QUANTUM BIT INDUCTION TECHNOLOGY, INC.

NOTES TO THE FINANCIAL STATEMENTS

FROM DECEMBER 31, 2002 TO DECEMBER 31, 2003

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Organization

Quantum Bit Induction Technology, Inc. (the Company) is a provider of an email forwarding service that increases customer’s email frequency.  The Company refers to the increase in email frequency as “bias”.  The Company is working to increase bias by as much as possible through continual upgrade.  The service can be used by Internet web merchants, that receive sale notices via email, investors that receive email trade confirmations, email alert users, or any other email traffic that one may wish to increase.  The Company and its systems store statistical email traffic data and not user or email content.

A large and controllable bias applied at the bit level of information really describes transdimensional propulsion.  “Transdimensional” in the “configuration of existence to configuration of existence” sense.  Installing transdimensional drive on a vehicle is a long-term goal of the Company.  The craft should be effortlessly space capable in order to meet the spirit of this goal.  Space capability requires progress in power and propulsion.  Biology requires overcoming any health issues that may distract from the work.  Programmed Trading involves providing adequate resources with which to accomplish the Company’s Projects.  The Company’s projects are more fully described on their website, www.quantumbit.com.

The Company was incorporated in Nevada on January 28, 1999.

Cash and Cash Equivalents

For the purposes of the statement of cash flows, the Company considers all short-term securities purchased with maturity of three months or less to be cash equivalents.

Short-term Investments and Other Assets

The Company’s short-term investments and other assets have been classified as available-for-sale and stated at their fair market value.  All short-term investments are available for current operations and are classified as current assets in the balance sheet.  Unrealized holding gains and losses are included as a component of other comprehensive income until realized.  Realized gains and losses are determined by the specific identification method and are reflected in income.

Property and Equipment

Property and equipment consist of computer equipment and are stated at cost.  For property and equipment over $2,500, the Company will use straight – line depreciation method over the estimated useful lives of three years.  Currently, there is no property or equipment being depreciated.

Revenue Recognition

Currently, the Company’s sources of revenue come from sales of subscriptions to its email device and project sponsorships.

Accounts Receivable

(1)   25% Allowance for Accounts Receivable = 10% for write off’s and 15% for discounts

35% Allowance for Long-term Receivable = 10% for write off’s and 25% for fee settlements

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist of cash and investments.

The Company maintains cash and cash equivalents and investments with various major financial institutions.  Investment securities are exposed to various risks, such as interest rate, market and credit risk.  Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment securities will occur in the near term and that each change could materially affect the amounts reported in the financial statement.

Going Concern

Since inception, the Company has not generated any significant operating revenue, although the Company does not have significant General and Administrative expense.  To fund its development activities to date, the Company has relied on funding by the Company’s President, Officers and some Directors.  This funding has been and continues to be sufficient for the Company to meet its operating cash requirements, continue development and to fund marketing efforts to sell its email services and sponsorships.  The Company has not incurred any long-term debt to date.

2.  Income Taxes

As of December 31, 2003, the Company has net operating tax loss carry forwards of approximately $902,872.  The carry forwards begin to expire in the year 2019.

Deferred income taxes reflect the net tax effects of temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  It is doubtful that the Company will realize any net deferred tax assets when applying the rule.

3.  Note Payable

On June 28, 2000, the Company entered into an unsecured promissory note agreement of $30,000 with an individual.  The note payable bears interest at 6.94% with a due date of June 28, 2001.  No principal or interest payments have been made through December 31, 2003.  The individual has also been issued 300,000 shares of the Company’s common stock at a price of $0.15 per share for up to one year after retirement of the promissory note or June 28, 2002.  The Company has calculated the fair market of the option using the Black-Scholes option-pricing model and determined that the fair market value was not material.

4.  Common Stock

The Board of Directors and the President of the Company control approximately 77.12% and 30% respectively of the Company’s issued stock at December 31, 2003.  The Company has 108 total shareholders with 50,000,000 issued shares.  Additional 5,000,000 shares were issued in connection with an asset acquisition after November 5, 2003.  Such shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933 and sale or transfer is restricted.

5.  Long-term Debt and Extraordinary Transactions

Long-term debt converted of $733,378 at 2003 consist of Notes from Related Parties.  Substantially all of these notes were exchanged for 1,833,445 shares of common stock from treasury during 2003 which was recorded in Paid in Capital.  The stock was valued at the corresponding value of the Long-term Debt.

6.  Acquisition of Physical Therapy Associates

The Company acquired Physical Therapy Associates (“PTA”); a Sole Proprietorship 100% by Michael N. Walters, P.T. on November 5, 2003 for 5,000,000 shares of restricted common stock (see Common Stock).  PTA is a 44 year old Physical Medicine and Rehabilitation service provider that specializes in geriatric patients, stroke recovery, personal injury, cardiac rehabilitation, spinal injuries, post operative rehabilitation, workers’ compensation claims and other muscleo-skeletal disorders.  The Company acquired significant assets associated with the transaction that are net valued at $995,902.  PTA is synergistic to the Company’s future plans to introduce its Quantum technology in medical device design.