**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 March 31, 2007





[  
                ]
            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 May
      10, 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**




**PEDIATRIC
        PROSTHETICS, INC.**
 **TABLE
        OF CONTENTS**
 **Page**Unaudited
                  Balance Sheets as of March 31, 2007 and June 30, 2006
              F-1Unaudited
                  Statements of Operations for the three and ninemonths
                  ended March 31, 2007 and 2006
              F-2Unaudited
                  Statement of Changes in Stockholders’ Deficit for the nine months
                  endedMarch
                  31, 2007
              F-3Unaudited
                  Statements of Cash Flows for nine months endedMarch
                  31,
                  2007 and 2006
              F-4Notes
                  To Unaudited Financial Statements
              F-5





**ITEM
      1. FINANCIAL STATEMENTS**


**PEDIATRIC
                  PROSTHETICS, INC.****UNAUDITED
                  BALANCE SHEETS****March
                  31, 2007 and June 30, 2006****March
                  31, 2007**
              
              **June
                  30, 2006****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              79,175
              
              $
              274,641Trade
                  accounts receivable, net
              
              
              274,649
              
              
              268,642Prepaid
                  expenses and other current assets
              
              
              13,920
              
              
              13,396Current
                  portion of deferred financing costs, net
              
              
              152,113
              
              
              109,693Total
                  current assets
              
              
              519,857
              
              
              666,372Furniture
                  and equipment, net
              
              
              52,917
              
              
              59,138Deferred
                  financing costs
              
              
              177,462
              
              
              239,334Total
                  assets
              
              $
              750,236
              
              $
              964,844**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT**Current
                  Liabilities:Trade
                  accounts payable
              
              $
              131,451
              
              $
              143,167Accrued
                  liabilities
              
              
              249,954
              
              
              257,680Current
                  portion of convertible debt, net of discount of $0 as ofMarch
                  31, 2007 and $25,000 at June 30, 2006, respectively
              
              
              75,000
              
              
              60,000Due
                  to related party
              
              
              500
              
              
              500Derivative
                  financial instruments
              
              
              2,671,318
              
              
              5,119,365Total
                  current liabilities
              
              
              3,128,223
              
              
              5,580,712Convertible
                  debt, net of discount of $838,379 and $592,716 atMarch
                  31, 2007 and June 30, 2006, respectively
              
              
              161,621
              
              
              7,284Deferred
                  rent
              
              
              11,166
              
              
              12,575Total
                  liabilities
              
              
              3,301,010
              
              
              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 950,000,000 and
                  100,000,000Shares
                  at March 31, 2007 and June 30, 2006, respectively; issued and outstanding
                  98,274,889 shares
              
              
              98,275
              
              
              98,275Additional
                  paid-in capital
              
              
              8,271,324
              
              
              7,764,327Accumulated
                  deficit
              
              
              (10,921,373
              )
              
              (12,499,329
              )Total
                  stockholders’ deficit
              
              
              (2,550,774
              )
              
              (4,635,727
              )Total
                  liabilities and stockholders' deficit
              
              $
              750,236
              
              $
              964,844The
                  accompanying notes are an integral part of these financial
                  statements.
 
  F-1
  **PEDIATRIC
                  PROSTHETICS, INC.****UNAUDITED
                  STATEMENTS OF OPERATIONS****For
                  the Three and Nine Months Ended March 31, 2007 and
                  2006****Three
                  Months Ended**
              
              **Nine
                  Months Ended****March
                  31,**
              
              **March
                  31,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Revenue
              
              $
              133,323
              
              $
              274,679
              
              $
              595,086
              
              $
              558,321Operating
                  expenses:Cost
                  of sales, except for itemsstated
                  separately below
              
              
              62,707
              
              
              38,904
              
              
              199,743
              
              
              163,618Selling,
                  general andadministrative
                  expenses
              
              
              406,155
              
              
              410,171
              
              
              1,334,606
              
              
              846,994Depreciation
                  expense
              
              
              6,038
              
              
              5,059
              
              
              18,035
              
              
              15,174Total
                  operating expenses
              
              
              474,900
              
              
              454,134
              
              
              1,552,384
              
              
              1,025,786Loss
                  from operations
              
              
              (341,577
              )
              
              (179,455
              )
              
              (957,298
              )
              
              (467,465
              )Other
                  income and (expenses):Interest
                  income
              
              
              -
              
              
              4
              
              
              1
              
              
              4Interest
                  expense
              
              
              (70,141
              )
              
              (12,859
              )
              
              (229,726
              )
              
              (28,370
              )Loss
                  on disposal of equipment
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,811
              )Gain
                  on extinguishment of debt
              
              
              -
              
              
              -
              
              
              -
              
              
              310,799Change
                  in value of derivativefinancial
                  instruments
              
              
              411,778
              
              
              -
              
              
              2,764,979
              
              
              -Total
                  other income (expense), net
              
              
              341,637
              
              
              (12,885
              )
              
              2,535,254
              
              
              279,622Net
                  income (loss)
              
              $
              60
              
              $
              (192,340
              )
              $
              1,577,956
              
              $
              (
                  187,843
              )Net
                  income (loss) per common share - basicand
                  diluted
              
              $
              0.00
              
              $
              (0.00
              )
              $
              0.02
              
              $
              (0.00
              )Weighted
                  average shares of commonstock
                  outstanding - basic and diluted
              
              
              98,274,889
              
              
              99,108,452
              
              
              98,274,889
              
              
              95,581,737The
                  accompanying notes are an integral part of these financial
                  statements.
   F-2
  **PEDIATRIC
                  PROSTHETICS, INC.****UNAUDITED
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT****For
                  the Nine Months Ended March 31, 2007****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
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              506,997
              
              
              -
              
              
              506,997Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,577,956
              
              
              1,577,956Balance
                  at March 31, 2007
              
              
              1,000,000
              
              $
              1,000
              
              
              98,274,889
              
              $
              98,275
              
              $
              8,271,324
              
              $
              (10,921,373
              )
              $
              (2,550,774
              )The
                  accompanying notes are an integral part of these financial
                  statements.
 
   F-3
 **PEDIATRIC
                  PROSTHETICS, INC.****UNAUDITED
                  STATEMENTS OF CASH FLOWS****For
                  the Nine Months Ended March 31, 2007 and
                  2006**  **2007**
                
                
                **2006**Cash
                    Flows From Operating ActivitiesNet
                    income (loss)
                
                
                
                $
                1,577,956
                
                $
                (187,843
                )Adjustments
                    to reconcile net income (loss) to net cash used byoperating
                    activitiesDepreciation
                    expense
                
                
                
                
                18,035
                
                
                15,174Loss
                    on disposal of equipment
                
                
                
                
                -
                
                
                2,811Deferred
                    rent
                
                
                
                
                (1,409
                )
                
                (908
                )Stock-based
                    compensation
                
                
                
                
                506,997
                
                
                264,874Provision
                    for doubtful accounts
                
                
                
                
                120,094
                
                
                36,921Amortization
                    of debt discount
                
                
                
                
                96,269
                
                
                -Amortization
                    of debt issue costs
                
                
                
                
                102,424
                
                
                11,667Change
                    in value of derivative financial instruments
                
                
                
                
                (2,764,979
                )
                
                -Gain
                    on extinguishment of debt
                
                
                
                
                -
                
                
                (310,799
                )Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                
                
                (126,101
                )
                
                (169,723
                )Other
                    assets
                
                
                
                
                (10,496
                )
                
                644Accounts
                    payable
                
                
                
                
                (11,716
                )
                
                64,669Accrued
                    liabilities
                
                
                
                
                (7,726
                )
                
                22,243Net
                    cash used by operating activities
                
                
                
                
                (500,652
                )
                
                (250,270
                )Cash
                    Flows From Investing ActivitiesPurchase
                    of furniture and equipment
                
                
                
                
                (11,814
                )
                
                -Net
                    cash used by investing activities
                
                
                
                
                (11,814
                )
                
                -Cash
                    Flows From Financing Activities:Proceeds
                    from issuance of debt
                
                
                
                
                400,000
                
                
                35,000Payment
                    of debt issue cost
                
                
                
                
                (73,000
                )
                
                (30,000
                )Payment
                    of convertible debt
                
                
                
                
                (10,000
                )
                
                -Proceeds
                    from common stock, net of expenses
                
                
                
                
                -
                
                
                220,000Net
                    cash provided by financing activities
                
                
                
                
                317,000
                
                
                225,000Net
                    increase (decrease) in cash and cash equivalents
                
                
                
                
                (195,466
                )
                
                (25,270
                )Cash
                    and cash equivalents, beginning of period
                
                
                
                
                274,641
                
                
                29,818Cash
                    and cash equivalents, end of period
                
                
                
                $
                79,175
                
                $
                4,548Supplemental
                    Disclosure of Cash Flow InformationCash
                    paid for interest expense
                
                
                
                $
                6,500
                
                $
                12,107Cash
                    paid for income taxes
                
                
                
                
                -
                
                
                -
 The
            accompanying notes are an integral part of these financial
            statements.
  F-4
  **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.
 
 **RECLASSIFICATION**
 
 Certain
          prior period amounts have been reclassified to conform to the current period
          presentation.
 
 **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 nine months ended March 31,
        2007
        Pediatric reported net income of $1,577,956 and negative cash flows from
        operations of $500,652.
 
 Although
        Pediatric has net income of $1,577,956 for the nine months ended March 31,
        2007,
        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 $2,608,366 and a stockholders'
        deficit of $2,550,774 at March 31, 2007. 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-5
 
 **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.
 
 Pediatric'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.
 
 
 **3.** **Stockholders’
        Equity**
 
 **Amendment
        to Articles of Incorporation**
 
 On
        March
        15, 2007, we filed an amendment to our Articles of Incorporation with the
        Secretary of State of Idaho to increase our authorized shares of common stock
        to
        950,000,000 shares of Common Stock, $0.001 par value per share, and to
        re-authorize 10,000,000 shares of preferred stock, $0.001 par value per share
        (the “Amendment”).
 
 Additionally,
        the Amendment provided that shares of our preferred stock may be issued from
        time to time in one or more series, with distinctive designation or title
        as
        shall be determined by our Board of Directors prior to the issuance of any
        shares thereof. The preferred stock shall have such voting powers, full or
        limited, or no voting powers, and such preferences and relative, participating,
        optional or other special rights and such qualifications, limitations or
        restrictions thereof, as shall be stated in such resolution or resolutions
        providing for the issue of such class or series of preferred stock as may
        be
        adopted from time to time by our Board of Directors prior to the issuance
        of any
        shares thereof. The number of authorized shares of preferred stock may be
        increased or decreased (but not below the number of shares thereof then
        outstanding) by the affirmative vote of the holders of a majority of the
        voting
        power of all the then outstanding shares of the capital stock of the corporation
        entitled to vote generally in the election of directors, voting together
        as a
        single class, without a separate vote of the holders of the preferred stock,
        or
        any series thereof, unless a vote of any such holders is required pursuant
        to
        any preferred stock designation.
 
  F-6
  **4.** **Convertible
        Debt**
 
 On
        or
        about February 16, 2007 we sold an aggregate of $400,000 in Callable Secured
        Convertible Notes (“Debentures"), to various third parties (the “Purchasers”).
        The sale of the Debentures represented the second tranche of funding in
        connection with our Securities Purchase Agreement ("Purchase Agreement")
        entered
        into with the Purchasers on May 30, 2006. In connection with the issuance
        of the
        Debentures we paid various consultants debt issue costs totaling $73,000,
        which
        will be amortized over the term of the Debentures.
 
 The
        Debentures are convertible into our common stock at a 50% discount to the
        average of the lowest three trading days which our common stock trades on
        the
        market or exchange which it then trades over the most recent twenty (20)
        day
        trading period, ending one day prior to the date a conversion notice is received
        (the “Trading Price”), and bear interest at the rate of six percent (6%) per
        annum, payable quarterly in arrears, provided that no interest shall be due
        and
        payable for any month in which the trading price of 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.
 
 In
          accordance with Statement of Financial Accounting Standards No. 133, "Accounting
          for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"),
          the
          debt conversion feature provision (the "Debt Feature") contained in the
          terms of
          the Notes is not clearly and closely related to the characteristics of
          the Note.
          Accordingly, the Debt Feature qualified as an embedded derivative instrument
          at
          issuance and, because it does not qualify for any scope exception within
          SFAS
          133, it was required by SFAS 133 to be accounted for separately from the
          debt
          instrument and recorded as a derivative financial instrument.
 
 Pursuant
          to the terms of the Notes, these notes are convertible at the option of
          the
          holder, at anytime on or prior to maturity. The Debt Feature represents
          an
          embedded derivative that is required to be accounted for apart from the
          underlying Notes. At issuance of the Notes, the Debt Feature had an estimated
          initial fair value of $316,932.
 
 **5.** **Subsequent
        Event**
 
 On
        April
        17, 2007, with an effective date of January 15, 2007, we entered into a Second
        Waiver of Rights Agreement (the “Second Waiver”) with the Purchasers. Pursuant
        to the previous Waiver of Rights Agreement we entered into with the Purchasers
        in October 2006 (the “First Waiver”), we agreed to use our best efforts to
        obtain shareholder approval to increase our authorized shares by December
        15,
        2006, which we accomplished as of March 15, 2007; to file a registration
        statement with the SEC covering the shares underlying instruments issued
        to the
        Purchasers no later than January 15, 2007, and to obtain effectiveness of
        such
        registration statement with the SEC by April 16, 2007.
 
 Pursuant
        to the Second Waiver, the Purchasers agreed to waive our failure to file
        a
        registration statement by the prior January 15, 2007, deadline (we filed
        the
        registration statement on February 9, 2007), and agreed we are not in default
        of
        the Rights Agreement; agreed to waive our inability to maintain effective
        controls and procedures as was required pursuant to the Purchase Agreement,
        that
        we are required to use our “best efforts” to maintain effective controls and
        procedures moving forward; to waive the requirement pursuant to the Purchase
        Agreement that we keep solvent at all times (defined as having more assets
        than
        liabilities); to waive the requirement pursuant to the Purchase Agreement
        that
        we obtain authorization to obtain listing of our common stock on the
        Over-the-Counter Bulletin Board (“OTCBB”), and to allow for us to use our “best
        efforts” to obtain listing of our common stock on the OTCBB in the future.
 
 We
        also
        agreed along with the Purchasers, pursuant to the Second Waiver, to amend
        the
        Rights Agreement to reduce the number of shares we are required to register
        pursuant to the Rights Agreement to only 9,356,392 of the shares issuable
        upon
        conversion of the Notes and to amend the date we are required to obtain
        effectiveness of our registration statement by from April 16, 2007, to August
        13, 2007.
 
 In
        consideration for their entry into the Second Waiver, we granted the Purchasers
        an additional 1,000,000 warrants to purchase shares of our common stock at
        an
        exercise price of $0.10 per share, which warrants shall expire if unexercised
        on
        the same date as the original Warrants expire if unexercised, May 30, 2013.
 F-7


**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; from January 1, 2006,
      until June 30, 2006, we made approximately thirty-six fittings; and from July
      1,
      2006 until April 1, 2007, we made approximately forty-three fittings, four
      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.





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.


-2-


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 Prosthetist, 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.





On
      March
      15, 2007, we filed an amendment to our Articles of Incorporation with the
      Secretary of State of Idaho to increase our authorized shares of common stock
      to
      950,000,000 shares of Common Stock, $0.001 par value per share, and to
      re-authorize 10,000,000 shares of preferred stock, $0.001 par value per share
      (the “Amendment”). The affect of the Amendment is reflected throughout this
      report.





**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 and radio 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 220,000 restricted shares of common stock and issued 30,000 shares
      of common stock to Andrew Austin as a commission in connection with the Global
      Service Agreement in March 2006. The Service Agreement provided that the Company
      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 date of the common stock. We also granted Global piggyback
      registration rights in connection with the shares issued to Global pursuant
      to
      the Service Agreement. On or about June 2, 2006, we issued an aggregate of
      446,427 shares of common stock valued at $31,250 as consideration and commission
      in connection with the Global Service Agreement. We had the right to cancel
      the
      Service Agreement at anytime with thirty (30) days written notice to Global,
      at
      which time Global would keep all consideration issued as of that date. We gave
      Global formal notice of the termination of the Service Agreement in March 2007;
      however, we do not have any plans to issue Global or Mr. Austin any additional
      shares of common stock.





**Loan
      Agreements**





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 2006, but have since been verbally extended to May 2007. 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.


-3-


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, which date has since been extended until May 29, 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 agreed to issue Stock 2,000,000 restricted
      shares of our common stock, which shares have not been issued to Stock to date,
      and have not been included in the number of issued and outstanding shares
      disclosed throughout this Report.





**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," the “Notes” or the
“Convertible Notes”), which are to be payable in three tranches, $600,000 of
      which was received by the Company on or around May 31, 2006, in connection
      with
      the entry into the Securities Purchase Agreement; $400,000 which was received
      in
      February 2007, upon the filing of our registration statement to register shares
      of common stock which the Debentures are convertible into as well as the shares
      of common stock issuable in connection with the exercise of the Warrants
      (defined below); and $500,000 upon the effectiveness of our registration
      statement. The Debentures are convertible into our common stock at a 50%
      discount to the average of the lowest three trading days which our common stock
      trades on the market or exchange which it then trades over the most recent
      twenty (20) day trading period, ending one day prior to the date a conversion
      notice is received (the “Conversion Price”). Additionally, in connection with
      the Securities Purchase Agreement, we agreed to issue the Purchasers warrants
      to
      purchase an aggregate of 50,000,000 shares of our common stock at an exercise
      price of $0.10 per share (the "Warrants"). We originally agreed to register
      all
      of the shares of common stock which the Debentures are convertible into and
      the
      shares of common stock which the Warrants are exercisable for; however, pursuant
      to the Second Waiver of Rights Agreement, described below, the Purchasers agreed
      to amend the terms of the Registration Rights Agreement such that we are only
      required to register 9,356,392 shares underlying the Debentures on our 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, which we have been unable to increase
      to
      date.





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 average of the lowest
      three trading days which our common stock trades on the market or exchange
      which
      it then trades over the most recent twenty (20) day trading period, ending
      one
      day prior to the date a conversion notice is received (the "Conversion
      Price").


-4-


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 were later amended to February 15,
                2007,
                and August 13, 2007, respectively in connection with the Waiver of
                Rights
                Agreement and the Second 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; or





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.





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.


-5-







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 number
      of shares of common stock which the Debentures are convertible into (to account
      for changes in the Conversion Rate and the conversion of interest on the
      Debentures) as well as the shares of common stock issuable in connection with
      the exercise of the Warrants, within sixty (60) days of the Closing which we
      were not able to accomplish, but which date was amended from sixty (60) days
      from the Closing until January 15, 2007, in connection with the Waiver of Rights
      Agreement, and until February 15, 2007, in connection with the Second Waiver
      of
      Rights Agreement (both described below), which filing date was met by us.
      Additionally, the number of shares of common stock we are now required to
      register on our Registration Statement has been amended to include only
      9,356,392 shares of common stock underlying the Debentures, due to amendments
      to
      the Registration Rights Agreement affected by the Second Waiver of Rights
      Agreement.


-6-





If
      we do
      not obtain effectiveness of our registration statement with the SEC by August
      13, 2007 (pursuant to the Second Waiver of Rights Agreement), 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 August 13, 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 August 13, 2007, we would owe the Purchasers
      an aggregate of $20,000 in penalty payments, based on $1,000,000 currently
      outstanding under the Debentures.





**Waiver
      of Rights Agreement**





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





**RECENT
      EVENTS**





**Amendment
      to Articles of Incorporation**





On
      March
      15, 2007, we filed an amendment to our Articles of Incorporation with the
      Secretary of State of Idaho to increase our authorized shares of common stock
      to
      950,000,000 shares of Common Stock, $0.001 par value per share, and to
      re-authorize 10,000,000 shares of preferred stock, $0.001 par value per share
      (the “Amendment”).





Additionally,
      the Amendment provided that shares of our preferred stock may be issued from
      time to time in one or more series, with distinctive designation or title as
      shall be determined by our Board of Directors prior to the issuance of any
      shares thereof. The preferred stock shall have such voting powers, full or
      limited, or no voting powers, and such preferences and relative, participating,
      optional or other special rights and such qualifications, limitations or
      restrictions thereof, as shall be stated in such resolution or resolutions
      providing for the issue of such class or series of preferred stock as may be
      adopted from time to time by our Board of Directors prior to the issuance of
      any
      shares thereof. The number of authorized shares of preferred stock may be
      increased or decreased (but not below the number of shares thereof then
      outstanding) by the affirmative vote of the holders of a majority of the voting
      power of all the then outstanding shares of the capital stock of the corporation
      entitled to vote generally in the election of directors, voting together as
      a
      single class, without a separate vote of the holders of the preferred stock,
      or
      any series thereof, unless a vote of any such holders is required pursuant
      to
      any preferred stock designation.


-7-


The
      Amendment was approved by the affirmative vote of 61,290,112 shares entitled
      to
      vote at our special meeting of shareholders held on March 9, 2007, consisting
      of
      41,290,112 shares voted by our common stock holders and 1,000,000 shares of
      preferred stock which vote 20,000,000 shares, voted by our preferred
      stockholders, which shares represented approximately 52% of our outstanding
      common stock as of February 12, 2007, the record date of the
      meeting.





The
      affect of the Amendment is reflected throughout this report.





**Closing
      of Second Funding Tranche**





On
      or
      about February 16, 2007 (the "Second Closing”) we sold an aggregate of $400,000
      in Callable Secured Convertible Notes (“Debentures," the “Notes” or the
“Convertible Notes”), to the Purchasers. The sale of the Debentures represented
      the second tranche of funding in connection with our Securities Purchase
      Agreement ("Purchase Agreement") entered into with the Purchasers on May 30,
      2006.





The
      Debentures are convertible into our common stock at a 50% discount to the
      average of the lowest three trading days which our common stock trades on the
      market or exchange which it then trades over the most recent twenty (20) day
      trading period, ending one day prior to the date a conversion notice is received
      (the “Trading Price”), and bear interest at the rate of six percent (6%) per
      annum, payable quarterly in arrears, provided that no interest shall be due
      and
      payable for any month in which the trading price of 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
      $400,000 we received from the Purchasers at the Second Closing, in connection
      with the sales of the second tranche of Debentures was distributed as follows
      (all amounts listed are approximate):





o
            $50,000
                to Lionheart Associates, LLC doing business as Fairhills Capital
                ("Lionheart"), as a finder's fee in connection with the
                funding;o
            $50,000
                in legal fees owed to our corporate counsel in connection with the
                preparation of our Form 10-SB and Form SB-2 registration statements
                and
                various other of our public filings;o
            $60,000
                in accounting/auditing fees in connection with the audit of and review
                of
                our financial statements contained in our Form 10-SB and Form SB-2
                registration statements and our other quarterly and annual report
                filings;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 $9,000
                upon the payment of the final tranche of funding by the
                Purchasers);o
            $5,000
                in closing costs associated with the
                funding;




o
            $40,000
                to be used by us in connection with the purchase of additional equipment
                and machinery in connection with the fitting of prosthesises;o
            $100,000
                to be used by us in connection with our continuing marketing and
                advertising plans (as described in greater detail under “Plan of
                Operations” in our latest periodic filing); ando
            $77,000
                to be used by us as needed for general working capital and the purchase
                of
                inventory for our prosthesises on an ongoing
                basis.





-8-


**Second
      Waiver of Rights Agreement**





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





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





We
      also
      agreed along with the Purchasers, pursuant to the Second Waiver, to amend the
      Rights Agreement to reduce the number of shares we are required to register
      pursuant to the Rights Agreement, from all of the Underlying Shares, to only
      9,356,392 of the shares issuable upon conversion of the Notes and to amend
      the
      date we are required to obtain effectiveness of our registration statement
      by
      from April 16, 2007, to August 13, 2007.





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





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





AJW
                Partners, LLC
            102,000
                warrantsAJW
                Offshore, Ltd.
            606,000
                warrantsAJW
                Qualified Partners, LLC
            279,000
                warrantsNew
                Millennium Capital Partners II, LLC
            13,000
                warrants**Total**
            **1,000,000
                warrants**











We
      plan
      to use the $500,000 in proceeds from the sale of the additional Convertible
      Debentures (assuming all $500,000 of the additional debentures are sold) as
      follows:





·
            $50,000
                - Repayment of a stockholder loan;·
            $10,000
                - Inventory for our prosthetics operations;·
            $60,000
                - Equipment and building improvements;·
            $200,000
                - Promotional, marketing and travel costs associated with our increased
                marketing campaign;


-9-





·
            $14,000
                - Closing costs and finders fees in connection with the funding;
                and·
            $76,000-
                General working capital, including certain amounts for officers and
                directors salaries, rent and office expenses, of which a portion
                may be
                used to pay accrued interest on the Convertible Notes. We have not
                paid
                any of the accrued interest on the Convertible Notes to date, and
                have not
                been requested to pay such interest by the Purchasers to
                date.





Investors
      should keep in mind that any amounts of funding we have left over for working
      capital after the payment of the expenses above will likely be further reduced
      by fees paid in connection with legal and accounting costs associated with
      our
      need to file amendments and obtain effectiveness of our Form SB-2 Registration
      Statement, as well as our other periodic filing obligations.




































































[Remainder
      of page left intentionally blank.]







-10-


**PLAN
      OF OPERATIONS**





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





As
      of May
      2007, we believe we can operate for approximately the next twelve (12) months
      assuming that we sell an additional $500,000 in Convertible Debentures upon
      the
      effectiveness of our Registration Statement, based on our current estimate
      of
      non-discretionary, and recurring cash overhead at approximately $54,000 per
      month, and monthly gross profits of approximately $50,000 per month we
      anticipate receiving 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 our
      registration statement with the Commission, which effectiveness triggers the
      additional sale of the $500,000 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
      received $600,000 on May 30, 2006 (less closing costs and structuring fees),
      from the sale of certain Convertible Debentures described above and an
      additional $400,000 through the sale of additional Convertible Debentures in
      connection with our filing of our Registration Statement with the Commission.
      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, which agreement
                we subsequently terminated in March 2007;
                and




o
            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, due
      to
      the $400,000 which we received in connection with the sale of Debentures in
      February 2007, and assuming the Purchasers purchase the additional $500,000
      in
      Convertible Debentures:





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;


-11-





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 $500,000 in a subsequent tranche
      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 our Form SB-2 Registration Statement.





Moving
      forward, 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.





**COMPARISON
      OF OPERATING RESULTS**





**RESULTS
      OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE THREE
      MONTHS ENDED MARCH 31, 2006**





We
      had
      revenue of $133,323 for the three months ended March 31, 2007, compared to
      revenue of $274,679 for the three months ended March 31, 2006, a decrease in
      revenue of $141,356 or 51.5% from the prior period. The decrease in revenue
      for
      the three months ended March 31, 2007, compared to the three months ended March
      31, 2006, was mainly due to an unusual number of delayed fittings caused by
      those clients’ insurance providers requesting additional information regarding
      the fitting process. From time to time, prospective clients may have their
      fittings delayed by their insurance providers (usually Medicaid and Medicare)
      requesting additional information and/or clarification regarding the procedures
      we perform prior to those insurance providers paying for the prospective clients
      procedures. During the three months ended March 31, 2007, an unusually large
      amount of our prospective clients had their procedures delayed due to an
      increased number of such questions from their insurance providers. While we
      believe that we had an unusually high number of such delays during the three
      months ended March 31, 2007, and that such delays will not be nearly as extreme
      or prevalent during the remainder of fiscal 2007, there can be no assurance
      that
      our future revenues will not be impacted by such delays in the future.





We
      had
      total operating expenses of $474,900 for the three months ended March 31, 2007,
      compared to total operating expenses of $454,134 for the three months ended
      March 31, 2006, an increase in total operating expenses of $20,766 or 4.6%
      from
      the previous year’s period. The increase in total operating expenses was mainly
      due to a $23,803 or 61.2% increase in cost of sales, to $62,707 for the three
      months ended March 31, 2007, compared to $38,904 for the three months ended
      March 31, 2006 and a $979 or 19.4% increase in depreciation expense to $6,038
      for the three months ended March 31, 2007, compared to $5,059 for the three
      months ended March 31, 2006, offset by a $4,016 or 1% decrease in selling,
      general and administrative expenses, to $406,155 for the three months ended
      March 31, 2007, compared to $410,171 for the three months ended March 31,
      2006.




The
      1%
      decrease in our selling, general and administrative expenses was mainly
      attributable to our decrease in revenue over the same period.


-12-





Selling,
      general and administrative expenses as a percentage of revenue for the three
      months ended March 31, 2007 were 305% compared to selling, general and
      administrative expenses as a percentage of revenue of 149% for the three months
      ended March 31, 2006, which represented an increase in selling, general and
      administrative expenses as a percentage of revenue of 156% from the prior
      period. This increase was mainly due to the 51.5% decrease in revenue for the
      three months ended March 31, 2007, offset by the 1% decrease in selling, general
      and administrative expenses for the three months ended March 31, 2007. 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 $341,577 for the three months ended March 31, 2007,
      compared to a loss from operations of $179,455 for the three months ended March
      31, 2006, an increase in loss from operations of $162,122 or 90.3% from the
      prior period. The increase in loss from operations was caused by the 51.5%
      decrease in revenue and the 4.6% increase in total operating expenses for the
      three months ended March 31, 2007, compared to the prior year’s period.





We
      had
      total other income, net of $341,637 for the three months ended March 31, 2007,
      compared to total other expense, net of $12,885 for the three months ended
      March
      31, 2006, which represented an increase in other income of $354,522 from the
      prior period. The increase in net other income was mainly due to the $411,778
      in
      income from the change in value of the derivative financial instruments for
      the
      three months ended March 31, 2007, that was not represented for the three months
      ended March 31, 2006, which was offset by an increase of $57,282 of interest
      expense also in connection with our outstanding Convertible Debentures, to
      interest expense of $70,141 for the three months ended March 31, 2007, compared
      to interest expense of $12,859 for the three months ended March 31,
      2006.





We
      had
      net income of $60 for the three months ended March 31, 2007, compared to net
      loss of $192,340 for the three months ended March 31, 2006, an increase in
      net
      income of $192,400 from the previous period. The increase in net income was
      mainly due to the $411,778 of income from derivative financial instruments
      which
      was not represented during the three months ended March 31, 2006. Investors
      should keep in mind that our net income for the three months ended March 31,
      2007, was the result of changes in the value of our derivative financial
      instruments and not the result of our core operations. Without the changes
      to
      net income due to the changes in the fair value of derivative instruments,
      we
      would have had a significant net loss for the three months ended March 31,
      2007.





Investors
      should keep in mind that our net income for the three months ended March 31,
      2007, was only the result of the positive changes in the value of our derivative
      financial instruments and that but for these changes, a substantial net loss
      for
      the three months ended March 31, 2007 would have resulted.





**RESULTS
      OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE NINE
      MONTHS ENDED MARCH 31, 2006**





We
      had
      revenue from operations of $595,086 for the nine months ended March 31, 2007,
      compared to revenue of $558,321 for the nine months ended March 31, 2006, an
      increase in revenue of $36,765 or 6.6% from the prior period.





We
      had
      total operating expenses of $1,552,384 for the nine months ended March 31,
      2007,
      compared to total operating expenses of $1,025,786 for the nine months ended
      March 31, 2006, an increase in total operating expenses of $526,598 or 51.3%
      from the previous year’s period. The increase in total operating expenses was
      mainly due to a $487,612 or 57.6% increase in selling, general and
      administrative expenses to $1,334,606 for the nine months ended March 31, 2007,
      compared to $846,994 for the nine months ended March 31, 2006, which increase
      was primarily 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 and Form SB-2 filings and the preparation of our public filings,
      as
      well as a $36,125 or 22.1% increase in cost of sales, to $199,743 for the nine
      months ended March 31, 2007, compared to $163,618 for the nine months ended
      March 31, 2006, and an increase of $2,861or 18.9% in depreciation expense,
      to
      $18,035 for the nine months ended March 31, 2007, compared to $15,174 for the
      nine months ended March 31, 2006, in connection with an increase in our
      depreciable asset base.


-13-




Selling,
      general and administrative expenses as a percentage of revenue for the nine
      months ended March 31, 2007 were 224%, compared to selling, general and
      administrative expenses as a percentage of revenue of 152% for the nine months
      ended March 31, 2006, which represented an increase in selling, general and
      administrative expenses as a percentage of revenue of 72% from the prior period.
      This increase was mainly due to the 57.6% increase in selling, general and
      administrative expenses for the nine months ended March 31, 2007, coupled with
      the 6.6% increase in revenue from operations for the nine months ended March
      31,
      2007, compared to the nine months ended March 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 $957,298 for the nine months ended March 31, 2007,
      compared to a loss from operations of $467,465 for the nine months ended March
      31, 2006, an increase of $489,833 or 104.8% from the prior period. The increase
      in loss from operations was mainly caused by the $526,598 or 51.3% increase
      in
      total operating expenses (which was mainly due to the 57.6% increase in selling,
      general and administrative expenses) for the nine months ended March 31, 2007,
      compared to the nine months ended March 31, 2006, coupled with the 6.6% increase
      in revenue for the nine months ended March 31, 2007, compared to the prior
      period.





We
      had
      total other income, net of $2,535,254 for the nine months ended March 31, 2007,
      compared to total other income, net of $279,622 for the nine months ended March
      31, 2006, which represented an increase in other income, net of $2,255,632
      from
      the prior period. The increase in other income, net was mainly due to the
      $2,764,979 in income related to the change in value of the derivative financial
      instruments for the nine months ended March 31, 2007, that was not represented
      for the nine months ended March 31, 2006, which was offset by an increase of
      $201,356 of interest expense also in connection with our outstanding Convertible
      Debentures, to interest expense of $229,726 for the nine months ended March
      31,
      2007, compared to interest expense of $28,370 for the nine months ended March
      31, 2006, and a decrease in gain on extinguishment of debt of $310,799 to $0
      for
      the nine months ended March 31, 2007, from a gain on extinguishment of debt
      of
      $310,799 for the nine months ended March 31, 2006, in connection with the
      Release, described below.





The
      gain
      on extinguishment of debt for the nine months ended March 31, 2006, 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 nine months ended March 31, 2006.





We
      had
      net income of $1,577,956 for the nine months ended March 31, 2007, compared
      to
      net loss of $187,843 for the nine months ended March 31, 2006, an increase
      in
      net income of $1,765,799 from the previous period. The increase in net income
      was mainly due to the $2,255,632 increase in total other income, which was
      mainly due to the $2,764,979 of change in the value of the derivative financial
      instruments, which was offset by our $526,598 or 51.3% increase in operating
      expenses for the nine months ended March 31, 2007, compared to the nine months
      ended March 31, 2006. Investors should keep in mind that our net income for
      the
      nine months ended March 31, 2007, was the result of changes in the value of
      our
      derivative financial instruments and not the result of our core operations.
      Without the changes to net income due to the changes in the fair value of
      derivative financial instruments, we would have had a significant net loss
      for
      the nine months ended March 31, 2007.


-14-





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      had
      total assets of $750,236 as of March 31, 2007, which included current assets
      of
      $519,857, furniture and equipment, net of accumulated depreciation, of $52,917,
      and deferred financing cost of $177,462. Current assets included cash and cash
      equivalents of $79,175, trade and accounts receivable, net of $274,649, prepaid
      expenses and other current assets of $13,920, and current portion of net
      deferred financing cost of $152,113.




We
      had
      total liabilities of $3,301,010 as of March 31, 2007, which included current
      liabilities of $3,128,223, consisting of trade accounts payable of $131,451;
      accrued liabilities of $249,954; 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
      herein; amounts due to related party of $500, which amounts were owed to our
      Chief Executive Officer, Linda Putback-Bean, in connection with the initial
      funding of our corporate bank account, which amounts have not been repaid to
      date; derivative financial instruments of $2,671,318, in connection with our
      Convertible Debentures and Warrants; and non-current liabilities consisting
      of
      deferred rent of $11,166 and long term portion of convertible debt, net of
      discount of $161,621.





We
      had a
      working capital deficit of $2,608,366 and an accumulated deficit of $10,921,373
      as of March 31, 2007.





We
      had
      total net cash used by operating activities of $500,652 for the nine months
      ended March 31, 2007, which was mainly due to $2,764,979 of change in value
      of
      derivative liability, offset by $1,557,956 of net income and $506,997 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 $11,814 for the nine months ended
      March
      31, 2007, which was used solely in connection with the purchase of furniture
      and
      equipment.





We
      had
      $317,000 in net cash provided by financing activities for the nine months ended
      March 31, 2007, which included $10,000 paid on an outstanding convertible note
      held by a shareholder of the Company, $73,000 of payment of debt issuance costs
      associated with fees and costs paid to finders in connection with the current
      $400,000 raised through the February 2007 tranche of the Convertible Notes
      sold.





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 23% of revenue thus far
      for fiscal 2007.




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.







-15-





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, which date has since been extended until May
      29,
      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 March 2007, but have since been verbally extended to May
      2007. 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 original
      Registration Statement filing, which Registration Statement we filed on February
      9, 2007, and which Convertible Debentures we sold shortly thereafter, 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").




The
      fees
      and costs associated with the $1,000,000 in funding we have received to date
      are
      disclosed in the table below:





***First
                Closing Fees and Costs (on $600,000 received through the sale of
                Notes in
                May 2006)***$100,000
            
            Finder
            
            Lionheart
                Associates, LLC doing business as Fairhills Capital as a finder's
                fee in
                connection with the funding;$18,000
            
            Finder
            
            OTC
                Financial Network, as a finder's fee in connection with the
                funding;$75,000
            
            Legal
                Fees and Closing Payments
            
            To
                our counsel, the Purchasers' counsel and certain companies working
                on the
                Purchasers' behalf$10,000
            
            Held
                in escrow
            
            Held
                in Escrow for the payment of additional Key Man life insurance on
                Linda
                Putback-Bean and Kenneth W. Bean***Total***
            **$203,000**






-16-


***Second
                  Closing Fees and Costs (on $400,000 received through the sale of
                  Notes in
                  February 2007)***


$50,000
            
            Finder
            
            Lionheart
                Associates, LLC doing business as Fairhills Capital as a finder's
                fee in
                connection with the funding;$18,000
            
            Finder
            
            OTC
                Financial Network, as a finder's fee in connection with the
                funding;$5,000
            
            Closing
                costs
            
            Escrow
                fees***Total***
            **$73,000***Total
                Notes sold to the Purchasers as of the date of this
                filing:$1,000,000Minus
                fees described above
            
            $276,000Total
                funds received by the Company
            
            $724,500





*
                Which amount includes funds paid by the Company to its legal counsel
                and
                independent auditor in connection with its reporting requirement
                and the
                drafting and review of our Registration Statement and the financial
                statements contained therein.Other
                than the payments described above, we do not anticipate having to
                pay any
                additional money, other than approximately $5,000 in closing costs
                associated with the next funding tranche and $9,000 to our finder
                OTC
                Financial Network out of the funds we will receive from the next
                funding
                tranche, to the Purchasers or any entities associated with the Purchasers
                or the funding tranches, other than amounts we may choose to prepay
                on the
                Notes and/or quarterly interest payments on the Notes, which are
                not
                accrued and/or which are not converted into shares of our common
                stock
                pursuant to the terms of the Notes. We have not however paid any
                of the
                accrued interest on the Convertible Notes to date, and although we
                have
                not been requested to pay such interest by the Purchasers to date,
                we may
                choose to pay such accrued interest out of the funds we receive from
                the
                third funding tranche.





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.





We
      received $1,000,000 from the sale of Convertible Debentures in May 2006 and
      February 2007, and anticipate spending the additional $500,000 from the sale
      of
      the last tranche of Notes upon the effectiveness of our Registration Statement
      as follows:





·
            $50,000
                - Repayment of a stockholder loan;·
            $10,000
                - Inventory for our prosthetics operations;·
            $60,000
                - Equipment and building improvements;·
            $200,000
                - Promotional, marketing and travel costs associated with our increased
                marketing campaign;·
            $14,000
                - Closing costs and finders fees in connection with the funding;
                and


·
              $76,000-
                  General working capital, including certain amounts for officers
                  and
                  directors salaries, rent and office expenses, of which a portion
                  may be
                  used to pay accrued interest on the Convertible Notes. We have
                  not paid
                  any of the accrued interest on the Convertible Notes to date, and
                  have not
                  been requested to pay such interest by the Purchasers to
                  date.
 
 Investors
        should keep in mind that any amounts of funding we have left over for working
        capital after the payment of the expenses above will likely be further reduced
        by fees paid in connection with legal and accounting costs associated with
        our
        need to file amendments and obtain effectiveness of our Form SB-2 Registration
        Statement, as well as our other periodic filing
        obligations.


-17-







As
      of May
      2007, we believe we can operate for approximately the next twelve (12) months
      assuming that we sell an additional $500,000 in Convertible Debentures upon
      the
      effectiveness of our Registration Statement, based on our current estimate
      of
      non-discretionary and recurring cash overhead of approximately $54,000 per
      month
      and monthly gross profits of approximately $50,000 per month we anticipate
      receiving 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 our registration
      statement with the Commission, which effectiveness triggers the additional
      sale
      of the $500,000 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
      have
      received pursuant to the funding tranches, 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 our 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.]


-18-







**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 nine months
      ended March 31, 2007, we had net income of $1,577,956, which net income was
      mainly the result of changes in the value of our derivative financial
      instruments and not the result of our core operations, and negative cash flows
      from operations of $500,652. Additionally, we had negative working capital
      of
      $2,608,366 and a total accumulated deficit of 10,921,373 as of March 31, 2007.
      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 have sold
      as
      of 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 life insurance
      in the amount of $1,500,000 with respect to Mrs. Putback-Bean and $500,000
      with
      respect to Mr. 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.


-19-





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.


-20-







**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 nine months ended March 31, 2007, we had net income
      of
      $1,577,956, which net income was mainly the result of changes in the value
      of
      our derivative financial instruments and not the result of our core operations,
      and we had a working capital deficit of $2,608,366 as of March 31, 2007.
      Furthermore, we had an accumulated deficit of $10,921,373 at March 31, 2007.
      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
      March 31, 2007, 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.





-21-
 **WE
        FACE REVIEWS, AUDITS AND INVESTIGATIONS UNDER OUR CONTRACTS WITH FEDERAL
        AND
        STATE GOVERNMENT AGENCIES, AND THESE AUDITS COULD HAVE ADVERSE FINDINGS THAT
        MAY
        NEGATIVELY IMPACT OUR BUSINESS.**
 
 We
        contract with various federal and state governmental agencies to provide
        prosthetic services. Pursuant to these contracts, we are subject to various
        governmental reviews, audits and investigations to verify our compliance
        with
        the contracts and applicable laws and regulations, including reviews from
        Medicare and Texas Medicaid, in connection with rules and regulations we
        are
        required to follow and comply with as a result
        of
        our position as a Medicare and Texas Medicaid approved provider. Any adverse
        review, audit or investigation could result in:




o
            refunding
                of amounts we have been paid pursuant to our government
                contracts;


o
            imposition
                of fines, penalties and other sanctions on
                us;


o
            loss
                of our right to participate in various federal
                programs;o
            damage
                to our reputation in various markets; oro
            material
                and/or adverse effects on the business, financial condition and results
                of
                operations.




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





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




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





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





**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 May 9, 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.





-22-
 **OUR
        MANAGEMENT CONTROLS A SIGNIFICANT PERCENTAGE OF OUR CURRENTLY OUTSTANDING
        COMMON
        STOCK AND THEIR INTERESTS MAY CONFLICT WITH THOSE OF OUR
        SHAREHOLDERS.**
 
 As
        of May
        9, 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 $1,000,000 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
                August
                13, 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;
                or





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





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


-23-





**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
      average of the lowest three trading days which our common stock trades on the
      market or exchange which it then trades over the most recent twenty (20) day
      trading period, ending one day prior to the date a conversion notice is
      received, and such discount to market, provides the holders with the ability
      to
      sell their common stock at or below market and still make a profit. In the
      event
      of such overhang, holders will have an incentive to sell their common stock
      as
      quickly as possible. If the share volume of our common stock cannot absorb
      the
      discounted shares, then the value of our common stock will likely
      decrease.





**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.







-24-




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% of the average of the lowest three trading days which our common
      stock trades on the market or exchange which it then trades over the most recent
      twenty (20) day trading period, ending one day prior to the date a conversion
      notice is received (the “Conversion Price”). The significant downward pressure
      on the price of our common stock as the Debenture holders convert and sell
      material amounts of our common stock could encourage investors to short sell
      our
      common stock. This could place further downward pressure on the price of our
      common stock. In addition, not only the sale of shares issued upon conversion
      of
      the Debentures or exercise of the Warrants, but also the mere perception
      that these sales could occur, may adversely affect the market price of our
      common stock.




**WE
      MUST SATISFY CERTAIN CONDITIONS BEFORE THE SELLING SECURITY HOLDERS ARE
      OBLIGATED TO PURCHASE THE REMAINING $500,000 OF DEBENTURES.**





We
      sold
      $600,000 of Debentures in May 2006 and $400,000 of Debentures in February 2007.
      We also received a commitment to purchase an additional $500,000 of Debentures,
      upon the effectiveness of our Registration Statement. If the Registration
      Statement is not declared effective or an Event of Default occurs under the
      Debentures, the Debenture holders will have no obligation to purchase the
      remaining tranche 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.


-25-





**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.


-26-




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.


-27-





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 quarterly period
      covered by this Report (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 our auditors discovered
      significant adjustments relating to revenue recognition, accrual of liabilities,
      and recording of share-based compensation.  In addition to the adjustments
      identified by our auditor, 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.







-28-


**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**





**We
      issued the following securities during the period covered by this
      report:**





On
      or
      about February 16, 2007, we sold an aggregate of $400,000 in Callable Secured
      Convertible Notes, which bear interest at the rate of 6% per annum to the
      Purchasers in connection with a Securities Purchase Agreement entered into
      with
      the Purchasers on May 30, 2006. We claim an exemption from registration provided
      by Rule 506 of Regulation D for the above issuances.





**We
      issued the following securities subsequent to the period covered by this
      report:**





On
      April
      17, 2007, we granted an aggregate of 1,000,000 warrants to purchase shares
      of
      our common stock to the Purchasers, which warrants are exercisable for $0.10
      per
      share and expire if unexercised on 6:00 p.m., Eastern Standard Time on May
      30,
      2013, as described in greater detail above. We claim an exemption from
      registration afforded by Section 4(2) of the Securities Act of 1933 for the
      above grants, since the foregoing grants did not involve a public offering,
      the
      recipients took the shares for investment and not resale and we took appropriate
      measures to restrict transfer. No underwriters or agents were involved in the
      foregoing grants and we paid no underwriting discounts or
      commissions.





**ITEM
      3. DEFAULTS UPON SENIOR 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**




**(a)
      EXHIBITS:**





Exhibit
                3.1(1)
            Amendment
                to Articles of Incorporation of the Company (March 15,
                2007)Exhibit
                10.1(4)
            Sample
                Host Affiliate AgreementExhibit
                10.2(2)
            Settlement
                Agreement with Secured Releases, LLCExhibit
                10.3(3)
            Securities
                Purchase AgreementExhibit
                10.4(3)
            Callable
                Secured Convertible Note with AJW Offshore, Ltd.Exhibit
                10.5(3)
            Callable
                Secured Convertible Note with AJW Partners,
                LLC


-29-





Exhibit
                10.6(3)
            Callable
                Secured Convertible Note with AJW Qualified Partners,
                LLCExhibit
                10.7(3)
            Callable
                Secured Convertible Note with New Millennium Capital Partners II,
                LLCExhibit
                10.8(3)
            Stock
                Purchase Warrant with AJW Offshore, Ltd.Exhibit
                10.9(3)
            Stock
                Purchase Warrant with AJW Partners, LLCExhibit
                10.10(3)
            Stock
                Purchase Warrant with AJW Qualified Partners, LLCExhibit
                10.11(3)
            Stock
                Purchase Warrant with New Millennium Capital Partners II,
                LLCExhibit
                10.12(3)
            Security
                AgreementExhibit
                10.13(3)
            Intellectual
                Property Security AgreementExhibit
                10.14(3)
            Registration
                Rights AgreementExhibit
                10.15(4)
            Consulting
                Agreement with National Financial Communications
                Corp.Exhibit
                10.16(4)
            Warrant
                Agreement with Lionheart Associates, LLC doing business as Fairhills
                CapitalExhibit
                10.17(4)
            Investor
                Relations Consulting Agreement with Joe GordonExhibit
                10.18(5)
            Waiver
                of Rights AgreementExhibit
                10.20(6)
            Kertes
                Convertible Note and WarrantExhibit
                10.21(6)
            Global
                Media AgreementExhibit
                10.22(7)
            Second
                Closing - Callable Secured Convertible Note with AJW Offshore, Ltd.Exhibit
                10.23(7)
            Second
                Closing - Callable Secured Convertible Note with AJW Partners, LLCExhibit
                10.24(7)
            Second
                Closing - Callable Secured Convertible Note with AJW Qualified Partners,
                LLCExhibit
                10.25(7)
            Second
                Closing - Callable Secured Convertible Note with New Millennium Capital
                Partners II, LLCExhibit
                10.26(8)
            Second
                Waiver of Rights AgreementExhibit
                10.27(9)
            Stock
                Purchase Warrant with AJW Offshore, Ltd.Exhibit
                10.28(9)
            Stock
                Purchase Warrant with AJW Partners, LLCExhibit
                10.29(9)
            Stock
                Purchase Warrant with AJW Qualified Partners, LLC


-30-





Exhibit
                10.30(9)
            Stock
                Purchase Warrant with New Millennium Capital Partners,
                LLCExhibit
                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 an exhibit to our report on Form 8-K filed with the Commission on March
      20,
      2007, and incorporated herein by reference.





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





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





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





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





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





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





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





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




**(b)
      REPORTS ON FORM 8-K**





We
      filed
      the following reports on Form 8-K during the period ended March 31,
      2007:





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.





-31-





o
            February
                8, 2007, to report that the Company had cleared comments in connection
                with its Form 10-SB Registration Statement with the
                Commission.





o
            February
                26, 2007, to report the closing of the Second Closing with the
                Purchasers.





o
            March
                20, 2007, to report the filing of Articles of Amendment to our Certificate
                of Amendment to increase our authorized shares of common
                stock.





We
      filed
      the following reports on Form 8-K subsequent to the period covered by this
      report:





o
            April
                18, 2007, to report our entry into the Second Waiver of Rights Agreement
                with the Purchasers and the issuance to the Purchasers of 1,000,000
                Warrants to purchase shares of our common stock at $0.10 per
                share.







-32-


**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:
      May 15, 2007





*By:
      /s/ Kenneth W. Bean*


Kenneth
      W. Bean


Chief
      Financial Officer (Principal Accounting Officer)




-33-