----

----

----

----

| 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)                           |

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

----

Table of Contents

IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

|                               |                                                                                                                                                                                   | Page   |
|------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART I. FINANCIAL INFORMATION |                                                                                                                                                                                   |
|                               |                                                                                                                                                                                   |   |
| ITEM 1.                       | FINANCIAL STATEMENTS                                                                                                                                                                   |   |
|                               | Condensed Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008                                                                                            | F-1    |
|                               | Condensed Consolidated Statements of Losses for the three and six months ended June 30, 2009 and 2008, and for the period of inception (October 30, 2002) to June 30, 2009 (unaudited) | F-2    |
|                               | Condensed Consolidated Statement of Stockholders' Equity (Deficit) from date of inception (October 30, 2002) to June 30, 2009 (unaudited)                                              | F-3    |
|                               | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008, and for the period of inception (October 30, 2002) to June 30, 2009 (unaudited)       | F-15   |
|                               | Notes to Condensed Consolidated Financial Statements                                                                                                                                   | F-17   |
|                               |                                                                                                                                                                                   |   |
| ITEM 2.                            | MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                                                                                              | 3      |
| ITEM 3.                            | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                                                                                              | 11     |
| ITEM 4.                            | CONTROLS AND PROCEDURES                                                                                                                                                                | 11     |
|                               |                                                                                                                                                                                   |   |
| PART IIOTHER INFORMATION           |                                                                                                                                                                                   |
|                               |                                                                                                                                                                                   |   |
| ITEM 1.                            | LEGAL PROCEEDINGS                                                                                                                                                                      | 12     |
| ITEM 1A.                           | RISK FACTORS                                                                                                                                                                           | 12     |
| ITEM 2.                            | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                                                                            | 12     |
| ITEM 3.                            | DEFAULTS UPON SENIOR SECURITIES                                                                                                                                                        | 13     |
| ITEM 4.                            | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS                                                                                                                                  | 13     |
| ITEM 5.                            | OTHER INFORMATION                                                                                                                                                                      | 13     |
| ITEM 6.                            | EXHIBITS                                                                                                                                                                               | 13     |
|                               |                                                                                                                                                                                   |   |
| Signatures                         | 14                                                                                                                                                                                     |

----

Table of Contents

ITEM 1. FINANCIAL INFORMATION

|                                                                                                                                                                               |   | June 30,    |        |   | December 31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|--------|--------------|--------|
|                                                                                                                                                                               |   | 2009        |        |   | 2008         |   |
| Assets                                                                                                                                                                             |   | (unaudited) |        |   |         |   |
| Current assets                                                                                                                                                                     |   |        |        |   |         |   |
|                                                                                                                                                                               |   |        |        |   |         |   |
| Cash and cash equivalents                                                                                                                                                          |   | $           | 1,472,480   |   |         | $      | 3,158,226 |   |
| Prepaid services and other current assets (note 1)                                                                                                                                 |   |        | 169,650     |   |         |   | 222,018 |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
|       Total current assets                                                                                                                           |   |        | 1,642,130   |   |         |   | 3,380,244 |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Deposits and other assets (note 1)                                                                                                                                                 |   |        | 7,493       |   |         |   | 7,378 |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Furniture and equipment, net of accumulated depreciation of                                                                                                                        |   |        |        |   |         |   |   |   |
|       $83,115 and $75,480, respectively (note 2)                                                                                                     |   |        | 35,212      |   |         |   | 41,347 |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Total assets                                                                                                                                                                       |   | $           | 1,684,835   |   |         | $      | 3,428,969 |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Liabilities and Stockholders' Deficit                                                                                                                                              |   |        |        |   |         |   |   |   |
| Current liabilities                                                                                                                                                                |   |        |        |   |         |   |   |   |
| Accounts payable and accrued liabilities (note 4)                                                                                                                                  |   | $           | 792,929     |   |         | $      | 862,926 |   |
| Current portion of notes payable (note 5)                                                                                                                                          |   |        | 1,500,000   |   |         |   | 1,500,000 |   |
| Redemption option liability                                                                                                                                                        |   |        | 150,000     |   |         |   | - |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
|       Total current liabilities                                                                                                                      |   |        | 2,442,929   |   |         |   | 2,362,926 |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Derivative liability (note 6)                                                                                                                                                      |   |        | 2,264,480   |   |         |   | -  |   |
| Notes payable, net of discount of $3,234,871 and $1,474,937, respectively (note 5)                                                                                                 |   |        | 3,934,018   |   |         |   | 5,293,952 |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Total liabilities                                                                                                                                                                  |   |        | 8,641,427   |   |         |   | 7,656,878 |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Commitments and contingencies                                                                                                                                                      |   |        | -           |   |         |   | - |   |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Stockholders' deficit (note 7)                                                                                                                                                     |   |        |        |   |         |   |   |   |
| 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; 13,097,525 shares and 12,264,191 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively |   |        | 13,098      |   |         |   | 12,265 |   |
|                                                                                                                                                           |   |        |        |   |         |   |   |   |
| Additional paid-in capital                                                                                                                                                         |   |        | 18,459,152  |   |         |   | 20,066,317 |   |
| Common stock subscribed (note 7)                                                                                                                                                   |   |        | 38,000      |   |         |   | 250,000 |   |
| Deficit Accumulated during the development stage                                                                                                                                   |   |        | (25,466,842 | )      |         |   | (24,556,491 | ) |
|       Total stockholder's deficit                                                                                                                    |   |        | (6,956,592  | )      |         |   | (4,227,909 | ) |
|                                                                                                                                                                               |   |        |        |   |         |   |   |   |
| Total liabilities and stockholder’s deficit                                                                                                                                  |   | $           | 1,684,835   |   |         | $      | 3,428,969 |   |

----

Table of Contents

IR BioSciences Holdings, Inc. and Subsidiary

|                                                                                            |   | For the Three Months Ended June 30, |       |   | For the Six Months Ended June 30, |   |       | For the Period October 30, 2002 to |   |
|-------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|--------|-----------------------------------|--------|------------|------------------------------------|--------|
|                                                                                            |   | 2009                                |       |   | 2008                              |   |       | 2009                               |   |   | 2008 |   |   | June 30, 2009 |   |
| Revenues                                                                                        |   | $                                   | -          |   |                              | $      | -          |                               |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                                                             |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative expenses                                                    |   |                                | 819,958    |   |                              |   | 834,512    |                               |   |   | 1,664,868 |   |   |   | 2,011,419 |   |   |   | 22,774,822 |   |
| Merger fees and costs                                                                           |   |                                | -          |   |                              |   | -          |                               |   |   | - |   |   |   | - |   |   |   | 350,000 |   |
| Impairment of intangible asset costs                                                            |   |                                | -          |   |                              |   | -          |                               |   |   | - |   |   |   | - |   |   |   | 6,393 |   |
| Total operating expenses                                                                        |   |                                | 819,958    |   |                              |   | 834,512    |                               |   |   | 1,664,868 |   |   |   | 2,011,419 |   |   |   | 23,131,215 |   |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating loss                                                                                  |   |                                | (819,958   | )      |                              |   | (834,512   | )                                  |   |   | (1,664,868 | ) |   |   | (2,011,419 | ) |   |   | (23,131,215 | ) |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Other expense:                                                                                  |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of penalty for late registration of shares                                                 |   |                                | -          |   |                              |   | -          |                               |   |   | - |   |   |   | - |   |   |   | 2,192,160 |   |
| (Gain) loss from marking to market - warrant portion of penalty for late registration of shares |   |                                | -          |   |                              |   | -          |                               |   |   | - |   |   |   | - |   |   |   | (378,198 | ) |
| (Gain) loss from marketing to market - stock portion of penalty for late registration of shares |   |                                | -          |   |                              |   | -          |                               |   |   | - |   |   |   | - |   |   |   | (760,058 | ) |
| (Gain) loss from change in fair value of derivative liability                                   |   |                                | 644,265    |   |                              |   | -          |                               |   |   | 1,376,560 |   |   |   | - |   |   |   | (2,196,405 | ) |
| Financing cost                                                                                  |   |                                | 31,250     |   |                              |   | -          |                               |   |   | 62,500 |   |   |   | - |   |   |   | 331,875 |   |
| Interest (income) expense, net                                                                  |   |                                | 533,166    |   |                              |   | 58,148     |                               |   |   | 1,065,758 |   |   |   | 104,475 |   |   |   | 3,135,709 |   |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total other (income) expense                                                                    |   |                                | 1,208,681  |   |                              |   | 58,148     |                               |   |   | 2,504,818 |   |   |   | 104,475 |   |   |   | 2,325,083 |   |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before income taxes                                                               |   |                                | (2,028,639 | )      |                              |   | (892,660   | )                                  |   |   | (4,169,686 | ) |   |   | (2,115,894 | ) |   |   | (25,456,298 | ) |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes                                                                      |   |                                | -          |   |                              |   | -          |                               |   |   | - |   |   |   | - |   |   |   | (10,544 | ) |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss)                                                                                      |   | $                                   | (2,028,639 | )      |                              | $      | (892,660   | )                                  |   | $ | (4,169,686 | ) |   | $ | (2,115,894 | ) |   | $ | (25,466,842 | ) |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (loss) per share - basic and diluted                                                        |   | $                                   | (0.15      | )      |                              | $      | (0.08      | )                                  |   | $ | (0.32 | ) |   | $ | (0.18 | ) |   | $ | (3.44 | ) |
|                                                                                            |   |                                |       |   |                              |   |       |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding (post reverse stock split)- basic and diluted               |   |                                | 13,097,525 |   |                              |   | 11,600,451 |                               |   |   | 13,069,901 |   |   |   | 11,481,627 |   |   |   | 7,410,216 |   |

----

Table of Contents

IR BioSciences Holding, Inc. and Subsidiary

|                                                                                                            |   |         |      |   |    |   |   | Additional |   |   |         |   |   | Common      |   |   |    |   |   |   |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|--------|--------|---------|--------|--------|--------|--------|
|                                                                                                            |   | Common Stock |      |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |   |   |    |   |
|                                                                                                            |   | Shares       |      |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |   |   | Deficit |   |   | 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 | ) |

----

Table of Contents

|                                                                                                                            |   |         |      |   |    |   |   | Additional |   |   |         |   |   | Common      |   |   |    |   |   |   |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|--------|--------|---------|--------|--------|--------|--------|
|                                                                                                                            |   | Common Stock |      |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |   |   |    |   |
|                                                                                                                            |   | Shares       |      |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |   |   | Deficit |   |   | 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

|                                                                                                              |   |         |    |   |    |   |   | Additional |   |   |         |   |   | Common      |     |   |    |   |   |   |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|----------|--------|---------|--------|--------|--------|--------|
|                                                                                                              |   | Common Stock |    |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |     |   |    |   |
|                                                                                                              |   | Shares       |    |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |     |   | Deficit |   |   | 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 |   |
|                                                                                                              |   |         |    |   |    |   |   |       |   |   |         |   |   |        |     |   |    |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |

----

Table of Contents

|                                                                                                                  |   |         |   |   |    |   |   | Additional |   |   |         |   |   | Common      |     |   |    |   |   |   |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|----------|--------|---------|--------|--------|--------|--------|
|                                                                                                                  |   | Common Stock |   |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |     |   |    |   |
|                                                                                                                  |   | Shares       |   |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |     |   | Deficit |   |   | Total  |   |
|                                                                                                                  |   |         |   |   |    |   |   |       |   |   |         |   |   |        |     |   |    |   |   |   |   |
| 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 |   |
|                                                                                                                  |   |         |   |   |    |   |   |       |   |   |         |   |   |        |     |   |    |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |

----

Table of Contents

|                                                                                                                                                |   |         |      |   |    |   |   | Additional |   |   |         |   |   | Common      |    |   |    |   |   |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|---------|--------|---------|--------|--------|--------|--------|
|                                                                                                                                                |   | Common Stock |      |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |    |   |    |   |
|                                                                                                                                                |   | Shares       |      |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |    |   | Deficit |   |   | Total  |   |
|                                                                                                                                                |   |         |      |   |    |   |   |       |   |   |         |   |   |        |    |   |    |   |   |   |   |
| 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 in September, 2004 at $1.60 to $2.50 per share                                                                           |   |         | 4,880     |   |    |   | 5      |       |   |   | 8,379        |   |   |        | -       |   |    |   | -      |   |   |   | - |   |   |   | 8,384 |   |
|                                                                                                                                                |   |         |      |   |    |   |   |       |   |   |         |   |   |        |    |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Commitment to issue 10,000 shares of stock to a consultant in September, 2004 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, 2004                                                                                                     |   |         | -         |   |    |   | -      |       |   |   | 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, 2004 at $1.25 per share                                                                    |   |         | 125,775   |   |    |   | 126    |       |   |   | 108,514      |   |   |        | -       |   |    |   | -      |   |   |   | - |   |   |   | 108,640 |   |
|                                                                                                                                                |   |         |      |   |    |   |   |       |   |   |         |   |   |        |    |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Value of warrants issued with accounts payable conversions in October, 2004                                                                         |   |         | -         |   |    |   | -      |       |   |   | 48,579       |   |   |        | -       |   |    |   | -      |   |   |   | - |   |   |   | 48,579 |   |
|                                                                                                                                                |   |         |      |   |    |   |   |       |   |   |         |   |   |        |    |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of demand loan to stock in October, 2004 at $1.10 per share                                                                              |   |         | 9,330     |   |    |   | 9      |       |   |   | 10,254       |   |   |        | -       |   |    |   | -      |   |   |   | - |   |   |   | 10,263 |   |
|                                                                                                                                                |   |         |      |   |    |   |   |       |   |   |         |   |   |        |    |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Forgiveness of notes payable in October, 2004                                                                                                       |   |         | -         |   |    |   | -      |       |   |   | 36,785       |   |   |        | -       |   |    |   | -      |   |   |   | - |   |   |   | 36,785 |   |

----

Table of Contents

|                                                                                                           |   |   |         |   |   |   |    |   |   |   | Additional |   |   |   |         |   |   |   | Common      |   |   |   |       |   |   |   |       |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------|---------|--------|--------|--------|------------|--------|--------|--------|--------------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|--------|------------|--------|
|                                                                                                           |   |   | Common Stock |   |   |   | Paid-In |   |   |   | Deferred   |   |   |   | Stock        |   |   |   | Accumulated |   |   |   |       |   |
|                                                                                                           |   |   | Shares       |   |   |   | Amount  |   |   |   | Capital    |   |   |   | Compensation |   |   |   | Subscribed  |   |   |   | Deficit    |   |   |   | Total      |   |
|                                                                                                           |   |   |         |   |   |   |    |   |   |   |       |   |   |   |         |   |   |   |        |   |   |   |       |   |   |   |       |   |
| Issuance of stock to officer and director at $1.25 per share in October, 2004 for conversion of liability |   |   | 144,000      |   |   |   | 144     |   |   |   | 123,789    |   |   |   | -            |   |   |   | -           |   |   |   | -          |   |   |   | 123,933    |   |
|                                                                                                           |   |   |         |   |   |   |    |   |   |   |       |   |   |   |         |   |   |   |        |   |   |   |       |   |   |   |       |   |
| Value of warrants issued with officer and director conversion of liabilities in October, 2004                  |   |   | -            |   |   |   | -       |   |   |   | 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 in October, 2004                                              |   |   | -            |   |   |   | -       |   |   |   | 191,111    |   |   |   | -            |   |   |   | -           |   |   |   | -          |   |   |   | 191,111    |   |
|                                                                                                           |   |   |         |   |   |   |    |   |   |   |       |   |   |   |         |   |   |   |        |   |   |   |       |   |   |   |       |   |
| 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, 2004                                                       |   |   | (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    |   |

----

Table of Contents

|                                                                                                        |   |         |      |   |    |   |   | Additional |   |   |         |   |   | Common      |    |   |    |   |   |   |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|---------|--------|---------|--------|--------|--------|--------|
|                                                                                                        |   | Common Stock |      |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |    |   |    |   |
|                                                                                                        |   | Shares       |      |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |    |   | Deficit |   |   | Total  |   |
|                                                                                                        |   |         |      |   |    |   |   |       |   |   |         |   |   |        |    |   |    |   |   |   |   |
| 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 |   |
|                                                                                                        |   |         |      |   |    |   |   |       |   |   |         |   |   |        |    |   |    |   |   |   |   |   |   |   |   |   |   |   |
| 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 | ) |
|                                                                                                        |   |         | 6,943,632 |   |    | $      | 6,943  |       |   | $      | 9,527,993    |   |   | $           | (2,760  | )      |    | $      | -      |   |   | $ | (11,799,134 | ) |   | $ | (2,266,958 | ) |

----

Table of Contents

|                                                                                     |   |         |       |   |    |   |   | Additional |   |   |         |   |   | Common      |   |   |    |   |   |   |   |
|------------------------------------------------------------------------------------------|--------|--------------|------------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|--------|--------|---------|--------|--------|--------|--------|
|                                                                                     |   | Common Stock |       |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |   |   |    |   |
|                                                                                     |   | Shares       |       |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |   |   | Deficit |   |   | Total  |   |
|                                                                                     |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |   |   |   |
| Issuance of 10,000 shares to officer, previously accrued in March, 2006                  |   |         | 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 in September, 2010                                  |   |         | -          |   |    |   | -      |       |   |   | 50,874       |   |   |        | -      |   |    |   | -      |   |   |   | - |   |   |   | 50,874 |   |
|                                                                                     |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of penalty Common Stock, previously accrued in August, 2006                     |   |         | 415,080    |   |    |   | 415    |       |   |   | 871,250      |   |   |        | -      |   |    |   | -      |   |   |   | - |   |   |   | 871,665 |   |
|                                                                                     |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of penalty warrants, previously accrued in August, 2006                         |   |         | -          |   |    |   | -      |       |   |   | 182,239      |   |   |        | -      |   |    |   | -      |   |   |   | - |   |   |   | 182,239 |   |
|                                                                                     |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Value of options issued to officer in September, 2006                                    |   |         | -          |   |    |   | -      |       |   |   | 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 in December, 2006                                      |   |         | 3,426,625  |   |    |   | 3,427  |       |   |   | 4,610,122    |   |   |        | -      |   |    |   | -      |   |   |   | - |   |   |   | 4,613,549 |   |
|                                                                                     |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Common stock to be issued as commission for equity fund raising in December, 2006        |   |         | -          |   |    |   | -      |       |   |   | (5,483       | )      |   |        | -      |   |    |   | 5,483  |   |   |   | - |   |   |   | - |   |
|                                                                                     |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Value of options issued to officer in October, 2006                                      |   |         | -          |   |    |   | -      |       |   |   | 185,472      |   |   |        | -      |   |    |   | -      |   |   |   | - |   |   |   | 185,472 |   |
|                                                                                     |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Value of shares issued to officer in March, 2006                                         |   |         | -          |   |    |   | -      |       |   |   | 32,120       |   |   |        | -      |   |    |   | -      |   |   |   | - |   |   |   | 32,120 |   |
|                                                                                     |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 2006                                                |   |         | -          |   |    |   | -      |       |   |   | -            |   |   |        | -      |   |    |   | -      |   |   |   | (1,486,046 | ) |   |   | (1,486,046 | ) |
|                                                                                     |   |         | 10,804,190 |   |    | $      | 10,804 |       |   | $      | 15,619,928   |   |   | $           | -      |   |    | $      | 5,483  |   |   | $ | (13,285,180 | ) |   | $ | 2,351,035 |   |

----

Table of Contents

|                                                                                           |   |         |       |   |    |   |   | Additional |   |   |         |   |   | Common      |   |   |    |   |    |   |   |
|------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|--------|--------|---------|--------|---------|--------|--------|
|                                                                                           |   | Common Stock |       |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |   |   |    |   |
|                                                                                           |   | Shares       |       |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |   |   | Deficit |   |    | 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 | ) |
|                                                                                           |   |         | 11,432,254 |   |    | $      | 11,432 |       |   | $      | 18,005,332   |   |   | $           | -      |   |    | $      | 153,000 |   |   | $ | (18,749,138 | ) |   | $ | (579,374 | ) |

----

Table of Contents

|                                                                                     |   |         |    |   |    |   |   | Additional |   |   |         |   |   | Common      |   |   |    |   |     |   |   |
|------------------------------------------------------------------------------------------|--------|--------------|---------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|--------|--------|---------|--------|----------|--------|--------|
|                                                                                     |   | Common Stock |    |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |   |   |    |   |
|                                                                                     |   | Shares       |    |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |   |   | Deficit |   |     | 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 issued in January 2008 due to decrease in 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 |   |

----

Table of Contents

|                                                                                               |   |         |       |   |    |   |   | Additional |   |   |         |   |   | Common      |   |   |    |   |    |   |   |
|----------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|---------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|--------|--------|---------|--------|---------|--------|--------|
|                                                                                               |   | Common Stock |       |   | Paid-In |   |   | Deferred   |   |   | Stock        |   |   | Accumulated |   |   |    |   |
|                                                                                               |   | Shares       |       |   | Amount  |   |   | Capital    |   |   | Compensation |   |   | Subscribed  |   |   | Deficit |   |    | Total  |   |
|                                                                                               |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |    |   |   |
| Common stock issued for June 2008 interest payment at $0.699 per share in July 2008                |   |         | 28,220     |   |    |   | 28     |       |   |   | 19,698       |   |   |        | -      |   |    |   | -       |   |   |   | - |   |   |   | 19,726 |   |
|                                                                                               |   |         |       |   |    |   |   |       |   |   |         |   |   |        |   |   |    |   |    |   |   |   |   |   |   |   |   |   |
| 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

|                                                                                                                                                                    |   |         |       |   |    |   |   |     |   |   | Additional   |   |   |        |   |   | Common  |   |     |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|---------|--------|--------|----------|--------|--------|--------------|--------|--------|-------------|--------|--------|---------|--------|----------|--------|--------|
|                                                                                                                                                                    |   | Common Stock |       |   | Paid-In |   |   | Deferred |   |   | Stock        |   |   | Accumulated |   |   |    |   |
|                                                                                                                                                                    |   | Shares       |       |   | Amount  |   |   | Capital  |   |   | Compensation |   |   | Subscribed  |   |   | Deficit |   |     | 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 | )      |   |   | - |   |   |   | - |   |
|                                                                                                                                                                    |   |         |       |   |    |   |   |     |   |   |         |   |   |        |   |   |    |   |     |   |   |   |   |   |   |   |   |   |
| Value of options issued to employees in March 2008                                                                                                                      |   |         | -          |   |    |   | -      |     |   |   | 244          |   |   |        | -      |   |    |   | -        |   |   |   | - |   |   |   | 244 |   |
|                                                                                                                                                                    |   |         |       |   |    |   |   |     |   |   |         |   |   |        |   |   |    |   |     |   |   |   |   |   |   |   |   |   |
| Loss for the three months ended March 31, 2009                                                                                                                          |   |         | -          |   |    |   | -      |     |   |   | -            |   |   |        | -      |   |    |   | -        |   |   |   | (2,141,047 | ) |   |   | (2,141,047 | ) |
|                                                                                                                                                                    |   |         |       |   |    |   |   |     |   |   |         |   |   |        |   |   |    |   |     |   |   |   |   |   |   |   |   |   |
| Balance at March 31, 2009                                                                                                                                               |   |         | 13,097,525 |   |    | $      | 13,098 |     |   | $      | 18,459,152   |   |   | $           | -      |   |    | $      | -        |   |   | $ | (23,438,203 | ) |   | $ | (4,965,953 | ) |
|                                                                                                                                                                    |   |         |       |   |    |   |   |     |   |   |         |   |   |        |   |   |    |   |     |   |   |   |   |   |   |   |   |   |
| Common stock to be issued for consulting services performed from June to August 2009 at $0.19 per share                                                                 |   |         | -          |   |    |   | -      |     |   |   | -            |   |   |        | -      |   |    |   | 38,000   |   |   |   | - |   |   |   | 38,000 |   |
|                                                                                                                                                                    |   |         |       |   |    |   |   |     |   |   |         |   |   |        |   |   |    |   |     |   |   |   |   |   |   |   |   |   |
| Loss for the three months ended June 30, 2009                                                                                                                           |   |         | -          |   |    |   | -      |     |   |   | -            |   |   |        | -      |   |    |   | -        |   |   |   | (2,028,639 | ) |   |   | (2,028,639 | ) |
|                                                                                                                                                                    |   |         |       |   |    |   |   |     |   |   |         |   |   |        |   |   |    |   |     |   |   |   |   |   |   |   |   |   |
| Balance at June 30, 2009                                                                                                                                                |   |         | 13,097,525 |   |    | $      | 13,098 |     |   | $      | 18,459,152   |   |   | $           | -      |   |    | $      | 38,000   |   |   | $ | (25,466,842 | ) |   | $ | (6,956,952 | ) |

----

Table of Contents

IR BioSciences Holdings, Inc. and Subsidiary

|                                                                                                             |   | For the Six  |       |   | For the Six  |   |       | Cumulative            |   |
|------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|--------------|--------|------------|-----------------------|--------|
|                                                                                                             |   | Months Ended |       |   | Months Ended |   |       | from Inception        |   |
|                                                                                                             |   | June 30,     |       |   | June 30,     |   |       | (October 30, 2002) to |   |
|                                                                                                             |   | 2009         |       |   | 2008         |   |       | June 30, 2009         |   |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |
| Cash flows from operating activities:                                                                            |   |         |       |   |         |   |       |                  |   |
|    Net loss                                                                                       |   | $            | (4,169,686 | )      |         | $      | (2,115,894 | )                     |   | $ | (25,466,842 | ) |
|   Adjustments to reconcile net loss to net                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
|   cash used in operating activities:                                                                   |   |         |       |   |         |   |       |                  |   |   |   |   |
|   Non-cash compensation                                                                                |   |         | 38,244     |   |         |   | 61,782     |                  |   |   | 7,186,371 |   |
|   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 |   |
|   (Gain) loss from marking to market - stock portion of penalty for late registration of shares   |   |         | -          |   |         |   | -          |                  |   |   | (760,058 | ) |
|   (Gain) loss from marking to market - warrant portion of penalty for late registration of shares |   |         | -          |   |         |   | -          |                  |   |   | (378,198 | ) |
|   Change in fair value of derivative liability                                                         |   |         | 1,376,560  |   |         |   | -          |                  |   |   | (2,196,135 | ) |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
|   Legal fees for note payable                                                                          |   |         | -          |   |         |   | -          |                  |   |   | 20,125 |   |
|   Placement fees for note payable                                                                      |   |         | -          |   |         |   | -          |                  |   |   | 65,000 |   |
|   Impairment of intangible asset                                                                       |   |         | -          |   |         |   | -          |                  |   |   | 6,393 |   |
|   Interest expense                                                                                     |   |         | 400,000    |   |         |   | -          |                  |   |   | 974,880 |   |
|   Amortization of discount on notes payable                                                            |   |         | 530,745    |   |         |   | 37,792     |                  |   |   | 2,069,320 |   |
|   Redemption Option Liability                                                                          |   |         | 150,000    |   |         |   | -          |                  |   |   | 150,000 |   |
|   Depreciation and amortization                                                                        |   |         | 7,635      |   |         |   | 54,861     |                  |   |   | 76,722 |   |
|   Changes in operating assets and liabilities:                                                         |   |         |       |   |         |   |       |                  |   |   |   |   |
| Increase in deposits                                                                                             |   |         | -          |   |         |   | -          |                  |   |   | (4,868 | ) |
| Decrease in prepaid services and other assets                                                                    |   |         | 52,253     |   |         |   | 25,962     |                  |   |   | 122,725 |   |
| Increase/(Decrease) in accounts payable and accrued expenses                                                     |   |         | (69,998    | )      |         |   | (228,511   | )                     |   |   | 1,038,682 |   |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
|    Net cash used in operating activities                                                          |   |         | (1,684,246 | )      |         |   | (2,164,008 | )                     |   |   | (14,903,722 | ) |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
| Cash flows from investing activities:                                                                            |   |         |       |   |         |   |       |                  |   |   |   |   |
|    Acquisition of property and equipment                                                          |   |         | (1,500     | )      |         |   | (1,597     | )                     |   |   | (86,577 | ) |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
|    Net cash used in investing activities                                                          |   |         | (1,500     | )      |         |   | (1,597     | )                     |   |   | (86,577 | ) |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
| Cash flows from financing activities:                                                                            |   |         |       |   |         |   |       |                  |   |   |   |   |
|    Proceeds from notes payable                                                                    |   |         | -          |   |         |   | 2,750,000  |                  |   |   | 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                                                              |   |         | -          |   |         |   | 7,500      |                  |   |   | 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                                                      |   |         | -          |   |         |   | 2,757,500  |                  |   |   | 16,462,779 |   |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
| Net (decrease) increase in cash and cash equivalents                                                        |   |         | (1,685,746 | )      |         |   | 591,895    |                  |   |   | 1,472,480 |   |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
| Cash and cash equivalents at beginning of period                                                                 |   |         | 3,158,226  |   |         |   | 221,120    |                  |   |   | - |   |
|                                                                                                             |   |         |       |   |         |   |       |                  |   |   |   |   |
| Cash and cash equivalents at end of period                                                                       |   | $            | 1,472,480  |   |         | $      | 813,015    |                  |   | $ | 1,472,480 |   |

----

Table of Contents

|                                                                                                                  |   | For the SixMonths EndedJune 30,2009 |      |   | For the SixMonths EndedJune 30, 2008 |   |    | Cumulativefrom Inception(October 30, 2002) toJune 30, 2009 |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------|--------------------------------------|--------|---------|------------------------------------------------------------|--------|
| Supplemental disclosures of cash flow information:                                                                    |   |                                |      |   |                                 |   |    |                                                       |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |
| Cash paid during the period for:                                                                                      |   |                                |      |   |                                 |   |    |                                                       |   |
|      Interest                                                                                |   | $                                   | -         |   |                                 | $      | 40,998  |                                                       |   | $ | 127,051 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
|      Taxes                                                                                   |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 8,115 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Acquisition and capital restructure:                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Assets acquired                                                                                                       |   |                                | -         |   |                                 |   | -       |                                                       |   |   | - |   |
| Liabilities assumed                                                                                                   |   |                                | -         |   |                                 |   | -       |                                                       |   |   | (120,799 | ) |
| Common stock retained                                                                                                 |   |                                | -         |   |                                 |   | -       |                                                       |   |   | (2,369 | ) |
| Adjustment to additional paid-in capital                                                                              |   |                                | -         |   |                                 |   | -       |                                                       |   |   | 123,168 |   |
| Organization costs                                                                                                    |   |                                | -         |   |                                 |   | -       |                                                       |   |   | 350,000 |   |
| Total consideration paid                                                                                              |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 350,000 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Common stock issued in exchange for proprietary rights                                                                |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 9,250 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Common stock issued in exchange for services                                                                          |   | $                                   | -         |   |                                 | $      | 33,000  |                                                       |   | $ | 3,177,483 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Common stock issued in exchange for previously incurred debt and accrued interest                                     |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 1,066,401 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Common stock issued in exchange as interest                                                                           |   | $                                   | -         |   |                                 | $      | 19,276  |                                                       |   | $ | 150,585 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Amortization of beneficial conversion feature                                                                         |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 223,269 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Stock options and warrants issued in exchange for services rendered                                                   |   | $                                   | 38,244    |   |                                 | $      | 61,782  |                                                       |   | $ | 3,756,504 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Debt and accrued interest forgiveness from note holders                                                               |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 36,785 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Common stock issued in satisfaction of amounts due to an Officer and a Director                                       |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 180,000 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Common stock issued in satisfaction of accounts payable                                                               |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 157,219 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Deferred compensation to a consultant accrued in March 2005                                                           |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 2,630,761 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Amortization of deferred compensation                                                                                 |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 202,486 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Fair value of common stock and warrants in connection   with the late filing of registration statement |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 3,684,664 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Gain from marking to market - stock portion of penalty for late registration of shares                                |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | (1,124,255 | ) |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Gain from marking to market - warrant portion of penalty for late registration of shares                              |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | (456,603 | ) |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Impairment of intangible asset                                                                                        |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 6,393 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Issuance of stock to officer, previously accrued                                                                      |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 41,416 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Value of options issued to members of advisory board                                                                  |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 3,729 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Value of warrants issued to members of advisory board                                                                 |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 22,688 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Services for note payable                                                                                             |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 9,750 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Issuance of shares for accounts payable                                                                               |   | $                                   | -         |   |                                 | $      | -       |                                                       |   | $ | 44,706 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Stock issued as commission for equity fundraising                                                                     |   | $                                   | -         |   |                                 | $      | 120,000 |                                                       |   | $ | 125,483 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Value of warrants issued for financing                                                                                |   | $                                   | -         |   |                                 | $      | 226,754 |                                                       |   | $ | 1,568,215 |   |
|                                                                                                                  |   |                                |      |   |                                 |   |    |                                                       |   |   |   |   |
| Revaluation of derivative liability                                                                                   |   | $                                   | 1,376,560 |   |                                 | $      | -       |                                                       |   | $ | (2,196,135 | )  |

----

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

----

Table of Contents

|                                                |   | Options |      |   | Weighted AverageExercise Price |   |
|-----------------------------------------------------|--------|---------|-----------|--------|--------------------------------|--------|
| Outstanding at December 31, 2008                    |   |    | 1,791,168 |   |                           | $      | 2.65 |   |
|       Issued               |   |    | -         |   |                           |   | - |   |
|       Exercised            |   |    | -         |   |                           |   | - |    |
|       Forfeited or expired |   |    | -         |   |                           |   | - |   |
| Outstanding at June 30, 2009                        |   |    | 1,791,168 |   |                           | $      | 2.65 |   |
|                                                |   |    |      |   |                           |   |   |   |
| Non-vested at June 30, 2009                    |   |    | -         |   |                           | $      | - |   |
| Exercisable at June 30, 2009                        |   |    | 1,791,168 |   |                           | $      | 2.65 |   |

----

Table of Contents

|                                                   |   | June 30, 2009 |    |   | December 31, 2008 |    |
|--------------------------------------------------------|--------|---------------|---------|--------|-------------------|---------|
| Prepaid monitoring fees                                |   | $             | 78,125  |   |              | $  | 140,625 |   |
| Prepaid insurance                                      |   |          | 21,668  |   |              |    | 44,929 |   |
| Prepaid services                                       |   |          | 52,152  |   |              |    | 22,834 |   |
| Prepaid car lease                                      |   |          | 3,955   |   |              |    | 11,865 |   |
| Prepaid software                                       |   |          | 13,750  |   |              |    | - |   |
| Salary advance                                         |   |          | -       |   |              |    | 1,765 |   |
|   Total prepaid services and other current assets |   | $             | 169,650 |   |              | $       | 222,018 |   |

----

Table of Contents

----

Table of Contents

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

|                                      |   | June 30, 2009 |    |   | December 31, 2008 |   |
|-------------------------------------------|--------|---------------|---------|--------|-------------------|--------|
| Office Equipment                          |   | $             | 49,909  |   |              | $      | 49,909 |   |
| Office Fixtures and Furniture             |   |          | 30,568  |   |              |   | 30,568 |   |
| Website                                   |   |          | 28,600  |   |              |   | 27,100 |   |
| Licensed Proprietary Rights               |   |          | 9,250   |   |              |   | 9,250 |   |
|                                      |   |          | 118,327 |   |              |   | 116,827 |   |
| Accumulated Depreciation and Amortization |   |          | (83,115 | )      |              |   | (75,480 | ) |
|                                      |   | $             | 35,212  |   |              | $      | 41,347 |   |

|                                     |   | June 30,2009 |    |   | December 31,2008 |   |
|------------------------------------------|--------|--------------|---------|--------|------------------|--------|
| Accounts payable and accrued liabilities |   | $            | 720,424 |   |             | $      | 776,319 |   |
| Accounts payable - Pre-merger            |   |         | 34,926  |   |             |   | 34,926 |   |
| Interest payable                         |   |         | 3,215   |   |             |   | 3,215 |   |
| Accrued payroll                          |   |         | 8,090   |   |             |   | - |   |
| Credit cards                             |   |         | 23,074  |   |             |   | 45,266 |   |
| State income tax payable                 |   |         | 3,200   |   |             |   | 3,200 |   |
|                                     |   | $            | 792,929 |   |             | $      | 862,926 |   |

----

Table of Contents

|                                                            |   | June 30, 2009 |        |   | December 31,2008 |   |
|-----------------------------------------------------------------|--------|---------------|-------------|--------|------------------|--------|
| YA Global Investments, L.P. Debentures                          |   | $             | 3,000,000   |   |             | $      | 3,000,000 |   |
| Note Issued To YA Global Investments, L.P. For Accrued Interest |   |          | 293,889     |   |             |   | 143,889 |   |
| Brencourt Advisors, LLC Debentures                              |   |          | 5,000,000   |   |             |   | 5,000,000 |   |
| Note Issued To Brencourt Advisors, LLC For Accrued Interest     |   |          | 375,000     |   |             |   | 125,000 |   |
| Less: Debt discount                                             |   |          | (3,234,869) |   |             |   | (1,474,937) |   |
| Total note payable                                              |   |          | 5,434,020   |   |             |   | 6,793,952 |   |
| Less: current portion of notes payable                          |   |          | 1,500,000   |   |             |   | 1,500,000 |   |
| Total long term portion of notes payable                        |   |          | 3,934,020   |   |             |   | 5,293,952 |   |

| For the twelve months ended December 31, |   | Amount |      |
|------------------------------------------|--------|--------|-----------|
| 2009                                     |   | $      | 1,500,000 |   |
| 2010                                     |   |   | 1,500,000 |   |
| 2011                                     |   |   | -         |   |
| 2012                                     |   |   |   -  |   |
| 2013 and beyond                          |   |   | 5,668,889 |   |
|                                     |   | $      | 8,668,889 |   |

----

Table of Contents

| 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 |   |
| Notes payable        |   | $       | -      |   |    | $      | -      |    |   | $      | 5,434,020     |   |   | $ | 5,434,020 |   |
| Derivative liability |   |    | -      |   |    |   | -      |    |   |   | 2,264,480     |   |   |   | 2,264,480 |   |
| Total                |   | $       | -      |   |    | $      | -      |    |   | $      | 7,698,500     |   |   | $ | 7,698,500 |   |

|                    |   | January 1, |      |   | June 30, |   |
|-------------------------|--------|------------|-----------|--------|----------|--------|
|                    |   | 2009       |      |   | 2009     |   |
| Expected volatility     |   |       | 189.77    | %      |     |   | 343.06 | % |
| Expected life (years)   |   |       | 4.40-5.51 |   |     |   | 2.97-5.00 |   |
| Risk free interest rate |   |       | 1.13      | %      |     |   | 1.76 | % |
| Forfeiture rate         |   |       | -         |   |     |   | - |   |
| Dividend rate           |   |       | -         |   |     |   | - |   |

----

Table of Contents

| Options Outstanding |      |   | Options Exercisable |   |
|---------------------|-----------|--------|---------------------|--------|
| Exercise Prices     |      |   | Number Outstanding  |   |   | Weighted Average Remaining Contractual Life (years) |   |   | Weighted Average Exercise Price |   |   | Number Exercisable |   |   | Weighted Average Remaining Contractual Life (years) |   |
| $                   | 0.10-2.20 |   |                |   | 1,558,000 |   |   |   | 6.56 |   |   | $ | 0.10-2.20 |   |   |   | 1,558,000 |   |   |   | 6.56 |   |
|                | 2.30-2.50 |   |                |   | 201,444 |   |   |   | 2.02 |   |   |   | 2.30-2.50 |   |   |   | 201,444 |   |   |   | 2.02 |   |
|                | 3.10      |   |                |   | 100 |   |   |   | 1.45 |   |   |   | 3.10 |   |   |   | 100 |   |   |   | 1.45 |   |
|                | 3.30      |   |                |   | 10,303 |   |   |   | 1.14 |   |   |   | 3.30 |   |   |   | 10,303 |   |   |   | 1.14 |   |
|                | 4.40      |   |                |   | 15,000 |   |   |   | 1.00 |   |   |   | 4.40 |   |   |   | 15,000 |   |   |   | 1.00 |   |
|                | 250.00    |   |                |   | 6,321 |   |   |   | 0.75 |   |   |   | 250.00 |   |   |   | 6,321 |   |   |   | 0.75 |   |
|                |      |   |                |   | 1,791,168 |   |   |   | 5.95 |   |   |   |   |   |   |   | 1,791,168 |   |   |   | 5.95 |   |

----

Table of Contents

|                               |   | Number of Shares |      |   | Weighted AveragePrice Per Share |   |
|------------------------------------|--------|------------------|-----------|--------|---------------------------------|--------|
| Outstanding at December 31, 2008   |   |             | 1,791,168 |   |                            | $      | 2.65 |   |
|      Granted        |   |             | -         |   |                            |   | - |   |
|      Exercised |   |             | -         |   |                            |   | - |   |
|      Expired   |   |             | -         |   |                            |   | - |   |
| Outstanding at March 31, 2009      |   |             | 1,791,168 |   |                            | $      | 2.65 |   |
|      Granted   |   |             | -         |   |                            |   | - |   |
|      Exercised |   |             | -         |   |                            |   | - |   |
|      Expired   |   |             | -         |   |                            |   | - |   |
| Outstanding at June 30, 2009       |   |             | 1,791,168 |   |                            | $      | 2.65 |   |
|                               |   |             |      |   |                            |   |   |   |
| Non-vested at June 30, 2009        |   |             | -         |   |                            | $      | - |   |
| Exercisable June 30, 2009          |   |             | 1,791,168 |   |                            | $      | 2.65 |   |

|                                  | 2009    |   | 2008             |
|---------------------------------------|---------|--------|------------------|
| Risk-free interest rate at grant date | 1.76%   |   | 4.25%            |
| Expected stock price volatility       | 343.06% |   | 82.54% to 93.11% |
| Expected dividend payout              | -       |   | -                |
| Expected option life-years            | 3 to 5  |   | 3 to 5           |

----

Table of Contents

| 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 |   |                 |   | 19,080 |   |   |   | 0.08 |   |   | $ | 0.50-1.00 |   |   |   | 19,080 |   |   | 0.08 |
|                 | 1.25-2.20 |   |                 |   | 4,105,075 |   |   |   | 4.16 |   |   |   | 1.25-2.20 |   |   |   | 4,105,075 |   |   | 4.16 |
|                 | 2.30-5.60 |   |                 |   | 2,725,517 |   |   |   | 1.72 |   |   |   | 2.30-5.60 |   |   |   | 2,725,517 |   |   | 1.72 |
|                 | 10.00     |   |                 |   | 5,750 |   |   |   | 0.37 |   |   |   | 10.00 |   |   |   | 5,750 |   |   | 0.37 |
|                 | 20.00     |   |                 |   | 655 |   |   |   | 0.07 |   |   |   | 20.00 |   |   |   | 655 |   |   | 0.07 |
|                 |      |   |                 |   | 6,856,077 |   |   |   | 3.17 |   |   |   |   |   |   |   | 6,856,077 |   |   | 3.17 |

|                                          |   | Number of Shares(post-split) |      |   | Weighted AveragePrice Per Share(post-split) |   |
|-----------------------------------------------|--------|------------------------------|-----------|--------|---------------------------------------------|--------|
| Outstanding at December 31, 2008              |   |                         | 7,020,975 |   |                                        | $      | 2.66 |   |
|      Granted              |   |                         | -         |   |                                        |   | - |   |
|      Exercised       |   |                         | -         |   |                                        |   | - |   |
|      Cancelled or expired |   |                         | (102,548  | )      |                                        |   | 2.26 |   |
| Outstanding at March 31, 2009                 |   |                         | 6,918,427 |   |                                        | $      | 2.67 |   |
|      Granted              |   |                         | -         |   |                                        |   | - |   |
|      Exercised            |   |                         | -         |   |                                        |   | - |   |
|      Cancelled or expired |   |                         | (62,350   | )      |                                        |   | 2.88 |   |
| Outstanding at June 30, 2009                  |   |                         | 6,856,077 |   |                                        | $      | 2.67 |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

----

Table of Contents

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

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

----

Table of Contents

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

ITEM 5. OTHER INFORMATION

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.*           |

----

Table of Contents

Signatures

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

----