Heart failure is a common significant medical condition in the United States. Approximately 5,000,000 U.S. citizens suffer from heart failure. With appropriate medical care, most heart failure patients can be managed with medication and dietary regimen. However, many heart failure patients are frail or elderly. These patients become symptomatic with minor variations in diet, physical activity, stress or medication management resulting in congestive heart failure and emergent medical access. Hospitalization for congestive heart failure is the second most costly admitting diagnosis in the Medicare program.

Pulmonary artery catheterization, or PAC, was introduced in the early 1970’s. Despite its limitations, costs and risks, PAC remains the most commonly used technology for monitoring cardiac output.

Complications associated with this procedure, as reported by the Centers for Disease Control, occur in as many as one in four reported cases and typically include irregular heartbeats or infection. In some cases however, the pulmonary artery can rupture and death can result. In 2002, the Centers for Disease Control estimated that there were 250,000 intravascular catheter-based bloodstream infections annually, resulting in an estimated 50,000 deaths, with a marginal cost to the health-care system of $25,000 per infection per year.

In addition to PAC, another costly and invasive procedure currently used by clinicians for monitoring cardiac output is echocardiography. Echocardiography is a procedure in which ultrasound is taken of the heart. Ultrasound produces two-dimensional or three dimensional images of the cardiovascular system, so that a physician can see the structure and function of the heart.

The IQ2, the latest iteration of the Company’s IQ technology, is an impedance cardiograph, or ICG, device that uses thoracic electrical bioimpedance, or TEB, to monitor hemodynamics (the blood flow, cardiac output, cardiac index, stroke volume, heart rate and other aspects of left ventricular performance).

In addition, the Company is developing other noninvasive ICG diagnostic and monitoring devices utilizing its core technology for expansion into additional markets and as additional applications for its devices. The Company also markets ICG sensors and electrodes, which are designed specifically to be used with its devices.

The Company’s fluid status monitor device, known as the ZOE, measures hydration in a patient, to determine whether or not the patient is dehydrated or retaining fluids. By quantifying fluid volume status, clinicians can optimize medical regimens and hydration critical in the management of heart failure patients, hypertension patients and ESRD patients, athletes, soldiers or other individuals at risk for severe or recurrent dehydration.

The Company’s business operates in two business units or divisions: the commercial products division and the military projects division.

The Company’s commercial products division focuses on the marketing and sale of the IQ2 and the ZOE to physician offices, clinics, hospitals and home health care agencies.

The Company’s military products division focuses on developing healthcare technology for persons in combat and for veterans of the military.

Net cost of revenue increased by $668,929, or 1,048.92%, from $63,773 in the nine months ended September 30, 2005 to $732,702 in the comparable period in 2006.

Gross profit increased from $13,616 in the nine months ended September 30, 2005 to $2.2 million in the comparable period in 2006.

Total operating expenses increased by $549,300, or 51.4%, from $1.1 million in the nine months ended September 30, 2005 to $1.6 million in the comparable period 2006.

Interest expense increased by $15,432, or 6.38%, from $241,970 in the nine months ended September 30, 2005 to $257,402 in the comparable period in 2006.

Net loss was $1.3 million and net income of $275,336 in the nine months ended September 30, 2005 and 2006, respectively.