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| DELAWARE                                                       | 13-3301899                                 |
|----------------------------------------------------------------|--------------------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) |  (I.R.S. Employer Identification No.) |
|                                                           |                                       |
| 8777 E. Via De Ventura, Suite 280, Scottsdale, AZ         |  85258                                |
|  (Address of Principal Executive Offices)                 |  (Zip Code)                           |

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| Large accelerated filer  ̈                                                                    | Accelerated filer  ̈    |
|---------------------------------------------------------------------------------------------------|-----------------------------|
| Non-accelerated filer  ̈    (Do not check if a smaller reporting company) | Smaller reporting company x |

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Table of Contents 

Table Of Contents

|                               |                                                                                                                                                                              | Page   |
|------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART I. FINANCIAL INFORMATION |                                                                                                                                                                              |
|                               |                                                                                                                                                                              |   |
| ITEM 1.                       | FINANCIAL STATEMENTS                                                                                                                                                              |   |
|                               | Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009                                                                                       | F-1    |
|                               | Condensed Consolidated Statements of Losses for the Six Months Ended June 30, 2010 and 2009, and for the Period of Inception (October 30, 2002) to June 30, 2010 (unaudited) | F-2    |
|                               | Condensed Consolidated Statement of Stockholders' Equity (Deficit) from Date of Inception (October 30, 2002) to June 30, 2010 (unaudited)                                         | F-3    |
|                               | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009, and for the Period of Inception (October 30, 2002) to June 30, 2010 (unaudited)  | F-18   |
|                               | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                                             | F-20   |
|                               |                                                                                                                                                                              |   |
| ITEM 2.                            | MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                                                                                         | 2      |
| ITEM 3.                            | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                                                                                         | 9      |
| ITEM 4.                            | CONTROLS AND PROCEDURES                                                                                                                                                           | 9      |
|                               |                                                                                                                                                                              |   |
| PART IIOTHER INFORMATION           |                                                                                                                                                                              |
|                               |                                                                                                                                                                              |   |
| ITEM 1.                            | LEGAL PROCEEDINGS                                                                                                                                                                 | 11     |
| ITEM 1A.                           | RISK FACTORS                                                                                                                                                                      | 11     |
| ITEM 2.                            | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                                                                       | 11     |
| ITEM 3.                            | DEFAULTS UPON SENIOR SECURITIES                                                                                                                                                   | 11     |
| ITEM 4.                            | RESERVED                                                                                                                                                                          | 11     |
| ITEM 5.                            | OTHER INFORMATION                                                                                                                                                                 | 12     |
| ITEM 6.                            | EXHIBITS                                                                                                                                                                          | 12     |
|                               |                                                                                                                                                                              |   |
| Signatures                         | 13                                                                                                                                                                                |

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Table of Contents 

ITEM 1. FINANCIAL 

Consolida

|                                                                               |   | June 30,    |        |   | December 31, |   |
|------------------------------------------------------------------------------------|--------|-------------|-------------|--------|--------------|--------|
|                                                                               |   | 2010        |        |   | 2009         |   |
|                                                                               |   | (unaudited) |        |   |         |   |
| Assets                                                                             |   |        |        |   |         |   |
| Current assets                                                                     |   |        |        |   |         |   |
|                                                                               |   |        |        |   |         |   |
| Cash and cash equivalents                                                          |   | $           | -           |   |         | $      | 280,309 |   |
| Prepaid services and other current assets (note 1)                                 |   |        | 18,569      |   |         |   | 68,347 |   |
|                                                                               |   |        |        |   |         |   |   |   |
|       Total current assets                           |   |        | 18,569      |   |         |   | 348,656 |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Deposits and other assets (note 1)                                                 |   |        | -           |   |         |   | 7,693 |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Furniture and equipment, net of accumulated depreciation of                        |   |        |        |   |         |   |   |   |
|       $93,586 and $89,130, respectively (note 2)     |   |        | 24,740      |   |         |   | 29,197 |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Total assets                                                                       |   | $           | 43,309      |   |         | $      | 385,546 |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Liabilities and Stockholders' Deficit                                              |   |        |        |   |         |   |   |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Current liabilities                                                                |   |        |        |   |         |   |   |   |
| Cash overdraft                                                                     |   | $           | 13,625      |   |         | $      | - |   |
|  Accounts payable and accrued liabilities (note 3)                            |   |        | 1,668,913   |   |         |   | 785,501 |   |
|  Current portion of notes payable (note 4)                                    |   |        | 3,000,000   |   |         |   | 2,000,000 |   |
|  Derivative liability – current                                         |   |        | 181,868     |   |         |   | - |   |
|  Redemption option liability                                                  |   |        | 300,000     |   |         |   | 300,000 |   |
|                                                                               |   |        |        |   |         |   |   |   |
|       Total current liabilities                      |   |        | 5,164,406   |   |         |   | 3,085,501 |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Derivative liability (note 5)                                                      |   |        | 1,396,648   |   |         |   | 2,256,200 |   |
| Notes payable, net of discount of $2,717,263 and $3,006,498, respectively (note 4) |   |        | 3,751,626   |   |         |   | 4,062,391 |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Total liabilities                                                                  |   |        | 10,312,680  |   |         |   | 9,404,092 |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Commitments and contingencies                                                      |   |        | -           |   |         |   | - |   |
|                                                                               |   |        |        |   |         |   |   |   |
| Stockholders' deficit (note 6)                                                     |   |        |        |   |         |   |   |   |
| Preferred stock, $0.001 par value:                                                 |   |        |        |   |         |   |   |   |
| 10,000,000 shares authorized, no shares issued and outstanding                     |   |        | -           |   |         |   | - |   |
| Common stock, $0.001 par value: 100,000,000 shares authorized;                     |   |        |        |   |         |   |   |   |
| 15,931,706 shares and 13,630,857 shares issued and outstanding                     |   |        |        |   |         |   |   |   |
| at June 30, 2010 and December 31, 2009, respectively                               |   |        | 15,930      |   |         |   | 13,630 |   |
| Additional paid-in capital                                                         |   |        | 19,619,511  |   |         |   | 18,717,575 |   |
| Common stock subscribed (note 6)                                                   |   |        | -           |   |         |   | 10,222 |   |
| Deficit Accumulated during the development stage                                   |   |        | (29,904,812 | )      |         |   | (27,759,973 | ) |
|       Total stockholder's deficit                    |   |        | (10,269,371 | )      |         |   | (9,018,546 | ) |
|                                                                               |   |        |        |   |         |   |   |   |
| Total liabilities and stockholders' deficit                                        |   | $           | 43,309      |   |         | $      | 385,546 |   |

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Table of Contents 

|                                                             |   | For the Three |       |   | For the Three |   |       | For the Six  |   |   | For the Six  |   |   | Cumulative            |       |
|------------------------------------------------------------------|--------|---------------|------------|--------|---------------|--------|------------|--------------|--------|--------|--------------|--------|--------|-----------------------|------------|
|                                                             |   | Months Ended  |       |   | Months Ended  |   |       | Months Ended |   |   | Months Ended |   |   | from Inception        |       |
|                                                             |   | June 30,      |       |   | June 30,      |   |       | June 30,     |   |   | June 30,     |   |   | (October 30, 2002) to |       |
|                                                             |   | 2010          |       |   | 2009          |   |       | 2010         |   |   | 2009         |   |   | June 30, 2010         |       |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |
| Revenue                                                          |   | $             | -          |   |          | $      | -          |         |   | $      | -            |   |   | $                     | -          |   |   | $ | - |   |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
| Operating expenses:                                              |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
|    Selling, general and administrative expenses   |   |          | 1,226,835  |   |          |   | 819,958    |         |   |   | 2,116,673    |   |   |                  | 1,664,868  |   |   |   | 26,353,050 |   |
|    Merger fees and costs                          |   |          | -          |   |          |   | -          |         |   |   | -            |   |   |                  | -          |   |   |   | 350,000 |   |
|    Impairment of intangible asset                 |   |          | -          |   |          |   | -          |         |   |   | -            |   |   |                  | -          |   |   |   | 6,393 |   |
|       Total operating expenses     |   |          | 1,226,835  |   |          |   | 819,958    |         |   |   | 2,116,673    |   |   |                  | 1,664,868  |   |   |   | 26,709,443 |   |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
| Operating loss                                                   |   |          | (1,226,835 | )      |          |   | (819,958   | )            |   |   | (2,116,673   | )      |   |                  | (1,664,868 | ) |   |   | (26,709,443 | ) |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
| Other expense:                                                   |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
| Cost of penalty for late registration of shares                  |   |          | -          |   |          |   | -          |         |   |   | -            |   |   |                  | -          |   |   |   | 2,192,160 |   |
| (Gain) loss from change in fair value of derivative liability    |   |          | (2,909,607 | )      |          |   | 644,265    |         |   |   | (968,767     | )      |   |                  | 1,376,560  |   |   |   | (4,631,389 | ) |
| Financing cost                                                   |   |          | 6,250      |   |          |   | 31,250     |         |   |   | 15,625       |   |   |                  | 62,500     |   |   |   | 410,000 |   |
| Interest (income) expense, net                                   |   |          | 495,159    |   |          |   | 533,166    |         |   |   | 981,308      |   |   |                  | 1,065,758  |   |   |   | 5,214,054 |   |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
|       Total other (income) expense |   |          | (2,408,198 | )      |          |   | 1,208,681  |         |   |   | 28,166       |   |   |                  | 2,504,818  |   |   |   | 3,184,825 |   |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
|   Loss before income taxes                             |   |          | 1,181,363  |   |          |   | (2,028,639 | )            |   |   | (2,144,839   | )      |   |                  | (4,169,686 | ) |   |   | (29,894,268 | ) |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
|    Provision for income taxes                     |   |          | -          |   |          |   | -          |         |   |   | -            |   |   |                  | -          |   |   |   | (10,544 | ) |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
| Net loss                                                         |   | $             | 1,181,363  |   |          | $      | (2,028,639 | )            |   | $      | (2,144,839   | )      |   | $                     | (4,169,686 | ) |   | $ | (29,904,812 | ) |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
| Net loss per share - basic and diluted                           |   | $             | 0.08       |   |          | $      | (0.15      | )            |   | $      | (0.15        | )      |   | $                     | (0.32      | ) |   | $ | (3.62 | ) |
|                                                             |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
| Weighted average shares outstanding -                            |   |          |       |   |          |   |       |         |   |   |         |   |   |                  |       |   |   |   |   |   |
|    basic and diluted                              |   |          | 15,308,029 |   |          |   | 13,097,525 |         |   |   | 14,603,910   |   |   |                  | 13,069,901 |   |   |   | 8,261,800 |   |

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Table of Contents 

Condensed Consolidated 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Balance at October 30, 2002 (date of inception)                                                                 |   |   | -         |   |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |   | $      | -      |   |   | $      | -       |   |   | $      | -       |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|
|                                                                                                            |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Shares of common stock issued at $0.006 per share to founders for license of proprietary right in December 2002 |   |   | 1,661,228 |   |   |   | 1,661  |   |   |   | 7,589  |   |   |   | -      |   |   |   | -      |   |   |   | -       |   |   |   | 9,250   |   |
|                                                                                                            |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Shares of common stock issued at $0.006 per share to founders for services rendered in December 2002            |   |   | 140,531   |   |   |   | 141    |   |   |   | 641    |   |   |   | -      |   |   |   | -      |   |   |   | -       |   |   |   | 782     |   |
|                                                                                                            |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Shares of common stock issued at $1.671 per share to consultants for services rendered in December 2002         |   |   | 5,388     |   |   |   | 5      |   |   |   | 8,995  |   |   |   | (9,000 | )      |   |   | -      |   |   |   | -       |   |   |   | -       |   |
|                                                                                                            |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Sale of common stock for cash  at $1.671 per share in December 2002                                   |   |   | 18,558    |   |   |   | 19     |   |   |   | 30,982 |   |   |   | -      |   |   |   | -      |   |   |   | -       |   |   |   | 31,001  |   |
|                                                                                                            |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Net loss for the period from inception (October 30, 2002) to December 31, 2002                                  |   |   | -         |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   |   |   |   |   | (45,918 | )      |   |   | (45,918 | )      |
|                                                                                                            |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |
| Balance at December 31, 2002 (reflective of stock splits)                                                       |   |   | 1,825,704 |   |   | $      | 1,826  |   |   | $      | 48,207 |   |   | $      | (9,000 | )      |   | $      | -      |   |   | $      | (45,918 | )      |   | $      | (4,885  | )      |

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Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Shares granted to consultants at $1.392 per share for services rendered in January 2003                                         |   |   | 9,878     |   |   |   | 10     |   |   |   | 13,740    |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 13,750     |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|------------|--------|
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Sale of shares of common stock for cash at $1.517 per share in January 2003                                                     |   |   | 32,955    |   |   |   | 33     |   |   |   | 49,967    |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 50,000     |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Shares granted to consultants at $1.392 per share for services rendered in March 2003                                           |   |   | 15,445    |   |   |   | 15     |   |   |   | 21,485    |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 21,500     |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Conversion of notes payable to common stock at $1.392 per share in April 2003                                                   |   |   | 143,674   |   |   |   | 144    |   |   |   | 199,856   |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 200,000    |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Shares granted to consultants at $1.413 per share for services rendered in April 2003                                           |   |   | 1,437     |   |   |   | 1      |   |   |   | 2,029     |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 2,030      |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Sale of shares of common stock for cash at $2.784 per share in May 2003                                                         |   |   | 1,796     |   |   |   | 2      |   |   |   | 4,998     |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 5,000      |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Sales of shares of common stock for cash at $2.784 per share in June 2003                                                       |   |   | 3,592     |   |   |   | 4      |   |   |   | 9,996     |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 10,000     |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Conversion of notes payable to common stock at $1.392 per share in June 2003                                                    |   |   | 71,837    |   |   |   | 72     |   |   |   | 99,928    |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 100,000    |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Beneficial conversion feature associated with notes issued in June 2003                                                         |   |   | -         |   |   |   | -      |   |   |   | 60,560    |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 60,560     |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Amortization of deferred compensation                                                                                           |   |   | -         |   |   |   | -      |   |   |   | -         |   |   |   | 9,000  |   |   |   | -      |   |   |   | -          |   |   |   | 9,000      |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Costs of GPN Merger in July 2003                                                                                                |   |   | 236,813   |   |   |   | 237    |   |   |   | (121,036  | )      |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | (120,799   | )      |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Value of warrants issued with extended notes payable in October 2003                                                            |   |   | -         |   |   |   | -      |   |   |   | 189,937   |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 189,937    |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   | -          |   |
| Value of Company warrants issued in conjunction with fourth quarter notes payable issued October through December 2003          |   |   | -         |   |   |   | -      |   |   |   | 207,457   |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 207,457    |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Value of warrants contributed by founders in conjunction with fourth quarter notes payable issued October through December 2003 |   |   | -         |   |   |   | -      |   |   |   | 183,543   |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 183,543    |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Value of warrants issued for services in October through December 2003                                                          |   |   | -         |   |   |   | -      |   |   |   | 85,861    |   |   |   | -      |   |   |   | -      |   |   |   | -          |   |   |   | 85,861     |   |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |
| Net loss for the twelve month period ended December 31, 2003                                                                    |   |   | -         |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | -      |   |   |   | (1,856,702 | )      |   |   | (1,856,702 | )      |
|                                                                                                                            |   |   |      |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   | -          |   |
| Balance at December 31, 2003                                                                                                    |   |   | 2,343,130 |   |   | $      | 2,343  |   |   | $      | 1,056,529 |   |   | $      | -      |   |   | $      | -      |   |   | $      | (1,902,620 | )      |   | $      | (843,748   | )      |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Shares granted at $10.00 per share pursuant to the Senior Note Agreement in January 2004        |   |   | 60,000  |   |   |   | 60     |   |   |   | 599,940 |   |   |   | (600,000 | )      |   |   | -      |   |   |   | -      |   |   |   | -      |   |
|-------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                            |   |   |    |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued at $10.00 per share to a consultant for services rendered in January 2004         |   |   | 80,000  |   |   |   | 80     |   |   |   | 799,920 |   |   |   | (800,000 | )      |   |   | -      |   |   |   | -      |   |   |   | -      |   |
|                                                                                            |   |   |    |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued to a consultant at $6.20 per share for services rendered in February 2004         |   |   | 4,000   |   |   |   | 4      |   |   |   | 24,796  |   |   |   | (24,800  | )      |   |   | -      |   |   |   | -      |   |   |   | -      |   |
|                                                                                            |   |   |    |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued to a consultant at $4.00 per share for services rendered in March 2004            |   |   | 105,160 |   |   |   | 105    |   |   |   | 420,535 |   |   |   | (420,640 | )      |   |   | -      |   |   |   | -      |   |   |   | -      |   |
|                                                                                            |   |   |    |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued to a consultant at $5.00 per share for services rendered in March 2004            |   |   | 50,000  |   |   |   | 50     |   |   |   | 249,950 |   |   |   | (250,000 | )      |   |   | -      |   |   |   | -      |   |   |   | -      |   |
|                                                                                            |   |   |    |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares sold for cash at $1.50 per share in March, 2004                                          |   |   | 800     |   |   |   | 1      |   |   |   | 1,199   |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 1,200  |   |
|                                                                                            |   |   |    |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued at $5.00 per share to consultants for services rendered in March 2004             |   |   | 2,000   |   |   |   | 2      |   |   |   | 9,998   |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 10,000 |   |
|                                                                                            |   |   |    |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued to a consultant at  $4.00 per share for services rendered in March 2004 |   |   | 200     |   |   |   | 0      |   |   |   | 800     |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 800    |   |
|                                                                                            |   |   |    |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued to consultants at $3.20 per share for services rendered in March 2004             |   |   | 9,160   |   |   |   | 9      |   |   |   | 29,303  |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 29,312 |   |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Shares to be issued to consultant at $4.10 per share in April 2004 for services to be rendered through March 2005          |   |   | -      |   |   |   | -      |   |   |   | -       |   |   |   | (82,000  | )      |   |   | -      |   |   |   | -      |   |   |   | (82,000 | )      |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Shares granted pursuant to the New Senior Note Agreement in April 2004                                                     |   |   | 60,000 |   |   |   | 60     |   |   |   | 149,940 |   |   |   | (150,000 | )      |   |   | -      |   |   |   | -      |   |   |   | -       |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Shares issued to officer at $3.20 per share for services rendered in April  2004                                 |   |   | 20,000 |   |   |   | 20     |   |   |   | 63,980  |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 64,000  |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Conversion of Note Payable to common stock at $1.00 per share in May 2004                                                  |   |   | 35,000 |   |   |   | 35     |   |   |   | 34,965  |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 35,000  |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Beneficial Conversion Feature associated with note payable in May 2004                                                     |   |   | -      |   |   |   | -      |   |   |   | 35,000  |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 35,000  |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Issuance of warrants to officers and founder for services rendered in May 2004                                             |   |   | -      |   |   |   | -      |   |   |   | 269,208 |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 269,208 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Shares to a consultant at $2.00 per share as a due diligence fee in May 2004                                               |   |   | 12,500 |   |   |   | 13     |   |   |   | 24,988  |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 25,000  |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
|   Shares issued to a consultant at $10.00 per share for services to be rendered over twelve months beginning May 2004 |   |   | 50,000 |   |   |   | 50     |   |   |   | 499,950 |   |   |   | (500,000 | )      |   |   | -      |   |   |   | -      |   |   |   | -       |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Beneficial Conversion Feature associated with notes payable issued in June 2004                                            |   |   | -      |   |   |   | -      |   |   |   | 3,000   |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 3,000   |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Issuance of warrants to note holders in April, May, and June 2004                                                          |   |   | -      |   |   |   | -      |   |   |   | 17,915  |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 17,915  |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Issuance of warrants to employees and consultants for services rendered in April through June 2004                         |   |   | -      |   |   |   | -      |   |   |   | 8,318   |   |   |   | -        |   |   |   | -      |   |   |   | -      |   |   |   | 8,318   |   |

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Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Shares issued in July  to a consultant at $1.00 for services to be rendered through July 2005                   |   |   | 25,000  |   |   |   | 25      |   |   |   | 24,975  |   |   |   | (25,000 | )       |   |   | -       |   |   |   | -       |   |   |   | -       |    |
|---------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|---------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|---------|
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Shares issued to a consultant in July and September at $4.10 per share for services to be rendered through April 2005     |   |   | 20,000  |   |   |   | 20      |   |   |   | 81,980  |   |   |   | -       |    |   |   | -       |   |   |   | -       |   |   |   | 82,000  |    |
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Shares issued to a consultant in September  at $1.20 to $2.20 for services rendered through September 2004      |   |   | 12,728  |   |   |   | 13      |   |   |   | 16,896  |   |   |   | -       |    |   |   | -       |   |   |   | -       |   |   |   | 16,909  |    |
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Shares issued in July to September 2004 as interest on note payable                                                       |   |   | 30,000  |   |   |   | 30      |   |   |   | 35,970  |   |   |   | -       |    |   |   | -       |   |   |   | -       |   |   |   | 36,000  |    |
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Issuance of warrants with notes payable in July and August 2004                                                           |   |   | -       |   |   |   | -       |   |   |   | 72,252  |   |   |   | -       |    |   |   | -       |   |   |   | -       |   |   |   | 72,252  |    |
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Accrued deferred compensation in August 2004 to a consultant for 10,000 shares at $1.00 per share, committed but unissued |   |   | -  |   |   |   | -  |   |   |   | -  |   |   |   | (10,000 | )  |   |   | -  |   |   |   | -  |   |   |   | (10,000 | )  |
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Shares issued in August 2004 at $1.40 to a consultant for services to be performed through October 2004                   |   |   | 10,000  |   |   |   | 10      |   |   |   | 13,990  |   |   |   | (14,000 | )       |   |   | -       |   |   |   | -       |   |   |   | -       |    |
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Shares issued in August 2004 at $1.25 per share for conversion of $30,000 demand loan                                     |   |   | 24,000  |   |   |   | 24      |   |   |   | 29,976  |   |   |   | -       |    |   |   | -       |   |   |   | -       |   |   |   | 30,000  |    |
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Shares issued in August 2004 at $1.60 per share to a consultant for services provided.                                    |   |   | 12,500  |   |   |   | 13      |   |   |   | 19,988  |   |   |   | -       |    |   |   | -       |   |   |   | -       |   |   |   | 20,000  |    |
|                                                                                                                      |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |    |   |   |    |   |   |   |    |   |   |   |    |    |
| Shares issued to employees at $1.60 to $2.50 per share                                                                    |   |   | 4,880   |   |   |   | 5       |   |   |   | 8,379   |   |   |   | -       |    |   |   | -       |   |   |   | -       |   |   |   | 8,384   |    |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Commitment to issue 10,000 shares of stock to a consultant at $2.30 per share for services to be provided through September 2005 |   |   | -         |   |   |   | -      |   |   |   | -         |   |   |   | (23,000 | )      |   |   | -      |   |   |   | -      |   |   |   | (23,000   | )      |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Sale of stock for cash in October at $1.25 per share, net of costs of $298,155                                                   |   |   | 1,816,000 |   |   |   | 1,816  |   |   |   | 1,362,107 |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 1,363,923 |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Value of warrants issued with sale of common stock in October, net of costs                                                      |   |   | -         |   |   |   | -      |   |   |   | 607,922   |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 607,922   |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Issuance of warrant to officer in October                                                                                        |   |   | -         |   |   |   | -      |   |   |   | 112,697   |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 112,697   |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Issuance of stock to investment bankers in October 2004 for commissions earned                                                   |   |   | 490,000   |   |   |   | 490    |   |   |   | (490      | )      |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | -         |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Conversion of accounts payable to stock in October at $1.25 per share                                                            |   |   | 125,775   |   |   |   | 126    |   |   |   | 108,514   |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 108,640   |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Value of warrants issued with accounts payable conversions                                                                       |   |   | -         |   |   |   | -      |   |   |   | 48,579    |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 48,579    |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Conversion of demand loan to stock in October at $1.10 per share                                                                 |   |   | 9,330     |   |   |   | 9      |   |   |   | 10,254    |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 10,263    |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Forgiveness of notes payable in October 2004                                                                                     |   |   | -         |   |   |   | -      |   |   |   | 36,785    |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 36,785    |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Issuance of stock to officer and director at $1.25 per share in October for conversion of liability                              |   |   | 144,000   |   |   |   | 144    |   |   |   | 123,789   |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 123,933   |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Value of warrants issued with officer and director conversion of liabilities                                                     |   |   | -         |   |   |   | -      |   |   |   | 56,067    |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 56,067    |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Conversion of debt and accrued interest to common stock at $0.75 to $1.25 per share in October 2004                              |   |   | 670,315   |   |   |   | 670    |   |   |   | 423,547   |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 424,217   |   |
|                                                                                                                             |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Value of warrants issued with conversion of debt                                                                                 |   |   | -         |   |   |   | -      |   |   |   | 191,111   |   |   |   | -       |   |   |   | -      |   |   |   | -      |   |   |   | 191,111   |   |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Conversion of Note Payable of $5,000 plus accrued interest of $71 in October, 2004                          |   |   | 6,761         |   |   |   | 7         |   |   |   | 4,993           |   |   |   | -         |    |   |   | -       |   |   |   | -          |   |   |   | 5,000           |    |
|-------------------------------------------------------------------------------------------------------------|--------|--------|---------------|--------|--------|--------|-----------|--------|--------|--------|-----------------|--------|--------|--------|-----------|---------|--------|--------|---------|--------|--------|--------|------------|--------|--------|--------|-----------------|---------|
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Issuance of warrants to note holders in October 2004                                                        |   |   | -             |   |   |   | -         |   |   |   | 112,562         |   |   |   | -         |    |   |   | -       |   |   |   | -          |   |   |   | 112,562         |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Value of shares issued to CFO as compensation in December 2004                                              |   |   | 10,000        |   |   |   | 10        |   |   |   | 34,990          |   |   |   | -         |    |   |   | -       |   |   |   | -          |   |   |   | 35,000          |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Value of warrants issued to members of advisory committees in November and December 2004                    |   |   | -             |   |   |   | -         |   |   |   | 16,348          |   |   |   | -         |    |   |   | -       |   |   |   | -          |   |   |   | 16,348          |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Beneficial conversion feature associated with notes payable in December 2004                                |   |   | -             |   |   |   | -         |   |   |   | 124,709         |   |   |   | -         |    |   |   | -       |   |   |   | -          |   |   |   | 124,709         |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Shares issued in error to be cancelled in December                                                          |   |   | (900          | )      |   |   | (1        | )      |   |   | 1               |   |   |   | -         |    |   |   | -       |   |   |   | -          |   |   |   | 0               |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Amortization of deferred compensation through December 31, 2004                                             |   |   | -             |   |   |   | -         |   |   |   | -               |   |   |   | 2,729,454 |    |   |   | -       |   |   |   | -          |   |   |   | 2,729,454       |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Loss for the twelve months ended December 31, 2004                                                          |   |   | -             |   |   |   | -         |   |   |   | -               |   |   |   | -         |    |   |   | -       |   |   |   | (5,305,407 | )      |   |   | (5,305,407      | )       |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Balance at December 31, 2004                                                                                |   |   | 6,242,339     |   |   | $      | 6,242     |   |   | $      | 7,979,124       |   |   | $      | (169,986  | )       |   | $      | -       |   |   | $      | (7,208,027 | )      |   | $      | 607,353         |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Sale of shares of common stock for cash at $2.00 per share in March 2005 for warrant exercise, net of costs |   |   | 660,078  |   |   |   | 660  |   |   |   | 1,190,196  |   |   |   | -    |    |   |   | -  |   |   |   | -     |   |   |   | 1,190,856  |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Value of warrants issued to members of advisory committees in March 2005                                    |   |   | -             |   |   |   | -         |   |   |   | 137,049         |   |   |   | -         |    |   |   | -       |   |   |   | -          |   |   |   | 137,049         |    |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Deferred compensation in February 2005 to a consultant for 5,000 shares of common stock at $6.50 per share  |   |   | -        |   |   |   | -    |   |   |   | -          |   |   |   | (32,500   |  ) |   |   | -  |   |   |   | -     |   |   |   | (32,500         | )  |
|                                                                                                        |   |   |          |   |   |   |      |   |   |   |            |   |   |   |      |    |   |   |    |   |   |   |       |   |   |   |            |    |
| Warrants exercised at $0.50 per share in June 2003                                                          |   |   | 8,000         |   |   |   | 8         |   |   |   | 3,992           |   |   |   | -         |    |   |   | -       |   |   |   | -          |   |   |   | 4,000           |    |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Value of warrants issued to members of advisory committee in June 2005                              |   |   | -         |   |   |   | -      |   |   |   | 70,781    |   |   |   | -       |   |   |   | -      |   |   |   | -           |   |   |   | 70,781     |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
|                                                                                                |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of warrants issued to investors and service providers in June 2005                            |   |   | -         |   |   |   | -      |   |   |   | 32,991    |   |   |   | -       |   |   |   | -      |   |   |   | -           |   |   |   | 32,991     |   |
|                                                                                                |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Issuance of 23,215 shares of common stock in July 2005 for conversion of notes payable              |   |   | 23,215    |   |   |   | 23     |   |   |   | 64,980    |   |   |   | -       |   |   |   | -      |   |   |   | -           |   |   |   | 65,003     |   |
|                                                                                                |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Issuance of 10,000 shares of common stock in August 2005 to a consultant for services provided |   |   | 10,000    |   |   |   | 10     |   |   |   | 9,990     |   |   |   | -       |   |   |   | -      |   |   |   | -           |   |   |   | 10,000     |   |
|                                                                                                |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of warrants issued to advisory committee in September 2005 for services                       |   |   | -         |   |   |   | -      |   |   |   | 20,491    |   |   |   | -       |   |   |   | -      |   |   |   | -           |   |   |   | 20,491     |   |
|                                                                                                |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Amortization of deferred comp for the twelve months ended December, 2005                            |   |   | -         |   |   |   | -      |   |   |   | -         |   |   |   | 199,726 |   |   |   | -      |   |   |   | -           |   |   |   | 199,726    |   |
|                                                                                                |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of warrants issued in October and December 2005 to investors and service providers            |   |   | -         |   |   |   | -      |   |   |   | 18,399    |   |   |   | -       |   |   |   | -      |   |   |   | -           |   |   |   | 18,399     |   |
|                                                                                                |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Loss for the year ended December 31,2005                                                            |   |   | -         |   |   |   | -      |   |   |   | -         |   |   |   | -       |   |   |   | -      |   |   |   | (4,591,107  | )      |   |   | (4,591,107 | )      |
|                                                                                                |   |   |      |   |   |   |   |   |   |   |      |   |   |   |    |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Balance as of December 31, 2005                                                                     |   |   | 6,943,632 |   |   | $      | 6,943  |   |   | $      | 9,527,993 |   |   | $      | (2,760  | )      |   | $      | -      |   |   | $      | (11,799,134 | )      |   | $      | (2,266,958 | )      |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Issuance of 10,000 shares to officer, previously accrued                                 |   |   | 10,000     |   |   |   | 10     |   |   |   | 41,406     |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 41,416     |   |
|------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of warrants issued to members of advisory committee in March 2006                  |   |   | -          |   |   |   | -      |   |   |   | 8,399      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 8,399      |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Amortization of deferred compensation for the three months ended March 31, 2006          |   |   | -          |   |   |   | -      |   |   |   | -          |   |   |   | 2,760  |   |   |   | -      |   |   |   | -           |   |   |   | 2,760      |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Issuance of common stock in May 2006 to a consultant for services provided               |   |   | 3,446      |   |   |   | 3      |   |   |   | 16,194     |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 16,197     |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Conversion of accrued interest to common stock at $1.25 per share in May, 2006           |   |   | 1,929      |   |   |   | 2      |   |   |   | 2,409      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 2,411      |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Conversion of accrued interest to common stock at $1.25 per share in May, 2006           |   |   | 1,632      |   |   |   | 2      |   |   |   | 2,039      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 2,041      |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Conversion of accrued interest to common stock at $1.00 per share in May, 2006           |   |   | 1,345      |   |   |   | 1      |   |   |   | 1,354      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 1,355      |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Common stock issued pursuant to the exercise of warrants at $0.90 per share in June 2006 |   |   | 500        |   |   |   | 1      |   |   |   | 450        |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 450        |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of warrants issued to members of advisory committee in June 2006                   |   |   | -          |   |   |   | -      |   |   |   | 8,820      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 8,820      |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of warrants issued to members of advisory committee in September 2006              |   |   | -          |   |   |   | -      |   |   |   | 3,495      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 3,495      |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of warrants issued to officers                                                     |   |   | -          |   |   |   | -      |   |   |   | 50,874     |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 50,874     |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Issuance of penalty Common Stock, previously accrued                                     |   |   | 415,080    |   |   |   | 415    |   |   |   | 871,250    |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 871,665    |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Issuance of penalty warrants, previously accrued                                         |   |   | -          |   |   |   | -      |   |   |   | 182,239    |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 182,239    |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of options issued to officer                                                       |   |   | -          |   |   |   | -      |   |   |   | 78,802     |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 78,802     |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of warrants issued to members of advisory committee in December 2006               |   |   | -          |   |   |   | -      |   |   |   | 1,974      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 1,974      |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Issuance of Common Stock for cash                                                        |   |   | 3,426,625  |   |   |   | 3,427  |   |   |   | 4,610,122  |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 4,613,549  |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Common stock to be issued as commission for equity fund raising                          |   |   | -          |   |   |   | -      |   |   |   | (5,483     | )      |   |   | -      |   |   |   | 5,483  |   |   |   | -           |   |   |   | -          |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of options issued to officer                                                       |   |   | -          |   |   |   | -      |   |   |   | 185,472    |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 185,472    |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Value of shares issued to officer                                                        |   |   | -          |   |   |   | -      |   |   |   | 32,120     |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 32,120     |   |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Loss for the year ended December 31, 2006                                                |   |   | -          |   |   |   | -      |   |   |   | -          |   |   |   | -      |   |   |   | -      |   |   |   | (1,486,046  | )      |   |   | (1,486,046 | )      |
|                                                                                     |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
|  Balance as of December 31, 2006                                                    |   |   | 10,804,190 |   |   | $      | 10,804 |   |   | $      | 15,619,928 |   |   | $      | -      |   |   | $      | 5,483  |   |   | $      | (13,285,180 | )      |   | $      | 2,351,035  |   |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Common stock issued as commission for equity fund raising in January 2007                            |   |   | 548,260    |   |   |   | 548     |   |   |   | 4,935      |   |   |   | -       |   |   |   | (5,483  | )      |   |   | -           |   |   |   | -          |   |
|------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|---------|--------|--------|--------|------------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Common stock issued to consultant in January 2007 at $1.50 per share                                 |   |   | 29,804     |   |   |   | 30      |   |   |   | 44,676     |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 44,706     |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Common stock issued to consultants in January 2007 at $1.55 per share                                |   |   | 40,000     |   |   |   | 40      |   |   |   | 61,960     |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 62,000     |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Common stock issued to consultants in January 2007 at $1.50 per share                                |   |   | 10,000     |   |   |   | 10      |   |   |   | 14,990     |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 15,000     |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Value of options issued to officer in January, February and March 2007                               |   |   | -          |   |   |   | -       |   |   |   | 471,457    |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 471,457    |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Value of options issued to employee  in January 2007                                       |   |   | -          |   |   |   | -       |   |   |   | 5,426      |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 5,426      |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Value of warrants issued to consultant in April 2007                                                 |   |   | -          |   |   |   | -       |   |   |   | 166,998    |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 166,998    |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Value of options issued to employees in July 2007                                                    |   |   | -          |   |   |   | -       |   |   |   | 996,133    |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 996,133    |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Value of options issued to directors in July 2007                                                    |   |   | -          |   |   |   | -       |   |   |   | 537,833    |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 537,833    |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Value of options issued to consultants in July 2007                                                  |   |   | -          |   |   |   | -       |   |   |   | 80,996     |   |   |   | -       |   |   |   | -       |   |   |   | -           |   |   |   | 80,996     |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
|   Common stock to be issued for consulting services in 2008 at $1.10 per share in November 2007 |   |   | -          |   |   |   | -  |   |   |   | -     |   |   |   | -  |   |   |   | 33,000  |   |   |   | -           |   |   |   | 33,000     |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Common stock to be issued for finders fee in 2008 at $1.20 per share in November 2007                |   |   | -          |   |   |   | -       |   |   |   | -          |   |   |   | -       |   |   |   | 120,000 |   |   |   | -           |   |   |   | 120,000    |   |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Loss for the year ended December 31, 2007                                                            |   |   | -          |   |   |   | -       |   |   |   | -          |   |   |   | -       |   |   |   | -       |   |   |   | (5,463,958  | )      |   |   | (5,463,958 | )      |
|                                                                                                 |   |   |       |   |   |   |    |   |   |   |       |   |   |   |    |   |   |   |    |   |   |   |        |   |   |   |       |   |
| Balance as of December 31, 2007                                                                      |   |   | 11,432,254 |   |   | $      | 11,432  |   |   | $      | 18,005,332 |   |   | $      | -       |   |   | $      | 153,000 |   |   | $      | (18,749,138 | )      |   | $      | (579,374   | )      |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Common stock issued for consulting services previously accrued in November 2007                       |   |   | 30,000  |   |   |   | 30     |   |   |   | 32,970  |   |   |   | -      |   |   |   | (33,000  | )      |   |   | -      |   |   |   | -       |   |
|-------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Common stock issued for finders fee previously accrued in November 2007                               |   |   | 100,000 |   |   |   | 100    |   |   |   | 119,900 |   |   |   | -      |   |   |   | (120,000 | )      |   |   | -      |   |   |   | -       |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Value of warrants issued pursuant to convertible debt agreement in January 2008                       |   |   | -       |   |   |   | -      |   |   |   | 226,754 |   |   |   | -      |   |   |   | -        |   |   |   | -      |   |   |   | 226,754 |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Adjustment to value of warrants, previously issued in January 2008, due to decrease of exercise price |   |   | -       |   |   |   | -      |   |   |   | 60,092  |   |   |   | -      |   |   |   | -   |   |   |   | -      |   |   |   | 60,092  |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Value of options issued to advisory board in March 2008                                               |   |   | -       |   |   |   | -      |   |   |   | 3,729   |   |   |   | -      |   |   |   | -        |   |   |   | -      |   |   |   | 3,729   |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Value of options issued to employee  in January 2007                                        |   |   | -       |   |   |   | -      |   |   |   | 5,428   |   |   |   | -      |   |   |   | -        |   |   |   | -      |   |   |   | 5,428   |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Value of options issued to consultants in July 2007                                                   |   |   | -       |   |   |   | -      |   |   |   | 6,994   |   |   |   | -      |   |   |   | -        |   |   |   | -      |   |   |   | 6,994   |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Common stock issued for March 2008 interest payment at $0.488 per share                               |   |   | 39,500  |   |   |   | 39     |   |   |   | 19,237  |   |   |   | -      |   |   |   | -        |   |   |   | -      |   |   |   | 19,276  |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Value of options issued to employees in March 2008                                                    |   |   | -       |   |   |   | -      |   |   |   | 1,708   |   |   |   | -      |   |   |   | -        |   |   |   | -      |   |   |   | 1,708   |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Value of options issued to a Director in March 2008                                                   |   |   | -       |   |   |   | -      |   |   |   | 19,625  |   |   |   | -      |   |   |   | -        |   |   |   | -      |   |   |   | 19,625  |   |
|                                                                                                  |   |   |    |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Common stock issued for June 2008 interest payment at $0.699 per share in July 2008                   |   |   | 28,220  |   |   |   | 28     |   |   |   | 19,698  |   |   |   | -      |   |   |   | -        |   |   |   | -      |   |   |   | 19,726  |   |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Common stock issued for June 2008 interest payment at $0.699 per share in July 2008                |   |   | 2,822      |   |   |   | 3      |   |   |   | 1,969      |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 1,972       |   |
|----------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|-------------|--------|--------|--------|-------------|--------|
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock issued for interest payment at $0.33032 per share in August 2008                      |   |   | 95,825     |   |   |   | 96     |   |   |   | 31,557     |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 31,653      |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock issued for interest payment at $0.33032 per share in August 2008                      |   |   | 2,228      |   |   |   | 2      |   |   |   | 734        |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 736         |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock issued for interest payment at $0.33032 per share in August 2008                      |   |   | 124,794    |   |   |   | 125    |   |   |   | 41,097     |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 41,222      |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock issued for pre-payment of interest payment at $0.33032 per share in August 2008       |   |   | 162,721    |   |   |   | 163    |   |   |   | 53,587     |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 53,750      |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock issued for pre-payment of interest payment at $0.33032 per share in August 2008       |   |   | 3,785      |   |   |   | 4      |   |   |   | 1,246      |   |   |   | -      |   |   |   | -       |   |   |   | -      |   |   |   | 1,250  |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock issued for pre-payment of interest payment at $0.33032 per share in August 2008       |   |   | 211,916    |   |   |   | 212    |   |   |   | 69,788     |   |   |   | -      |   |   |   | -  |   |   |   | -      |   |   |   | 70,000      |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock issued pursuant to the exercise of warrants at $0.375 per share in June and July 2008 |   |   | 30,000     |   |   |   | 30     |   |   |   | 11,220     |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 11,250      |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock issued for rounding due to reverse stock split in August 2008                         |   |   | 126        |   |   |   | 1      |   |   |   | (1         | )      |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | -           |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Common stock subscribed pursuant to agreement for capital raise in August 2008                     |   |   | -          |   |   |   | -      |   |   |   | -          |   |   |   | -      |   |   |   | 250,000 |   |   |   | -           |   |   |   | 250,000     |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Value of warrants issued pursuant to convertible debt agreement in August 2008                     |   |   | -          |   |   |   | -      |   |   |   | 286,846    |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 286,846     |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Value of warrants issued pursuant to convertible debt agreement in August 2008                     |   |   | -          |   |   |   | -      |   |   |   | 427,628    |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 427,628     |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Value of warrants issued pursuant to convertible debt agreement in August 2008                     |   |   | -          |   |   |   | -      |   |   |   | 9,946      |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 9,946       |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Value of warrants issued pursuant to convertible debt agreement in August 2008                     |   |   | -          |   |   |   | -      |   |   |   | 556,949    |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 556,949     |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Value of options issued to directors in November 2008                                              |   |   | -          |   |   |   | -      |   |   |   | 52,284     |   |   |   | -      |   |   |   | -       |   |   |   | -           |   |   |   | 52,284      |   |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Loss for the year ended December 31, 2008                                                          |   |   | -          |   |   |   | -      |   |   |   | -          |   |   |   | -      |   |   |   | -       |   |   |   | (5,807,353  | )      |   |   | (5,807,353  | )      |
|                                                                                               |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |   |   |        |   |   |   |        |   |
| Balance at December 31, 2008                                                                       |   |   | 12,264,191 |   |   | $      | 12,265 |   |   | $      | 20,066,317 |   |   | $      | -      |   |   | $      | 250,000 |   |   | $      | (24,556,491 | )      |   | $      | (4,227,909  | )      |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Cumulative effect of change in accounting principle- January 1, 2009 reclassification of embedded feature of equity-linked financial instrument to derivative liability |   |   | -          |   |   |   | -      |   |   |   | (1,856,576 | )      |   |   | -      |   |   |   | -        |   |   |   | 3,259,335   |   |   |   | 1,402,759  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|----------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Common stock issued pursuant to agreement for capital raise previously accrued in August 2008 at $0.30 per share                                                        |   |   | 833,334    |   |   |   | 833    |   |   |   | 249,167    |   |   |   | -      |   |   |   | (250,000 | )      |   |   | -           |   |   |   | -          |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Common stock issued for consulting services performed from June to August 2009 at $0.19 per share                                                                       |   |   | 200,000    |   |   |   | 200    |   |   |   | 37,800     |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 38,000     |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Common stock issued for consulting services performed in September 2009 at $0.36 per share                                                                              |   |   | 44,444     |   |   |   | 44     |   |   |   | 15,956     |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 16,000     |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Common stock issued for consulting services performed in October 2009 at $0.36 per share                                                                                |   |   | 44,444     |   |   |   | 44     |   |   |   | 15,956     |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 16,000     |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Common stock issued for consulting services performed in November 2009 at $0.23 per share                                                                               |   |   | 44,444     |   |   |   | 44     |   |   |   | 10,178     |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 10,222     |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Common stock issued for consulting services performed in November 2009 at $0.35 per share                                                                               |   |   | 200,000    |   |   |   | 200    |   |   |   | 69,800     |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 70,000     |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Common stock to be issued for consulting services performed in December 2009 at $0.23 per share                                                                         |   |   | -          |   |   |   | -      |   |   |   | -          |   |   |   | -      |   |   |   | 10,222   |   |   |   | -           |   |   |   | 10,222     |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Value of options issued to employees in March 2008                                                                                                                      |   |   | -          |   |   |   | -      |   |   |   | 244        |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 244        |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Value of options issued to advisory board in Aug 2009                                                                                                                   |   |   | -          |   |   |   | -      |   |   |   | 4,045      |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 4,045      |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Value of options issued to consultants in Aug 2009                                                                                                                      |   |   | -          |   |   |   | -      |   |   |   | 3,646      |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 3,646      |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Value of options issued to employees in Aug 2009                                                                                                                        |   |   | -          |   |   |   | -      |   |   |   | 6,250      |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 6,250      |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Value of options issued to Officers and Directors in Aug 2009                                                                                                           |   |   | -          |   |   |   | -      |   |   |   | 94,792     |   |   |   | -      |   |   |   | -        |   |   |   | -           |   |   |   | 94,792     |   |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Loss for the year ended December 31, 2009                                                                                                                               |   |   | -          |   |   |   | -      |   |   |   | -          |   |   |   | -      |   |   |   | -        |   |   |   | (6,462,817  | )      |   |   | (6,462,817 | )      |
|                                                                                                                                                                    |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Balance at December 31, 2009                                                                                                                                            |   |   | 13,630,857 |   |   | $      | 13,630 |   |   | $      | 18,717,575 |   |   | $      | -      |   |   | $      | 10,222   |   |   | $      | (27,759,973 | )      |   | $      | (9,018,546 | )      |

----

Table of Contents 

|   |   | Common StockShares |   |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |   | Total |   |
|--------|--------|--------------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|--------|-------|--------|

| Common stock issued for consulting services performed in November 2009 at $0.35 per share      |   |   | 500,000    |   |   |   | 500    |   |   |   | 189,500    |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 190,000     |   |
|------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|-------------|--------|
|                                                                                           |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |        |   |
| Common stock to be issued for consulting services performed in January 2010 at $0.23 per share |   |   | -          |   |   |   | -      |   |   |   | -          |   |   |   | -      |   |   |   | 10,222 |   |   |   | -           |   |   |   | 10,222      |   |
|                                                                                           |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |        |   |
| Value of options issued to consultants in Aug 2009                                             |   |   | -          |   |   |   | -      |   |   |   | 2,188      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 2,188       |   |
|                                                                                           |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |        |   |
| Value of options issued to employees in Aug 2009                                               |   |   | -          |   |   |   | -      |   |   |   | 3,750      |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 3,750       |   |
|                                                                                           |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |        |   |
| Value of options issued to Officers and Directors in Aug 2009                                  |   |   | -          |   |   |   | -      |   |   |   | 56,875     |   |   |   | -      |   |   |   | -      |   |   |   | -           |   |   |   | 56,875      |   |
|                                                                                           |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |        |   |
| Loss for the three months ended March 31, 2010                                                 |   |   | -          |   |   |   | -      |   |   |   | -          |   |   |   | -      |   |   |   | -      |   |   |   | (3,326,202  | )      |   |   | (3,326,202  | )      |
|                                                                                           |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |        |   |
| Balance at March 31, 2010                                                                      |   |   | 14,130,857 |   |   | $      | 14,130 |   |   | $      | 18,969,888 |   |   | $      | -      |   |   | $      | 20,444 |   |   | $      | (31,086,175 | )      |   | $      | (12,081,713 | )      |

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Table of Contents 

|                                                                                                       |   | Common StockShares |       |   | Amount |   |   | Paid-InCapital |   |   | Additional DeferredCompensation |   |   | StockSubscribed |   |   | Common AccumulatedDeficit |   |    | Total  |   |
|------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|--------|---------------------------|--------|---------|--------|--------|
| Common stock issued for consulting services performed December 2009 at $0.23 per share, previously accrued |   |               | 44,444     |   |   |   | 44     |           |   |   | 10,178                          |   |   |            | -      |   |                      |   | (10,222 | )      |   |   | - |   |   |   | - |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Common stock issued for consulting services performed January 2010 at $0.23 per share, previously accrued  |   |               | 44,444     |   |   |   | 44     |           |   |   | 10,178                          |   |   |            | -      |   |                      |   | (10,222 | )      |   |   | - |   |   |   | - |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Common stock issued for consulting services performed in March and April 2010 at $0.31 per share           |   |               | 735,000    |   |   |   | 735    |           |   |   | 227,115                         |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 227,850 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Common stock issued for consulting services performed in March and April 2010 at $0.34 per share           |   |               | 420,000    |   |   |   | 420    |           |   |   | 142,380                         |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 142,800 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Common stock issued for consulting services performed January to April 2010 at $0.34 per share             |   |               | 26,961     |   |   |   | 27     |           |   |   | 9,140                           |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 9,167 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Common stock issued for consulting services performed January to April 2010 at $0.34 per share             |   |               | 15,000     |   |   |   | 15     |           |   |   | 5,085                           |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 5,100 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Common stock issued for consulting services performed January to April 2010 at $0.34 per share             |   |               | 15,000     |   |   |   | 15     |           |   |   | 5,085                           |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 5,100 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Common stock issued for consulting services performed March to May 2010 at $0.30 per share                 |   |               | 500,000    |   |   |   | 500    |           |   |   | 149,500                         |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 150,000 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Value of options issued to consultants in Aug 2009                                                         |   |               | -          |   |   |   | -      |           |   |   | 2,917                           |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 2,917 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Value of options issued to employees in Aug 2009                                                           |   |               | -          |   |   |   | -      |           |   |   | 5,000                           |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 5,000 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Value of options issued to Officers and Directors in Aug 2009                                              |   |               | -          |   |   |   | -      |           |   |   | 75,833                          |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 75,833 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Value of options issued to Officers and Directors in May 2010                                              |   |               | -          |   |   |   | -      |           |   |   | 7,212                           |   |   |            | -      |   |                      |   | -       |   |   |   | - |   |   |   | 7,212 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Loss for the three months ended June 30, 2010                                                              |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   | 1,181,363 |   |   |   | 1,181,363 |   |
|                                                                                                       |   |               |       |   |   |   |   |           |   |   |                            |   |   |            |   |   |                      |   |    |   |   |   |   |   |   |   |   |   |
| Balance at June 30, 2010                                                                                   |   |               | 15,931,706 |   |   | $      | 15,930 |           |   | $      | 19,619,511                      |   |   | $               | -      |   |                      | $      | -       |   |   | $ | (29,904,812 | ) |   | $ | (10,269,371 | ) |

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Table of Contents 

Consolidated

|                                                                          |   | For the Six  |       |   | For the Six  |   |       | Cumulative            |   |
|-------------------------------------------------------------------------------|--------|--------------|------------|--------|--------------|--------|------------|-----------------------|--------|
|                                                                          |   | Months Ended |       |   | Months Ended |   |       | from Inception        |   |
|                                                                          |   | June 30      |       |   | June 30      |   |       | (October 30, 2002) to |   |
|                                                                          |   | 2010         |       |   | 2009         |   |       | June 30, 2010         |   |
| Cash flows from operating activities:                                         |   |         |       |   |         |   |       |                  |   |
|    Net loss                                                    |   |         | (2,144,839 | )      |         | $      | (4,169,686 | )                     |   |   | (29,904,812 | ) |
|   Adjustments to reconcile net loss to net                          |   |         |       |   |         |   |       |                  |   |   |   |   |
|   cash used in operating activities:                                |   |         |       |   |         |   |       |                  |   |   |   |   |
|   Non-cash compensation                                             |   |         | 894,014    |   |         |   | 38,244     |                  |   |   | 8,311,562 |   |
|   Cost of penalty for late registration of shares - stock portion   |   |         | -          |   |         |   | -          |                  |   |   | 1,631,726 |   |
|   Cost of penalty for late registration of shares - warrant portion |   |         | -          |   |         |   | -          |                  |   |   | 560,434 |   |
|   Change in fair value of derivative liability                      |   |         | (968,766   | )      |         |   | 1,376,560  |                  |   |   | (4,631,388 | ) |
|   Legal fees for note payable                                       |   |         | -          |   |         |   | -          |                  |   |   | 20,125 |   |
|   Placement fees for note payable                                   |   |         | -          |   |         |   | -          |                  |   |   | 65,000 |   |
|   Impairment of intangible asset                                    |   |         | -          |   |         |   | -          |                  |   |   | 6,393 |   |
|   Interest expense                                                  |   |         | 400,000    |   |         |   | 400,000    |                  |   |   | 1,774,880 |   |
|   Amortization of discount on notes payable                         |   |         | 580,319    |   |         |   | 530,745    |                  |   |   | 3,197,963 |   |
|   Redemption Option Liability                                       |   |         | -          |   |         |   | 150,000    |                  |   |   | 300,000 |   |
|   Depreciation and amortization                                     |   |         | 4,457      |   |         |   | 7,635      |                  |   |   | 87,194 |   |
|   Changes in operating assets and liabilities:                      |   |         |       |   |         |   |       |                  |   |   |   |   |
| Cash overdraft                                                                |   |         | 13,625     |   |         |   | -          |                  |   |   | 13,625 |   |
| Increase in deposits                                                          |   |         | 7,693      |   |         |   | -          |                  |   |   | 2,510 |   |
| Decrease in prepaid services and other assets                                 |   |         | 49,777     |   |         |   | 52,253     |                  |   |   | 273,921 |   |
| Increase/(Decrease) in accounts payable and accrued expenses                  |   |         | 883,411    |   |         |   | (69,998    | )                     |   |   | 1,914,665 |   |
|                                                                          |   |         |       |   |         |   |       |                  |   |   |   |   |
|    Net cash used in operating activities                       |   |         | (280,309   | )      |         |   | (1,684,246 | )                     |   |   | (16,376,202 | ) |
|                                                                          |   |         |       |   |         |   |       |                  |   |   |   |   |
| Cash flows from investing activities:                                         |   |         |       |   |         |   |       |                  |   |   |   |   |
|    Acquisition of property and equipment                       |   |         | -          |   |         |   | (1,500     | )                     |   |   | (86,577 | ) |
|                                                                          |   |         |       |   |         |   |       |                  |   |   |   |   |
|    Net cash used in investing activities                       |   |         | -          |   |         |   | (1,500     | )                     |   |   | (86,577 | ) |

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| Cash flows from financing activities:                                             |   |   |     |   |   |   |       |   |   |   |       |   |
|-----------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|------------|--------|--------|--------|------------|--------|
|    Proceeds from notes payable                                     |   |   | -        |   |   |   | -          |   |   |   | 9,668,375  |   |
|    Principal payments on notes payable and demand loans            |   |   | -        |   |   |   | -          |   |   |   | (1,094,747 | )      |
|    Shares of stock sold for cash                                   |   |   | -        |   |   |   | -          |   |   |   | 7,873,451  |   |
|    Proceeds from exercise of warrant                               |   |   | -        |   |   |   | -          |   |   |   | 15,700     |   |
|    Officer repayment of amounts paid on his behalf                 |   |   | -        |   |   |   | -          |   |   |   | 19,880     |   |
|    Cash paid on behalf of officer                                  |   |   | -        |   |   |   | -          |   |   |   | (19,880    | )      |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
|    Net cash provided by financing activities                       |   |   | -        |   |   |   | -          |   |   |   | 16,462,779 |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Net increase (decrease) in cash and cash equivalents                              |   |   | (280,309 | )      |   |   | (1,685,746 | )      |   |   | -          |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Cash and cash equivalents at beginning of period                                  |   |   | 280,309  |   |   |   | 3,158,226  |   |   |   | -          |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Cash and cash equivalents at end of period                                        |   | $      | -        |   |   | $      | 1,472,480  |   |   | $      | -          |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Supplemental disclosures of cash flow information:                                |   |   |     |   |   |   |       |   |   |   |       |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Cash paid during the period for:                                                  |   |   |     |   |   |   |       |   |   |   |       |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Interest                                                                          |   | $      | -        |   |   | $      | -          |   |   | $      | 127,051    |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Taxes                                                                             |   | $      | -        |   |   | $      | -          |   |   | $      | 8,115      |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Non-cash investing and financing activities:                                      |   |   | -        |   |   |   | -          |   |   |   | -          |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Common stock issued in exchange for proprietary rights                            |   | $      | -        |   |   | $      | -          |   |   | $      | 9,250      |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Common stock issued in exchange for previously incurred debt and accrued interest |   | $      | -        |   |   | $      | -          |   |   | $      | 1,066,401  |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Debt and accrued interest forgiveness from note holders                           |   | $      | -        |   |   | $      | -          |   |   | $      | 36,785     |   |
|                                                                              |   |   |     |   |   |   |       |   |   |   |       |   |
| Stock issued as commission for equity fundraising                                 |   | $      | -        |   |   | $      | -          |   |   | $      | 125,483    |   |

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Table of Contents 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

----

Table of Contents 

|                                                |   | Options |      |   | Weighted AverageExercise Price |   |
|-----------------------------------------------------|--------|---------|-----------|--------|--------------------------------|--------|
| Outstanding at December 31, 2009                    |   |    | 2,812,403 |   |                           | $      | 1.78 |   |
|       Issued               |   |    | 65,000    |   |                           |   | 0.27 |   |
|       Exercised            |   |    | -         |   |                           |   | - |    |
|       Forfeited or expired |   |    | 336,776   |   |                           |   | 7.00 |   |
| Outstanding at June 30, 2010                        |   |    | 2,540,627 |   |                           | $      | 1.05 |   |
|                                                |   |    |      |   |                           |   |   |   |
| Non-vested at June 30, 2010                         |   |    | 32,500    |   |                           | $      | 0.27 |   |
| Exercisable at June 30, 2010                        |   |    | 2,508,127 |   |                           | $      | 1.06 |   |

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Table of Contents 

|                                                   |   | June 30,2010 |   |   | December 31,2009 |    |
|--------------------------------------------------------|--------|--------------|--------|--------|------------------|---------|
| Prepaid monitoring fees                                |   | $            | -      |   |             | $  | 15,625 |   |
| Prepaid insurance                                      |   |         | 17,430 |   |             |    | 46,472 |   |
| Prepaid software                                       |   |         | -      |   |             |    | 6,250 |   |
| Salary Advance                                         |   |         | 1,139  |   |             |    | - |   |
|   Total prepaid services and other current assets |   | $            | 18,569 |   |             | $       | 68,347 |   |

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| Computer equipment   | 3 years |
|----------------------|---------|
| Laboratory equipment | 3 years |
| Website              | 5 years |
| Furniture            | 7 years |

|                                      |   | June 30,2010 |    |   | December 31,2009 |   |
|-------------------------------------------|--------|--------------|---------|--------|------------------|--------|
| Office Equipment                          |   | $            | 49,909  |   |             | $      | 49,909 |   |
| Office Fixtures and Furniture             |   |         | 30,568  |   |             |   | 30,568 |   |
| Website                                   |   |         | 28,600  |   |             |   | 28,600 |   |
| Licensed Proprietary Rights               |   |         | 9,250   |   |             |   | 9,250 |   |
|                                      |   |         | 118,327 |   |             |   | 118,327 |   |
| Accumulated Depreciation and Amortization |   |         | (93,586 | )      |             |   | (89,130 | ) |
|                                      |   | $            | 24,741  |   |             | $      | 29,197 |   |

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Table of Contents 

|                                     |   | June 30,2010 |      |   | December 31,2009 |   |
|------------------------------------------|--------|--------------|-----------|--------|------------------|--------|
| Accounts payable and accrued liabilities |   | $            | 1,597,534 |   |             | $      | 716,029 |   |
| Accounts payable - Pre-merger            |   |         | 34,926    |   |             |   | 34,926 |   |
| Interest payable                         |   |         | 3,215     |   |             |   | 3,215 |   |
| Credit cards                             |   |         | 30,042    |   |             |   | 28,131 |   |
| State income tax payable                 |   |         | 3,200     |   |             |   | 3,200 |   |
|                                     |   | $            | 1,668,917 |   |             | $      | 785,501 |   |

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|                                                            |   | June 30,2010 |       |   | December 31,2009 |   |
|-----------------------------------------------------------------|--------|--------------|------------|--------|------------------|--------|
| YA Global Investments, L.P. Debentures                          |   | $            | 3,000,000  |   |             | $      | 3,000,000 |   |
| Note Issued To YA Global Investments, L.P. For Accrued Interest |   |         | 593,889    |   |             |   | 443,889 |   |
| Brencourt Advisors, LLC Debentures                              |   |         | 5,000,000  |   |             |   | 5,000,000 |   |
| Note Issued To Brencourt Advisors, LLC For Accrued Interest     |   |         | 875,000    |   |             |   | 625,000 |   |
| Less: Debt discount                                             |   |         | (2,717,261 | )      |             |   | (3,006,498 | )  |
| Total note payable                                              |   |         | 6,751,628  |   |             |   | 6,062,391 |   |
| Less: current portion of notes payable                          |   |         | 3,000,000  |   |             |   | 2,000,000 |   |
| Total long term portion of notes payable                        |   | $       | 3,751,628  |   |             | $      | 4,062,391 |   |

| For the twelve months ended June 30, |   | Amount |             |
|--------------------------------------|--------|--------|------------------|
|     2011         |   |   | 3,000,000        |   |
|     2012         |   |   | -                |   |
|     2013         |   |   |   5,268,889 |   |
|     2014         |   |   | 800,000          |   |
|     2015    |   |   |  400,000    |   |
|                                 |   | $      | 9,468,889        |   |

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| Level 1 —  | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;          |
|----------------------------|------------------------------------------------------------------------------------------------------------------------------|
|                       |                                                                                                                         |
| Level 2 —  | Inputs other than Level 1 inputs that are either directly or indirectly observable; and                                      |
|                       |                                                                                                                         |
| Level 3 —       | Unobservable inputs, for which little or no market data exist, therefore requiring an entity to develop its own assumptions. |

|                 |   |    |   |   |    |    |   |    |   |    | Liabilities   |   |
|----------------------|--------|---------|--------|--------|---------|---------|--------|---------|--------|---------|---------------|--------|
|                 |   | Level 1 |   |   | Level 2 |    |   | Level 3 |   |    | at fair value |   |
| Derivative liability |   | $  | -      |   |    | $  | -      |    |   | $  | 1,578,517     |   |   | $ | 1,578,517 |   |
| Total                |   | $       | -      |   |    | $       | -      |    |   | $       | 1,578,517     |   |   | $ | 1,578,517 |   |

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| Beginning balance as of January 1, 2010            |   | $      | 2,256,200  |   |
|----------------------------------------------------|--------|--------|------------|--------|
| Add: Fair value of notes issued in the 1st Quarter |   |   | 200,000    |   |
| Loss in change in fair value                  |   |   | 1,940,840  |   |
| Ending balance as of March 31, 2010           |   | $      | 4,397,040  |   |
| Add: Fair value of notes issued in the 2nd Quarter |   |   | 91,084     |   |
| Gain in change in fair value                  |   |   | (2,909,607 | )      |
| Ending balance as of June 30, 2010                 |   | $      | 1,578,517  |   |

|                    |   | June 30, |   |
|-------------------------|--------|----------|--------|
|                    |   | 2010     |   |
| Expected volatility     |   |     | 164.62 | % |
| Expected life (years)   |   |     | 5      |   |
| Risk free interest rate |   |     | 1.17   | % |
| Forfeiture rate         |   |     | -      |   |
| Dividend rate           |   |     | -      |   |

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| Options Outstanding |      |   | Options Exercisable |   |
|---------------------|-----------|--------|---------------------|--------|
| Exercise Prices     |      |   | Number Outstanding  |   |   | Weighted Average Remaining Contractual Life (years) |   |   | Weighted Average Exercise Prices |   |   | Number Exercisable |   |   | Weighted Average Remaining Contractual Life (years) |   |
| $                   | 0.10-0.49 |   |                |   | 1,222,500 |   |   |   | 8.81 |   |   | $ | 0.10-0.49 |   |   |   | 1,190,000 |   |   |   | 8.92 |   |
|                | 0.50-1.00 |   |                |   | 41,735 |   |   |   | 5.55 |   |   |   | 0.50-1.00 |   |   |   | 41,735 |   |   |   | 5.55 |   |
|                | 1.01-2.00 |   |                |   | 960,000 |   |   |   | 6.67 |   |   |   | 1.01-2.00 |   |   |   | 960,000 |   |   |   | 6.67 |   |
|                | 2.01-2.99 |   |                |   | 316,292 |   |   |   | 1.19 |   |   |   | 2.01-2.99 |   |   |   | 316,292 |   |   |   | 1.19 |   |
|                | 3.00-5.00 |   |                |   | 100 |   |   |   | 0.45 |   |   |   | 3.00-5.00 |   |   |   | 100 |   |   |   | 0.45 |   |
|                |      |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                |      |   |                |   | 2,540,627 |   |   |   | 7.00 |   |   |   |   |   |   |   | 2,508,127 |   |   |   | 7.03 |   |

|                                     |   | Number of Shares |      |   | Weighted AveragePrice Per Share |    |
|------------------------------------------|--------|------------------|-----------|--------|---------------------------------|---------|
| Outstanding at December 31, 2009         |   |             | 2,812,403 |   |                            | $  | 1.78 |   |
|      Granted         |   |             | 65,000    |   |                            |    | 0.27 |   |
|      Exercised       |   |             | -         |   |                            |    | - |   |
|      Expired/Forfeit |   |             | 336,776   |   |                            |    | 7.00 |   |
| Outstanding at June 30, 2010             |   |             | 2,540,627 |   |                            | $       | 1.05 |   |
|                                     |   |             |      |   |                            |    |   |   |
| Non-vested at June 30, 2010              |   |             | 32,500    |   |                            | $       | 0.27 |   |
| Exercisable June 30, 2010                |   |             | 2,508,127 |   |                            | $       | 1.06 |   |

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|                                  |   | 2010   |                  |   | 2009   |   |
|---------------------------------------|--------|--------|-----------------------|--------|--------|--------|
| Risk-free interest rate at grant date |   |   | 1.17                  | %      |   |   | 1.76 | % |
| Expected stock price volatility       |   |   | 164.62 – 190.05 | %      |   |   | 343.06 | % |
| Expected dividend payout              |   |   | -                     |   |   |   | - |   |
| Expected option life-years            |   |   | 5                     |   |   | 3 to 5 |   |

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| Warrants Outstanding |      |   | Warrants Exercisable |
|----------------------|-----------|--------|----------------------|
|                 |      |   |                 |   |   | Weighted |   |   |   |   |   |   |   | Weighted |
|                 |      |   |                 |   |   | Average |   |   | Weighted |   |   |   |   | Average |
|                 |      |   |                 |   |   | Remaining |   |   | Average |   |   |   |   | Remaining |
| Exercise             |      |   | Number               |   |   | Contractual |   |   | Exercise |   |   | Number |   | Contractual |
| Prices               |      |   | Outstanding          |   |   | Life (years) |   |   | Price |   |   | Exercisable |   | Life (years) |
| $                    | 0.50-1.00 |   |                 |   | - |   |   |   | - |   |   | $ | 0.50-1.00 |   |   |   | - |   | - |
| $                    | 1.25-2.20 |   |                 |   | 4,096,875 |   |   |   | 3.16 |   |   | $ | 1.25-2.20 |   |   |   | 4,096,875 |   | 3.16 |
| $                    | 2.30-5.60 |   |                 |   | 1,816,229 |   |   |   | 1.44 |   |   | $ | 2.30-5.60 |   |   |   | 1,816,229 |   | 1.44 |
| $                    | 10.00     |   |                 |   | - |   |   |   | - |   |   | $ | - |   |   |   | - |   | - |
| $                    | 20.00     |   |                 |   | - |   |   |   | - |   |   | $ | 20.00 |   |   |   | - |   | - |
|                 |      |   |                 |   | 5,913,104 |   |   |   | 2.63 |   |   |   |   |   |   |   | 5,913,104 |   | 2.63 |

|                                          |   | Number of Shares(post-split) |      |   | Weighted AveragePrice Per Share(post-split) |   |
|-----------------------------------------------|--------|------------------------------|-----------|--------|---------------------------------------------|--------|
| Outstanding at December 31, 2009              |   |                         | 5,927,435 |   |                                        | $      | 2.31 |   |
|      Granted              |   |                         | -         |   |                                        |   | - |   |
|      Exercised       |   |                         | -         |   |                                        |   | - |   |
|      Cancelled or expired |   |                         | -         |   |                                        |   | - |   |
| Outstanding at March 31, 2010                 |   |                         | 5,927,435 |   |                                        | $      | 2.31 |   |
|      Granted              |   |                         | -         |   |                                        |   | - |   |
|      Exercised       |   |                         | -         |   |                                        |   | - |   |
|      Cancelled or expired |   |                         | 14,331    |   |                                        |   | 2.40 |   |
| Outstanding at June 30, 2010                  |   |                         | 5,913,104 |   |                                        | $      | 2.31 |   |

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ITEM 2. MANAGEMENT'S 

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ITEM 3. QUANTITATIVE 

ITEM 4. CONTROLS 

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ITEM 1. LEGAL 

ITEM 1A

ITEM 2. UNREGISTERED 

ITEM 3. DEFAULTS 

ITEM 

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ITEM 5. OTHER 

ITEM 6. EXHIBITS

| 31.1 | Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-B, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-B, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*           |
| 32.2 | Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*           |

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Signatur

|                  | IR BioSciences Holdings, Inc.                                                                                                                                                                                                                                   |
|-----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                                                                                                                                                       |    |
| Date: August 23, 2010 | By:                                                                                                                                                                                                                                                   | /s/ Michael K. Wilhelm                                  |
|                  | Michael K. Wilhelm                                                                                                                                                                                                                                              |
|                  | President and Chief Executive Officer                                                                                                                                                                                                                 |
|                  |                                                                                                                                                                                                                                                            |
|                  | /s/ John N. Fermanis                                         |
|                  | John N. Fermanis                                                                                                                                                                                                                                                |
|                  | Chief Financial Officer                                                                                                                                                                                                                                         |

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