides.
        Management constantly reviews receivables for collectibility issues and has
        recognized a provision for bad debts of approximately 16% of revenue in fiscal
        2006.
   
 
  
 The
        growth in trade accounts receivable is expected to present liquidity issues
        in
        future periods if we do not substantially increase sales and/or raise funds
        from
        other sources.
 
 Our
        accounts payable have also grown with the increase in our business over time
        and
        include a substantial amount of professional fees related to our SEC filings.
        Accrued liabilities include accrued salaries and accrued stock based
        compensation, and as with accounts payable, the balance of accrued liabilities
        has increased 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.
 
 --------------------------------------------------------------
 
 In
        April
        2006, we borrowed $50,000 from a shareholder of the Company, and issued that
        individual a promissory note and warrants in connection with such loan. The
        promissory note bears interest at the rate of 12% per annum, and was due
        and
        payable on September 29, 2006. The promissory note was renewed for an additional
        six months, at the option of the holder, through March 2007. The shareholder
        has
        the option to convert this loan into 1,428,571 shares of our common stock
        at the
        rate of one share for each $0.035 then owed. The shareholder also has 1,428,571
        outstanding warrants to purchase shares of our common stock at an exercise
        price
        of $0.045 per share, which warrants expire if unexercised on May 22,
        2008.
 
 On
        March
        1, 2006, and March 21, 2006, we entered into two separate loans for $17,500,
        with two separate shareholders to provide us with an aggregate of $35,000
        in
        funding. The loans bear interest at the rate of 12% per annum until paid.
        Both
        loans became due in May, but have since been extended. In December 2006,
        $10,000
        was repaid on one of the loans, leaving $25,000 outstanding under the loans
        as
        of the date of this report. Additionally, the remaining $25,000 owed pursuant
        to
        the loans are convertible into an aggregate of 714,286 shares of our common
        stock, with each $0.035 of each outstanding loan being able to convert into
        one
        share of our common stock.
 
 In
        May
        2006, we entered into a Securities Purchase Agreement with certain third
        parties
        to provide us $1,500,000 in convertible debt financing (the "Purchase
        Agreement"). Pursuant to the Purchase Agreement, we agreed to sell the investors
        an aggregate of $1,500,000 in Convertible Debentures, which are to be payable
        in
        three tranches, $600,000 upon signing the definitive agreements on May 30,
        2006,
        which are due May 30, 2009, $400,000 upon the filing of our Registration
        Statement to register shares of common stock which the Convertible Debentures
        are convertible into (defined and described in greater detail above), which
        Registration Statement we filed on February 9, 2007, and which Convertible
        Debentures we anticipate selling shortly after the filing of this report,
        and
        $500,000 upon the effectiveness of our registration statement. The Convertible
        Debentures are to be convertible into shares of our common stock at a discount
        to the then trading value of our common stock. Additionally, in connection
        with
        the Securities Purchase Agreement, we agreed to issue the third parties 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
        received $600,000 from the sale of Convertible Debentures in May 2006, and
        anticipate using the $900,000 in proceeds from the sale of the additional
        Convertible Debentures (including the $400,000 which we anticipate the
        Purchasers to purchase shortly after the filing of this report) as
        follows:
 
 o
              $200,000
                  - Accounting, auditing and attorney’s fees in connection with our periodic
                  reports, this Form 10-SB registration statement and a to be filed
                  Form
                  SB-2 registration statement to register the shares underlying the
                  Convertible Debentures;
 
 o
              $125,000
                  - Inventory for our prosthetics
                  operations;
 
 o
              $75,000
                  - Equipment and building
                  improvements;
 
 o
              $300,000
                  - Promotional, marketing and travel costs associated with our increased
                  marketing campaign;
 
 o
              $100,000
                  - Closing costs and finders fees in connection with the funding;
                  and
 
 o
              $100,000
                  - General working capital, including certain amounts for officers
                  and
                  directors salaries, rent and office
                  expenses.
 
 We
        have
        historically been dependent upon the sale of common stock for funding our
        operations. In connection with such funding, we issued 4,700,000 shares of
        common stock at prices ranging from $0.035 to $0.05 per share during the
        year
        ended June 30, 2006, for aggregate net proceeds of $220,000. Additionally,
        we
        issued 8,696,437 shares of common stock to consultants ranging from $0.08
        and
        $0.11 per share during the year ended June 30, 2006 and recognized compensation
        expense of $482,360.
 
 As
        of
        December 2006, we believe we can operate for approximately the next twelve
        (12)
        months assuming we receive the proceeds of the sale of $400,000 in Convertible
        Debentures which the Purchasers are obligated to purchase within the next
        few
        days, and assuming that we sell an additional $500,000 in Convertible Debentures
        subsequent to the filing of this report, based on our current approximate
        overhead of $54,000 per month, and monthly gross profits of approximately
        $50,000 per month we receive in connection with fittings of our prosthetic
        limbs. However, we believe that we will need to raise additional financing
        in
        the next three to four months if we are unable to obtain effectiveness of
        a
        registration statement with the Commission, which filing and effectiveness
        trigger the additional sales of the $900,000 in additional Convertible
        Debentures. If we are required to raise additional funding, we will likely
        do so
        through the sale of debt or equity securities.
 
 We
        also
        plan to increase our yearly advertising and marketing budget approximately
        five
        fold, for the fiscal year ending June 30, 2007, compared to the fiscal year
        ending June 30, 2006, by utilizing a large portion of the $900,000 which
        we plan
        to receive pursuant to the subsequent funding tranches ($400,000 of which
        we
        anticipate receiving shortly after
 
 
 
 the
        filing of this report), assuming such funds are received, which we believe
        will
        allow us to increase our monthly sales and gross profits substantially over
        the
        next fiscal year, due to our increased advertising and marketing of our
        services, explained above. However, investors should keep in mind that any
        amounts of funding we receive pursuant to the Convertible Debentures will
        be
        reduced by fees paid to the lending source and legal and accounting costs
        associated with our need to file and obtain effectiveness of this Form SB-2
        Registration Statement.
 
 Other
        than the funding transaction described above, no additional financing has
        been
        secured. The Company has no commitments from officers, directors or affiliates
        to provide funding. However, management does not see the need for any additional
        financing in the foreseeable future, other than the money the Company will
        receive from the sale of the Debentures. 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, as we have already seen a
        higher
        volume of sales due to such advertising over the past several
        months.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 [Remainder
        of page left intentionally blank.]
 
 
  
 **RISK
        FACTORS**
 
 Any
        investment in shares of our common stock involves a high degree of risk.
        You
        should carefully consider the following information about 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, 2006 and 2005, we incurred net losses of
        $4,413,417 and $4,356,519, respectively, and experienced negative cash flows
        from operations of $436,226 and $298,454, respectively. During the six months
        ended December 31, 2006, we had net income of $1,577,896, which net income
        was
        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 $229,971. Additionally, we had negative working capital of $2,771,514
        as of
        December 31, 2006. 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 79 fitted
        in
        fiscal 2006; 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 charges to income of $482,360 and $4,020,264 during the years
        ended
        June 30, 2006 and 2005, costs that we believe will not be recurring 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.
 
 **WE
        WILL NEED ADDITIONAL FINANCING TO REPAY THE $1,500,000 IN CONVERTIBLE DEBENTURES
        WHICH WE AGREED TO SELL IN MAY 2006, AND GROW OUR
        OPERATIONS.**
 
 We
        have
        limited financial resources. In May 2006, we sold certain third party investors
        an aggregate of $600,000 in Convertible Debentures and agreed to sell them
        an
        additional $900,000 in Convertible Debentures, $400,000 of which we anticipate
        selling shortly after the filing of this report. These Convertible Debentures
        and interest may be converted into shares of our common stock at a discount
        to
        market. However, if such Convertible Debentures are not converted into shares
        of
        our common stock, we will need to obtain outside financing to fund our business
        operations and to repay the Convertible Debentures. If we are forced to raise
        additional debt or equity financing, such financing may be dilutive to our
        shareholders. The sale of equity securities, including the conversion of
        outstanding amounts under the Convertible Debentures, could dilute our existing
        stockholders' interest, and borrowings from third parties could result in
        our
        assets being pledged as collateral and loan terms that would increase our
        debt
        service requirements and/or restrict our operations. There is no assurance
        that
        capital will be available from any of these sources, or, if available, upon
        terms and conditions acceptable to us. If we are unable to repay the Convertible
        Debentures and/or raise additional capital, we may be forced to curtail or
        abandon our business operations.
  
 
 
  
 **WE
        DEPEND SUBSTANTIALLY UPON OUR PRESIDENT TO IMPLEMENT OUR BUSINESS PLAN, AND
        LOSING HER SERVICES WOULD BE INJURIOUS TO OUR BUSINESS.**
 
 Our
        success is substantially dependent upon the time, talent, and experience
        of
        Linda Putback-Bean, our President and Chief Executive Officer. Mrs. Putback-Bean
        possesses a comprehensive knowledge of our business and has built numerous
        relationships with industry representatives. We have no employment agreement
        with Ms. Putback-Bean. While Mrs. Putback-Bean has no present plans to leave
        or
        retire, her loss would have a negative effect on our operating, marketing
        and
        financial performance if we are unable to find an adequate replacement with
        similar knowledge and experience within our industry. We maintain key-man
        life
        insurance in the amount of $1,000,000 with respect to Mrs. Putback-Bean.
        If we
        were to lose the services of Mrs. Putback-Bean, our operations may suffer
        and we
        may be forced to curtail or abandon our business plan.
 
 Additionally,
        in order for us to expand, we must continue to improve and expand the level
        of
        expertise of our personnel and we must attract, train and manage qualified
        managers and employees to oversee and manage our operations. As demand for
        qualified personnel is high, there is no assurance that we will be in a position
        to offer competitive compensation packages to attract or retain such qualified
        personnel in the future. If we are not able to obtain qualified personnel
        in the
        future, if our operations grow, of which there can be no assurance, we may
        be
        forced to curtail or abandon our plans for future growth.
 
 **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 in our "Description of Business" section herein) 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 these widely dispersed 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’s
        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,
        2005 and 2006, 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.
 
 **OUR
        INDEPENDENT AUDITOR HAS EXPRESSED DOUBT REGARDING OUR ABILITY TO CONTINUE
        AS A
        GOING CONCERN.**
 
 Since
        our
        inception, we have suffered significant net losses. During the years ended
        June
        30, 2006 and 2005 we had net losses of $4,413,417 and $4,356,519, respectively
        and net cash flows used in operating activities of $436,226 and $298,454,
        respectively. During the six months ended December 31, 2006, we had net income
        of $1,577,896, which net income was the result of changes in the value of
        our
        derivative financial instruments and not the result of our core operations,
        and
        we had a working capital deficit of $2,771,514 as of December 31, 2006.
        Furthermore, we had an accumulated deficit of $10,921,433 at December 31,
        2006.
        Due to our negative financial results and our current financial position,
        our
        independent auditor has raised substantial doubt about our ability to continue
        as a going concern.
  
 
 
  
 **IF
        WE CANNOT COLLECT OUR ACCOUNTS RECEIVABLE OUR BUSINESS, RESULTS OF OPERATIONS,
        AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED.**
 
 As
        of
        December 31, 2006, our accounts receivable over 120 days old represented
        more
        than 50% of total accounts receivable outstanding. If we cannot collect our
        accounts receivable, our business, results of operations, and financial
        condition could be adversely affected.
 
 **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;
                  or
 o
              material
                  and/or adverse effects on the business, financial condition and
                  results of
                  operations.
 
 **WE
        CURRENTLY ONLY HAVE A LIMITED NUMBER OF AUTHORIZED BUT UNISSUED SHARES, WHICH
        MAY CAUSE US TO FACE PENALTIES IN CONNECTION WITH OUR INABILITY TO CONVERT
        OUR
        DEBENTURES INTO COMMON STOCK AT THE OPTION OF THE DEBENTURE HOLDERS AND/OR
        TO
        ISSUE SHARES OF COMMON STOCK IN CONNECTION WITH THE EXERCISE OF OUR OUTSTANDING
        WARRANTS.**
 
 As
        of
        February 5, 2007, we had 98,274,889 shares of common stock issued and
        outstanding out of a total of 100,000,000 shares of common stock authorized,
        leaving us the ability to issue only approximately 1,725,111 shares of our
        common stock. As a result, we do not have a sufficient number of authorized
        but
        unissued shares to allow for the conversion of our outstanding Debentures
        by the
        Debenture holders and/or the exercise of the Warrants. As a result, we may
        face
        penalties in connection with such conversions and/or exercises and/or be
        forced
        to repay such Debentures in cash, which cash may not be available on favorable
        terms, if at all. We are currently taking steps to obtain shareholder approval
        and increase our authorized common stock. If we do not increase our authorized
        shares in the future, we could face penalties in connection with our inability
        to allow the Debenture holders to convert their Debentures into shares of
        common
        stock and/or to allow them to exercise their Warrants. These penalties and/or
        the requirement that we repay the Debentures in cash could have a material
        adverse effect on our results of operations, working capital and ability
        to pay
        our current liabilities. If we are unable to increase our authorized shares
        in
        the future, we could be forced to curtail and/or abandon our business
        plan.
 
 **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.
 
 **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 February 5, 2007, 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
        February 5, 2007, our President and Chief Executive Officer, Linda Putback-Bean
        beneficially owned 30,210,251 shares of common stock or approximately 31%
        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 59,409,112
        shares
        of our voting shares, representing the 30,210,251 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 a
        total of approximately 50.2% of our total voting power based on 118,274,889
        voting shares, which includes the 98,274,889 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 $1,500,000 IN OUTSTANDING DEBENTURES
        OF
        WHICH $600,000 IS CURRENTLY OUTSTANDING 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;
 
 o
              Our
                  failure to issue shares of common stock to the Purchasers in connection
                  with any conversion as provided in the
                  Debentures;
 
 o
              Our
                  failure to obtain effectiveness of our Registration Statement by
                  April 16,
                  2007, or if such Registration Statement once effective, 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;
 
 o
              If
                  any judgment is entered against us or our property for more than
                  $100,000;
                  or
 
 o
              If
                  we fail to maintain the listing of our common stock on the OTCBB
                  or an
                  equivalent replacement exchange, the Nasdaq National Market, the
                  Nasdaq
                  SmallCap Market, the New York Stock Exchange, or the American Stock
                  Exchange within 180 days from the date of Closing, which has not
                  occurred
                  to date;
  
 
  
 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 the Debentures is equal to 50% 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. Upon the successful
        registration of the shares of common stock which the Debentures are convertible
        into and the Warrants are exercisable for, all of the shares issuable upon
        conversion of the Debentures and upon exercise of the Warrants, may be sold
        without restriction. 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 Debentures may be converted into common
        stock at a discount to the market price of our common stock of 50% of the
        then
        trading value of our common stock, 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, the value of our common
        stock
        will likely decrease.
  
 
 
  
 **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 Debentures
        will be convertible into shares of our common stock at a discount to market
        of
        50% 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
        Debentures will be convertible into shares of our common stock at a discount
        to
        market of 50%. 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.
  
 
 
  
 **WE
        MUST SATISFY CERTAIN CONDITIONS BEFORE THE SELLING SECURITY HOLDERS ARE
        OBLIGATED TO PURCHASE THE REMAINING $900,000 OF DEBENTURES.**
 
 We
        sold
        $600,000 of Debentures in May 2006. We also received a commitment to purchase
        an
        additional $400,000 of Debentures upon our filing of a Registration Statement
        to
        register the shares convertible into common stock in connection with the
        Debentures, which Registration Statement we filed on February 9, 2007, and
        which
        Debentures we anticipate selling shortly after the filing of this report,
        and
        $500,000 of Debentures, upon the effectiveness of such Registration Statement.
        If the Registration Statement is not declared effective or an Event of Default
        occurs under the Debentures, as defined herein, the Debenture holders will
        have
        no obligation to purchase the remaining tranches of Debentures. If the Debenture
        holders do not purchase the remaining Debentures, we will not raise the
        additional $500,000. This could force us to curtail or abandon our business
        plan, which would decrease the value of our securities.
 
 **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 $4.00 per
        share. We anticipate the trading price of our common stock will continue
        to be
        below $4.00 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 $4.00 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. 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. In
        November 2003, Congress initiated a three-year freeze on reimbursement
        levels
  
 
  
 for
        all
        orthotic and prosthetic services starting January 1, 2004. The effect of
        this
        legislation has been a downward pressure on our gross profit; however, we
        have
        initiated certain purchasing and efficiency programs which we believe will
        minimize such effects. 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.
 
 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.
 
 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 HIPPA 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, 2006 we spent approximately $5,000 complying with
        these on-going educational needs. However, since our original formation,
        we have
        been aware of impending HIPPA regulations, and have set up our systems and
        procedures to comply with HIPPA requirements in view of such regulations.
        As a
        result, added costs due to compliance with HIPPA 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 (the "Evaluation Date"), have 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. Our controls were not effective, as we failed
        to
        timely file our Quarterly Reports on Form 10-QSB for the quarters ended December
        31, 2005, March 31, 2006, and September 30, 2006 and we failed to timely
        file
        our Annual Report on Form 10-KSB for the period ending June 30, 2006. Moving
        forward, our management believes that as we become more familiar and gain
        more
        experience in completing our periodic filings and providing our outside auditors
        with the required financial information on a timely basis, we will be able
        to
        file our periodic reports within the time periods set forth by the Securities
        and Exchange Commission.
  
 
 
 
 (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.
 
 **PART
        II - OTHER INFORMATION**
 
 **ITEM
        1. LEGAL PROCEEDINGS**
 
 We
        are
        not aware of any pending or threatened legal proceeding to which we are a
        party.
 
 **ITEM
        2. CHANGES IN SECURITIES**
 
 None.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None.
 
 **ITEM
        5. OTHER INFORMATION**
 
 None.
 
 **ITEM
        6. EXHIBITS AND REPORTS ON FORM 8-K**
   **EXHIBITS**
 
 **Exhibit
                    No.**
                **Description**Exhibit
                    10.1(1)
                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,
                    LLC
  
 
  Exhibit
                    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(1)
                Consulting
                    Agreement with National Financial Communications Corp.Exhibit
                    10.16(1)
                Warrant
                    Agreement with Lionheart Associates, LLC doing business as Fairhills
                    CapitalExhibit
                    10.17(1)
                Investor
                    Relations Consulting Agreement with Joe GordonExhibit
                    10.18(4)
                Waiver
                    of Rights AgreementExhibit
                    10.20(5)
                Kertes
                    Convertible Note and WarrantExhibit
                    10.21(5)
                Global
                    Media 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.
 
 
 (1)
        Filed
        as exhibits to our Form 10-SB, filed with the Commission on July 14, 2006,
        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 an exhibit to our Form 10-KSB filed with the Commission on October 27,
        2006,
        and incorporated herein by reference.
 
 (5)
        Filed
        as exhibits to our Form SB-2 Registration Statement filed with the Commission
        on
        February 9, 2007, and incorporated herein by reference.
  
 **REPORTS
        ON FORM 8-K**
 
 We
        filed
        no reports on Form 8-K during the six months ended December 31,
        2006.
 
 We
        filed
        the following reports on Form 8-K during the period subsequent to December
        31,
        2006:
 
 o
              January
                  23, 2007, to report that the Company had concluded in August 2006,
                  that it
                  would need to restate certain of its previously filed financial
                  information for the quarters ended March 31, 2006, December 31,
                  2005 and
                  December 31, 2005.
 
 o
              February
                  8, 2007, to report that the Company had cleared comments in connection
                  with its Form 10-SB Registration Statement with the
                  Commission.
 
 
 
  
 **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 **PEDIATRIC
        PROSTHETICS, INC.**
 
 DATED:
        February 20, 2007
 
 By:
        /s/ Kenneth W. Bean
 Kenneth
        W. Bean
 Principal
        Financial Officer