In Veritas Medical Diagnostics (IVME) 10QSB 2007 Q3 Quarterly report (small business)

  UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the quarterly period ended April 30, 2007

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the Transition Period From _____ to _____

Commission File Number: 000-49972

IN VERITAS MEDICAL DIAGNOSTICS, INC.

(Exact name of registrant as specified in its charter)

Colorado	84-1579760
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

The Green House, Beechwood Business Park North, Inverness, Scotland	IV2 3BL
(Address of principal executive offices)	(Zip Code)

011 44-1463-667-347 

(Issuer's telephone number)

WITH COPIES TO:

Richard A. Friedman, Esq.

Sichenzia Ross Friedman Ference, LLP

61 Broadway, 32^nd Floor

New York, New York 10006

(212) 930-9700

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 [ ]

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of April 30, 2007, the registrant had 86,058,457 shares of common stock issued, 25,685,000 shares of common stock held in escrow which are deemed as issued but not outstanding, and 60,373,457 shares of common stock outstanding.

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]

INDEX

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.	F-1
Item 2. Management's Discussion and Analysis or Plan of Operations.		3
Item 3. Controls and Procedures		9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.		9
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds		9
Item 3. Defaults Upon Senior Securities		9
Item 4. Submission of Matters to a Vote of Security Holders.		10
Item 5. Other Information		10
Item 6. Exhibits.		10
Signatures.		11

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IN VERITAS MEDICAL DIAGNOSTICS, INC.

(A Development Stage Company)

Index to Unaudited Condensed Financial Statements

	Page
Unaudited Condensed Consolidated Balance Sheet at April 30, 2007		F-2
Unaudited Consolidated Statements of Operations for the three and nine months ended
April 30, 2007 and 2006 and for the period
from March 26, 1997 (Inception) through January 31, 2007		F-3
Unaudited Condensed Consolidated Statements of Accumulated Other Comprehensive Loss
for the nine months ended April 30, 2007 and 2006 and for the period
from March 26, 1997 (Inception) through April 30, 2007		F-4
Unaudited Condensed Statement of Changes in Shareholders' Deficit for the period from
March 26, 1997 (Inception) through April 30, 2007		F-5
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months
ended April 30, 2007 and 2006 and for the period
from March 26, 1997 (Inception) through April 30, 2007		F-6
Notes to the Unaudited Condensed Consolidated Financial Statements		F-7

F-1

IN VERITAS MEDICAL DIAGNOSTICS, INC.

(A Development Stage Company)

Consolidated Balance Sheet

April 30, 2007

(Unaudited)

Assets
Current assets:
Cash	$	1,459
Prepaid expenses and other		22,108
Total current assets		23,567
Property and equipment, net (Note 3)		5,251
Intangible assets:
Patent costs (note 4)		157,911
	$	186,729
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable	$	1,103,177
Accrued interest payable		495,994
Accrued liabilities		584,101
Indebtedness to related parties (Note 2)		197,337
Current portion of Long Term Notes Payable
(net of unamortized discount of $178,102) (Note 9)		1,116,350
Short term advance from Related Party (Note 9)		178,102
Notes payable, related party (Note 9)		1,800,000
Short term advance		80,000
Total current liabilities		5,555,061
Long-term debt:
Royalty Participation Agreement advances (Note 9)		616,005
Total liabilities		6,171,066
Shareholders’ deficit:
Preferred stock, $.001 par value, 50,000,000 shares authorized (aggregate
liquidation preference of $8 million)
Series A Preferred stock, 34,343,662 shares issued and outstanding (Note 6)		34,344
Common stock, $.001 par value, 500,000,000 shares authorized,
86,058,457 shares issued, 25,685,000 held in escrow, and
60,373,457 shares outstanding		86,103
Prepaid element of expenses settled in stock		(49,244	)
Stock issued as security for convertible debentues (Note 9)		(3,339,050	)
Additional paid-in capital		9,031,811
Accumulated other comprehensive loss- foreign currency adjustment		(476,944	)
Deficit accumulated during the development stage		(11,271,357	)
Total shareholders' deficit		(5,984,337	)
	$	186,729

F-2

IN VERITAS MEDICAL DIAGNOSTICS, INC.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

													March 26, 1997
													(Inception)
	Nine Months Ended						Three Months Ended						Through
	April 30,						April 30,						April 30,
	2007			2006			2007			2006			2007
Net sales and gross revenues:
Net sales	$	—		$	1,077,451		$	—		$	311,019		$	3,571,807
Cost of sales		—			—			—			—			242,097
Gross profit		—			1,077,451			—			311,019			3,329,710
Operating expenses:
Research and development		459,050			901,416			128,444			314,746			5,448,771
Legal & Professional		219,404			315,000			11,860			15,000			1,204,464
Stock options expense		539,770			—			135,315			—			654,847
Selling and marketing		218,425			—			75,964			—			560,979
General and administrative		367,240			413,729			91,547			136,009			5,226,103
Total operating expenses		1,803,889			1,630,145			443,130			465,755			13,095,164
Loss before other income		(1,803,889	)		(552,694	)		(443,130	)		(154,736	)		(9,765,454	)
Nonoperating income (expense):
UK government grant (Note 1)		—			94,458			—						291,398
Interest expense		(712,097	)		(233,177	)		(253,416	)		(96,429	)		(1,370,854	)
Loan Finance issue costs		—			(219,301	)		—			(65,121	)		(708,279	)
Costs of aborted financing		—			—			—						(113,400	)
Compensation payment to former director		—			—			—						(135,000	)
Gain (loss) on foreign exchange		—			18,426			—			10,224			(132,378	)
Gain (loss) from extinguishments of debt		—			—			—			—			662,610
Loss before income taxes		(2,515,986	)		(892,288	)		(696,546	)		(306,062	)		(11,271,357	)
Income tax provision		—			—			—			—			—
Net loss	$	(2,515,986	)	$	(892,288	)	$	(696,546	)	$	(306,062	)	$	(11,271,357	)
Preferred stock dividend requirements		(1,030	)		(1,030	)		(343	)		(343	)
Loss applicable to common stock	$	(2,517,016	)	$	(893,318	)	$	(696,889	)	$	(306,405	)
Basic and diluted loss per share	$	(0.04	)	$	(0.02	)	$	(0.01	)	$	(0.01	)
Weighted average number of common shares
outstanding		58,891,790			54,638,212			60,373,457			55,015,123

F-3

IN VERITAS MEDICAL DIAGNOSTICS, INC.

(A Development Stage Company)

Consolidated Statements of Accumulated Other Comprehensive Loss

(Unuaudited)

							March 26, 1997
							(Inception)
	Nine Months Ended						Through
	April 30,						April 30,
	2007			2006			2007
Net loss	$	(2,515,986	)	$	(892,288	)	$	(11,271,357	)
Other comprehensive loss, net of tax:
Cumulative translation adjustment		(27,966	)		(155,962	)		(476,944	)
Comprehensive loss	$	(2,543,952	)	$	(1,048,250	)	$	(11,748,301	)

F-4

IN VERITAS MEDICAL DIAGNOSTICS, INC.

(A Development Stage Company)

Condensed Statement of Changes in Shareholders' Deficit

(Unaudited)

																												Prepaid element			Accumulated Deficit			Accumulated
	Preferred Stock Outstanding												Common Stock									Additional			Stock			of expenses			During			Other
	Series A						Series B						Shares									paid-in			issued			settled in			Development			Comprehensive
	Shares			Par Value			Shares			Par Value			Issued			Outstanding			Par Value			capital			as security			stock			Stage			Loss			Total
Balance, March 26, 1997		—		$	—			—		$	—			—			—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
October 2000, sale of stock, ($0.0035/share)		4,366,377			4,366			—			—			—			—			—			10,874			—			—			—			—			15,240
December 2001, sale of stock, ($0.0035/share)		6,545,703			6,546			—			—			—			—			—			16,301			—			—			—			—			22,847
October 2001, sale of stock, ($0.0202/share)		23,431,582			23,432			—			—			—			—			—			448,906			—			—			—			—			472,338
Foreign currency
translation adjustment		—			—			—			—			—			—			—			—			—			—			—			21,203			21,203
Net loss		—			—			—			—			—			—			—			—			—			—			(1,350,829	)		—			(1,350,829	)
Balance, July 31, 2001		34,343,662			34,344			—			—			—			—			—			476,081			—			—			(1,350,829	)		21,203			(819,201	)
Foreign currency
translation adjustment		—			—			—			—			—			—			—			—			—			—			—			(140,377	)		(140,377	)
Net loss		—			—			—			—			—			—			—			—			—			—			(1,007,362	)		—			(1,007,362	)
Balance, July 31, 2002		34,343,662			34,344			—			—			—			—			—			476,081			—			—			(2,358,191	)		(119,174	)		(1,966,940	)
Foreign currency														—
translation adjustment		—			—			—			—			—			—			—			—			—			—			—			(185,391	)		(185,391	)
Net loss		—			—			—			—			—			—			—			—			—			—			(1,080,619	)		—			(1,080,619	)
Balance, July 31, 2003		34,343,662			34,344			—			—			—			—			—			476,081			—			—			(3,438,810	)		(304,565	)		(3,232,950	)
Merger with HEMP (Note 8)		—			—			—			—			38,397,164			38,397,164			38,397			(29,397	)		—			—			—			—			9,000
July 2004, merger with SIPC		—			—			—			—			10,550,000			10,550,000			10,550			(10,688	)		—			—			—			—			(138	)
July 2004, issuance of common
stock for bridge loans, ($0.2750/share)		—			—			—			—			1,636,233			1,636,233			1,636			448,364			—			—			—			—			450,000
July 2004, issuance of common
stock for services, ($0.4093/share)		—			—			—			—			239,289			239,289			239			97,702			—			—			—			—			97,941
Foreign currency
translation adjustment		—			—			—			—			—			—			—			—			—			—			—			(339,570	)		(339,570	)
Reclassification of debt forgiveness
by Westek (Notes 2 and 9)		—			—			—			—			—			—			—			2,030,298			—			—			—			—			2,030,298
Net loss		—			—			—			—			—			—			—			—			—			—			(1,016,972	)		—			(1,016,972	)
Balance, July 31, 2004		34,343,662			34,344			—			—			50,822,686			50,822,686		$	50,822		$	3,012,360		$	—			—			(4,455,782	)	$	(644,135	)	$	(2,002,391	)
August 2004, additional paid in capital from bridge
loans exchanged for shares		—			—			—			—			—			—			—			17,495			—			—			—			—			17,495
														—			—			—			(6,000	)		—			—			—			—			(6,000	)
Conversion of Preferred Stock into Debenture		—			—			—			—			694,550			694,550			695			427,695			—			—			—			—			428,390
December 2004, issuance of stock for interest on		—			—			—			—			60,096			60,096			60			76,100			—			—			—			—			76,160
bridge loan
March 2005, issuance of stock for services		—			—			—			—			100,000			100,000			100			62,880			—			—			—			—			62,980
April 2005, issuance of stock warrants for
services		—			—			—			—			—			—			—			17,295			—			—			—			—			17,295
April 2005, sale of preferred Series B stock
net of $97,995 offering costs ($.001 par),		—			—			—			—			—			—			—			—			—			—			—			—			—
($0.65/share)		—			—			617,692			618			—			—			—			302,887			—			—			—			—			303,505
April 2005, issuance of stock for
debt forgiveness		—			—			246,152			246			—			—			—			159,754			—			—			—			—			160,000
June 2005, issuance of stock options for
services		—			—			—			—			—			—			—			35,403			—			—			—			—			35,403
Reversal of conversion of														—
convertible preferred shares		(1,301,178	)		(1,301	)		—			—			1,301,178			1,301,178			1,301			—			—			—			—			—			—
July 2005, issuance of stock for services		—			—			—			—			120,000			120,000			120			35,288			—			—			—			—			35,408
July 2005, issuance of stock for conversion
of debt		—			—			—			—			1,162,791			1,162,791			1,163			278,047			—			—			—			—			279,210
Foreign currency translation adjustment		—			—			—			—			—			—			—			—			—			—			—			274,643			274,643
Net loss		—			—			—			—			—			—			—			—			—			—			(2,450,792	)		—			(2,450,792	)
Balance July 31, 2005		33,042,484			33,043			863,844			864			54,261,301			54,261,301			54,261			4,419,204			—			—			(6,906,574	)		(369,492	)		(2,768,694	)
Conversion of common stock into debentures		—			—			(863,844	)		(864	)		—			—			—			(555,636	)		—			—			—			—			(556,500	)
(Note 10)
Conversion of preferred stock into common stock		1,301,178			1,301			—			—			(1,301,178	)		(1,301,178	)		(1,301	)		—			—			—			—			—			—
Shares issued as security for convertible debtures		—			—			—			—			25,685,000			—			25,685			3,313,365			(3,339,050	)		—			—			—			—
(Notes 5 and 10)
Stock Issued for services (August 2005)		—			—			—			—			28,000			28,000			28			3,612			—			—			—			—			3,640
Stock Issued for services (August 2005)		—			—			—			—			427,000			427,000			427			60,888			—			—			—			—			61,360
Stock Issued for services (September 2005)		—			—			—			—			805,000			805,000			805			132,020			—			—			—			—			132,825
Stock Issued for services (September, 2005)		—			—			—			—			750,000			750,000			750			254,250			—			—			—			—			255,000
Stock Issued for services (May 2006)		—			—			—			—			875,000			875,000			875			86,625			—			—			—			—			87,500
Stock Issued for services (June 2006)		—			—			—			—			83,334			83,334			83			8,251			—			—			—			—			8,334
Foreign currency translation adjustment		—			—			—			—			—			—			—			—			—			—			—			(79,486	)		(79,486	)
January, 2006, Issuance of stock options for
services		—			—			—			—			—			—			—			62,379			—			—			—			—			62,379
September 2006 issuance of stock warrants
in connection with financing		—			—			—			—			—			—			—			45,164			—			—			—			—			45,164
Net loss		—			—			—			—			—			—			—			—			—			—			(1,848,797	)		—			(1,848,797	)
Balance July 31, 2006		34,343,662			34,344			—			—			81,613,457			55,928,457			81,658			7,830,122			(3,339,050	)		—			(8,755,371	)		(448,978	)		(4,597,275	)
Discount on issue of loan note (Note 10)		—			—			—			—			—			—			—			62,640			—			—			—			—			62,640
Issuance of stock for services (October, 2006)		—			—			—			—			1,000,000			1,000,000			1,000			67,000			—			—			—			—			68,000
Issuance of stock for services (October, 2006)		—			—			—			—			1,250,000			1,250,000			1,250			148,749			—			—			—			—			149,999
October, 2006 issuance of stock options for services		—			—			—			—			—			—			—			223,844			—			—			—			—			223,844
Foreign currency translation adjustment		—			—			—			—			—			—			—			—			—			—			—			(27,966	)		(27,966	)
Net Loss		—			—			—			—			—			—			—			—			—			—			(2,515,986	)		—			(2,515,986	)
Partial conversion of Convertible Loan Note into Common Stock (Dec. 2006) (Note 6)		—			—			—			—			1,000,000			1,000,000			1,000			49,000			—			—			—			—			50,000
Stock Option Expense		—			—			—			—			—			—			—			315,927			—			—			—			—			315,927
Beneficial conversion discount underlying Convertible Loan Notes (Notes 2 & 9)		—			—			—			—			—			—			—			283,874			—			—			—			—			283,874
Stock issued for services (December 2006)		—			—			—			—			850,000			850,000			850			51,000			—			—			—			—			51,850
Cashless conversion - Montgomery		—			—			—			—			345,000			345,000			345			(345	)		—			—			—			—			—
Prepaid element of expenses settled in stock		—			—			—			—			—			—			—			—			—			(49,244	)		—			—			(49,244	)
Balance April 30, 2007		34,343,662		$	34,344			—		$	—			86,058,457			60,373,457		$	86,103		$	9,031,811		$	(3,339,050	)	$	(49,244	)	$	(11,271,357	)	$	(476,944	)	$	(5,984,337	)

F-5

IN VERITAS MEDICAL DIAGNOSTICS, INC.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

							March 26, 1997
							(Inception)
	Nine Months Ended						Through
	April 30,						January 31,
	2007			2006			2007
Cash flows from operating activities:
Net loss	$	(2,515,986	)	$	(892,288	)	$	(11,271,357	)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization		8,318			24,075			159,851
Intercompany interest income		—			—			242,382
Interest imputed (non cash)		495,915			26,046			484,295
Prepaid element of expenses and beneficial								—
discounts on loan note conversions		(252,529	)		—			(252,529	)
Stock issued for compensation and services		809,619			391,465			1,993,447
Stock issued for interest		—			61,360			86,160
Gain (loss) on debt forgiveness		—			—			(662,610	)
Changes in operating assets and liabilities:		—						—
Receivables		195,192			(62,280	)		(25,246	)
Prepaid expenses and other current assets		17,610			66,419			142
Deferred debt issue costs		—			(84,092	)		—
Accounts payable		267,375			(28,958	)		1,230,168
Accrued expenses		150,130			(3,029	)		841,326
Accrued interest payable		225,659			207,131			225,659
Accounts payable (related party)		(194,479	)		1,330			(72,745	)
Other		5,715			43,197			143,489
Net cash used in
operating activities		(787,461	)		(249,624	)		(6,877,568	)
—
Cash flows from investing activities:								—
Acquisition of patents		(58,834	)		(11,620	)		(157,912	)
Acquisition of equipment		—			(3,481	)		(151,209	)
Net cash used in		—						—
investing activities		(58,834	)		(15,101	)		(309,121	)
—
Cash flows from financing activities:								—
Advances from affiliates		—			—			4,378,963
Proceeds from debenture issue		—			300,000			—
Repayment of advances from affiliates		—			—			(728,426	)
Advances from related parties		178,102			—			261,152
Proceeds from issuance of preferred stock		—			—			813,930
Discount on notes payable		—			50,913			144,382
Proceeds from Royalty Participation Agreement		—			—			450,000
Proceeds from issue of Loan Notes		335,000			—			1,597,495
Short term advances		80,000			—			80,000
Interest payable reclassified as Loan Notes		192,300			—			182,300
Net cash provided by								—
financing activities		785,402			350,913			7,179,796
—
Effect on cash from foreign currency translation		1,111			13,209			8,351
—
Net change in cash and								—
cash equivalents		(60,893	)		86,188			(6,893	)
—
Cash and cash equivalents:								—
Beginning of period		61,240			2,015			—
—								—
End of period	$	1,458		$	101,412		$	1,458
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes	$	—		$	—		$	—
Interest	$	—		$	—		$	—
Non-cash financing activities:
Conversion of note payable to common stock	$	—		$	—		$	700,000
Conversion of preferred stock into debentures		—			556,500			86,160
Stock-based compensation		809,619			—			1,993,447
	$	809,619		$	556,500		$	2,779,607

F-6

  In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 1: ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

Attention is drawn to the detailed disclose in this Note and elsewhere in these Financial Statements which creates substantial doubt concerning the Company’s ability to continue to finance and maintain its current operations.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of April 30, 2007, the results of operations for the nine and three months ended April 30, 2007 and 2006 and the period from March 26, 1997 (inception) through April 30, 2007, and cash flows for the nine months ended April 30, 2007 and 2006 and the period from March 26, 1997 (inception) through April 30, 2007. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report on Form 10-KSB for the year ended July 31, 2006.  There have been no updates or changes to our audited financial statements for the year ended July 31, 2006.

There is no provision for dividends for the quarter to which this quarterly report relates.

The results of operations for the three month period ended April 30, 2007 is not necessarily indicative of the results to be expected for the full year.

We are a development stage company as defined in Statement of Financial Accounting Standards No. 7. We are devoting substantially all of our present efforts to developing new products. Our planned principal operations have not commenced and, accordingly, no significant revenue has been derived therefrom.

We have reported net losses of $1,848,797, $2,450,792 and $8,755,370 for the fiscal years ended July 31, 2006, 2005 and for the period from the date of inception, March 26, 1997 to July 31, 2006, respectively. The loss from date of inception, March 26, 1997 to April 30, 2007 amounts to $(11,271,357). We had substantial net current liabilities of $5,531,494 and cash balances of $1,459 at April 30, 2007.. These factors, among others, raise substantial doubt about its ability to continue as a going concern.

As explained in Note 9 we are in default on several of our Loan Notes at July 31, 2006. Our major creditors and Loan Note holders have continued to work with us during the nine month period ended April 30, 2007 to restructure our obligations to enable us to match future payments with our future working capital plans and several Loan Note holders formally restructured their advances to us in the period Ended April 30, 2007. In addition the directors, management team and key contractors have deferred payment of compensation due to them since October 2006 (and in certain cases previously) and many key suppliers are providing us with valued and ongoing support and forbearance with respect to our payment obligations.

However as further explained in Note 9, we have not been able to make repayments required under our Loan Notes (including those restructured since July 31, 2006) and therefore we are in default under the terms of several of those Loan Notes. Therefore, although we are in continued discussions with those loan note holders and creditors, their continued forbearance can not be assured with certainty. Our ability to continue normal operations will depend on (i) the continued forbearance of our loan note holders and creditors; (ii) our continued ability to raise additional funds through various potential sources such as equity and debt financing and government grants, which is a continuous part of our business process; (iii) our ability to develop new products and obtain new revenue generating contracts; and (iv) the market success of our first product to market, described below. Such sources of finance and credit may not become available as needed or be available on acceptable terms or be maintained, as appropriate.

Historically a significant portion of our financing has been through the sale of equity securities and convertible notes in private placements. The last successful financing raised $335,000 from Triumph Small Cap Fund LP. in November 2006. Since that time the Company has relied on short term advances from Westek Ltd. (“Westek”) (a related party - see Note 2) and from Triumph Small Cap Fund LP (“Triumph”). During the nine month period ended April 30, 2007 Westek made aggregate advances of $178,102 and Triumph made aggregate advances of $80,000. Triumph informed the Company in January 2007 that it is unable to make further advances, although Westek has continued to make advances during the three month period ended April 30, 2007 and subsequently. The advances from Westek are intended to maintain a basic level of operations in our trading subsidiaries and to maintain basic compliance at IVMD Inc ahead of improved operating conditions. The advances from Westek and Triumph are unsecured, unconvertible and interest free; they are payable on demand.

F-7

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 1: ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN, continued

Prior to July 31, 2006 we recorded revenues from billings made under a Research and Development Contract with Inverness Medical Innovations (IMI), dated November 2002. Under the terms of this contract (and a related Patent License Agreement, both subsequently amended throughout the contract field work) we jointly developed, with IMI, the technology underlying a new product (a prothrombin measurement device which is used for the measurement of coagulation of blood in patients at risk of heart disease and stroke) ("The PT Product"). In July 31, 2006 our involvement in the development of this product ended and we anticipate that the product will be launched into the global markets in 2007/2008. The product is to be sold by IMI and we have no influence over the marketing and sales process. Under the terms of our agreements with IMI we are entitled to participate in the following revenue streams: (a) billings to IMI for our development work during the product development phase ("Development Revenues") and (b) the receipt of 2% of all future net sales proceeds arising from the sale of The PT Product ("Royalty Income"). Development Revenues ceased with the completion of the development of the PT Product in July, 2006. We will begin to earn Royalty Income simultaneously with the commencement of sales of the PT Product. The commencement of the sale of this product will result in a change of our status from a "Development-stage Enterprise". We are currently developing other hand held and portable products which are focused on (a) the measurement and detection of pregnancy and labor and (b) the detection of diseases and medical conditions using magnetic detection techniques applied to tissue and blood. We intend to engage in discussions with several parties which management believes may result in commercial, revenue earning contracts.

Note 2: Related Party Transactions

As of April 30, 2007, $197,337 was due to related parties and we purchased services from related parties during the three and nine month period ended April 30, 2007 amounting to $0 and $121,051 respectively. There were no transactions with related parties during the three and nine month period ended April 30, 2006.

In July 2004, Westek, a related party, agreed to release us from $2,030,298 of previously accumulated advances in exchange for a non interest-bearing promissory note totaling $1,800,000. We reflected a capital contribution totaling $2,030,298 in our financial statements at that time. The promissory note was payable in full by September 30, 2006.

On November 13, 2006 we reached and agreement with Westek to amend the terms of the Promissory Note to extend the maturity date until March 31, 2008. The amended Promissory note carries interest at a rate of 10% per annum from October 1, 2006 which is payable quarterly in arrears. Unpaid interest may, at the option of Westek, be converted into shares of the Company’s common Stock at a price of $ 0.05 per share. The market value of the common stock at the date of the amendment was $0.072 and therefore there is a beneficial discount underlying the conversion option. We have valued that discount at $113,400, (using the Black Scholes method). The inherent discount has been charged to Additional Paid in Capital within shareholders funds in the balance sheet and is being charged in the profit and loss account as interest expense on a straight line basis across the life of the amended Promissory Note.

During the nine month period ended April 30, 2007 Westek advanced $178,102 to the Company. These advances are interest free and are payable on demand. The advances are intended to enable the Company to maintain a basic level of operation ahead of securing new commercial contracts. These short term advances are described more fully in Note 9.

F-8

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 3: Property and Equipment

Major classes of property and equipment as of April 30, 2007 are listed below:

Furniture and Fixtures	$	16,523
Office Equipment		89,814
Plant and Equipment		20,939
		127,276
Less: accumulated depreciation		122,061
	$	5,215

Depreciation expense was $ 1,751 and $8,009 for the three month periods ended April 30 2007 and 2006 (and $ 8,318 and $24,075 for the nine month periods ended April 30, 2007 and 2006), respectively. 

Note 4: Intangible Assets - Patent Costs

Changes in Intangible assets - Patent Costs for the nine month period ended April 30, 2007 were as follows:

Cost - start of year	$	157,911
Costs incurred during the period		-
Amortization		-
Retirements		-
Cost - end of year	$	157,911

No amortization is recorded because the economic life of the underlying patents is expected to be less than their legal life and the company has yet to derive revenue from the commercial applications of the underlying patents. At such time as we begin earning revenues, the cost of the underlying patents will be amortized over their estimated economic life.

Note 5: Preferred Stock

We are authorized to issue 50,000,000 shares of preferred stock.

4% Convertible Preferred Stock

As of April 30, 2007, the Company had 34,343,662 shares of Series A 4% voting redeemable convertible preferred stock outstanding. Such shares pay an annual dividend of 4% and are convertible at any time at the option of the holder into Common Stock at the rate of one share Common Stock for each outstanding share of Series A Preferred Stock. Holders of Series A Preferred Stock have priority over all of the shares of the Company on liquidation or sale at the rate of $0.233 per share. Holders of Series A Preferred Stock are entitled to vote on all matters as to which Common Stock shareholders are entitled to vote.

The aggregate of arrearages in cumulative preferred dividends on the Series A Preferred Shares through April 30, 2007, are $22,757.

Note 6: Common Stock

We are authorized to issue 500,000,000 shares of common stock.

We issued the following shares of common stock for services during the nine month periods ended April 30, 2007 and 2006, respectively

F-9

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 6: Common Stock, continued

	April 30, 2007				April 30, 2006
	Number		Fair Value		Number		Fair Value
	of Shares		of Shares		of Shares		of Shares
Shareholder	Issued		Issued		Issued		Issued
CLX & Associates Inc					$	750,000	$	255,000
Sichenzia Ross Friedman Ference LLP						805,000		132,825
Cornell Capital Partners LP						472,000		61,360
Monitor Capital Inc						28,000		3,640
Crown Capital Group Ltd		1,000,000		68,000
UTEK Corporation		1,250,000		150,000
Sichenzia Ross Friedman Ference LLP		850,000		51,850
		3,100,000	$	269,850		2,055,000	$	452,825

We value the shares of common stock issued for services at the quoted market price of the stock at the issue date or at the contracted value of the services where this is clearly defined in the underlying contract. During the nine month period ended April 30, 2007 we issued:

(a) 1,000,000 shares to Crown Capital Group Ltd as consideration for market information and promotional services to be provided over a twelve month period. The shares were valued at the mid-market quoted share price on the day of issue; and

(b) 1,250,000 shares to UTEK Corporation for technology search services as consideration under the terms of a contract entered into in May 2006 and covering services to be provided over 15 months. This consideration was valued at the contract price, which was approximately equal to the market price of the companies stock in May, 2006 and, at the Companies option could have been settled in cash rather than stock.

(c) 850,000 shares to Sichenzia Ross Friedman Ference LLP as consideration for the provision of legal services

The cost of the stock issues described in (a) and (b) above is spread over the periods over which the service is to be provided and a prepayment established accordingly. This prepayment is shown as a deduction in shareholders funds on the face of the balance sheet on the line “Prepaid element of expenses settled in stock”.

On December 11, 2006 one of our Loan Note holders, Triumph Small Cap Fund Inc converted $50,000 of the principal value of their Loan Note into 1,000,0000 shares of Common Stock in accordance with their conversion rights (see Note 9)

On October 27, 2006 we issued to Montgomery Equity Partners Ltd 345,000 shares of common stock upon its exercise of warrants which were issued to Montgomery Equity Partners as part of a prior financing, as more fully described in Note 7

No other shares of common stock, other than those described above, were issued during the nine month periods ended April 30, 2007 and 2006.

Note 7: Stock Options and Warrants

Stock Options - Employees and contractors (“Staff”)

Since inception, stock options have been granted to staff members under the Company's 2005 Stock Incentive Plan as follows:

· During May 2004, the Company granted 9,659,000 common stock options to two officers with an exercise price of $1.00 per share. The Company's common stock had no traded market value on the date of grant. The market value of the stock was determined to be $1.00 per share based on estimates made by the directors at that time. In March 2006 one of the officers resigned and the 4,829,500 options granted to him lapsed. Under the terms of the option award the remaining 4,829,500 options vest in three equal installments of 1,609,834 each in May 2006, 2007 and 2008, subject to certain operating performance criteria having been met. The performance criteria were not met by the first vesting date and therefore 1,609,834 of these options have lapsed. Management is of the view that the performance criteria are unlikely to be met by each of the future vesting periods.

F-10

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 7: Stock Options and Warrants, continued

· On June 1, 2005, the Company issued 650,000 options to its staff under the plan, with an exercise price of $0.55 per share. The market price on June 1, 2005 was also $0.55 per share.

· On January 3, 2006, the Company issued 725,000 options to its staff under the plan, with an exercise price of $0.10 per share. The market price on January 3, 2006 was also $0.10 per share.

· On October 10, 2006, the Company issued 16,015,000 options to its staff under the plan, with an exercise price of $0.065 per share. The market price on October 10, 2006 was also $0.065 per share. The vesting date of these options varies as set out in the table below:

Vesting Date	No of options
October 10, 2006		2,500,000
November 30, 2006		500,000
December 31, 2006		150,000
September 30, 2007		5,515,000
September 30, 2008		3,750,000
September 30, 2009		3,600,000
Total		16,015,000

Options that vested on the day of grant were granted primarily (2,000,000 of the total options which vest on the grant date of October 10, 2006) to Martin Thorp, the Company’s CFO, to provide Mr. Thorp with a significant equity interest in the Company in line with the other members of the Company’s Board of Directors, in order to provide mutuality of interest going forward and to reward him for past performance.

The fair value for the options granted is estimated at the date of grant using the Black-Scholes option-pricing model with the assumptions set out in the table below.

	Grant Date
	May, 2004			June, 2005			January, 2006			October, 2006
Risk Free Interest Rate		2.3	%		4.4	%		4.4	%		4.7	%
Dividend Yield		0	%		0	%		0	%		0	%
Volatility Factor		0	%		55	%		88	%		314	%
Weighted Average Expected Life (yrs)		5			5			5			5
No of options expected to vest on vesting date		0			650,000			725,000			16,015,000
Value of one option (Black Scholes)	$	0.000		$	0.289		$	0.070		$	0.065
Value of option grant (aggregate)	$	0		$	187,850		$	50,750		$	1,040,975

>From August 1, 2006 we were required to adopt SFAS No. 123(R) whereby we account for stock option expense for employees and contractors by charging the fair value of options granted and expected to vest equally over the vesting period. In the case of options that vest on grant the fair value of the option is expensed immediately. The expense is shown as stock option expense in the

F-11

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 7: Stock Options and Warrants, continued

consolidated statement of operations with the credit posted to Additional Paid In Capital. Prior to August 1, 2006 we were not required to treat employee stock options in accordance with SFAS No. 123 (R) , and we disclosed the impact on pre-tax results had we valued employee stock options on a proforma basis in the footnotes to our Annual Financial Statements. In the three month period and nine month period ended April 30, 2006 the stock option charge would have increased by approximately $37,500 and $112,500, respectively, had we adopted SFAS No. 123(R) in that period.

In determining which options are expected to vest we have taken account of the fact that options have only been granted to relatively few key members of staff and in the opinion of management all of those people are likely to stay with the Company through the vesting period of their options and beyond. Therefore, it is assumed that all options granted are likely to vest, except those that are not expected to vest by virtue of underlying performance conditions (described above).

The Black-Scholes options valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

Warrants

On September 9, 2005, as part of the consideration for arranging a financing for the Company, we issued to Montgomery Equity Partners Ltd (“Montgomery”), three-year warrants to purchase 350,000 shares of Common Stock at an exercise price of $0.001 per share. The market value of the Company's common stock on the date of the negotiation of this transaction was $0.13. The weighted average exercise price and fair value of the warrants at the date of their grant were $0.001 and $0.076, respectively. On October 27, 2006 Montgomery exercised these warrants by way of cashless conversion into 345,000 shares of Common stock.

The fair value for these warrants was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate	4.18%
Dividend yield	0.00%
Volatility factor	88.40%
Weighted average expected life	3 years

Summary of options and warrants outstanding

The following schedule summarizes the changes in the Company's outstanding stock awards since July 31, 2006

F-12

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 7: Stock Options and Warrants, continued

						Weighted		Weighted
	Options Outstanding					Average		Average		Aggregate
	Number of			Exercise Price		Exercise Price		Remaining		Intrinsic
	Shares			Per Share		Per Share		Contractual Life		Value
Balance at July 31, 2006		4,996,436		$	0.001-$1.50	$	0.750
Awards Granted to Staff		16,015,000		$	0.065	$	0.065
Awards exercised				$	0.000
Warrants exercised		(350,000	)	$	0.001	$	0.001
Balance at April 30, 2007		20,661,436		$	0.065-$1.50	$	0.685		13.95 years	$	1,341,388
Awards exercisable at
April 30, 2007		3,201,769		$	0.065-$1.50	$	0.685		7.27 years	$	184,960

The following schedule summarizes the non-vested stock awards for the year ended April 30, 2007.

			Weighted		Weighted
			Average		Average
	Number of		Exercise Price		Grant Date
	Shares		Per Share		Fair Value
Balance at July 31, 2006		4,996,436	$$	0.001-1.50	$	0.750
Awards Granted		12,463,231	$	0.065	$	0.065
Awards exercised		-		N/A		N/A
Awards cancelled/expired		-		N/A		N/A
Balance at April 30, 2007		17,459,667	$$	.065-1.50	$	0.685

Note 8: Income Taxes

We record our income taxes in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes". We had tax losses available to carry forward in our UK operating subsidiaries of $5.6 million at July 31, 2006 and we continued to incur tax losses in the nine month period ended April 30, 2007. We have therefore not recorded any tax charge of liability in the three month period ended April 30, 2007 or in any previous period.

Note 9: Financings

The Company has substantial obligations under various financial instruments arising from the following financing agreements:

A. September 2005 Financing and subsequent and ongoing restructurings

In a linked series of transactions dated September 7, 2005, the Company entered into:

1. A Standby Equity Distribution Agreement (the "Distribution Agreement") with Cornell Capital Partners LP ("Cornell") providing for the sale and issuance to Cornell of up to $10,000,000 of Common Stock over a period of up to 24 months.

2. A Securities Purchase Agreement (the "Purchase Agreement") with Montgomery Equity Partners Ltd. ("Montgomery"), an affiliated fund of Cornell, providing for the sale by the Company to Montgomery of its 18% secured convertible debentures in the aggregate principal amount of $750,000 (the "Debentures") of which $300,000 was funded on September 7, 2005; $200,000 was to have been funded two business days prior to the Company's completion of its audited financial statements for the fiscal year ended July 31, 2005, and; $250,000 was to have been funded within five business days of the date the Registration Statement is declared effective by the SEC. Under the Purchase Agreement, the Company also issued to Montgomery three-year warrants (the "Warrants") to purchase 350,000 shares of Common Stock at $0.001 per share, which have subsequently been exercised. The Debentures matured on September 7, 2006 and bear interest at the annual rate of 18%. Holders have the right to convert, at any time, the principal amount outstanding under the Debentures into shares of Common Stock, at a conversion price per share equal to $0.144, subject to adjustment. Upon three-business day advance written notice, the Company may redeem the Debentures, in whole or in part. In the event that the closing bid price of the Common Stock on the date that the Company provides advance written notice of

F-13

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 9: Financings, continued

redemption or on the date redemption is made exceeds the conversion price then in effect. Redemption of Debentures is to be calculated at 112% of the Debentures' face value.

3. A Securities Purchase Agreement (the "Accredited Investor Purchase Agreement") with the investors in a previous financing dated April 2005, pursuant to which these investors agreed to exchange the securities that they purchased in the earlier financing for an aggregate of $556,500 principal amount of Debentures.

As further security for its obligations under the above mentioned facilities, the Company has deposited into escrow 25,685,000 shares of common stock, these shares are deemed issued but not outstanding.

Pursuant to these agreements, the Company filed a registration statement on Form SB-2 with the Securities and Exchange Commission for the purpose of registering the securities underlying the transactions. In connection therewith, the Company has received comments from the Commission indicating that, in the Commission's view, based upon the structure of the transactions, the Company may not register the securities sold in the financing transactions. On March 6, 2006, we withdrew the registration statement on Form SB-2 (File No. 333-128321) by filing a Form R-W with the Commission. As a result, the Company has not been able to draw down any further amounts under the Debenture (other than the initial $300,000) or the related Distribution Agreement and was unable to pay interest and principal payments on the debentures drawn down under this financing, as a consequence it became in default under the terms of the Debentures.

We have held discussions with several of the Debenture Holders to restructure our obligations to rectify the defaults and the following agreements have been entered into:

1. On October 19, 2006, the Company entered into a Termination, Settlement, and Forbearance Agreement effective as of October 16 (the "Settlement Agreement"), with Cornell and Montgomery. The Settlement Agreement relates to the Distribution Agreement and the Purchase Agreement and included the following principal terms:

· The Company shall pay Montgomery an aggregate of $348,000 (the "Funds") which represents the agreed amounts owed by the Company to Montgomery under the Debenture as of October 19, 2006 including outstanding principal and interest. The Company shall pay the Funds to Montgomery monthly at the rate of $29,000 ("Monthly Payment") per calendar month, with the first payment being due and payable on November 15, 2006 and each subsequent payment being due and payable on the first business day of each subsequent month until the Funds are repaid in full.

· Montgomery shall continue to have valid, enforceable and perfected first-priority liens upon and security interests in the Pledged Property and the Pledged Shares (each as defined in the Purchase Agreement transaction documents).

· The Company and Montgomery agree that during the term of the Settlement Agreement, the Debenture shall not bear any interest and no liquidated damages shall accrue under any of the financing documents.

· The Conversion Price (as set forth in the Debenture) in effect on any Conversion Date (as set forth in the Debenture) from and after the date hereof shall be adjusted to equal $0.05, which may be subsequently adjusted pursuant to the other terms of the Debenture.

· Montgomery shall retain the Warrants issued in accordance with the Securities Purchase Agreement.

· The Company and Cornell agree to terminate the Distribution Agreement and related transaction documents.

· In the event that the Company defaults under the terms of this agreement penalties and redemption premiums payable under the original agreement shall be reinstated.

F-14

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 9: Financings, continued

2. On November 29, 2006, the Company issued a secured subordinated convertible note to Triumph Small Cap Fund Inc. ("Triumph"), (one of the investors in the Accredited Investor Purchase Agreement referred to above) in the principal amount of $165,000 in exchange for the interest and principal outstanding under the Debenture previously issued to Triumph under the terms of the Accredited Investor Purchase Agreement. The note (a) matures on April 30, 2008; (b) bears interest at the rate of 8% per annum, which is payable on maturity of the note and (c) is convertible, at Triumph's option, into shares of the Company's common stock at a conversion price of $0.05 per share, subject to a 9.99% conversion restriction.. On December 11, 2006 Triumph converted $50,000 of the principal amount outstanding under their note into 1,000,000 shares of the Company’s common stock in accordance with these conversion rights.

3. On January 9, 2007, the Company issued two secured convertible notes to Longview Fund L.P. (“Longview”) (one of the investors in the Accredited Investor Purchase Agreement referred to above) in the aggregate principal amount of $309,300 as follows:.

· Secured convertible note in the principal amount of $261,300 issued in exchange for the interest and principal outstanding under the Debenture previously issued to Longview under the terms of the Accredited Investor Purchase Agreement. The note (a) matures on April 30, 2008; (b) bears interest at the rate of 18% per annum, which is payable in accordance with the repayment provisions described in the Note and (c) is convertible at Longview’s option, into shares of the Company’s common stock at a conversion price of $0.05 per share. Minimum repayments are due under the note as follows: (i) two installments of $12,500 each were due to be paid on or before February 28, 2007 and March 30, 2007; (ii) monthly installments of $15,000 commencing on November 30, 2007; and (iii) the remaining principal balance plus unpaid interest on the maturity date.

· Secured convertible note in the principal amount of $48,000 was issued in exchange for liquidated damages payable as a result of the default on the Debenture previously issued to Longview under the terms of the Accredited Investor Purchase Agreement. This note has the same interest and conversion terms as described above, but is repayable on maturity (principal and interest).

Subsequent to the restructuring of the Loan Notes with Longview and Cornell / Montgomery, both described above, the Company has been unable to comply with the payment installments due under the terms of the restructured loan notes and is therefore in default under these new Loan Notes.

The conversion terms of the restructured loan notes from Longview and Cornell / Montgomery enable the Loan Note holder to convert the amount outstanding under the Notes into shares in the Company’s common stock at a price of $0.05 cents per share. The market price of the common stock at the dates that the restructured loan notes were issued was, in the case of Cornell / Montgomery, $0.072 and in the case of Longview $0.055 and therefore there is a beneficial discount underlying these conversion options. We have valued that discount at $170,474, using the Black Scholes method. The inherent discount has been charged to Additional Paid in Capital within shareholders funds in the balance sheet and is being charged in the profit and loss account as interest expense on a straight line basis across the life of the amended Loan Note.

The table below details the unamortized discount figure shown in the balance sheet:

	Beneficial				Unamortized
	Discount		Q2 charge		Amount
Westek	$	113,400	$	37,800	$	75,600
Triumph	$	0	$	0	$	0
Cornell	$	146,160	$	61,560	$	184,600
Longview	$	24,314	$	5,775	$	18,539
	$	283,874	$	105,135	$	233,519

B. Royalty Participation Agreement (May to November, 2006)

On May 5, 2006, we completed the sale of a percentage of future royalties pursuant to a Royalty Participation Agreement (the "Agreement") with The Rubin Family Irrevocable Stock Trust. The royalties to be paid pursuant to the Agreement are derived from the Patent License Agreement with Inverness Medical Innovations, Inc. (the "IMI Agreement") pursuant to which the Company will receive royalties from the sale of a Prothrombin blood clotting measuring device (the "IMI Royalties). The IMI Agreement is further described in the "Organization and Basis of Presentation" section of these financial statements. Subsequently, in November 2006, the Company entered into a similar agreement with Triumph in respect of further advances made to us during June and October 2006.

F-15

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 9: Financings, continued

Pursuant to these royalty participation agreements, the Company received the aggregate sum of $450,000 in exchange for 10% of the future IMI Royalties received by the Company, subject to the terms and conditions set forth in the Agreement (the "Royalty Payments"). The Royalty

Payments shall be paid to The Rubin Family Irrevocable Stock Trust and Triumph Research Partners LLP ("The Investors") within 15 days of the end of the month in which the Company receives future IMI Royalties. The Company has the option to terminate the Agreement at any time, without penalty, by making a lump sum payment to the Investors equal to 300% of the funds received from the Investors pursuant to the Agreement, being $1,350,000. If no Royalty payments are made to the Investors by December 31, 2007, or if $450,000 of Royalty payments are not made by December 31, 2008, the Investors shall have the right to convert the advances made into a three year note with a face value of $1,350,000 accruing interest at 4% above prime and repayable in one bullet at the end of the term. In addition, if the aggregate payments made to the Investors under Agreements prior to December 31, 2007 are less than $450,000 and provided that the Company has raised at least $3,000,000 in the form of new equity finance, we are obliged to make an advance payment to the Investors (on account of future amounts payable to them) equal to the difference between $450,000 and the aggregate payments made prior to December 31, 2007 (capped at the amount by which the equity funding exceeds $3,000,000).

On November 8, 2006 The Rubin Family Irrevocable Stock Trust assigned its rights under the Agreement to Harbor View Fund Inc, an entity which is unrelated to the Company.

C. Secured Subordinated Convertible Loan Notes (November 2006)

On November 29, 2006, the Company issued a secured subordinated convertible note to Triumph, in the principal amount of $335,000 in consideration of new cash advances made to the Company by Triumph subsequent to July 31, 2006. This note (a) matures on April 30, 2008; (b) bears interest at the rate of 8% per annum which is payable on maturity of the notes; and (c) is convertible, at Triumph's option, into shares of the Company's common stock at a conversion price of $0.05 per share (approximately the share price on the date of issue), subject to a 9.99% conversion restriction.

D. Related Party Loans - Westek Limited

As more fully discussed in Note 2, on November 14, 2006 the terms of our $1,800,000 Promissory Note with Westek Ltd were amended to address default conditions that had arisen. Under the amended terms the Loan Note maturity has been extended until March 31, 2008 (from September 30, 2006) and interest will now be charged at 10% p.a. from October 1, 2006 which is payable quarterly in arrears. Unpaid interest may, at the option of Westek, be converted into shares of the Companies common Stock at a price of $ 0.05 per share.

In addition during the nine month period ended April 30, 2007 Westek advanced $178,102 to the Company. The intention of Westek in making such advances was to permit the Company to maintain a basic level of operations in our main trading subsidiary (IVMD UK Ltd) and to maintain compliance at IVMD Inc. Westek has continued to make limited funding available to us subsequent to April 30, 2007pending the outcome of various commercial discussions which we are engaging in which management believes may result in new commercial contracts which could result in new sources of revenue in the form of sales or license contracts. These advances are interest free and are payable on demand.

As of April 30, 2007, Westek has made aggregate advances of $178,102 to us and as of June 5, 2007 has made further total aggregate advance of $55,000 to the Company.

Subsequent to April 30, 2007 Westek put the Company on notice of the fact that it had informed the other loan note holders (described under A and C above and E below) that it was considering ceasing to make further such advances to the Group unless some of them would assist on a comparable basis. Westek pointed out to the loan note holders that it was unreasonable to expect it to continue to provide new finance as an unsecured junior debt holder since the other loan note holders have better collateral and terms than Westek.

Whilst Westek continues to advance money to cover day to operations, it has informed the Company and the other loan note holders that it is only be prepared to consider continuing to fund the Group in the future if the other loan note holders agree to either (a) share some of the ongoing financial burden with Westek; or (b) convert their loans into common stock, in which case Westek has offered to forgo part of its loan and convert the balance; this would restructure the balance sheet and open the way for new finance from Westek and others. Westek has also proposed to the Company and other loan note holders that, if no agreement can be reached, then, to avoid formal insolvency it would be prepared to consider purchasing the share capital of the subsidiary companies (which are secured on the advances of the loan note holders,

F-16

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 9: Financings, continued

other than Westek), thus returning the Company to a shell status for the loan note holders to consider maintaining. Negotiations and discussions continue between the loan note holders, Westek and the Company, but no final agreement has yet been reached. The outcome of such negotiations is not certain and the future viability of the Company and nature of its operations is obviously in doubt pending the outcome of those negotiations

E. Short Term Advance from Loan Note Holder

During the nine month period ended April 30, 2007, Triumph advanced a sum of $80,000 to the Company. Triumph has subsequently indicated that it will not demand repayment of this loan, but no formal arrangements have been entered into. Therefore, this loan is treated as repayable on demand. The note does not bear interest and is not convertible.

Presentation of Financings in the Financial Statements

Accounting for the Royalty Participation Agreement (May - July, 2006 Financings)

We have accounted for these transactions in accordance with EITF 1988 Issue 88-18 as debt and have classified them as Long Term Debt on the balance sheet. We have calculated the maximum effective rate of interest underlying the Agreement at 37% per annum by taking what we consider to be the most prudent view of the possible cash payments required to relinquish our obligations under the Agreement (and therefore effectively repay the advances) and computing the inherent interest rate within that future cash payment stream. Interest on the amount advanced is included in interest expense and added to the amount of the debt shown in the balance sheet. As payments are made to the Investors the debt will be reduced accordingly and the estimated underlying interest rate may in the future be amended.

The following table shows the treatment of the Royalty Participation Agreement Advances in the Financial Statements at October 31, 2006.

Total Amount Advanced $450,000

Interest Imputed from inception until April 30, 2007 $166,005

--------------

Included in Long Term Debt at April 30, 2007 $616,005

==============

Total Amount Advanced	$	450,000
Interest Imputed from inception until April 30, 2007	$	166,005
Included in Long Term Debt at April 30, 2007	$	616,005

Accounting for September, 2005 Financing and subsequent restructurings

The Principal amount of unpaid Loan Notes at April 30, 2007 is shown separately on the balance sheet as Notes Payable. The total is classified within Current Liabilities as “Current Portion of Notes Payable”, since all amounts are repayable before April 30, 2008..

The following table shows the composition and classification of the Principal amounts of Notes Payable in the balance sheet at April 30April 30, 2007:

	Total Principal
	Outstanding
Montgomery Capital Partners		319,290
Triumph Small Cap Fund		450,000
Longview		309,300
Other Accredited Investors*		216,500
Total Notes payable
(before beneficial conversion discount**)		1,295,090

*Described in A above** see “Beneficial Conversion Rights” below

All accrued interest and potential penalties payable under these Notes Payable is included in Current Liabilities under Accrued Interest Payable

The amended Loan Note issued to Montgomery Capital Partners under the terms of the Settlement Agreement referred to above does not bear interest and is therefore treated as being issued at a discount. The discount rate used is the rate of interest charged on the original Debenture.

F-17

In Veritas Medical Diagnostics, Inc.

(Formerly In Vivo Medical Diagnostics, Inc.)

(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 9: Financings, continued

The principal value of the Loan Note at April 30, 2007 ($348,000) is included in the balance sheet net of the unamortized discount (of $28,710) at $319,290. The discount imputed on the loan is offset against Additional Paid in Capital and is charged to the operating statement over the life of the Loan Note

Beneficial Conversion Rights

As explained above and in Note 2 the conversion rights in certain of the Loan Notes described above have been granted at a discount from the market price of the shares of the Company’s common stock at the date that the loan notes were issued. Such beneficial discounts are recognized when the loan note is issued. The value of the discount is estimated using the Black Scholes method and is credited to Additional Paid in Capital on the balance sheet. The cost of the discount is expensed (as interest expense) over the life of the loan note. The unamortized portion of the value of the discount ($178,740) is show as a deduction from the total principal value of the loan notes outstanding on the balance sheet, resulting in a net balance of $1,116,350.

Note 10: Defaults upon Senior Securities

As explained in Note 9, the Company has been unable to pay interest and principal repayments when due under the terms of its September, 2005 financing and certain of the subsequent restructurings of the loans made under the September 2005 financing. As of April 30, 2007, the arrears of due but unpaid interest and penalties on Debentures and Loan Notes that were in default was $313,528 and the arrears of unpaid but due principal on Debentures in default amounted to $873,800.

F-18

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

Forward-Looking StatementsThe information in this quarterly report contains forward-looking statements within the meaning of the Private Securities litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their business and operations so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than these statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations.

The following discussion and analysis should be read in conjunction with the financial statements of In Veritas Medical Diagnostics, Inc., included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Plan of Operation

Overview

In Veritas Medical Diagnostics Inc. ("IVMD" or the "Company") specializes in the field of near patient medical diagnostics, also known as "point of care". We develop products to address conditions affecting large numbers of the population which are aimed at transforming their lives, quality of treatment and significantly reducing healthcare costs. We focus on developing products which are designed to be accurate, cost effective, easy to use, and portable. Our products are designed to bring diagnosis into patients' hands.

We operate through two wholly owned subsidiaries located in England and Scotland, both of which are incorporated under the Laws of England and Wales:

(A) IVMD (UK) Limited, and (B) Jopejo Limited.

Our website is located at www.ivmd.com.

Intellectual Property and Product Development

We have applied for thirteen patents, three of which have been granted. We are currently working on a number of additional patent applications in related areas. Patent protection and management is an important part of our business model.

The first product to be completed using our technology is a prothrombin measurement device, which is used for the measurement of coagulation of blood in patients at risk of heart disease and stroke.

The prothrombin measurement device (the "PT Device") was developed under a research and development contract with Inverness Medical Innovations Inc ("IMI"), which was entered in on November 11, 2002 (the "IMI Agreement"). Pursuant to the IMI Agreement, we are entitled to two types of revenue streams: (i) billings to IMI for our development work during the product development phase and (ii) royalties equal to 2% of net revenues from the sale of the PT Device. The product development phase of the IMI Agreement has been completed. Commercialization of the PT Device by IMI is expected to commence in 2008. IMI will oversee sales and marketing of the prothrombin device and we will not have any influence over this process.

We are developing additional hand held or portable products which are focused on (a) the measurement and detection of pregnancy and labor and (b) the detection of diseases and medical conditions using magnetic detection techniques applied to tissue and blood. We routinely seek to identify potential product applications which would benefit from our technology and know-how and we are in discussions with several parties which our management believes may result in commercial, revenue earning contracts.

Results of Operations

Three and Nine months ended April 30, 2007 compared to Three and Nine months ended April 30, 2006

Revenues

We did not generate any revenues during the three and nine months ended April 30, 2007, as compared to revenues of $311,109 and $1,077,451766, the three and nine months ended April 30, 2006. The decline in revenues is due to the completion of the produce development phase of our agreement with IMI. As explained above, the next phase of the IMI agreement involves our receiving royalties from future sales of the PT Device by IMI. Additionally, we are seeking to enter into additional research and development or IPR license contracts.

Depreciation Expenses

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Depreciation expenses for the three and nine months ended April 30, 2007 amounted to $1,751and $8,318, respectively compared to $8,009 and $24,075 for the three and nine months ended April 30, 2006, respectively. The decline is due to that fact that it has not been necessary to replace or update any of our fixed asset base which is adequate for our purposes and therefore the depreciation charge continues to decline.

General & Administrative Expenses

General and administrative expenses for the three and nine months ended April 30, 2007 were $91,457 and $367,240, respectively, as compared to $136,009 and $413,729 for the three and nine months ended April 30, 2006, respectively. This change reflects efforts to reduce general and administrative expenses. Because of our cash shortages we have deferred payment of as many general and administrative costs as possible.

Sales and Marketing Expenses

We incurred $75,964 of marketing costs in the three month period ended April 30, 2007, and $218,425 in the nine period ended April 30, 2007, as compared to $Nil for the three and nine month period ended January31, 2006. With the conclusion of the IMI contract we have the capacity to explore new commercial contracts to exploit our various technologies and these new costs include general commercial and promotional activity, attendance at trade fairs and exhibitions and compensation for our business development manager and associated costs. Several important commercial opportunities have been developed from this new activity all of which are currently being followed through. To conserve cash our main marketing contractors have accepted shares of our common stock as consideration for services performed.

Research & Development Expenditure

During the three months ended April 30, 2007, we spent $128,444 on research and development compared to $314,746 during the three month period ended April 30, 2006.. We spent $459,050 in the nine month period ended April 30, 2007 compared to $901,416 for the nine month period ended April 30, 2006 on research and development. In the three month period ended April 30, 2007 our R&D activity was focused on preparing our new (post PT Device) technology for potential future product launches. This activity focused on our Magnetic Strip Reader technology and our Magnetic Detection technology. By comparison, during the three month period ended April 30, 2006, our R&D expenditure was focused on the PT Device and was substantially higher because of the volume of outsourced R&D expenditure required to develop the PT Device.

Stock Option Expense

No stock options were awarded during the nine month period ended April 30, 2006. By comparison we granted stock options to purchase 16,015,000 shares of our common stock to members of our management team pursuant to our 2005 Incentive Stock Plan during the three month period ended October 31, 2006. We account for stock option expense under the provisions of SFAS No. 123(R) whereby we value stock options using the Black Scholes method and spread the charge equally from the date of grant until the date that the options vest, adjusting for options that we believe are unlikely to ever vest. 2,500,000 of the options granted during the three month period ended October 31, 2006 vested on the grant date, resulting in an abnormal charge of $162,000. The remaining options vest over various periods through September 30, 2010. The total charge for option expense in the three month period ended April 30, 2007 amounted to $135,315 and $539,770 during the nine month period ended April 30, 2007 compared to $0 and $0 in the three month and nine month periods ended April 30, 2006, respectively.

Net Income (Loss)

Net loss before other income and expense (which included interest expense) for the three months ended April 30, 2007 was $(443,130), as compared to a net loss of $(154,736) for the three months ended April 30, 2006. During the nine month period ended April 30, 2007 the net loss before other income and expense (which included interest expense) was $(1,803,889) compared to $(552,694) in the nine month period ended April 30, 2006. The increase in net loss is attributable to (a) the completion of the product development phase of the IMI Agreement, and (b) the grant of a significant number of stock options to members of our management team.

Net loss (after other income and expense, including interest) for the three and nine month period ended April 30, 2007 amounted to $(696,546) and $(2,515,986), respectively compared to $(306,062) and $(892,288) for the three and nine month period ended April 30, 2006, respectively. The increase in net loss was due to the factors discussed above, as well as interest expense amounting to $253,416 and $712,097 in the three and nine month period ended April 30, 2007, respectively as compared to $96,429 and $233,177 in the three and nine month period ended April 30, 2006, respectively. The increase in interest expense is attributable to punitive interest charges related to outstanding debt obligations of the Company which were in default during the three month period ended October 31, 2006 and the generally increased debt burden of the Company.

Liquidity and Capital Resources

We have incurred operating losses since our inception. At April 30, 2007, we had an accumulated deficit from inception of $(11,271,357). We are in default under the terms of certain of our credit obligations and are operating at the forbearance of our creditors. Our auditors, in their report on our financial statement for the fiscal year ended July 31, 2006, have expressed substantial doubt about our ability to continue as a going concern.

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The Company's working capital needs include payment of salaries, administrative expenses, and research and development activities. At April 30, 2007, we had a cash balance of $1,459 and current liabilities of $5,555,061. The Company's cash balances at April 30, 2007 are not sufficient to support operations for the next twelve months and it is necessary for the Company to continue to seek one or more of the following: (i) additional financing in the form of equity and/or debt, (ii) additional grants from the U.K. government; and (iii) product development contracts with commercial partners. As explained in Note 9 to the Unaudited Condensed Consolidated Financial Statements (set forth in Part I herein) and further explained in the section below entitled "Recent Financings", the Company has been active, and continues to be active, in seeking to secure new sources of financing. However, there can be no assurance that that any additional financing will become available on terms that are acceptable to us and, as further explained in Note 9 to the Unaudited Condensed Consolidated Financial Statements (set forth in Part I herein) and further explained in the section below entitled "Recent Financings" since April 30, 2007; Westek, who had been funding the Company by way of short term advances, notified the Company and the other loan note holders (referred to in Note 9) that it was not prepared to continue to do so in future unless agreement is reached with those loan note holders regarding the shared ongoing responsibility for funding the Company and other related matters. Negotiations between Westek and the other loan note holders are ongoing and the future viability of the Company and its underlying business is dependent upon the outcome of these discussions. There can be no assurance that an arrangement can be worked out among the parties. If an agreement is not reached among the parties, we may be forced to curtail our operations.

Critical Accounting Policies

Principles of consolidation

Our consolidated financial statements include our accounts and the accounts of our two wholly owned foreign subsidiaries; IVMD (UK) Limited and Jopejo Limited, both UK companies. The assets and liabilities of our foreign subsidiaries have been translated from British pounds into U.S. dollars at the exchange rate in effect at April 30, 2007 with the related translation adjustments reported as a separate component of shareholders' deficit. Operating statement accounts have been translated at the average exchange rate in effect during the period presented. All significant intercompany transactions have been eliminated.

Basis of presentation

Our research and development is conducted in Inverness, Scotland, through our subsidiaries: IVMD (UK) Limited and Jopejo Limited. Development-stage activities consist of raising capital, obtaining financing, medical products research and development and administrative matters.

We are a development stage enterprise and have incurred losses since inception. We had a net capital deficit at April 30, 2007 of $(5,984,337). We also had substantial net current liabilities at April 30, 2007 and we were in default on several of our Notes Payable, as explained in Item 3 of Part 2. These factors, among others, raise substantial doubt about our ability to continue as a going concern, in common with many development stage companies in our industry. Historically we have depended on various sources of finance to support ongoing operations, in particular, until our various products and work in progress reach the point where they generate income (which cannot be assured) we are dependent upon external funding, which has generally been made available to us in the past by way of convertible loan notes provided by specialist investment funds. Since November 2006 such funding has not been forthcoming and we have depended upon short term advances from two of our loan note holders, as explained in Note 9 to the Unaudited Condensed Consolidated Financial Statements (set forth in Part I herein). More recently those advances have been restricted to one loan note holder, a related party, Westek. As explained in Note 9 to the Unaudited Condensed Consolidated Financial Statements, Westek has recently notified the Company and the other loan note holders (referred to in Note 9) that it was not prepared to continue to do so in future unless agreement is reached with those loan note holders regarding the shared ongoing responsibility for funding the Company and other related matters Negotiations between Westek and the other loan note holders are ongoing and the future viability of the Company and its underlying business is clearly dependent upon the outcome of these discussions. The outcome of those negotiations can not be predicted at this time. There can be no assurance that an arrangement can be worked out among the parties. If an agreement is not reached among the parties, we may be forced to curtail our operations.

Use of Estimates

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

Research & Development Expenditure

Research & Development expenditure is written off as it is incurred.

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Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104 "Revenue Recognition in Financial Statements" (SAB 104). Arrangements with multiple elements are accounted for in accordance with Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21. We consider this methodology to be the most appropriate for our business model and current revenue streams.

Currently our only revenue streams relate to research and development contracts under which we enter into collaborative agreements with medical technology companies where the other party generally receives exclusive marketing and distribution rights for certain products for set time periods and set geographic areas. The terms of the collaborative agreements typically include funding of certain research and development efforts and royalties on product sales.

Revenue from research funding is recognized when the services are performed and is typically based on the fully burdened cost of a researcher working on a collaboration plus reimbursement of other costs incurred

Currently we receive revenue mainly from contracts which we enter into with commercial partners who work with us to develop new products which employ our core technology. This revenue is generally in the form of contribution towards development costs that we incur and is accounted for in accordance with the underlying contracts. In the future we anticipate the nature of our principle revenues changing from contribution towards development expenditure to royalty income from developed products, this change will not take place until products that are currently in development have been completed and are taken to market. Whilst there can be no assurance we currently expect our first royalty income to commence in the last quarter of 2006.

Recent Financings and Restructurings

Termination, Settlement, and Forbearance Agreement (Cornell / Montgomery Debenture)

On October 19, 2006, the Company entered into a Termination, Settlement, and Forbearance Agreement effective as of October 16 (the "Settlement Agreement"), with Cornell Capital Partners LP ("Cornell") and Montgomery Equity Partners Ltd. ("Montgomery"), an affiliated fund of Cornell. The Settlement Agreement relates to a Standby Equity Distribution Agreement (the "Distribution Agreement") with Cornell and a Securities Purchase Agreement (the "Purchase Agreement") with Montgomery entered into on September 7, 2005.

The Distribution Agreement with Cornell provided for the sale and issuance to Cornell of up to $10,000,000 of Common Stock over a period of up to 24 months after the signing of the Distribution Agreement. In addition as part of the commitment fee arrangements the Company issued 472,000 shares of the Company's common stock to Cornell.

The Purchase Agreement with Montgomery provided for the sale by the Company to Montgomery of its 18% secured convertible debentures in the aggregate principal amount of $750,000 of which $300,000 was funded. Under the Purchase Agreement, the Company also issued to Montgomery three-year warrants to purchase 350,000 shares of Common Stock at $0.001 per share. As further security for its obligations under the Purchase Agreement and the Accredited Investor Purchase Agreement, the Company deposited into escrow 25,685,000 shares (the "Escrow Shares") of common stock. The Escrow Shares are deemed issued but not outstanding.

Subsequent to the completion of the Standby Equity Distribution Agreement and the sale of the 18% secured convertible debentures pursuant to the Securities Purchase Agreement in September 2005, the Company prepared and filed a registration statement on Form SB-2 (File No. 333-128321) with the Securities and Exchange Commission for the purpose of registering the securities underlying such financing transactions. In connection therewith, the Company received comments from the Commission indicating that, in the Commission's view, based upon the structure of the transactions, the Company may not register the securities sold in the financing transactions. On March 6, 2006, the Company withdrew the registration statement on Form SB-2 (File No. 333-128321) by filing a Form R-W with the Commission. As a result, the Company has not been able to draw down any further amounts under the Debenture. In addition, because of the failure to complete the entire financing transaction contemplated in the September 2005 financing, the Company has been unable to pay interest and principal payments on the Debentures.

Pursuant to the Settlement Agreement, the parties agreed to the following principal terms:

· The Company shall pay Montgomery an aggregate of $348,000.00 (the "Funds") which represents all amounts owed by the Company to Montgomery under the Debenture as of the date hereof including outstanding principal and interest. The Company shall pay the Funds to Montgomery monthly at the rate of $29,000.00 ("Monthly Payment") per calendar month, with the first payment being due and payable on November 15, 2006 and each subsequent payment being due and payable on the first business day of each subsequent month until the Funds are repaid in full.

· Montgomery shall continue to have valid, enforceable and perfected first-priority liens upon and security interests in the Pledged Property and the Pledged Shares (each as defined in the Purchase Agreement transaction documents) and in the Financial Statements set out in Part 1 above.

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· The Company and Montgomery agree that during the term of the Settlement Agreement, the Debenture shall not bear any interest and no liquidated damages shall accrue under any of the financing documents.

· The Conversion Price (as set forth in the Debenture) in effect on any Conversion Date (as set forth in the Debenture) from and after the date hereof shall be adjusted to equal $0.05, which may be subsequently adjusted pursuant to the other terms of the Debenture.

· Montgomery shall retain the Warrants issued in accordance with the Securities Purchase Agreement.

· The Company and Cornell agree to terminate the Distribution Agreement and related transaction documents and related penalties and redemption premium payments lapse provided that the Company complies with the terms of the amended terms described above.

· Cornell shall retain the 472,000 shares of the Company's common stock.

Westek Loan Amendment

On November 21, 2006, we entered into an amendment to the Loan Agreement with Westek dated as of June, 2004. Pursuant to the amendment, the maturity date of the Loan has been extended to March 31, 2008, and interest will accrue at the rate of 10% beginning in October 2007. The Loan has an outstanding principal balance of $1,800,000.

Graham Cooper, the Company's Chairman, President and Chief Executive Officer, is the principal stockholder of Westek Limited.

Triumph Loan Restructuring

On November 29, 2006, the Company issued two secured subordinated convertible notes to Triumph Small Cap Fund, Inc. ("Triumph") in an aggregate principal amount of $440,000. The first note, in a principal amount of $275,000, was issued in consideration of cash advances made to the Company by Triumph during the three month period ended October 31, 2006. The second note, in a principal amount of $165,000, was issued in exchange for a secured convertible note previously issued to a designee of Triumph. The notes bear interest at the rate of 8% per annum and mature on April 30, 2008. The notes are convertible, at Triumph's option, into shares of the Company's common stock at a conversion price of $0.05 per share, subject to a 9.99% conversion restriction.

Subsequently, on December 8, 2006, the Company and Triumph entered into an addendum pursuant to which the principal amount of the first note was increased from $275,000 to $335,000.

Longview Loan Restructuring

On January 9, 2007, the Company issued two secured convertible notes to Longview Fund L.P. (“Longview”) (one of the investors in the Accredited Investor Purchase Agreement referred to above) in the aggregate principal amount of $309,300.

· The first, for $261,300, was issued in exchange for the interest and principal outstanding under the Debenture previously issued to Longview under the terms of the Accredited Investor Purchase Agreement. The note (a) matures on April 30, 2008; (b) bears interest at the rate of 18% per annum, which is payable in accordance with the repayment provisions described in the Note and (c) is convertible at Longview’s option, into shares of the Company’s common stock at a conversion price of $0.05 per share. Minimum repayments are due under the note as follows: (i) two installments of $12,500 each were due to be paid on or before February 28, 2007 and March 30, 2007; (ii) monthly installments of $15,000 commencing on November 30, 2007; and (iii) the balance due of principal plus unpaid interest on maturity.

· The second, for $48,000 was issued in exchange for liquidated damages payable as a result of the default on the Debenture previously issued to Longview under the terms of the Accredited Investor Purchase Agreement. This note has the same interest and a conversion term as the first amount, described above, but is repayable on maturity (principal and interest).

Subsequent to the restructuring of the Loan Notes with Longview and Cornell / Montgomery, both described above, the Company has been unable to comply with the payment installments due under the terms of the restructured loan notes. Also described above; and the Company is therefore in default under these new Loan Notes.

Royalty Participation Agreement

On May 5, 2006, we completed the sale of a percentage of future royalties pursuant to a Royalty Participation Agreement (the "Agreement") with The Rubin Family Irrevocable Stock Trust. The royalties to be paid pursuant to the Agreement are derived from the Patent License Agreement with Inverness Medical Innovations, Inc. (the "IMI Agreement") pursuant to which the Company will receive royalties from the sale of a Prothrombin blood clotting measuring device (the "IMI Royalties). The IMI Agreement is further described in the "Organization and Basis of Presentation" section of these financial statements. On November 29, 2006 the Company entered into a similar agreement with Triumph Small Cap Fund, Inc. in consideration of cash advances made to the Company by Triumph during June and July 2006.

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Pursuant to the two royalty participation agreements, the Company received aggregate proceeds of $450,000 in exchange for 10% of the future IMI Royalties received by the Company, subject to the terms and conditions set forth in the two agreements. Pursuant to the two agreements, the IMI Royalties shall be paid to The Rubin Family Irrevocable Stock Trust and Triumph ("The Investors") within 15 days of the end of the month in which the Company receives future IMI Royalties. The Company has the option to terminate the Agreement at any time, without penalty, by making a lump sum payment to the Investors equal to 300% of the funds received from the Investors pursuant to the Agreement, or $1,350,000. If no royalties are paid to the Investors by December 31, 2007, or if $450,000 of royalties is not made by December 31, 2008, the Investors shall have the right to convert the advances made into a three year note with a face value of $1,350,000 accruing interest at 4% above prime and repayable at maturity.

Short Term Advances since November 2006

As explained above, we have depended on various sources of finance to support ongoing operations, in particular, until our various products and work in progress reach the point where they generate income (which cannot be assured) we are dependent upon external funding, which has generally been made available to us in the past by way of convertible loan notes provided by specialist investment funds.

Since November 2006 such funding has not been forthcoming and we have depended upon short term advances from two of our loan note holders, as explained in Note 9 to the Unaudited Condensed Consolidated Financial Statements (set forth in Part I herein). Advances, which are interest free, not convertible and repayable on demand, have been made by Triumph and Westek. During the nine month period ended April 30, 2007 Triumph advanced a total of $80,000 and Westek a total of $178,102. Triumph has indicated that it is unable to continue to make such advances and so, since December 2006 those advances have been restricted to Westek, a related party.

As explained in Note 9 to the Unaudited Condensed Consolidated Financial Statements, Westek has recently notified the Company and the other loan note holders that it is not prepared to continue to make further advances unless agreement is reached amongst all of loan note holders regarding the shared ongoing responsibility for funding the Company and other related matters. Negotiations between Westek and the other loan note holders are ongoing and the future viability of the Company and its underlying business is clearly dependent upon the outcome of these discussions. The outcome of those negotiations can not be predicted at this time.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements as of April 30, 2006 or as of the date of this report.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (SFAS 123R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans. The Company is required to adopt SFAS 123R effective August 1, 2006. The standard provides for a prospective application. Under this method, the Company will begin recognizing compensation cost for equity based compensation for all new or modified grants after the date of adoption. In addition, the Company will recognize the unvested portion of the grant date fair value of awards issued prior to the adoption based on the fair values previously calculated for disclosure purposes.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument this is within its scope as a liability. Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. For nonpublic entities, mandatorily redeemable financial instruments are subject to SFAS No. 150 for the first period beginning after December 15, 2003. Adoption of SFAS No. 150 will require us to report any cumulative redeemable preferred stock and any cumulative Class C redeemable preferred stock outstanding at the time of adoption as a liability.

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ITEM 3. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.

(b) Changes in internal controls. There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(c) Limitations on Effectiveness of Disclosure Controls and Procedures. Disclosure controls and procedures cannot provide absolute assurance of achieving financial reporting objectives because of their inherent limitations. Disclosure controls and procedures is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Disclosure controls and procedures also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by disclosure controls and procedures. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In Veritas is not a party to any pending legal proceeding, nor is its property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of In Veritas' business.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

At April 30, 2007 we were in default under the terms of several notes payable. The total principal and interest due, but not paid, under these notes at April 30, 2007 were $873,800 (principal) , and $313,528 (interest and penalties) respectively.

The notes in default were as follows:

Type of Security	Maturity Date	Principal Amount (not including interest)
Secured Convertible Note	Regular Repayments	$309,300
Secured Convertible Note	Monthly Repayments	$348,000

The lender of the above notes has served notice on us demanding repayment of the full amount due under the note. Subsequent to the receipt of this demand notice, we have entered into negotiations with the note holders with the objective of restructuring the debt outstanding. These notes are in default because capital repayments have not been made on schedule dates

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These notes remain in default although no formal default notice has been served on the Company.	Type of Security		Maturity Date			Principal Amount (not including interest)
Secured Convertible Note		September 7, 2006		$	201,500
Secured Convertible Note		September 7, 2006		$	15,000

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

EXHIBITS

31.1 Certification by Graham Cooper, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification by Martin Thorp, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification by Graham Cooper, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification by Martin Thorp, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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ITEM 7. SIGNATURES

SIGNATURES

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

	IN VERITAS MEDICAL DIAGNOSTICS, INC.
Date: June 14, 2007	By:	/s/ Graham Cooper
		Graham Cooper Chief Executive Office

By:	/s/ Martin E. Thorp
	Martin E. Thorp Chief Financial Officer