---

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-KSB/A

Amendment No. 1



---



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



For the Fiscal Year Ended June 30, 2005



Commission File Number: 000-27513



---



U.S. MEDSYS CORP.

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



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Colorado                                                       |  | 84-1308436                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                  |  |           
|------------------------------------------------- |  | ----------
|411 Route 17 South, Hasbrouck Heights, New Jersey |  | 07604     
|(Address of Principal Executive Offices)          |  | (Zip Code)



Registrants
Telephone Number, including area code: (201) 288-3082



Securities Registered Under Section 12(b) of the Exchange Act:



None



Securities
Registered Under Section 12(g) of the Exchange Act:



Common Stock, no par value



---



Check whether the issuer (1) 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 ̈



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation SB contained in this form, and no disclosure
will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10KSB or any amendment to this Form 10KSB. ̈



State issuers revenues for its most recent fiscal year: $927,373.



The aggregate market value of the registrants common stock held by non-affiliates of the registrant as of November 8, 2005 was approximately $6,581,926. Solely for purposes of the foregoing calculation, all of the
registrants directors and officers are deemed to be affiliates.



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



APPLICABLE ONLY TO CORPORATE ISSUERS



The number of shares outstanding of the registrants Common Stock, par value $.01 per share (the Common Stock), as of November 8, 2005, was 31,200,046.



Transitional Small Business Disclosure Format:    Yes ̈No  x



---



---

EXPLANATORY NOTE



This Amended Annual Report on Form 10-KSB/A is being filed for the purpose of correcting clerical errors. In all other material respects
this Amended Annual Report on Form 10-KSB is unchanged from the Annual Report on Form 10-KSB filed by the Company on November 15, 2005.



---

ITEM 13. EXHIBITS.



|            |  |                                                                                                                                                                                                                                                                                 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                     
|2.2         |  | Agreement and Plan of Reorganization dated November 12, 2002 by and among the Registrant, U.S. Medical Systems, Inc. (USMS ) and certain shareholders of USMS (Incorporated by
reference to Exhibit 2.2 of the Companys current report on Form 8-K, filed November 22, 2002).
|            | 
|3.3         |  | The Companys Articles of Incorporation, as currently in effect. (Incorporated by reference to Exhibit 3.3 of the Companys quarterly report on Form 10-QSB for the period ended
March 31, 2004.)                                                                               
|            | 
|3.4         |  | The Companys Bylaws, as currently in effect. (Incorporated by reference to Exhibit 3.3 of the Companys quarterly report on Form 10-QSB for the period ended March 31,
2004.)                                                                                                  
|            | 
|10.1        |  | The Companys 2003 Stock Plan. (Incorporated by reference to Exhibit 10.1 of the Companys Registration Statement on Form S-8, SEC File No. 103255.)                                                                                                                            
|            | 
|10.4        |  | Distribution Agreement between the Companys subsidiary, U.S. MedSys Technologies, Inc., and Longport, Inc. dated February 11, 2004. (Incorporated by reference to Exhibit 10.4 of the
Companys quarterly report on Form 10-QSB for the period ended March 31, 2004.)          
|            | 
|14.1        |  | Code of Ethics adopted September 30, 2004. (Incorporated by reference to Exhibit 14.1 of the Companys annual report on Form 10KQSB/A for the period ended June 30,
2004.)                                                                                                      
|            | 
|21.1        |  | List of Subsidiaries. (Incorporated by reference to Exhibit 14.1 of the Companys annual report on Form 10KQSB/A for the period ended June 30, 2004.)                                                                                                                           
|            | 
|31.1        |  | Certification by the Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith).                                                                                                 
|            | 
|31.2        |  | Certification by the Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith).                                                                                                 
|            | 
|32.1        |  | Certification by the Corporations Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith).                                                                                          
|            | 
|32.2        |  | Certification by the Corporations Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith).                                                                                          



---

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



U.S. MEDSYS CORP.



|                     |  |  |  |     |  |                    |  |                                                                       
|-------------------- |  |  |  | --- |  | ------------------ |  | ----------------------------------------------------------------------
|Dated: March 2, 2006 |  |  |  | By: |  | /s/ Anthony Rubino
|                     |  |  |  |     |  |                    |  | Anthony Rubino,                                                       
|                     |  |  |  |     |  |                    |  | Chief Executive Officer and Principal Accounting Officer, and Director



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.



|                       |  |                                                                       |  |              
|---------------------- |  | --------------------------------------------------------------------- |  | -------------
|Signatures             |  | Title                                                                 |  | Date         
|/S/ Anthony Rubino     |  | Chief Executive Officer and Principal Accounting Officer and Director |  | March 2, 2006
|                       |  |                                                                      
|/S/ Dr. Orest B. Boyko |  | Director                                                              |  | March 2, 2006



---

INDEX TO FINANCIAL STATEMENTS



U.S. MEDSYS CORP.

|                                                                                                                                      |  |     
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                      |  | Page
|Report of Independent Registered Public Accounting Firm                                                                               |  | F-1 
|                                                                                                                                      | 
|Consolidated Balance Sheets as of June 30, 2005 and 2004                                                                              |  | F-2 
|                                                                                                                                      | 
|Consolidated Statements of Operations for each of the three years in the period endedJune 30, 2003, 2004 and 2005                     |  | F-3 
|                                                                                                                                      | 
|Consolidated Statements of Cash Flows for each of the three years in the period endedJune 30, 2003, 2004 and 2005                     |  | F-4 
|                                                                                                                                      | 
|Consolidated Statements of Stockholders Equity (Deficit) for each of the three years in the period endedJune 30, 2003, 2004 and 2005 |  | F-5 
|                                                                                                                                      | 
|Notes to Consolidated Financial Statements                                                                                            |  | F-6 



---

Report of Independent Registered Public Accounting Firm



Board of Directors

U.S. Medsys Corp.



We have audited the accompanying consolidated balance sheet of U.S. Medsys Corp.(Company) as of June 30, 2005 and 2004 and the related
statements of operations, stockholders equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audit.



We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of U.S. Medsys Corp. as of June 30, 2005 and 2004 and the results of its
operations, stockholders equity, and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
described in Note 2, the Company has limited working capital and continued operation losses, which raises substantial doubts about its ability to continue as a going concern. Managements plan in regard to this matter is also discussed in Note
2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.





MILLER AND MCCOLLOM

Certified Public Accountants

4350 Wadsworth Boulevard, Suite 300

Wheat Ridge, Colorado 80033

November 10, 2005



F-1



---

U.S. MEDSYS CORP.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                   |  |              |            |   |              |   |            |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------ | ---------- | - | ------------ | - | ---------- | -
|                                                                                                                   |  | June 30,2005 |            |   | June 30,2004 |  
|ASSETS                                                                                                             | 
|CURRENT ASSETS                                                                                                     |  |              |            |   |              |   |            |  
|Cash                                                                                                               |  | $            | 158,672    |   |              | $ | 1,356,883  |  
|Accounts receivable (net of allowance of $137,500)                                                                 |  |              | 269,830    |   |              |   | 293,870    |  
|Prepaid costs and deposits                                                                                         |  |              | 345,870    |   |              |   | 609,250    |  
|Inventory                                                                                                          |  |              | 1,245,332  |   |              |   |           |  
|                                                                                                                   |  |              |            |   |              |   |            |  
|Total current assets                                                                                               |  |              | 2,019,704  |   |              |   | 2,260,003  |  
|Intangible assets, net of accumulated amortization                                                                 |  |              |           |   |              |   | 542,500    |  
|Office equipment, net of $83,986 allowance for depreciation                                                        |  |              | 464,753    |   |              |   | 73,837     |  
|Equipment, net of $113,450 allowance for depreciation                                                              |  |              | 366,550    |   |              |   | 141,700    |  
|Unamortized beneficial conversion related to preferred shares                                                      |  |              | 840,000    |   |              |   |           |  
|                                                                                                                   |  |              |            |   |              |   |            |  
|Total assets                                                                                                       |  | $            | 3,691,007  |   |              | $ | 3,018,040  |  
|                                                                                                                   |  |              |            |   |              |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                | 
|CURRENT LIABILITIES                                                                                                |  |              |            |   |              |   |            |  
|Accounts payable and accrued expenses                                                                              |  | $            | 880,446    |   |              | $ | 29,093     |  
|Related parties accounts payable                                                                                   |  |              |           |   |              |   | 104,080    |  
|Current portion of notes payable                                                                                   |  |              | 140,000    |   |              |   |           |  
|                                                                                                                   |  |              |            |   |              |   |            |  
|Total current liabilities                                                                                          |  |              | 1,020,446  |   |              |   | 133,173    |  
|Note payable and accrued interest, net of current portion                                                          |  |              | 184,492    |   |              |   |           |  
|                                                                                                                   |  |              |            |   |              |   |            |  
|Total liabilities                                                                                                  |  |              | 1,204,938  |   |              |   | 133,173    |  
|                                                                                                                   |  |              |            |   |              |   |            |  
|Commitments and contingencies                                                                                      |  |              |            |   |              |   |            |  
|STOCKHOLDERS EQUITY (DEFICIT)                                                                                     |  |              |            |   |              |   |            |  
|Preferred Stock, $10 par value; 1,000,000 shares authorized, 150,000 shares issued and outstanding                 |  |              | 1,419,000  |   |              |   |           |  
|Common stock, no par value; 200,000,000 shares authorized, 31,200,046 and 28,115,546 shares issued and outstanding |  |              | 10,710,294 |   |              |   | 5,469,848  |  
|Common stock warrants                                                                                              |  |              | 137,000    |   |              |   | 56,000     |  
|Deficit accumulated                                                                                                |  |              | (9,780,225 | ) |              |   | (2,640,981 | )
|                                                                                                                   |  |              |            |   |              |   |            |  
|Total stockholders equity (deficit)                                                                               |  |              | 2,486,069  |   |              |   | 2,884,867  |  
|                                                                                                                   |  |              |            |   |              |   |            |  
|Total liabilities and stockholders equity (deficit)                                                               |  | $            | 3,691,007  |   |              | $ | 3,018,040  |  
|                                                                                                                   |  |              |            |   |              |   |            |  

---

|The | accompanying notes are an integral part of the financial statements
|--- | -------------------------------------------------------------------



F-2



---

U.S. MEDSYS CORP.



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                            |  |              |            |   |              |   |            |              |  |            |  
|------------------------------------------- |  | ------------ | ---------- | - | ------------ | - | ---------- | ------------ |  | ---------- | -
|                                            |  | June 30,2005 |            |   | June 30,2004 |   |            | June 30,2003 | 
|Gross revenue                               |  | $            | 1,547,643  |   |              | $ | 201,820    |              |  |           |  
|Discounts                                   |  |              | 620,269    |   |              |   |           |              |  |           |  
|                                            |  |              |            |   |              |   |            |              |  |            |  
|Net revenue                                 |  |              | 927,374    |   |              |   | 201,820    |              |  |           |  
|less:    Cost of sales                      |  |              | 308,357    |   |              |   | 67,650     |              |  |           |  
|                                            |  |              |            |   |              |   |            |              |  |            |  
|Gross profit                                |  |              | 308,657    |   |              |   | 134,170    |              |  |           |  
|                                            |  |              |            |   |              |   |            |              |  |            |  
|General and administrative expenses:        |  |              |            |   |              |   |            |              |  |            |  
|Bad debt expense                            |  |              | 137,500    |   |              |   |            |              |  |            |  
|Write off of receivables from related party |  |              | 228,600    |   |              |   |           |              |  |            |  
|Expense for PMC/Ocular to related party     |  |              | 250,000    |   |              |   |           |              |  |            |  
|Consulting fees paid by issuing stock       |  |              |           |   |              |   | 461,000    |              |  | 38,000     |  
|Consulting fees                             |  |              | 759,763    |   |              |   | 485,862    |              |  | 58,400     |  
|Professional fees                           |  |              | 494,030    |   |              |   | 149,658    |              |  | 73,108     |  
|Salaries                                    |  |              | 2,385,215  |   |              |   | 460,447    |              |  | 150,000    |  
|Administrative expenses                     |  |              | 967,112    |   |              |   | 246,992    |              |  | 32,313     |  
|Depreciation expense                        |  |              | 185,476    |   |              |   | 11,751     |              |  | 7,924      |  
|License fees                                |  |              | 457,575    |   |              |   | 144,925    |              |  | 67,650     |  
|Fees for public reporting                   |  |              |           |   |              |   |           |              |  | 360,000    |  
|Start up costs for NEODS                    |  |              | 485,000    |   |              |   |           |              |  |            |  
|                                            |  |              |            |   |              |   |            |              |  |            |  
|Total general and administrative expenses   |  |              | 6,350,271  |   |              |   | 1,960,635  |              |  | 719,995    |  
|                                            |  |              |            |   |              |   |            |              |  |            |  
|(Loss) from operations                      |  |              | 6,041,614  |   |              |   | (1,826,465 | )            |  |            |  
|Interest (expense)/Revenue                  |  |              | (1,097,630 | ) |              |   | (65,030    | )            |  | (6,676     | )
|                                            |  |              |            |   |              |   |            |              |  |            |  
|Net (loss) before taxes                     |  |              | (7,139,244 | ) |              |   | (1,891,495 | )            |  | (726,671   | )
|Provision for income taxes                  |  |              |           |   |              |   |           |              |  |           |  
|                                            |  |              |            |   |              |   |            |              |  |            |  
|Net (loss)                                  |  | $            | (7,139,244 | ) |              | $ | (1,891,495 | )            |  | (726,671   | )
|                                            |  |              |            |   |              |   |            |              |  |            |  
|Net (loss) per common share                 |  | $            | (0.24      | ) |              | $ | (0.08      | )            |  | (0.04      | )
|                                            |  |              |            |   |              |   |            |              |  |            |  
|Weighted average common shares outstanding  |  |              | 29,505,446 |   |              |   | 24,662,936 |              |  | 16,964,385 |  

---

|The | accompanying notes are an integral part of the financial statements
|--- | -------------------------------------------------------------------



F-3



---

U.S. MEDSYS CORP.



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ------------ | - | ---------- | ------------ |  | -------- | -
|                                                                                                                                      |  | June 30,2005 |            |   | June 30,2004 |   |            | June 30,2003 | 
|Cash flows from operating activities:                                                                                                 |  |              |            |   |              |   |            |              |  |          |  
|Net loss                                                                                                                              |  | $            | (7,139,244 | ) |              | $ | (1,891,495 | )            |  | (726,671 | )
|Reconciling adjustments:                                                                                                              |  |              |            |   |              |   |            |              |  |          |  
|Amortization                                                                                                                          |  |              | 542,500    |   |              |   | 82,525     |              |  |          |  
|Depreciation                                                                                                                          |  |              | 185,476    |   |              |   | 11,751     |              |  | 7,924    |  
|Common stock issued for services                                                                                                      |  |              |           |   |              |   | 766,074    |              |  | 38,250   |  
|Interest added to notes payable                                                                                                       |  |              |           |   |              |   |           |              |  | 14,600   |  
|Interest expense for beneficial conversion related to preferred shares                                                                |  |              | 420,000    |   |              |   |           |              |  |         |  
|Note issued for public reporting expense                                                                                              |  |              |           |   |              |   |           |              |  | 360,000  |  
|Stock issued for expenses                                                                                                             |  |              | 1,517,250  |   |              |   |           |              |  |          |  
|Change in operating assets and liabilities:                                                                                           |  |              |            |   |              |   |            |              |  |          |  
|Accounts Receivable                                                                                                                   |  |              | 24,040     |   |              |   | (293,870   | )            |  |          |  
|Inventory                                                                                                                             |  |              | (1,245,333 | ) |              |   |           |              |  |          |  
|Prepaid expenses                                                                                                                      |  |              | 263,380    |   |              |   | (550,750   | )            |  | (58,000  | )
|Accounts payable and accrued activities                                                                                               |  |              | 747,272    |   |              |   | 146,443    |              |  | 270,707  |  
|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|Net cash (used for) operating activities                                                                                              |  |              | (4,684,658 | ) |              |   | (1,729,322 | )            |  | (101,614 | )
|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|Cash flows from investing activities:                                                                                                 |  |              |            |   |              |   |            |              |  |          |  
|Purchase of equipment                                                                                                                 |  |              | (801,240   | ) |              |   | (207,287   | )            |  | (20,000  | )
|Purchase of intangibles                                                                                                               |  |              |           |   |              |   | (625,025   | )            |  |         |  
|Deferred acquisition costs                                                                                                            |  |              |           |   |              |   |           |              |  |         |  
|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|                                                                                                                                      |  |              | (801,240   | ) |              |   | (832,312   | )            |  | (20,000  | )
|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|Cash provided by investing activities                                                                                                 |  |              |            |   |              |   |            |              |  |          |  
|Warrants                                                                                                                              |  |              | 81,000     |   |              |   | 56,000     |              |  |          |  
|Stock options issued to employees                                                                                                     |  |              |           |   |              |   | 267,200    |              |  |          |  
|Proceeds from sale of debenture                                                                                                       |  |              |           |   |              |   |           |              |  | 25,000   |  
|Proceeds from note                                                                                                                    |  |              | 324,491    |   |              |   |           |              |  |          |  
|Proceeds from sale of stock                                                                                                           |  |              | 2,463,196  |   |              |   | 3,640,181  |              |  | 86,750   |  
|Proceeds from sale of preferred stock                                                                                                 |  |              | 1,419,000  |   |              |   |           |              |  |          |  
|Repayment of note payable                                                                                                             |  |              |           |   |              |   | (45,000    | )            |  |          |  
|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|Cash provided by financing activities                                                                                                 |  |              | 4,287,687  |   |              |   | 3,918,381  |              |  | 111,750  |  
|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|Net change in cash                                                                                                                    |  |              | (1,198,211 | ) |              |   | 1,356,747  |              |  | (9,864   | )
|Beginning cash balance                                                                                                                |  |              | 1,356,883  |   |              |   | 136        |              |  | 10,000   |  
|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|Ending cash balance                                                                                                                   |  | $            | 158,672    |   |              | $ | 1,356,883  |              |  | 136      |  
|                                                                                                                                      |  |              |            |   |              |   |            |              |  |          |  
|Supplemental disclosure of cash flow information:                                                                                     |  |              |            |   |              |   |            |              |  |          |  
|Cash paid for interest expense net of amount capitalized $10,300                                                                      |  |              |            |   |              |   |            |              |  |          |  
|Supplemental schedule of non-cash investing and financing activities of $840,000 accrued for beneficial conversion of preferred
stock |  |              |            |   |              |   |            |              |  |          |  

---

|The | accompanying notes are an integral part of the financial statements
|--- | -------------------------------------------------------------------



F-4



---

U.S. MEDSYS CORP.



CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT)



|                                                                    |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  
|------------------------------------------------------------------- |  | -------------------- |  | ------ | --------------------------- | - | ------------------- | - | ------- |  | ------- |  | - | --------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                    |  | COMMON STOCK(NO PAR) |  |        | PREFERRED STOCK($10.00 PAR) |   | DEFICIT ACCUMULATED |   |         |  |        
|                                                                    |  | SHARES               |  | AMOUNT |                             |   | WARRANTS            |   | SHARES  |  | AMOUNT  |  |   | TOTAL     | 
|BALANCE JUNE 30, 2002                                               |  | 15,000,000           |  | $      | 15,000                      |   |                     | $ |        |  |        |  | $ |          |  | $ | (22,815    | ) |  | $ | (7,815     | )
|                                                                    |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  
|Recapitalization in connection with plan of reorganization (Note 4) |  | 3,000,000            |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  
|Common stock issued for cash                                        |  | 148,000              |  |        | 74,000                      |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 74,000     |  
|Common stock issued for consulting services                         |  | 120,000              |  |        | 36,000                      |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 36,000     |  
|Stock options issued                                                |  |                      |  |        | 38,250                      |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 38,250     |  
|Stock options exercised                                             |  | 17,000               |  |        | 12,750                      |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 12,750     |  
|Net (loss) for the year ending June 30, 2003                        |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   | (726,671   | ) |  |   | (726,671   | )
|Less stock receivable                                               |  |                      |  |        | (36,000                     | ) |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | (36,000    | )
|                                                                    |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  
|BALANCE JUNE 30, 2003                                               |  | 18,285,000           |  | $      | 140,000                     |   |                     | $ |        |  |        |  | $ |          |  | $ | (749,486   | ) |  | $ | (609,486   | )
|                                                                    |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  
|Common stock issued for cash                                        |  | 5,442,799            |  |        | 3,640,181                   |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 3,640,181  |  
|Common stock issued consulting services                             |  | 3,320,000            |  |        | 766,074                     |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 766,074    |  
|Common stock issued debt                                            |  | 1,067,747            |  |        | 656,393                     |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 656,393    |  
|Net (loss) for the year ending June 30, 2004                        |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   | (1,891,495 | ) |  |   | (1,891,495 | )
|Stock options issued to employees                                   |  |                      |  |        | 267,200                     |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 267,200    |  
|Warrants issued                                                     |  |                      |  |        |                             |   |                     |   | 56,000  |  |         |  |   |           |  |   |            |   |  |   | 56,000     |  
|                                                                    |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  
|BALANCE JUNE 30, 2004                                               |  | 28,115,546           |  | $      | 5,469,848                   |   |                     | $ | 56,000  |  |        |  | $ |          |  | $ | (2,640,981 | ) |  | $ | 2,884,867  |  
|                                                                    |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  
|Net (loss) for the twelve months ending June 30, 2005               |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   | (7,139,244 | ) |  |   | (7,139,244 | )
|Common stock issued for company interest purchase                   |  | 250,000              |  |        | 485,000                     |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 485,000    |  
|Common stock issued for cash                                        |  | 1,059,500            |  |        | 2,463,196                   |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 1,963,196  |  
|Common stock issued for credit facility                             |  | 1,250,000            |  |        | 670,000                     |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 1,170,000  |  
|Common stock issued for terminated employees                        |  | 525,000              |  |        | 362,250                     |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 362,250    |  
|Beneficial Conversion related to preferred Series A shares          |  |                     |  |        | 1,260,000                   |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   | 1,260,000  |  
|Warrants issued                                                     |  |                      |  |        |                             |   |                     |   | 81,000  |  |         |  |   |           |  |   |            |   |  |   | 81,000     |  
|Preferred stock issued for cash                                     |  |                      |  |        |                             |   |                     |   |         |  | 150,000 |  |   | 1,419,000 |  |   |            |   |  |   | 1,419,000  |  
|                                                                    |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  
|BALANCE JUNE 30, 2005                                               |  | 31,200,046           |  | $      | 10,710,294                  |   |                     | $ | 137,000 |  | 150,000 |  | $ | 1,419,000 |  | $ | (9,780,225 | ) |  | $ | 2,486,069  |  
|                                                                    |  |                      |  |        |                             |   |                     |   |         |  |         |  |   |           |  |   |            |   |  |   |            |  

---

|The | accompanying notes are an integral part of the financial statements
|--- | -------------------------------------------------------------------



F-5



---

U.S. MEDSYS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1  Summary of Significant Accounting Policies



This
summary of significant accounting policies of U.S. MEDSYS CORP. (Company) is presented to assist in understanding the Companys financial statements. The financial statements and notes are representations of the Companys
management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial
statements. The financial statements are stated in United States of America dollars.



Organization and Description of Business



The Company
was incorporated in the State of Colorado on May 1, 1995 as Prime Rate Income and Dividend Enterprises, Inc. In March 2004, the Company changed its name to U.S. MedSys Corp.



Our objective is to become a leading network development, marketing and distribution organization which provides medical technology and
support services to the healthcare industry. U.S. MedSys Corp. is focusing on its core competencies in healthcare delivery, network development and marketing. The purpose is to create a total platform that can be presented to healthcare providers as
a means for Healthcare Administrators to cut costs without sacrificing quality of care to its membership. The UMSY business network consists of PMC/Footcare, LLC, PMC/Ocular, LLC GMD, LLC (Global Medical Direct), a network provider of sales,
marketing and distribution of self-management products and services to patients with diabetes. UMSY has also acquired New England Orthotic and Diabetic Shoe Company (NEODS), which has been established to manufacture semi-custom orthotics, diabetic
shoes and insoles



Principles of Consolidation



The accompanying consolidated financial statements include the Company and its wholly owned
subsidiary, U.S. Medical Systems, Inc. (USMT) and its fifty-one percent owned subsidiary, PMC/Foot Care Network, LLC and its seventy-five percent owned subsidiaries, Global Medical Direct, LLC and New England Orthotic and Diabetic
Company. All inter-company accounts have been eliminated in the consolidation.



Revenue Recognition and Accounts Receivable



It is the
Companys policy that revenues are recognized in accordance with SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. Under SAB 101, product revenues (or service revenues) are recognized
when persuasive evidence of an arrangement exists, delivery has occurred (or service has been performed), the sales price is fixed and determinable and collectibility is reasonably assured.



GMD, LLC recognizes revenue related to product sales to patients who have placed orders upon
shipment of such orders, provided that risk of loss has passed to the patient and we have received and verified any written documentation required to bill Medicare, Medicaid, other third-party payers, and patients. We record revenue at the
amounts expected to be collected from Medicare, other third-party payers, and directly from patients. Our billing system and the revenue generated from product sales is based off of our product pricing which has been established by taking
average industry product pricing. We record contractual adjustments (Discounts) equal to the difference between the reimbursement amounts defined in the fee schedule and the revenue recorded per the billing system. This adjustment is
recorded as a reduction of both gross revenues and accounts receivable. Revenue recognition is delayed for product shipments for which we have not yet received the required written documentation until the period in which those documents are
collected and verified.



Revenue related to Medicare reimbursement is
calculated based on government-determined reimbursement prices for Medicare-covered items. The reimbursements that Medicare pays are subject to review by appropriate government regulators. Medicare reimburses at 80% of the government-determined
prices for reimbursable supplies, and we bill the remaining balance to either third-party payers or directly to patients. Approximately $109,500 of GMDs net revenues for continuing operations for the fiscal year ending
June 30, 2005, was reimbursable by Medicare for products provided to Medicare beneficiaries.



The valuation of accounts receivable is based upon the credit-worthiness of patients and third-party payers as well as our historical collection experience. Allowances for doubtful accounts are recorded as a selling,
general and administrative expense for estimated amounts expected to be uncollectible from patients. We base our estimates on our historical collection and write-off experience, current trends, credit policy, and on our analysis of accounts
receivable by aging category.



Our accounts receivable are generally due from
Medicare, private insurance companies, Medicaid and our patients. The collection process is time consuming, complex and typically involves the submission of claims to multiple payers whose payment of claims may be contingent upon the payment of
another payer. As a result, our collection efforts may be active up to 18 months from the initial billing date. Balances that are determined to be uncollectible prior to the passage of 18 months from the last billing date are written off as
soon as administratively possible after that determination has been made. In accordance with applicable regulatory requirements, we make reasonable and appropriate efforts to collect our accounts receivable, including deductible and co-payment
amounts, in a consistent manner for all payer classes. All billing claims that are disallowed by Medicare, Medicaid, and other third-party payers are then billed to the patient who has authorized the benefits. As of June 30,
2005, there was a balance in patient responsibility of $33,478. Subsequent collections on this balance 120 days after June 30, 2005 showed that the patient responsibility had been reduced to $6,185. This balance, whose
collectibility is the only accounts receivable balance that is questionable, represents less than 1% of the total net revenues after discounts were taken. Furthermore, patient quarterly shipments are put on hold for any patient with a
balance that extends over more than two quarterly shipments and has reached a balance of greater than $100.



Sales allowances are recorded for estimated product returns, as well as estimated claim denials, as a reduction of revenue. We analyze sales allowances using historical data adjusted for significant changes in volume,
patient demographics, and business conditions. The reserve for sales allowances and the rate at which we provide for such allowances are periodically adjusted to reflect actual returns and claim denials. During the Fiscal Year End
of June 30, 2005, we provided for sales allowances at a rate of approximately 3.0% of gross revenues.



Use of Estimates



The preparation of the Companys financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions



F-6



---

U.S. MEDSYS CORP.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



that affect the amounts reported in
these financial statements and accompanying notes. Actual results could differ from those estimates.



Earnings (Loss) Per Share



Earnings (loss) per share of common stock are computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period. The company does not show diluted earnings per share because it would
be anti-dilutive.



Estimated Fair Value of Financial Instruments



The carrying value of accounts receivable, accounts payable, and
other financial instruments reflected in the financial statement approximates fair value due to the short-term maturity of the instruments.



Comprehensive Income



The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS 130 requires that the components
and total amounts of comprehensive income be displayed in the financial statements beginning in 1998. Comprehensive income includes net income and all changes in equity during a period that arises from non-owner sources, such as foreign currency
items and unrealized gains and losses on certain investments in equity securities. The company currently has no components of comprehensive income other than net loss.



Income Taxes



The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The
statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates
in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.



Valuation of Long-Lived Assets



The Company periodically analyzes its long-lived assets for potential impairment, assessing
the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operation cash flows on a basis consistent with accounting principles generally accepted in the United States of America.



Other



The Companys fiscal year end is June 30.



Note 2  Basis of Presentation  Going Concern



The accompanying financial statements have been prepared in conformity with generally
accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has insufficient working capital and has suffered operating losses since inception. This fact
raises substantial doubt about the Companys ability to continue as a going concern. Management plans to obtain additional working capital to further develop the Companys properties or to locate a business combination candidate.



F-7



---

U.S. MEDSYS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Company paid no dividends during the periods presented.



All of the Companys assets are located in the United States.



The Company has no cash equivalents.



Note 3  Stock-based Compensation



The Companys 2003 Stock Plan allowed the Company to award stock options, up to
1,000,000 shares, to directors, officers, and consultants of the Company and its affiliates. The plan is administered by the Companys Board of Directors, or its assigned committee, who has discretion as to the awards and terms of options to be
issued. All options as of June 30, 2005 have been cancelled.



The Company
records costs for stock-based compensation under Statement of Financial Accounting Standards (SFAS) no. 123. As permitted by SFAS 123, the Company applies the methods of APB 25 and related interpretations in accounting for stock options issued to
employees. Options issued to non-employees are recorded at fair value.



On May
6, 2005 the Company as part of severance packages issued to Messrs. G. Anagnost, P. Futro, J. Futro and Kenton D. Sieckman the total of 525,000 stock option which were valued at $362,250 and included a part of salary expense. See discussion on
severance agreements.



The following is a
table of outstanding options and changes during 2005 and 2004:



|                                   |  |                 |  |                     |  |                             
|---------------------------------- |  | --------------- |  | ------------------- |  | ----------------------------
|                                   |  | EmployeeOptions |  | Non-EmployeeOptions |  | WeightedAverageExercisePrice
|Options Outstanding, June 30, 2003 |  |                 |  |                     |  |                             
|Options granted:                   |  |                 |  |                     |  |                             
|Employees                          |  | 1,670,000       |  |                     |  | .25                         
|Non-employees                      |  |                |  |                    |  |                             
|Options expired                    |  |                 |  |                     |  |                             
|Options exercised                  |  |                |  |                    |  |                             
|                                   |  |                 |  |                     |  |                             



F-8



---

U.S. MEDSYS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|                                   |  |           |  |   |  |     
|---------------------------------- |  | --------- |  | - |  | ----
|Options Outstanding, June 30, 2004 |  | 1,670,000 |  |  |  | .25 
|                                   |  |           |  |   |  |     
|Options granted:                   |  |           |  |   |  |     
|Employees                          |  |           |  |  |  | .25 
|Non-employees                      |  |          |  |  |  |    
|Options canceled                   |  | 1,670,000 |  |   |  | .25 
|Options exercised                  |  |          |  |  |  | 0.00
|                                   |  |           |  |   |  |     
|Options Outstanding, June 30, 2005 |  | 0         |  |  |  | 0.00
|                                   |  |           |  |   |  |     



|                                                                   |  |                                        |  |                              
|------------------------------------------------------------------ |  | -------------------------------------- |  | -----------------------------
|Year and Exercise price relative to fair value of underlying stock |  | WeightedAverage FairValue atGrant Date |  | WeightedAverage ExercisePrice
|Year ending June 30, 2004:                                         |  |                                        |  |                              
|Exercise price equals fair value                                   |  | 1.35                                   |  | .25                          
|Year ending June 30, 2005:                                         |  |                                        |  |                              
|Exercise price equals fair value                                   |  |                                       |  |                             



The fair value of each option granted
was computed by the Black-Scholes method using the following weighted-average assumptions:



|                         |  |                         |  |                          |  
|------------------------ |  | ----------------------- |  | ------------------------ | -
|                         |  | Year EndedJune 30, 2005 |  | Year Ended June 30, 2004 |  
|Expected Volatility:     |  |                        |  | 225                      | %
|Risk-free interest rate: |  |                        |  | .93                      | %
|Expected Dividends:      |  |                        |  |                         |  
|Expected Term in Years:  |  |                        |  | 1                        |  



As permitted by FASB Statement
No. 123, the company applies the methods of APB 25 and related interpretations in accounting for stock options issued to employees. Accordingly, compensation cost was recognized for the quoted market price of the stock less the exercise price
of the options. If compensation cost had been determined based on the estimated fair value (using methods consistent with FASB Statement No. 123) of the options at grant date, the Companys net income and earnings per share would have been
replaced with the following amounts:



F-9



---

U.S. MEDSYS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|                    |  |                          |   |  |                          |   |  |             |   |  |            |  
|------------------- |  | ------------------------ | - |  | ------------------------ | - |  | ----------- | - |  | ---------- | -
|                    |  | Year Ended June 30, 2005 |   |  | Year Ended June 30, 2004 |  
|                    |  | As Reported              |   |  | Pro forma                |   |  | As Reported |   |  | Pro forma  |  
|Net loss:           |  | (7,139,244               | ) |  | (7,139,244               | ) |  | (1,891,495  | ) |  | (3,878,795 | )
|Net loss per share: |  | (0.24                    | ) |  | (0.24                    | ) |  | (.08        | ) |  | (0.15      | )



Note 4  Related Party
Transactions



During the year ending June 30, 2005, the Company
incurred legal fees in the amount of approximately $225,529 to a law firm in which a former officer of the Company is a partner. Approximately $21,319 was outstanding at June 30, 2005.



Practice Management Corporation is a privately held
corporation owned by Nicholas Sconzo.



Nicholas Sconzo is a salaried Managing Director for PMC/Footcare, LLC.



Practice Management Corporation sold a 51% interest in PMC/Footcare LLC to the Company (see note 11).



For the year ended June 30, 2005 $32,000 from Practice Management Corporation was deemed
uncollectable by the Company and written off.



Practice Management Corporation
has a marketing agreement with Global Medical Direct, LLC (GMD) that requires GMD to pay Practice Management Corporation $300,000 over a twelve month period. As of June 30, 2005, $60,000 was paid to Practice Management Corporation with $180,000
recorded in Accounts Payable. In July 2005, an additional $30,000 was paid by GMD to Practice Management Corporation.



In December 2004, Mr. Sconzo was paid $250,000 for 51% membership interest in PMC Ocular Network LLC, a New Jersey Limited Liability Company. An additional $150,000
is due Mr. Sconzo on the date when the PMC Ocular Network LLC files an application with the New Jersey Department of Health and Senior Services for approval as an Organized Delivery System. The company believes that this application has not
been made, and has not accrued the additional $150,000 due Mr. Sconzo. (See Note 12).



In August 2004, Mr. Sconzo was paid $24,000 commission (6%) by GMD, for Mr. Sconzos assistance in the $400,000 initial funding that GMD received from the Company.



Visionary Medical Consulting Corp (Visionary) has a consulting agreement that requires the
Company to pay $10,000 per month for services to research and market various products through October 2005. In December 2004, Visionary was issued 250,000 shares of restricted common stock (market value of $485,000) for a 75% interest in New England
Orthotic and Diabetic Company (NEODS) (see note 6).



Michael Fuoco is an
employee of the Company and a shareholder of A&M Management Company. A&M Management Company was paid $39,000 to provide doctor certifications to PMC/Footcare LLC.



Note 5  Income Taxes



As of June 30, 2005, the Company had approximately $9,635,719 of net operating loss carryforward that expires as follows: $605,000 in 2023, $1,891,495 in 2024 and
$7,139,224 in 2025. The Company had an estimated deferred tax asset of $1,445,608 related to the net operating loss carryforward, which represents $91,000 for year end June 30, 2003 and $283,475 for year end June 30, 2004 and $1,070,884
for year end June 30, 2005. A valuation allowance has been provided for the total amount of the deferred tax asset, since the amounts, if any, of future revenues necessary to be able to utilize the carryover, are uncertain.



Income taxes at the statutory rate are reconciled to the
Companys actual income taxes as follows:



|                                                                                    |  |     |   
|----------------------------------------------------------------------------------- |  | --- | --
|Income tax benefit at statutory rate resulting from net operating loss carryforward |  | (15 | %)
|Deferred income tax allowance                                                       |  | 15  | % 
|                                                                                    |  |     |   
|                                                                                    |  | 0   | % 
|                                                                                    |  |     |   



Note 6  Stock Transactions



During December, 2004 the Company issued 250,000 of restricted common
stock to Visionary Medical Consulting Corporation to acquire 75% of New England Orthotic and Diabetic Company (NEODS). The cost of the investment was recorded at $1.94 per share (for a total of $485,000), the market closing price on December 6,
2004. NEODS currently does not have any assets or revenue and under the impairment regulations stipulated in SFAS # 123, the entire amount of the start up costs has been expensed in the financial statements. The Company has agreed to provide funding
for up to $300,000 in plant improvements. Approximately $60,000 was expended after June 30, 2005



During the year ended June 30, 2005, the Company issued 1,059,500 shares of common stock for $2,463,196 which was an average of $2.32 per share.



F-10



---

U.S. MEDSYS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



During the year ending June 30, 2005, the Company raised $1,500,000 by selling an aggregate of 150,000 shares of a newly created series of preferred stock designated as Series A Convertible Stock and issued to the investors common
stock purchase warrants to acquire an aggregate 1,000,000 shares of common stock at an exercise price of $1.50 per share. The common stock closed at $.92 on March 31, 2005. The Series A Convertible Preferred Stock contains a beneficial conversion
feature. In accordance with Emerging Issues Task Force (EITF) 98-5 the cost of this beneficial conversion feature was calculated to be $1,260,000, of which $420,000 was amortized for the year ending June 30, 2005. The remainder of this cost will be
amortized through March 31, 2006.



On May 6, 2005 the Company terminated
three officers. In addition to cash severance payments of $165,000, the employees were issued 525,000 shares of stock. The company valued the cost of this additional compensation at $362,250 or $0.69 per share, the closing price of the stock on
May 6, 2005.



Note 7  Revolving Credit Facility



During the year ended June 30, 2005, the Company entered into transactions with five
lenders, to establish a revolving credit facility with each lender, for an aggregate facility of $500,000 accruing interest at 12% per annum. Three of the lenders are shareholders, and they account for $400,000 of the total. As additional
compensation to the lenders 250,000 shares of restricted stock were issued and valued at 293,900 which was expensed for the year ended June 30, 2005.



The Company issued a Notice of Conversion to the lenders, effective June 1, 2005, that all principal and accrued interest would be converted to restricted common
stock and an additional 1,000,000 shares would be issued to the lenders. The closing market price on June 1, 2005 was $0.86 and conversion price was $0.50. Resulting in an additional charge to Interest Expense of $360,000.



Note 8  Intangible Assets



During the year ended June 30, 2005, the Company, through its wholly owned subsidiary,
USMT, terminated the distribution agreement with Longport, Inc., a medical technology company that specializes in high resolution ultrasound imaging. The Company paid $525,000 for year ending June 30, 2004 to Longport for the right to be the
Exclusive Distributor of the scanner in the United States. In accordance with the distribution agreement, the Company forfeited these funds when the contract was terminated, which resulted in a charge $452,000 to License fees for the year
ending June 30, 2005



During the year ended June 30, 2005, USMT
terminated a distribution agreement with Practice Management Corporation (PMC) for the distribution of up to 200 ultrasound scanners per year, for a three year period due to the inability to secure medical industry approved billing codes
for the procedures. The unpaid balance of $100,000 due to PMC as well as the remaining Prepaid License fee and unamortized License fee amounts were eliminated resulting in a reduction of $34,700 to License fees for the year ending
June 30, 2005



Note 9  Property and Equipment



The Company depreciates property and equipment in amounts sufficient to recover asset costs
over their estimated useful lives.



Medical devices and office equipment of
$1,028,758 at June 30, 2005 are depreciated over their estimated useful life.



F-11



---

U.S. MEDSYS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|                   |  |      |           |                 |   |                       |  |           |         |  |         
|------------------ |  | ---- | --------- | --------------- | - | --------------------- |  | --------- | ------- |  | --------
|                   |  | Cost |           | AccumulatedDepr |   | Net Value [SRM2]Depr. |  | Method/LF
|Office Equipment   |  | $    | 492,622   |                 | $ | 83,986                |  | $         | 464,772 |  | SL/3 YRS
|Equipment          |  | $    | 480,000   |                 | $ | 113,450               |  | $         | 366,550 |  | SL/3 YRS
|Total Fixed Assets |  | $    | 1,028,758 |                 | $ | 197,436               |  | $         | 831,332 |  |         



Depreciation expense of $55,200 for
the equipment generating revenue was included in General and administrative expenses and not in Cost of goods sold



Note 10  Commitments



Under the terms of several leases, U.S MedSys Corp and PMC/Foot Care Network, LLC are obligated to pay the following minimum lease payments:



|                |  |             |        |                  |  |             |   |              |  |       |        |  |        
|--------------- |  | ----------- | ------ | ---------------- |  | ----------- | - | ------------ |  | ----- | ------ |  | -------
|U.S.MedSys Corp |  |             |        | PMC/Footcare LLC |  |            
|                |  | OfficeLease |        |                  |  | OfficeLease |   | CapitalLease |  | Total
|Year 2006       |  | $           | 23,512 |                  |  |             | $ | 47,200       |  | $     | 16,506 |  | 87,218 
|Year 2007       |  | $           | 36,669 |                  |  |             | $ | 50,150       |  | $     | 16,506 |  | 103,325
|Year 2008       |  | $           | 38,826 |                  |  |             | $ | 53,100       |  | $     | 7,535  |  | 99,461 
|Year 2009       |  | $           | 43,140 |                  |  |             | $ | 59,000       |  | $     | 6,716  |  | 108,856
|Year 2010       |  | $           | 0      |                  |  |             | $ | 0            |  | $     | 550    |  | 550    



Note 11  Investments in
Subsidiaries



In May 2004, the Company, through its wholly owned
subsidiary, USMT, executed an operating agreement for the formation of PMC/Foot Care Network, LLC, to establish a podiatric network, based in Hasbrook Heights, New Jersey. Under the terms of the agreement, $400,000 was invested in PMC/Foot Care
Network in return for a 51% ownership position. The total invested in PMC/Foot Care Network, LLC through year ending June 30, 2005 is $ 856,359.



The initial funding of $400,000 was wired directly to the seller of the 51% interest instead of a PMC/Foot Care Network, LLC bank account. Approximately $196,000 was not
returned to PMC/Foot Care Network, LLC. The Company believes the amount is unrecoverable and is disclosed on the Income Statement as Write off of receivables from related party.



In July 2004, the Company, through its wholly owned subsidiary, USMT, executed an operating
agreement for the formation of GMD, LLC, to establish a nation wide provider of direct-to-consumer diabetes and respiratory supplies based in Lenexa, Kansas. Under the terms of the agreement, $450,000 was invested in GMD, LLC in return for a 75%
ownership position. The total invested in GMD, LLC through year ending June 30, 2005 is $1,252,750.



Note 12  Contingent Liabilities



As discussed in Note 3, Mr. Sconzo is due an additional fee of $150,000 when PMC Ocular Network LLC files an application with the state of New Jersey Department of Health and Senior Services for approval as an Organized Delivery
System. This has not been accrued.



F-12



---

Exhibit Index



|               |  |                                                                                                                                                                     
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                         
|31.1           |  | Certification by the Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002.       
|               | 
|31.2           |  | Certification by the Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002.       
|               | 
|32.1           |  | Certification by the Corporations Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|               | 
|32.2           |  | Certification by the Corporations Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.