| Delaware                 | 000-28411                | 85-0460639                        |
|--------------------------|--------------------------|-----------------------------------|
| (State of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |

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|     | PART I                                                                                                          | PAGE   |
|----------|-----------------------------------------------------------------------------------------------------------------|--------|
|     |                                                                                                            |   |
| ITEM 1.  | DESCRIPTION OF BUSINESS                                                                                         | 1      |
| ITEM 1A. | RISK FACTORS                                                                                                    | 6      |
| ITEM 1B. | UNRESOLVED STAFF COMMENTS                                                                                       | 9      |
| ITEM 2.  | DESCRIPTION OF PROPERTIES                                                                                       | 9      |
| ITEM 3.  | LEGAL PROCEEDINGS                                                                                               | 9      |
| ITEM 4.  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             | 9      |
|     |                                                                                                            |   |
|     |  PART II                                                                                                   |   |
|     |                                                                                                            |   |
| ITEM 5.  | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES    | 10     |
| ITEM 6   | SELECTED FINANCIAL DATA                                                                                         | 13     |
| ITEM 7   | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                           | 14     |
| ITEM7A   | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                      | 19     |
| ITEM 8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                     | F-1    |
| ITEM 9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            | 20     |
| ITEM 9A. | CONTROLS AND PROCEDURES                                                                                         | 20     |
| ITEM 9B. | OTHER INFORMATION                                                                                               | 21     |
|     |                                                                                                            |   |
|     |  PART III                                                                                                  |   |
|     |                                                                                                            |   |
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT | 22     |
| ITEM 11. | EXECUTIVE COMPENSATION                                                                                          | 23     |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.                 | 25     |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                       | 26     |
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                          | 26     |
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                         | 27     |
|     |                                                                                                            |   |
|     | SIGNATURES                                                                                                      | 28     |

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| ●   | Micro fuel cell technology, which is designed to become an ultra efficient miniature electricity generator that converts hydrogen into electricity by chemical means, for portable electronic devices, including cellular telephones, as a substitute for lithium ion and other batteries in common use today. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●   | Mid-range fuel cell technology, which is an ultra efficient medium-size electricity generating device that converts hydrogen into electricity, with potential applications including personal transportation, cordless appliances, power tools, wheelchairs, bicycles, boats, emergency home generators, military field communications and laptop computers. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ●   | Haptics "Touch and Feel" computer applications, which is a technology that allows computer users to be able to touch and feel any objects they see on their computer screen with the aid of special "mouse." Detailed texture, object-weight, stickiness, viscosity and object density can be "felt" or sensed. Management believes this haptics technology may positively impact the way computers are used everywhere by introducing the ability to "touch." (Please see Haptics "Touch and Feel" Internet Applications and Investment in Novint Technologies, Inc.” |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | capitalization; |
|--------------------|-----------------|

| ·   | cost of product; |
|--------------------|------------------|

| ·   | type of fuel (hydrogen, methanol); |
|--------------------|------------------------------------|

| ·   | first to market with product in market segment; |
|--------------------|-------------------------------------------------|

| ·   | strong intellectual portfolio; |
|--------------------|--------------------------------|

| ·   | product life/reliability; |
|--------------------|---------------------------|

| ·   | strong customer base; |
|--------------------|-----------------------|

| ·   | strong manufacturing and supplier relationships; and |
|--------------------|------------------------------------------------------|

| ·   | benchmark power density and energy efficiency. |
|--------------------|------------------------------------------------|

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| ·   | variations in anticipated or actual results of operations; |
|--------------------|------------------------------------------------------------|

| ·   | announcements of new products or technological innovations by us or our competitors; |
|--------------------|--------------------------------------------------------------------------------------|

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| ·   | changes in earnings estimates of operational results by analysts; |
|--------------------|-------------------------------------------------------------------|

| ·   | inability of market makers to combat short positions on the stock; |
|--------------------|--------------------------------------------------------------------|

| ·   | an overall downturn in the financial markets and stock markets; |
|--------------------|-----------------------------------------------------------------|

| ·   | the use of stock to pay employees and consultants if sufficient working capital is not available; |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | inability of the market to absorb large blocks of stock sold into the market; and |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | developments or disputes concerning our intellectual property. |
|--------------------|----------------------------------------------------------------|

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| 2006           |   | High   |   |   | Low    |   |
|----------------|--------|--------|--------|--------|--------|--------|
| First Quarter  |   | $      | 0.065  |   |   | $      | 0.050 |   |
| Second Quarter |   | $      | 0.075  |   |   | $      | 0.047 |   |
| Third Quarter  |   | $      | 0.060  |   |   | $      | 0.027 |   |
| Fourth Quarter |   | $      | 0.044  |   |   | $      | 0.012 |   |
|           |   |   |   |   |   |   |   |   |
| 2007           |   | High   |   |   | Low    |   |
| First Quarter. |   | $      | 0.039  |   |   | $      | 0.012 |   |
| Second Quarter |   | $      | 0.029  |   |   | $      | 0.014 |   |
| Third Quarter  |   | $      | 0.030  |   |   | $      | 0.010 |   |
| Fourth Quarter |   | $      | 0.090  |   |   | $      | 0.011 |   |
|           |   |   |   |   |   |   |   |   |
| 2008           |   | High   |   |   | Low    |   |
| First Quarter. |   | $      | 0.064  |   |   | $      | 0.030 |   |
| Second Quarter |   | $      | 0.053  |   |   | $      | 0.030 |   |
| Third Quarter  |   | $      | 0.090  |   |   | $      | 0.022 |   |
| Fourth Quarter |   | $      | 0.063  |   |   | $      | 0.025 |   |

----

| ·   | September 14, 2001, we filed a registration statement on Form S-8 to register 900,000 of these shares. |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | November 19, 2001, we registered 550,000 shares of our common stock for issuance under the 2000 Plan. |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | January 30, 2002, we registered an additional 975,000 shares of our common stock for issuance under the 2000 Plan. |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | March 22, 2002, we registered an additional 925,000 shares of our common stock for issuance under the 2000 Plan. |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | July 12, 2002, we registered an additional 990,000 shares of our common stock for issuance under the 2000 Plan. |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | January 17, 2003, we registered an additional 8,000,000 of our common stock for issuance under the 2000 Plan. |
|--------------------|---------------------------------------------------------------------------------------------------------------|

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| Equity Compensation Plan Information                       |   |
|------------------------------------------------------------|--------|
| Plan category                                              |   | Number of securities to be issued upon exercise of outstanding options, warrants and rights(a) |   |   | Weighted-average exercise price of outstanding options, warrants and rights |   |   | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |   |
| Equity compensation plans approved by security holders     |   |   | - |   |   |   | - |   |   |   | - |   |
| Equity compensation plans not approved by security holders |   |   | – |   |   |   | – |   |   |   | 30,649,763 |   |
| Total                                                      |   |   | - |   |   |   | - |   |   |   | 30,649,763 |   |

----

| Options Outstanding        |   |   | Options Exercisable      |   |
|----------------------------|--------|--------|--------------------------|--------|
|   Exercise Price |   |   |  Number Outstanding |   |   | Weighted Average Remaining Contractual Life |   |   | Weighted Average Exercise Price |   |   |  Number Exercisable |   |   | Weighted Average Exercise Price |   |
| $                          | 0.01   |   |                     |   | 28,000,000 |   |   |   | 8.68 |   |   |   | 0.013 |   |   |   | 28,000,000 |   |   |   | 0.01 |   |
|                       | 0.02   |   |                     |   | 1,800,000 |   |   |   | 4.68 |   |   |   | 0.020 |   |   |   | 1,800,000 |   |   |   | 0.02 |   |
|                       | 0.05   |   |                     |   | 2,625,000 |   |   |   | 1.65 |   |   |   | 0.050 |   |   |   | 2,625,000 |   |   |   | 0.05 |   |
|                       | 0.05   |   |                     |   | 1,000,000 |   |   |   | 6.58 |   |   |   | 0.055 |   |   |   | 1,000,000 |   |   |   | 0.05 |   |
|                       | 0.20   |   |                     |   | 5,760,000 |   |   |   | 0.71 |   |   |   | 0.200 |   |   |   | 5,760,000 |   |   |   | 0.20 |   |
|                       | 0.39   |   |                     |   | 250,000 |   |   |   | 3.98 |   |   |   | 0.390 |   |   |   | 250,000 |   |   |   | 0.39 |   |
|                       | 1.25   |   |                     |   | 200,000 |   |   |   | 3.98 |   |   |   | 1.250 |   |   |   | 200,000 |   |   |   | 1.25 |   |
|                       | 2.25   |   |                     |   | 110,000 |   |   |   | 2.46 |   |   |   | 2.250 |   |   |   | 110,000 |   |   |   | 2.25 |   |
|                       | 2.40   |   |                     |   | 500,000 |   |   |   | 2.33 |   |   |   | 2.400 |   |   |   | 500,000 |   |   |   | 2.40 |   |

| Date             |   | Number of Warrants |      |   | Exercise Price |   | Contractual Life |   | Number of Shares Exercisable |   |
|------------------|--------|--------------------|-----------|--------|----------------|--------|------------------|--------|------------------------------|--------|
| October 11, 2007 |   |               | 3,200,000 |   |           |   | .01              |   | 10 years                     |   |   | 3,200,000 |   |
| November 9, 2007 |   |               | 800,000   |   |           |   | .01              |   | 10 years                     |   |   | 800,000 |   |
|             |   |               | 4,000,000 |   |           |   |             |   |                         |   |   | 4,000,000 |   |

----

|                                                                       |   | Year ended December 31, |      |
|----------------------------------------------------------------------------|--------|-------------------------|-----------|
|                                                                       |   | 2008                    |      |   | 2007 |   |
| Common stock issued for services                                           |   |                    | 57,000    |   |   |   | 828,000 |   |
| Options issued for services                                                |   |                    | 1,034,000 |   |   |   | 197,000 |   |
| Amortization of beneficial conversion     feature |   |                    | -         |   |   |   | 1,361,000 |   |
| Other G&A expenses                                                     |   |                    | 861,000   |   |   |   | 847,000 |   |
| Total G&A expenses                                                     |   |                    | 1,952,000 |   |   |   | 3,233,000 |   |
| Research and development                                                   |   |                    | 198,000   |   |   |   | 210,000 |   |
| Operating expenses                                                         |   |                    | 2,150,000 |   |   |   | 3,443,000 |   |
| Other income                                                               |   |                    | -         |   |   |   | (14,000 | ) |
| Gain on sale of Novint common stock                                        |   |                    | (50,000   | ) |   |   | (470,000 | ) |
| Net interest expense                                                       |   |                    | 42,000    |   |   |   | 55,000 |   |
| Net loss                                                                   |   |                    | 2,142,000 |   |   |   | 3,014,000 |   |

----

| ·   | an increase in the net loss (net of the non-cash gains on the sale of Novint in 2008 and 2007 and the 2007 non-cash financing costs related to the beneficial conversion feature of convertible notes) of $69,000; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | plus a lower amount of cash generated by changes in operating assets and liabilities in 2008 equal to $162,000, |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | partially offset by the net effect of common stock and options issued for an increased amount of services in 2008 of $66,000. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

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| REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                                                                                                                        | F-2-3 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|
| CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007                                                                                                                                    | F-4   |
| CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM JULY 31, 1992 (INCEPTION) THROUGH DECEMBER 31, 2008 | F-5   |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE PERIODS FROM JULY  31, 1992 (INCEPTION) THROUGH DECEMBER 31, 2008                                             | F-6   |
| CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM JULY 31, 1992 (INCEPTION) THROUGH DECEMBER 31, 2008                                | F-15  |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                      | F-16  |

----

----

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| MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES |
|----------------------------------------------|
| (a development stage enterprise)             |
| CONSOLIDATED BALANCE SHEETS                  |

| ASSETS                                                                                                                    |   | December 31, 2008 |        |   | December 31, 2007 |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|--------|-------------------|--------|
| Current assets:                                                                                                           |   |              |        |   |              |   |
| Cash and cash equivalents                                                                                                 |   | $                 | 567,000     |   |              |   | 452,000 |   |
| Investments-available for sale                                                                                            |   |              | 129,000     |   |              |   | - |   |
| Prepaid expenses and other assets                                                                                         |   |              | -           |   |              |   | 44,000 |   |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| Total current assets                                                                                                      |   |              | 696,000     |   |              |   | 496,000 |   |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| Investments                                                                                                               |   |              | 2,000       |   |              |   | 2,000 |   |
| Intellectual property, net                                                                                                |   |              | 290,000     |   |              |   | - |   |
| Patents, net of accumulated amortization of $2,080,000 and$1,886,000, respectively                                        |   |              | -           |   |              |   | 194,000 |   |
| Other asset                                                                                                               |   |              | 31,000      |   |              |   | 30,000 |   |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| Total assets                                                                                                              |   | $                 | 1,019,000   |   |              |   | 722,000 |   |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| LIABILITIES                                                                                                               |   |              |        |   |              |   |   |   |
| Current liabilities                                                                                                       |   |              |        |   |              |   |   |   |
| Accounts payable and accrued expenses                                                                                     |   | $                 | 281,000     |   |              |   | 364,000 |   |
| Accrued interest and expenses - related parties                                                                           |   |              | 552,000     |   |              |   | 403,000 |   |
| Note payable to related party                                                                                             |   |              | 545,000     |   |              |   | 545,000 |   |
| Note payable to former officers                                                                                           |   |              | 450,000     |   |              |   | 450,000 |   |
| Convertible note payable - other                                                                                          |   |              | 33,000      |   |              |   | 33,000 |   |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| Total current liabilities                                                                                                 |   |              | 1,861,000   |   |              |   | 1,795,000 |   |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| Commitments and Contingencies:                                                                                            |   |              |        |   |              |   |   |   |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| STOCKHOLDER’S DEFICIT                                                                                               |   |              |        |   |              |   |   |   |
| Capital stock $.001 par value                                                                                             |   |              |        |   |              |   |   |   |
| Preferred, authorized 1,000,000 shares                                                                                    |   |              |        |   |              |   |   |   |
| Series A convertible, redeemable, 10 percent cumulative, authorized182,525, shares; issued and outstanding - none         |   |              | -           |   |              |   | - |   |
| Series B convertible,  authorized 250,000 shares; 49,999 shares issuedand outstanding                           |   |              | -           |   |              |   | - |   |
| Series C convertible, redeemable, authorized 14,000 shares;                                                               |   |              |        |   |              |   |   |   |
| issued and outstanding - none                                                                                             |   |              | -           |   |              |   | - |   |
| Common, authorized 500,000,000 shares, 378,977,926 and318,545,000 shares issued,  and outstanding, respectively |   |              | 379,726     |   |              |   | 319,000 |   |
| Additional paid-in-capital                                                                                                |   |              | 51,292,274  |   |              |   | 49,109,000 |   |
| Other accumulated comprehensive income                                                                                    |   |              | 129,000     |   |              |   | - |   |
| Deficit accumulated during the development stage                                                                          |   |              | (52,643,000 | )      |              |   | (50,501,000 | ) |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| Total Stockholder’s deficit                                                                                         |   |              | (842,000    | )      |              |   | (1,073,000 | ) |
|                                                                                                                      |   |              |        |   |              |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT                                                                         |   | $                 | 1,019,000   |   |              |   | 722,000 |   |

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| MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES                                |   |
|-----------------------------------------------------------------------------|--------|
| (a development stage enterprise)                                            |   |
|                                                                        |   |   |   |   |
| CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS) |   |

|                                                                                                         |   |         |        |   |              |   |        | PERIOD FROM   |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------------|-------------|--------|-------------------|--------|-------------|---------------|--------|
|                                                                                                         |   |         |        |   |              |   |        | JULY 31, 1992 |   |
|                                                                                                         |   |         |        |   | (INCEPTION)       |   |
|                                                                                                         |   | YEAR ENDED   |        |   | THROUGH           |   |
|                                                                                                         |   | DECEMBER 31, |        |   | December 31, 2008 |   |
|                                                                                                         |   | 2008         |        |   | 2007              |   |        | (unaudited)   |   |
|                                                                                                         |   |         |        |   |              |   |        |          |   |
| Revenue                                                                                                      |   | $            | -           |   |              | $      | - -    |          |   | $ | 856,000 |   |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| Operating costs and expenses:                                                                                |   |         |        |   |              |   |        |          |   |   |   |   |
| General and administrative                                                                                   |   |         | 1,952,000   |   |              |   | 3,233,000   |          |   |   | 44,687,000 |   |
| Research and development                                                                                     |   |         | 198,000     |   |              |   | 210,000     |          |   |   | 9,020,000 |   |
| Impairment charge of certain patents                                                                         |   |         | -           |   |              |   | -           |          |   |   | 189,000 |   |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| Total operating costs and expenses                                                                           |   |         | 2,150,000   |   |              |   | 3,443,000   |          |   |   | 53,896,000 |   |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| Loss from operations before other income and expenses                                                        |   |         | (2,150,000  | )      |              |   | (3,443,000  | )             |   |   | (53,040,000 | ) |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| Other income and expenses:                                                                                   |   |         |        |   |              |   |        |          |   |   |   |   |
|   Gain from sale of equity interest                                                                |   |         | -           |   |              |   | -           |          |   |   | 885,000 |   |
|   Gain on settlement of NMXS.com option                                                            |   |         | -           |   |              |   | -           |          |   |   | 50,000 |   |
| Gain on legal settlement                                                                                     |   |         | -           |   |              |   | 14,000      |          |   |   | 14,000 |   |
|   Proceeds from sale of NMXS.com common stock                                                      |   |         | -           |   |              |   | -           |          |   |   | 393,000 |   |
|  Gain from sale of Novint Technologies Inc. common stock                                                |   |         | 50,000      |   |              |   | 470,000     |          |   |   | 1,984,000 |   |
|  Gain on issuance of investor common stock                                                              |   |         | -           |   |              |   | -           |          |   |   | 531,000 |   |
|  Contract revenue                                                                                       |   |         | -           |   |              |   | -           |          |   |   | 3,741,000 |   |
|  Interest and other expenses                                                                            |   |         | (50,000     | )      |              |   | (61,000     | )             |   |   | (1,132,000 | ) |
|  Interest income                                                                                        |   |         | 8,000       |   |              |   | 6,000       |          |   |   | 192,000 |   |
|  Equity in losses of investees                                                                          |   |         | -           |   |              |   | -           |          |   |   | (1,243,000 | ) |
| Gain / (loss) on disposal of equipment                                                                       |   |         | -           |   |              |   | -           |          |   |   | (13,000 | ) |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| NET LOSS                                                                                                     |   |         | (2,142,000  | )      |              |   | (3,014,000  | )             |   |   | (47,638,000 | ) |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| Other comprehensive income                                                                                   |   |         |        |   |              |   |        |          |   |   |   |   |
|      Unrealized gain on available for sale     investments |   |         | 129,000     |   |              |   | -           |          |   |   | 129,000 |   |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| OTHER COMPREHENSIVE LOSS                                                                                     |   | $            | (2,013,000  | )      |              | $      | (3,014,000  | )             |   |   | (47,509,000 | ) |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| BASIC AND DILUTED LOSS PER COMMON SHARE:                                                                     |   |         |        |   |              |   |        |          |   |   |   |   |
| Weighted average number of common shares outstanding                                                         |   |         | 328,469,378 |   |              |   | 249,567,399 |          |   |   |   |   |
|                                                                                                         |   |         |        |   |              |   |        |          |   |   |   |   |
| Basic and diluted loss per common share                                                                      |   | $            | (0.01       | )      |              | $      | (0.01       | )             |   |   |   |   |

----

|                                                                                               |   | Series A Preferred |   |   | Preferred Stock $.001 Par Value Series B |   |   | Preferred Stock $.001 Par Value Series C   |   |   | Common Stock $.001 Par Value |   |   | Additional Paid-in |   |   | Deferred |         |   | Amounts Receivable From |   |   | Other accumulated comprehensive |   |   | Deficit AccumulatedDuring the Develop. |    |   | Treasury    |   |      |               |   |
|----------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|------------------------------------------|--------|--------|------------------------------------------------------|--------|--------|------------------------------|--------|--------|--------------------|--------|--------|----------|--------------|--------|-------------------------|--------|--------|---------------------------------|--------|--------|----------------------------------------|---------|--------|-------------|--------|-----------|--------------------|--------|
|                                                                                               |   |  Stock        |   |   |  Shares                             |   |   |  Amount                                         |   |   |  Shares                 |   |   |  Amount       |   |   |     | Shares  |   |                    |   | Amount |                            |   |   | Capital                                |    |   |  Comp. |   |      |  Stockholders |   |   |  income |   |   |   | Stage |   |   |  Stock |   |   |   | Total |   |
| Initial issuance of shares to founders on contribution of intangible assets at historic cost basis |   | $                  | -      |   |                                     |   | -      |                                                 |   | $      | -                            |   |   |               | -      |   |     | $            | -      |                    |   |   | 14,391,627                      |   |   | $                                      | $14,500 |   |        | $      | 500       |               |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 15,000 |   |
| Additional founders' contribution                                                                  |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   | 40,000    |               |   |   |   |   |   |   | (40,000 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |
| Issuance of 1,037,000 shares of Series A preferred stock, net of issuance costs                    |   |               | 10,000 |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   | 1,020,000 |               |   |   |   |   |   |   | (286,000 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 744,000 |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   |      |               |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (543,000 | ) |   |   |   |   |   |   | (543,000 | ) |
| Balance, March 31, 1993                                                                            |   |               | 10,000 |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 14,391,627                      |   |   |                                   | 14,500  |   |        |   | 1,060,500 |               |   |   |   |   |   |   | (326,000 | ) |   |   |   |   |   |   | (543,000 | ) |   |   |   |   |   |   | 216,000 |   |
| Issuance of shares to investor at approximately $.21 per share                                     |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 14,391,627                      |   |   |                                   | 14,500  |   |        |   | 2,985,500 |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 3,000,000 |   |
| Issuance of shares on exercise of options                                                          |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 479,720                         |   |   |                                   | 1,000   |   |        |   | 49,000    |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| Services performed in exchange for Series A preferred stock issued in fiscal 1993                  |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   |      |               |   |   |   |   |   |   | 127,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 127,000 |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   |      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,292,000 | ) |   |   |   |   |   |   | (2,292,000 | ) |
| Balance, March 31, 1994                                                                            |   |               | 10,000 |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 29,262,974                      |   |   |                                   | 30,000  |   |        |   | 4,095,000 |               |   |   |   |   |   |   | (199,000 | ) |   |   |   |   |   |   | (2,835,000 | ) |   |   |   |   |   |   | 1,101,000 |   |
| Services performed for Series A preferred stock issued in fiscal 1993                              |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   |      |               |   |   |   |   |   |   | 159,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 159,000 |   |
| Issuance of shares at approximately $.52 per share                                                 |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 345,399                         |   |   |                                   |    |   |        |   | 182,000   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 182,000 |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   |      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,250,000 | ) |   |   |   |   |   |   | (2,250,000 | ) |
| Balance, December 31, 1994                                                                         |   |               | 10,000 |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 29,608,373                      |   |   |                                   | 30,000  |   |        |   | 4,277,000 |               |   |   |   |   |   |   | (40,000 | ) |   |   |   |   |   |   | (5,085,000 | ) |   |   |   |   |   |   | (808,000 | ) |
| Issuance of 163,000 shares of Series A preferred stock                                             |   |               | 2,000  |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   | 161,000   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 163,000 |   |
| Write-off of amounts receivable from stockholders                                                  |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   | (40,000   | )                  |   |   |   |   |   |   | 40,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   |      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (972,000 | ) |   |   |   |   |   |   | (972,000 | ) |
| Balance, December 31, 1995                                                                         |   |               | 12,000 |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 29,608,373                      |   |   |                                   | 30,000  |   |        |   | 4,398,000 |               |   |   |   |   |   |   | - |   |   |   |   |   |   |   | (6,057,000 | ) |   |   |   |   |   |   | (1,617,000 | ) |
| Issuance of shares upon exercise of option for $15,000                                             |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 14,391,627                      |   |   |                                   | 14,000  |   |        |   | 1,000     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 15,000 |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   |                            |   |   |                                   |    |   |        |   |      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (284,000 | ) |   |   |   |   |   |   | (284,000 | ) |
| Balance, December 31, 1996                                                                         |   |               | 12,000 |   |                                     |   |   |                                                 |   |   |                         |   |   |               |   |   |     |         |   |                    |   |   | 44,000,000                      |   |   |                                   | 44,000  |   |        |   | 4,399,000 |               |   |   |   |   |   |   | - |   |   |   |   |   |   |   | (6,341,000 | ) |   |   |   |   |   |   | (1,886,000 | ) |

----

|                                                                                               |   | Series A Preferred |   |   | Preferred Stock $.001 Par Value Series B |   |         | Preferred Stock $.001 Par Value Series C |   |         | Common Stock $.001 Par Value |   |         | Additional Paid-in |   |   | Deferred     |   |   | Amounts Receivable From |   |   | Other accumulated comprehensive |    |   | Deficit AccumulatedDuring the Develop. |    |   | Treasury |   |         |   |   |
|----------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|------------------------------------------|--------|--------------|------------------------------------------|--------|--------------|------------------------------|--------|--------------|--------------------|--------|--------|--------------|--------|--------|-------------------------|--------|--------|---------------------------------|---------|--------|----------------------------------------|---------|--------|----------|--------|--------------|--------|--------|
|                                                                                               |   |  Stock        |   |   |  Shares                             |   |  Amount |                                     |   |  Shares |                         |   |  Amount |               |   |   | Shares  |   |   |  Amount            |   |   |                            | Capital |   |                                   |    | Comp.  |     |   | Stockholders |   |   |  income |   |   |  Stage |   |   |  Stock |   |   |   | Total |   |
| Initial issuance of shares to founders on contribution of intangible assets at historic cost basis |   | $                  | -      |   |                                     |   | -            |                                     |   | $            | -                            |   |         |               | -      |   |         | $      | -      |                    |   |   | 14,391,627                      |    |   | $                                      | $14,500 |   |     | $      | 500          |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 15,000 |   |
| Additional founders' contribution                                                                  |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   | 40,000       |   |   |   |   |   |   |   | (40,000 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |
| Issuance of 1,037,000 shares of Series A preferred stock, net of issuance costs                    |   |               | 10,000 |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   | 1,020,000    |   |   |   |   |   |   |   | (286,000 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 744,000 |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (543,000 | ) |   |   |   |   |   |   | (543,000 | ) |
| Balance, March 31, 1993                                                                            |   |               | 10,000 |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 14,391,627                      |    |   |                                   | 14,500  |   |     |   | 1,060,500    |   |   |   |   |   |   |   | (326,000 | ) |   |   |   |   |   |   | (543,000 | ) |   |   |   |   |   |   | 216,000 |   |
| Issuance of shares to investor at approximately $.21 per share                                     |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 14,391,627                      |    |   |                                   | 14,500  |   |     |   | 2,985,500    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 3,000,000 |   |
| Issuance of shares on exercise of options                                                          |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 479,720                         |    |   |                                   | 1,000   |   |     |   | 49,000       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| Services performed in exchange for Series A preferred stock issued in fiscal 1993                  |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   |         |   |   |   |   |   |   |   | 127,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 127,000 |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,292,000 | ) |   |   |   |   |   |   | (2,292,000 | ) |
| Balance, March 31, 1994                                                                            |   |               | 10,000 |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 29,262,974                      |    |   |                                   | 30,000  |   |     |   | 4,095,000    |   |   |   |   |   |   |   | (199,000 | ) |   |   |   |   |   |   | (2,835,000 | ) |   |   |   |   |   |   | 1,101,000 |   |
| Services performed for Series A preferred stock issued in fiscal 1993                              |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   |         |   |   |   |   |   |   |   | 159,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 159,000 |   |
| Issuance of shares at approximately $.52 per share                                                 |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 345,399                         |    |   |                                   |    |   |     |   | 182,000      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 182,000 |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,250,000 | ) |   |   |   |   |   |   | (2,250,000 | ) |
| Balance, December 31, 1994                                                                         |   |               | 10,000 |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 29,608,373                      |    |   |                                   | 30,000  |   |     |   | 4,277,000    |   |   |   |   |   |   |   | (40,000 | ) |   |   |   |   |   |   | (5,085,000 | ) |   |   |   |   |   |   | (808,000 | ) |
| Issuance of 163,000 shares of Series A preferred stock                                             |   |               | 2,000  |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   | 161,000      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 163,000 |   |
| Write-off of amounts receivable from stockholders                                                  |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   | (40,000      | )      |   |   |   |   |   |   | 40,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (972,000 | ) |   |   |   |   |   |   | (972,000 | ) |
| Balance, December 31, 1995                                                                         |   |               | 12,000 |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 29,608,373                      |    |   |                                   | 30,000  |   |     |   | 4,398,000    |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | (6,057,000 | ) |   |   |   |   |   |   | (1,617,000 | ) |
| Issuance of shares upon exercise of option for $15,000                                             |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 14,391,627                      |    |   |                                   | 14,000  |   |     |   | 1,000        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 15,000 |   |
| Net loss                                                                                           |   |               |   |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   |                            |    |   |                                   |    |   |     |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (284,000 | ) |   |   |   |   |   |   | (284,000 | ) |
| Balance, December 31, 1996                                                                         |   |               | 12,000 |   |                                     |   |         |                                     |   |         |                         |   |         |               |   |   |         |   |   |                    |   |   | 44,000,000                      |    |   |                                   | 44,000  |   |     |   | 4,399,000    |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | (6,341,000 | ) |   |   |   |   |   |   | (1,886,000 | ) |

----

|                                                                                                                                                                                                                                                                                                                                 |   |   | Series A Preferred |   |   |   | Preferred Stock $.001 Par Value Series B |   |   |   | Preferred Stock $.001 Par Value Series C |   |   |   | Common Stock $.001 Par Value |   |   |   | Additional Paid-in |   |   |   | Deferred           |   |   |   | Amounts Receivable FromStock- |   |   |   | Other accumulated compre-hensive |   |   |   | Deficit AccumulatedDuring the Develop. |   |   |   | Treasury |   |   |   |                     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------|--------|--------|--------|------------------------------------------|--------|--------|--------|------------------------------------------|--------|--------|--------|------------------------------|--------|--------|--------|--------------------|--------|--------|--------|--------------------|--------|--------|--------|-------------------------------|--------|--------|--------|----------------------------------|--------|--------|--------|----------------------------------------|--------|--------|--------|----------|--------|--------|--------|--------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                 |   |   | Stock    |   |   |   | Shares                              |   |   |   | Amount                                   |   |   |   | Shares                  |   |   |   | Amount   |   |   |   | Shares   |   |   |   |  Amount        |   |   |   | Capital                |   |   |   | Comp.                        |   |   |   | holders  |   |   |   | income    |   |   |   | Stage   |   |   |   | Stock |   |   |   | Total |   |
| Balance, December 31, 1996                                                                                                                                                                                                                                                                                                           |   |   | 12,000             |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 44,000,000         |   |   | $      | 44,000                        |   |   |   | 4,399,000                        |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   | (6,341,000 | ) |   |   |   |   |   | $ | (1,886,000 | ) |
| Purchase and retirement of 1,200,000 shares of Series A preferred stock                                                                                                                                                                                                                                                              |   |   | (12,000            | )      |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   | (58,000                          | )      |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   | (70,000 | ) |
| Purchase of 7,195,814 treasury shares of common stock for $15,000                                                                                                                                                                                                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   |                             |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   | (15,000 | ) |   |   | (15,000 | ) |
| Net loss/comprehensive loss                                                                                                                                                                                                                                                                                                          |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   |                             |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   | (335,000 | ) |   |   |   |   |   |   | (335,000 | ) |
| Balance, December 31, 1997                                                                                                                                                                                                                                                                                                           |   |   | -                  |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 44,000,000         |   |   |   | 44,000                        |   |   |   | 4,341,000                        |   |   |   |                                   |   |   |   | -        |   |   |   |                     |   |   |   | (6,676,000 | ) |   |   | (15,000 | ) |   |   | (2,306,000 | ) |
| Purchase of 7,195,813 treasury shares of common stock for $15,000                                                                                                                                                                                                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   |                             |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   | (15,000 | ) |   |   | (15,000 | ) |
| Special distribution of 14,391,627 shares of common stock to Projectavision, Inc.                                                                                                                                                                                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   | 346,000                          |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   | 30,000 |   |   |   | 376,000 |   |
| Shares deemed issued in connection with reverse merger                                                                                                                                                                                                                                                                               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 11,000,000         |   |   |   | 11,000                        |   |   |   | (11,000                          | )      |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 182,525 shares of Series A preferred stock and warrants exercisable into 750,000 shares of common stock at an exercise price of $.10 per share in exchange for note payable of $1,500,000 and accrued interest of $330,000 including deemed dividend in connection with beneficial conversion feature of preferred stock |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   | 2,850,000                        |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   | (1,020,000 | ) |   |   |   |   |   |   | 1,830,000 |   |
| Issuance of shares at $.20 per share, net of issuance costs                                                                                                                                                                                                                                                                          |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 5,000,000          |   |   |   | 5,000                         |   |   |   | 970,000                          |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   | 975,000 |   |
| Issuance of shares to purchase intangible assets                                                                                                                                                                                                                                                                                     |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 7,200,000          |   |   |   | 7,000                         |   |   |   | 1,433,000                        |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   | 1,440,000 |   |
| Issuance of shares at $.58 per share for consulting services                                                                                                                                                                                                                                                                         |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,000,000          |   |   |   | 1,000                         |   |   |   | 579,000                          |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   | 580,000 |   |
| Issuance of warrants on February 10, 1998 to purchase 2,000,000 shares of common stock exercisable at $.75 per share at fair value for services resulting from cashless exercise feature                                                                                                                                             |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   | 660,000                          |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   | 660,000 |   |
| Issuance of shares at $.18 per share                                                                                                                                                                                                                                                                                                 |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 275,000            |   |   |   |                          |   |   |   | 50,000                           |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| Issuance of shares on conversion of 182,525 shares of Series A preferred stock                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 9,435,405          |   |   |   | 10,000                        |   |   |   | (10,000                          | )      |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares at $.05 per share                                                                                                                                                                                                                                                                                                 |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 20,340,000         |   |   |   | 20,000                        |   |   |   | 997,000                          |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   | 1,017,000 |   |
| Issuance of stock options and warrants at fair value for services                                                                                                                                                                                                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   | 2,165,000                        |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   | 2,165,000 |   |
| Net loss/comprehensive loss                                                                                                                                                                                                                                                                                                          |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   |                             |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   | (4,580,000 | ) |   |   |   |   |   |   | (4,580,000 | ) |
|                                                                                                                                                                                                                                                                                                                                 |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |               |   |   |   |                          |   |   |   |                             |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 1998                                                                                                                                                                                                                                                                                                           |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 98,250,405         |   |   |   | 98,000                        |   |   |   | 14,370,000                       |   |   |   |                                   |   |   |   |     |   |   |   |                     |   |   |   | (12,276,000 | ) |   |   | - |   |   |   | 2,192,000 |   |

----

|                                                                                                                                                                                                                  |   | Series A Preferred |   |   | Preferred Stock $.001 Par Value Series B |   |    | Preferred Stock $.001 Par Value Series C |   |   | Common Stock $.001 Par Value |   |   | Additional Paid-in |   |   | Deferred     |   |   | Amounts Receivable FromStock- |   |   | Other accumulated compre-hensive |   |   | Deficit AccumulatedDuring the Develop. |    |   | Treasury |   |       |         |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|------------------------------------------|--------|---------|------------------------------------------|--------|--------|------------------------------|--------|--------|--------------------|--------|--------|--------------|--------|--------|-------------------------------|--------|--------|----------------------------------|--------|--------|----------------------------------------|---------|--------|----------|--------|------------|--------------|--------|
|                                                                                                                                                                                                                  |   | Stock              |   |   | Shares                              |   |    | Amount                                   |   |   | Shares                  |   |   | Amount             |   |   | Shares  |   |   | Amount                        |   |   | Capital                          |   |   | Comp.                                  |    |   | holders  |   |       | income  |   |   | Stage |   |   | Stock |   |   | Total |   |
| Balance, December 31, 1998                                                                                                                                                                                            |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 98,250,405                       |   |   | $                                      | 98,000  |   |     | $      | 14,370,000 |         |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (12,276,000 | ) |   |   |   |   |   | $ | 2,192,000 |   |
| Issuance of shares in satisfaction of accrued expenses                                                                                                                                                                |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 78,000                           |   |   |                                   |    |   |     |   | 15,000     |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 15,000 |   |
| Issuance of shares at $.49 per share for consulting services                                                                                                                                                          |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 10,000                           |   |   |                                   |    |   |     |   | 5,000      |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,000 |   |
| Issuance of shares at $.49 per share to purchase furniture and fixtures                                                                                                                                               |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 100,000                          |   |   |                                   |    |   |     |   | 49,000     |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 49,000 |   |
| Issuance of shares at market prices as consulting services were performed                                                                                                                                             |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 17,269                           |   |   |                                   |    |   |     |   | 15,000     |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 15,000 |   |
| Issuance of shares to purchase intangible assets                                                                                                                                                                      |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 1,000,000                        |   |   |                                   | 1,000   |   |     |   | 999,000    |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,000,000 |   |
| Issuance of shares at $1.25 per share for services                                                                                                                                                                    |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 1,600                            |   |   |                                   |    |   |     |   | 2,000      |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,000 |   |
| Issuance of stock options Immediately exercisable at fair value for services                                                                                                                                          |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   |                             |   |   |                                   |    |   |     |   | 6,572,000  |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,572,000 |   |
| Issuance of warrants on February 10, 1998 to purchase 2,000,000 shares of common stock exercisable at $.75 per share for consulting services resulting from notification of warrant holder of intent to exercise |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   |                             |   |   |                                   |    |   |     |   | 1,090,000  |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,090,000 |   |
| Shares issuable at $1.27 per share in connection with note payable                                                                                                                                                    |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   |                             |   |   |                                   |    |   |     |   | 191,000    |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 191,000 |   |
| Issuance of shares on exercise of 100,000 options at $.20 per share                                                                                                                                                   |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 100,000                          |   |   |                                   |    |   |     |   | 20,000     |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 20,000 |   |
| Issuance of Series B convertible preferred shares at $6.00 per share including deemed dividend in connection with beneficial conversion feature of preferred stock                                                    |   |               |   |   |                                     |   | 245,165 |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   |                             |   |   |                                   |    |   |     |   | 2,942,000  |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,471,000 | ) |   |   |   |   |   |   | 1,471,000 |   |
| Issuance of shares at $.75 per share                                                                                                                                                                                  |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 533,000                          |   |   |                                   | 1,000   |   |     |   | 399,000    |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 400,000 |   |
| Issuance of shares at $.75 per share                                                                                                                                                                                  |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 515,000                          |   |   |                                   | 1,000   |   |     |   | 385,000    |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 386,000 |   |
| Issuance of shares at market price for service                                                                                                                                                                        |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 4,942                            |   |   |                                   |    |   |     |   |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of common stock to Equilink, LLC on exercise of cashless warrants                                                                                                                                            |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 1,076,923                        |   |   |                                   | 1,000   |   |     |   | (1,000     | )            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss/comprehensive loss                                                                                                                                                                                           |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   |                             |   |   |                                   |    |   |     |   |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (9,800,000 | ) |   |   |   |   |   |   | (9,800,000 | ) |
|                                                                                                                                                                                                                  |   |               |   |   |                                     |   |    |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   |                             |   |   |                                   |    |   |     |   |       |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 1999                                                                                                                                                                                            |   |               |   |   |                                     |   | 245,165 |                                     |   |   |                         |   |   |               |   |   |         |   |   |                          |   |   | 101,687,139                      |   |   |                                   | 102,000 |   |     |   | 27,053,000 |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (23,547,000 | ) |   |   |   |   |   |   | 3,608,000 |   |

----

|                                                                                                                                                        |   Series A Preferred |   |   Preferred Stock $.001 Par Value Series B |    | Preferred Stock $.001 Par Value Series C     |   |   Common Stock $.001 Par Value |   | Additional Paid-in |        |   Deferred |    |   Amounts Receivable From |       |   Other accumulated comprehensive |      | Deficit AccumulatedDuring the Develop. |   |   Treasury |   |         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|--------|-------------------------------------------------|---------|------------------------------------------------------------------|--------|-------------------------------------|--------|--------------------|-------------|-----------------|---------|--------------------------------|------------|----------------------------------------|-----------|----------------------------------------|--------|-----------------|--------|--------------|
|                                                                                                                                                        |  Stock               |   |  Shares                               |    |  Amount                                                     |   | Shares                         |   |  Amount       |        |  Shares    |    |  Amount                   |       | Capital                                |      | Comp.                                  |   | Stockholders    |   |  income |   | Stage |   | Stock |   | Total |
| Balance, December 31, 1999                                                                                                                                  |                      |   | 245,165                                         |    |                                                             |   |                                |   |               |        | 101,687,139     |    | $102,000                       |       | $27,053,000                            |      |                                   |   |            |   |         |   | $(23,547,000) |   |   |   | $3,608,000 |
| Shares issued of Series preferred shares at $100.00 per share including deemed dividend in connection with beneficial conversion feature of preferred stock |                      |   |                                            |    |                                                             |   | 14,000                              |   |               |        |            |    |                           |       | 2,199,000                              |      |                                   |   |            |   |         |   | (1,400,000) |   |   |   | 799,000 |
| Issuance of shares in connection with Series C preferred stock private placement investment                                                                 |                      |   |                                            |    |                                                             |   |                                |   |               |        | 700,000         |    | 1,000                          |       | 600,000                                |      |                                   |   |            |   |         |   |   |   |   |   | 601,000 |
| Shares issuable at $2.23 per share in connection with research and development license agreement                                                            |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       | 1,115,000                              |      |                                   |   |            |   |         |   | (1,115,000) |   |   |   |   |
| Issuance of shares at market price for services                                                                                                             |                      |   |                                            |    |                                                             |   |                                |   |               |        | 11,083          |    |                           |       | 24,000                                 |      |                                   |   |            |   |         |   |   |   |   |   | 24,000 |
| Issuance of options at market value for services                                                                                                            |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       | 229,000                                |      |                                   |   |            |   |         |   |   |   |   |   | 229,000 |
| Issuance of options for 100,000 shares @$.40 per share for services/amortization of deferred comp.                                                          |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       |                                   |      | 113,000                                |   |            |   |         |   |   |   |   |   | 113,000 |
| Issuance of stock options in connection with deferred compensation agreement                                                                                |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       | 425,000                                |      | (425,000)                              |   |            |   |         |   |   |   |   |   |   |
| Issuance shares to purchase furniture and fixtures                                                                                                          |                      |   |                                            |    |                                                             |   |                                |   |               |        | 10,500          |    |                           |       | 40,000                                 |      |                                   |   |            |   |         |   |   |   |   |   | 40,000 |
| Issuance of shares in connection with Series C preferred stock private placement                                                                            |                      |   |                                            |    |                                                             |   |                                |   |               |        | 10,000          |    |                           |       |                                   |      |                                   |   |            |   |         |   |   |   |   |   |   |
| Issuance of shares at $1.25 per share                                                                                                                       |                      |   |                                            |    |                                                             |   |                                |   |               |        | 1,600,050       |    | 2,000                          |       | 1,998,000                              |      |                                   |   |            |   |         |   |   |   |   |   | 2,000,000 |
| Conversion of Series B preferred stock to common                                                                                                            |                      |   | (60,000)                                        |    |                                                             |   |                                |   |               |        | 600,000         |    |                           |       |                                   |      |                                   |   |            |   |         |   |   |   |   |   |   |
| Issuance of shares at market price for services                                                                                                             |                      |   |                                            |    |                                                             |   |                                |   |               |        | 51,000          |    |                           |       | 102,000                                |      |                                   |   |            |   |         |   |   |   |   |   | 102,000 |
| Shares issuable at market price for services                                                                                                                |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       | 88,000                                 |      |                                   |   |            |   |         |   |   |   |   |   | 88,000 |
| Net loss/comprehensive loss                                                                                                                                 |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       |                                   |      |                                   |   |            |   |         |   | (4,736,000) |   |   |   | (4,736,000) |
|                                                                                                                                                        |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       |                                   |      |                                   |   |            |   |         |   |   |   |   |   |   |
| Balance, December 31, 2000                                                                                                                                  |                      |   | 185,165                                         |    |                                                             |   | 14,000                              |   |               |        | 104,669,772     |    | 105,000                        |       | 33,873,000                             |      | (312,000)                              |   |            |   |         |   | (30,798,000) |   |   |   | 2,868,000 |
| Issuance of shares in connection with private placement offerings                                                                                           |                      |   |                                            |    |                                                             |   |                                |   |               |        | 1,097,500       |    | 1,098                          |       | 694,000                                |      |                                   |   |            |   |         |   |   |   |   |   | 695,098 |
| Issuance of shares upon conversion of Series B preferred stock                                                                                              |                      |   | (100,166)                                       |    |                                                             |   |                                |   |               |        | 1,001,660       |    | 1,002                          |       |                                   |      |                                   |   |            |   |         |   |   |   |   |   | 1,002 |
| Issuance of shares upon conversion of Series C preferred stock                                                                                              |                      |   |                                            |    |                                                             |   | (14,000)                            |   |               |        | 2,800,000       |    | 2,800                          |       |                                   |      |                                   |   |            |   |         |   |   |   |   |   | 2,800 |
| Issuance of shares upon exercise of stock options                                                                                                           |                      |   |                                            |    |                                                             |   |                                |   |               |        | 15,000          |    | 15                             |       | 3,000                                  |      |                                   |   |            |   |         |   |   |   |   |   | 3,015 |
| Issuance of shares to acquire Teneo Computing Inc.                                                                                                          |                      |   |                                            |    |                                                             |   |                                |   |               |        | 1,400,000       |    | 1,400                          |       | 784,000                                |      |                                   |   |            |   |         |   |   |   |   |   | 785,400 |
| Issuance of shares to purchase 42% of Novint Technologies, Inc.                                                                                             |                      |   |                                            |    |                                                             |   |                                |   |               |        | 1,000,000       |    | 1,000                          |       | 560,000                                |      |                                   |   |            |   |         |   |   |   |   |   | 561,000 |
| Issuance of shares for services at fair market value                                                                                                        |                      |   |                                            |    |                                                             |   |                                |   |               |        | 3,388,097       |    | 1,743                          |       | 2,138,000                              |      |                                   |   |            |   |         |   |   |   |   |   | 2,139,743 |
| Exercise of warrants issued for services                                                                                                                    |                      |   |                                            |    |                                                             |   |                                |   |               |        | 942,281         |    | 942                            |       | 782,000                                |      |                                   |   |            |   |         |   |   |   |   |   | 782,942 |
| Issuance of stock options for services                                                                                                                      |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       | 250,000                                |      |                                   |   |            |   |         |   |   |   |   |   | 250,000 |
| Amortization of deferred compensation                                                                                                                       |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       |                                   |      | 85,000                                 |   |            |   |         |   |   |   |   |   | 85,000 |
| Net loss/comprehensive loss                                                                                                                                 |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       |                                   |      |                                   |   |            |   |         |   | (6,662,000) |   |   |   | (6,662,000) |
|                                                                                                                                                        |                      |   |                                            |    |                                                             |   |                                |   |               |        |            |    |                           |       |                                   |      |                                   |   |            |   |         |   |   |   |   |   |   |
| Balance, December 31, 2001                                                                                                                                  |                      |   | 84,999                                          |  - |                                                             |   |                                |   |               | 116,314,310 |            | 115,000 |                           | 39,084,000 |                                   | (227,000) |                                   |   |            |   |         | (37,460,000) |   |   |   | 1,512,000 |

----

|                                                             |   |   | Series A Preferred |   |   |   | Preferred Stock $.001 Par Value Series B |   |   |   | Preferred Stock $.001 Par Value Series C |   |   |   | Common Stock $.001 Par Value |   |   |   | Additional Paid-in |   |   |   | Deferred    |   |   |   | Amounts Receivable FromStock- |   |   Other accumulated comprehensive |   |   Deficit AccumulatedDuring the Develop. |   | Treasury |   |       |   |   |
|------------------------------------------------------------------|--------|--------|--------------------|--------|--------|--------|------------------------------------------|--------|--------|--------|------------------------------------------|--------|--------|--------|------------------------------|--------|--------|--------|--------------------|--------|--------|--------|-------------|--------|--------|--------|-------------------------------|--------|----------------------------------------|--------|-----------------------------------------------|--------|----------|--------|------------|--------|--------|
|                                                             |   |   | Stock              |   |   |   | Shares                                   |   |   |   |  Amount                             |   |   |   | Shares                  |   |   |   |  Amount       |   |   |   | Share       |   |   |   |  Amount                  |   |                                   |   | Capital                                       |   |     |   | Comp.      |   |   |   | holders |   |  income |   | Stage |   | Stock |   |   | Total |   |
| Balance, December 31, 2001                                       |   |   |               |   |   |   | 84,999                                   |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 116,314,310 |   |   | $      | 115,000                       |   |                                   |   |                                          |   |     | $      | 39,084,000 |   |   | $ | (227,000 | ) |   |   | $(37,460,000) |   |   |   |   | $1,512,000 |   |
| Issuance of shares in connection with private placement offering |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 850,000     |   |   |   | 1,000                         |   |                                   |   | 253,000                                       |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 254,000 |   |
| Issuance of shares for the payment of research and development   |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 75,000      |   |   |   |                          |   |                                   |   | 30,000                                        |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 30,000 |   |
| Issuance of shares at market for services rendered               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 5,000       |   |   |   |                          |   |                                   |   | 2,000                                         |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,000 |   |
| Issuance of shares in connection with private placement offering |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 285,700     |   |   |   |                          |   |                                   |   | 100,000                                       |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| Issuance of shares for the payment of research and development   |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 975,000     |   |   |   | 1,000                         |   |                                   |   | 360,000                                       |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 361,000 |   |
| Issuance of shares at market for services rendered               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 620,000     |   |   |   | 1,000                         |   |                                   |   | 203,000                                       |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 204,000 |   |
| Issuance of shares in connection with private placement offering |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 400,000     |   |   |   |                          |   |                                   |   | 100,000                                       |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| Issuance of shares upon conversion of Series B preferred stock   |   |   |               |   |   |   | (10,000                                  | )      |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 100,000     |   |   |   |                          |   |                                   |   |                                          |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares  at  market for services rendered   |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 500,000     |   |   |   | 1,000                         |   |                                   |   | 135,000                                       |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 136,000 |   |
| Issuance of shares for the payment of research and development   |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 150,000     |   |   |   |                          |   |                                   |   | 40,000                                        |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 40,000 |   |
| Issuance of shares in connection with private placement offering |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 600,000     |   |   |   | 1,000                         |   |                                   |   | 149,000                                       |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 150,000 |   |
| Issuance of shares at market for services rendered               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 25,277      |   |   |   |                          |   |                                   |   | 8,000                                         |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 8,000 |   |
| Issuance of shares in connection with private placement offering |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,000,000   |   |   |   | 1,000                         |   |                                   |   | 99,000                                        |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| Issuance of shares in connection with private placement offering |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 300,000     |   |   |   |                          |   |                                   |   | 30,000                                        |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 30,000 |   |
| Issuance of shares at market for services rendered               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 247,934     |   |   |   |                          |   |                                   |   | 59,000                                        |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 59,000 |   |
| Issuance of shares at market for services rendered               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,285,301   |   |   |   | 1,000                         |   |                                   |   | 169,000                                       |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 170,000 |   |
| Issuance of shares at market for services rendered               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 394,000     |   |   |   |                          |   |                                   |   | 39,000                                        |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 39,000 |   |
| Issuance of shares at market for services rendered               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 60,000      |   |   |   |                          |   |                                   |   | 8,000                                         |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 8,000 |   |
| Issuance of shares at market for services rendered               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 75,000      |   |   |   |                          |   |                                   |   | 7,000                                         |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 7,000 |   |
| Amortization of deferred compensation                            |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |        |   |   |   |                          |   |                                   |   |                                          |   |     |   | 85,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 85,000 |   |
| Net loss/comprehensive loss                                      |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |        |   |   |   |                          |   |                                   |   |                                          |   |     |   | (4,028,000 | )      |   |   |   |   |   |   |   |   | (4,028,000 | ) |   |   |   |   |
|                                                             |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |        |   |   |   |                          |   |                                   |   |                                          |   |     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2002                                       |   |   |               |   |   |   | 74,999                                   |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 124,262,522 |   |   |   | 122,000                       |   |                                   |   | 40,875,000                                    |   |     |   | (142,000   | )      |   |   | (41,488,000 | ) |   |   |   |   |   |   |   |   | (633,000 | ) |

----

|                                                                |   |   | Series A Preferred |   |   |   | Preferred Stock $.001 Par Value Series B |   |   |   | Preferred Stock $.001 Par Value Series C |   |   |   | Common Stock $.001 Par Value |   |   |   | Additional Paid-in |   |   |   | Deferred  |   | Amounts Receivable FromStock- |   |   Other accumulated comprehensive |   | Deficit AccumulatedDuring the Develop. |   | Treasury   |   |   |   |
|---------------------------------------------------------------------|--------|--------|--------------------|--------|--------|--------|------------------------------------------|--------|--------|--------|------------------------------------------|--------|--------|--------|------------------------------|--------|--------|--------|--------------------|--------|--------|--------|----------------|--------|-------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|------------|--------|--------|--------|
|                                                                |   |   | Stock              |   |   |   | Shares                                   |   |   |   | Amount                                   |   |   |   | Shares                       |   |   |   | Amount             |   |   |   | Shares         |   |                          |   |  Amount                           |   |                                   |   | Capital    |   |   |   | Comp. |   | holders   |   |  income |   | Stage |   | Stock |   | Total |   |
| Balance, December 31, 2002                                          |   |   |               |   |   |   | 74,999                                   |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 124,262,522    |   |                          |   | 122,000                                |   |                                   |   | 40,875,000 |   |   |   | (142,000 | ) |   |   |   |   | (41,488,000 | ) |   |   | (633,000 | ) |
|                                                                |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   |           |   |                          |   |                                   |   |                                   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,000,000      |   |                          |   | 1,000                                  |   |                                   |   | 70,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 71,000 |   |
| Issuance of shares in connection with private placement offering    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,000,000      |   |                          |   | 1,000                                  |   |                                   |   | 40,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 41,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 125,000        |   |                          |   |                                   |   |                                   |   | 1,000      |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,000,000      |   |                          |   | 1,000                                  |   |                                   |   | 50,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 51,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 300,000        |   |                          |   | 1,000                                  |   |                                   |   | 20,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 21,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 2,000,000      |   |                          |   | 2,000                                  |   |                                   |   | 100,000    |   |   |   |   |   |   |   |   |   |   |   |   |   | 102,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 2,000,000      |   |                          |   | 2,000                                  |   |                                   |   | 79,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 81,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,000,000      |   |                          |   | 1,000                                  |   |                                   |   | 49,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 400,000        |   |                          |   | 1,000                                  |   |                                   |   | 20,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 21,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 20,000         |   |                          |   |                                   |   |                                   |   | 1,000      |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 20,000         |   |                          |   |                                   |   |                                   |   | 1,000      |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 20,000         |   |                          |   |                                   |   |                                   |   | 1,000      |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 400,000        |   |                          |   | 1,000                                  |   |                                   |   | 16,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 17,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 500,000        |   |                          |   | 1,000                                  |   |                                   |   | 25,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 26,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,011,000      |   |                          |   | 1,000                                  |   |                                   |   | 40,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 41,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 250,000        |   |                          |   |                                   |   |                                   |   | 10,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 10,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 260,000        |   |                          |   |                                   |   |                                   |   | 10,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 10,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 250,000        |   |                          |   |                                   |   |                                   |   | 10,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 10,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 125,000        |   |                          |   |                                   |   |                                   |   | 5,000      |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 600,000        |   |                          |   | 1,000                                  |   |                                   |   | 25,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 26,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 500,000        |   |                          |   | 1,000                                  |   |                                   |   | 20,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 21,000 |   |
| Issuance of shares at market for services rendered                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 100,000        |   |                          |   |                                   |   |                                   |   | 4,000      |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 13,500,000     |   |                          |   | 14,000                                 |   |                                   |   | 392,000    |   |   |   |   |   |   |   |   |   |   |   |   |   | 406,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 5,250,000      |   |                          |   | 5,000                                  |   |                                   |   | 153,000    |   |   |   |   |   |   |   |   |   |   |   |   |   | 158,000 |   |
| Issuance of shares upon cancelation of stock options                |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 2,750,000      |   |                          |   | 3,000                                  |   |                                   |   | 82,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 85,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,750,000      |   |                          |   | 2,000                                  |   |                                   |   | 52,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 54,000 |   |
| Issuance of shares upon cancelation of stock options                |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 990,000        |   |                          |   | 1,000                                  |   |                                   |   | 30,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 31,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 2,250,000      |   |                          |   | 2,000                                  |   |                                   |   | 65,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 67,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |   |                         |   |   |   |               |   |   |   | 1,000,000      |   |                          |   | 1,000                                  |   |                                   |   | 49,000     |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |

----

|                                                                |   |   | Series A Preferred  |   |   |   |   Preferred Stock $.001 Par Value Series B |   |   |   |   Preferred Stock $.001 Par Value Series C |   |   |   | Common Stock $.001 Par Value |   |   | Additional Paid-in |   |   |   | Deferred |         |   |   |   Amounts Receivable FromStock- |    |   |   | Other accumulated compre-hensive |       |   |   | Deficit AccumulatedDuring the Develop. |    |   |   | Treasury |    |   |   |   |         |
|---------------------------------------------------------------------|--------|--------|--------------------------|--------|--------|--------|-------------------------------------------------|--------|--------|--------|-------------------------------------------------|--------|--------|--------|------------------------------|--------|--------|--------------------|--------|--------|--------|----------|--------------|--------|--------|--------------------------------------|---------|--------|--------|----------------------------------|------------|--------|--------|----------------------------------------|---------|--------|--------|----------|---------|--------|--------|--------|--------------|
|                                                                |   |   | Stock                    |   |   |   | Shares                                     |   |   |   | Amount                                          |   |   |   | Shares                  |   |   |               | Amount |   |   |     | Shares  |   |   |                                 | Amount  |   |   |                             | Capital    |   |   |                                   | Comp.   |   |   |     | holders |   |   |   |  income |   |   |   | Stage |   |   |   | Stock |   |   |   | Total |   |
| Year ended December 31, 2003 (continued)                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     |         |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares at market for director/officer services rendered |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 250,000      |   |   |                                 |    |   |   |                             | 12,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 250,000      |   |   |                                 |    |   |   |                             | 12,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 1,000,000    |   |   |                                 | 1,000   |   |   |                             | 50,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 51,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 250,000      |   |   |                                 |    |   |   |                             | 12,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| Issuance of shares at market for director/officer services rendered |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 250,000      |   |   |                                 |    |   |   |                             | 12,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| Issuance of shares upon cancelation of stock options                |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 500,000      |   |   |                                 | 1,000   |   |   |                             | 30,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 31,000 |   |
| Issuance of shares at market for services rendered                  |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 50,000       |   |   |                                 |    |   |   |                             | 2,000      |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 2,000 |   |
| Issuance of shares at market for services rendered                  |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 1,000,000    |   |   |                                 | 1,000   |   |   |                             | 50,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 51,000 |   |
| Issuance of shares at market for services rendered                  |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 35,000       |   |   |                                 |    |   |   |                             | 2,000      |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 2,000 |   |
| Issuance of shares at market for services rendered                  |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 500,000      |   |   |                                 | 1,000   |   |   |                             | 25,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 26,000 |   |
| Issuance of shares upon cancelation of stock options                |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 500,000      |   |   |                                 | 1,000   |   |   |                             | 30,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 31,000 |   |
| Issuance of shares upon cancelation of stock options                |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 675,000      |   |   |                                 | 1,000   |   |   |                             | 40,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 41,000 |   |
| Issuance of shares for options exchanged                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 200,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for options exchanged                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 100,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for options exchanged                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 200,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for options exchanged                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 250,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for options exchanged                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 130,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for options exchanged                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 100,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for options exchanged                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 200,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for options exchanged                            |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 100,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of series B preferred stock to common                    |   |   |                     |   |   |   | (25,000                                         | )      |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 250,000      |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares at market for services rendered                  |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 250,000      |   |   |                                 |    |   |   |                             | 21,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 21,000 |   |
| Issuance of shares at market for services rendered                  |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 335,000      |   |   |                                 | 1,000   |   |   |                             | 20,000     |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 21,000 |   |
| Stock options issued for services                                   |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     |         |   |   |                                 |    |   |   |                             | 113,000    |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 113,000 |   |
| Amortization of deferred compensation                               |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     |         |   |   |                                 |    |   |   |                             |       |   |   |                                   | 142,000 |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   | 142,000 |   |
| Net loss/comprehensive loss                                         |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     |         |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   | (2,569,000 | ) |   |   |   |   |   |   | (2,569,000 | ) |
|                                                                |   |   |                     |   |   |   |                                            |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     |         |   |   |                                 |    |   |   |                             |       |   |   |                                   |    |   |   |     |    |   |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2003                                          |   |   |                     |   |   |   | 49,999                                          |   |   |   |                                            |   |   |   |                         |   |   |               |   |   |   |     | 172,008,522  |   |   |                                 | 172,000 |   |   |                             | 42,726,000 |   |   |                                   | -       |   |   |     |    |   |   |   |         |   |   |   | (44,057,000 | ) |   |   |   |   |   |   | (1,159,000 | ) |

----

|                                                                                    |   |   | Series A Preferred |   |   |   | Preferred Stock $.001 Par Value Series B |   |   |   | Preferred Stock $.001 Par Value Series C |   |   | Common Stock $.001 Par Value |   |   |   Additional Paid-in |   |   |   Deferred |   |         |        | Amounts Receivable FromStock- |         |   |    | Other accumulated comprehensive |   |   |   Deficit AccumulatedDuring the Develop. |   |   |   | Treasury |   |   |   |               |
|-----------------------------------------------------------------------------------------|--------|--------|--------------------|--------|--------|--------|------------------------------------------|--------|--------|--------|------------------------------------------|--------|--------|------------------------------|--------|--------|---------------------------|--------|--------|-----------------|--------|--------------|-------------|-------------------------------|--------------|--------|---------|---------------------------------|--------|--------|-----------------------------------------------|--------|--------|--------|----------|--------|--------|--------|--------------------|
|                                                                                    |   |   | Stock    |   |   |   | Shares                              |   |   |   | Amount                                   |   |   |                         | Shares |   |                      |   | Amount |            |   |  Shares |        |                          |  Amount |   |    | Capital                         |   |   | Comp.                                         |   |   |   | holders  |   |   |   | income   |   |   | Stage |   |   |   | Stock |   |   | Total |   |
|                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2003                                                              |   |   |               |   |   |   | 49,999                                   |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 172,008,522 |                          |         | $      | 172,000 |                            |   | $      | 42,726,000                                    |   |   |   | -        |   |   |   |               |   |   |   |   |   |   | $ | (44,057,000 | ) |   |   |   |   |   | $ | (1,159,000 | ) |
|                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares at market for services rendered                                      |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 4,833,000   |                          |         |   | 5,000   |                            |   |   | 487,000                                       |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 492,000 |   |
| Issuance of shares on exercise of options                                               |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 866,000     |                          |         |   |    |                            |   |   | 126,000                                       |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 126,000 |   |
| Issuance of shares for the payment of notes payable                                     |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 641,274     |                          |         |   | 1,000   |                            |   |   | 47,000                                        |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 48,000 |   |
| Issuance of warrants in connection with note payable |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   | 214,000                                       |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 214,000 |   |
| Net loss/comprehensive loss                                                             |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   | (1,517,000 | ) |   |   |   |   |   |   | (1,517,000 | ) |
|                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2004                                                               |   |   |               |   |   |   | 49,999                                   |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 178,348,796 |                          |         |   | 178,000 |                            |   |   | 43,600,000                                    |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   | (45,574,000 | ) |   |   |   |   |   |   | (1,796,000 | ) |
|                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock options issued in exchange for previously issued options                          |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   | 46,000                                        |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 46,000 |   |
| Issuance of shares at market for services rendered                                      |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 1,023,000   |                          |         |   | 1,000   |                            |   |   | 64,000                                        |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 65,000 |   |
| Issuance of shares in satisfaction of accrued expenses                                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 4,458,237   |                          |         |   | 4,000   |                            |   |   | 238,000                                       |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 242,000 |   |
| Net loss/comprehensive loss                                                             |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   | (219,000 | ) |   |   |   |   |   |   | (219,000 | ) |
|                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2005                                                               |   |   |               |   |   |   | 49,999                                   |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 183,830,033 |                          |         |   | 183,000 |                            |   |   | 43,948,000                                    |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   | (45,793,000 | ) |   |   |   |   |   |   | (1,662,000 | ) |
|                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares at market for services rendered                                      |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 1,640,000   |                          |         |   | 2,000   |                            |   |   | 86,000                                        |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 88,000 |   |
| Issuance of shares in satisfaction of note payable                                      |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 795,324     |                          |         |   | 1,000   |                            |   |   | 44,000                                        |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 45,000 |   |
| Issuance of shares for services rendered by Board of Directors                          |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 13,000,000  |                          |         |   | 13,800  |                            |   |   | 766,200                                       |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 780,000 |   |
| Issuance of shares in satisfaction of accrued expenses                                  |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         | 1,184,220   |                          |         |   | 1,200   |                            |   |   | 57,800                                        |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 59,000 |   |
| Net loss/comprehensive loss                                                             |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   | (1,694,000 | ) |   |   |   |   |   |   | (1,694,000 | ) |
|                                                                                    |   |   |               |   |   |   |                                     |   |   |   |                                     |   |   |                         |   |   |                      |   |   |            |   |         |        |                          |         |   |    |                            |   |   |                                          |   |   |   |     |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2006                                                               |   |   | -                  |   |   |   | 49,999                                   |   |   | $      | -                                        |   |   |                         | -      |   |                      | $      | -      |            |   |         | 200,449,577 |                          |         | $      | 201,000 |                            |   | $      | 44,902,000                                    |   |   | $      | -        |   |   |   |               |   |   | $ | - |   |   | $ | (47,487,000 | ) |   | $ | - |   |   | $ | (2,384,000 | ) |

----

|                                                                                        |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    |       |   |        |   |   |                |   |   |         |   |   |   |
|---------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|------------------------------------------|--------------|--------|------------------------------------------|--------|--------------|------------------------------|--------|--------|--------------------|--------|--------|----------|--------------------|--------|-------------------------------|--------|--------------------|---------------------------------|--------|--------|----------------------------------------|---------|--------|----------|---------|------------|--------|-------------|--------|--------|---------------------|--------|--------|--------------|--------|--------|--------|
|                                                                                        |   | Series A Preferred |   |   | Preferred Stock $.001 Par Value Series B |         |   | Preferred Stock $.001 Par Value Series C |   |         | Common Stock $.001 Par Value |   |   | Additional Paid-in |   |   | Deferred |               |   | Amounts Receivable FromStock- |   |               | Other accumulated comprehensive |   |   | Deficit AccumulatedDuring the Develop. |    |   | Treasury |    |       |   |        |
|                                                                                        |   |  Stock        |   |   |                                     | Shares  |   |                                     |   | Amount  |                         |   |   | Shares        |   |   |     |  Amount  |   |                          |   | Shares   |                            |   |   | Amount                            |    |   |     | Capital |       |   |  Comp. |   |   |  holders  |   |   |  income |   |   |   | Stage |   |   | Stock |   |   |   | Total |   |
| Balance December 31, 2006                                                                   |   |               | -      |   |                                     |         | 49,999 |                                     |   | $            | -                            |   |   |               | -      |   |     | $                  | -      |                          |   |               | 200,449,577                     |   |   | $                                      | 201,000 |   |     | $       | 44,902,000 |   |        | $      | -      |                |   | $      | -            |   |   | $      | - |   |   | $ | (47,487,000 | ) |   | $ | - |   |   | $ | (2,384,000 | ) |
|                                                                                        |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    |       |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares at market for services rendered                                          |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               | 41,550,317                      |   |   |                                   | 42,000  |   |     |    | 786,000    |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 828,000 |   |
| Issuance of shares in satisfaction of note payable                                          |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               | 14,200,106                      |   |   |                                   | 14,000  |   |     |    | 57,000     |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 71,000 |   |
| Issuance of shares related to conversion of convertible notes                               |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               | 106,000,000                     |   |   |                                   | 106,000 |   |     |    | 954,000    |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,060,000 |   |
| Purchase and retirement of common shares and warrants for 10,000,000 shares of common share |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               | (43,655,000                     | )      |   |                                   | (44,000 | )      |     |    | (171,000   | )      |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (215,000 | ) |
| Settlement of related party debt                                                            |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    | 1,416,000  |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,416,000 |   |
| Beneficial conversion feature related to convertible notes                                  |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    | 968,000    |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 968,000 |   |
| Issuance of stock options                                                                   |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    | 197,000    |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 197,000 |   |
| Net loss/comprehensive loss                                                                 |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    |       |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   | (3,014,000 | ) |   |   |   |   |   |   | (3,014,000 | ) |
|                                                                                        |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    |       |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2007                                                                   |   |               | -      |   |                                     |         | 49,999 |                                     |   | $            | -                            |   |   |               | -      |   |     | $                  | -      |                          |   |               | 318,545,000                     |   |   | $                                      | 319,000 |   |     | $       | 49,109,000 |   |        | $      | -      |                |   | $      | -            |   |   |   |   |   |   | $ | (50,501,000 | ) |   | $ | - |   |   | $ | (1,073,000 | ) |
|                                                                                        |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    |       |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares at market for services rendered                                          |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               | 1,600,000                       |   |   |                                   | 1,600   |   |     |    | 55,400     |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 57,000 |   |
| Issuance of shares in satisfaction of accrued exp.                                          |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               | 1,125,926                       |   |   |                                   | 1,126   |   |     |    | 43,874     |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 45,000 |   |
| Issuance of shares related to acquisition of Metallicum, Inc.                               |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               | 15,000,000                      |   |   |                                   | 15,000  |   |     |    | 285,000    |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 300,000 |   |
| Issuance of shares for cash, net of offering costs of $46,000                               |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               | 42,707,000                      |   |   |                                   | 43,000  |   |     |    | 765,000    |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 808,000 |   |
| Issuance of stock options                                                                   |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    | 1,034,000  |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,034,000 |   |
| Other comprehensive income-gain on available for sale securities                            |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    |       |   |        |   |   |                |   |   |         |   |   |   | 129,000 |   |   |   |   |   |   |   |   |   |   |   | 129,000 |   |
| Net loss                                                                                    |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    |       |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   | (2,142,000 | ) |   |   |   |   |   |   | (2,142,000 | ) |
|                                                                                        |   |               |   |   |                                     |         |   |                                     |   |         |                         |   |   |               |   |   |     |               |   |                          |   |               |                            |   |   |                                   |    |   |     |    |       |   |        |   |   |                |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance December 31, 2008                                                                   |   |               | -      |   |                                     |         | 49,999 |                                     |   | $            | -                            |   |   |               | -      |   |     | $                  | -      |                          |   |               | 378,977,926                     |   |   | $                                      | 379,726 |   |     | $       | 51,292,274 |   |        | $      | -      |                |   | $      | -            |   |   | $      | 129,000 |   |   | $ | (52,643,000 | ) |   | $ | - |   |   | $ | (842,000 | ) |

----

| MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES |
|----------------------------------------------|
| (a development stage enterprise)             |
| CONSOLIDATED STATEMENTS OF CASH FLOWS        |

|                                                                                     |   |                   |       |   |                |   |       | PERIOD FROM   |
|------------------------------------------------------------------------------------------|--------|------------------------|------------|--------|---------------------|--------|------------|---------------|
|                                                                                     |   |                   |       |   |                |   |       | JULY 31, 1992 |
|                                                                                     |   |                   |       |   | (INCEPTION) THROUGH |
|                                                                                     |   | YEARENDED DECEMBER 31, |       |   | December 31, 2008   |
|                                                                                     |   | 2008                   |       |   | 2007                |   |       | (unaudited)   |
| CASH FLOWS FROM (TO) OPERATING ACTIVITIES:                                               |   |                   |       |   |                |   |       |          |
| Net loss                                                                                 |   | $                      | (2,142,000 | )      |                | $      | (3,014,000 | )             |   | $ | (47,638,000 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities:              |   |                   |       |   |                |   |       |          |   |   |   |   |
| Gain on sale of investments                                                              |   |                   | (50,000    | )      |                |   | (470,000   | )             |   |   | (2,373,000 | ) |
| Gain on settlement of NMXS.com option                                                    |   |                   | -          |   |                |   | -          |          |   |   | (50,000 | ) |
| Gain from sale of equity interest in Horizon                                             |   |                   | -          |   |                |   | -          |          |   |   | (885,000 | ) |
| Gain on issuance of investee common stock                                                |   |                   | -          |   |                |   | -          |          |   |   | (531,000 | ) |
| Common stock issued for services                                                         |   |                   | 57,000     |   |                |   | 828,000    |          |   |   | 7,998,000 |   |
| Preferred stock issued for services                                                      |   |                   | -          |   |                |   | -          |          |   |   | 598,000 |   |
| Stock options issued for services                                                        |   |                   | 1,034,000  |   |                |   | 197,000    |          |   |   | 11,072,000 |   |
| Cashless stock option exercise                                                           |   |                   | -          |   |                |   | -          |          |   |   | 126,000 |   |
| Warrants issued for services                                                             |   |                   | -          |   |                |   | -          |          |   |   | 2,556,000 |   |
| Convertible note issued for services                                                     |   |                   | -          |   |                |   | 1,000      |          |   |   | 108,000 |   |
| Financing costs payable with common stock                                                |   |                   | -          |   |                |   | -          |          |   |   | 191,000 |   |
| Financing costs related to beneficial conversion feature of  convertible notes |   |                   | -          |   |                |   | 1,361,000  |          |   |   | 1,361,000 |   |
| Loss of equity investee                                                                  |   |                   | -          |   |                |   | -          |          |   |   | 1,207,000 |   |
| Amortization of technology license                                                       |   |                   | 15,000     |   |                |   | -          |          |   |   | 552,000 |   |
| Amortization of patents                                                                  |   |                   | 194,000    |   |                |   | 208,000    |          |   |   | 2,080,000 |   |
| Loss on disposal of equipment                                                            |   |                   | -          |   |                |   | -          |          |   |   | 28,000 |   |
| Impairment charge of certain patents                                                     |   |                   | -          |   |                |   | -          |          |   |   | 189,000 |   |
| Impairment charge on property and equipment                                              |   |                   | -          |   |                |   | -          |          |   |   | 8,000 |   |
| Depreciation                                                                             |   |                   | -          |   |                |   | 2,000      |          |   |   | 1,127,000 |   |
| Changes in:                                                                              |   |                   |       |   |                |   |       |          |   |   |   |   |
| Prepaid expenses and other assets                                                        |   |                   | 44,000     |   |                |   | (12,000    | )             |   |   | 225,000 |   |
| Accounts payable and accrued expenses                                                    |   |                   | (1,000     | )      |                |   | 466,000    |          |   |   | 3,357,000 |   |
| Accrued interest and expenses - related parties                                          |   |                   | 149,000    |   |                |   | (104,000   | )             |   |   | 552,000 |   |
|                                                                                     |   |                   |       |   |                |   |       |          |   |   |   |   |
| Net cash provided by (used in) operating activities;                                     |   |                   | (700,000   | )      |                |   | (537,000   | )             |   |   | (18,142,000 | ) |
|                                                                                     |   |                   |       |   |                |   |       |          |   |   |   |   |
| CASH FLOWS FROM (TO) INVESTING ACTIVITIES:                                               |   |                   |       |   |                |   |       |          |   |   |   |   |
| Purchase of equipment                                                                    |   |                   | -          |   |                |   | -          |          |   |   | (432,000 | ) |
| Purchase of investment                                                                   |   |                   | -          |   |                |   | -          |          |   |   | (100,000 | ) |
| Cash acquired from purchase of Metallicum                                                |   |                   | 7,000      |   |                |   | -          |          |   |   | 7,000 |   |
| Proceeds from sale of equipment                                                          |   |                   | -          |   |                |   | -          |          |   |   | 18,000 |   |
| Proceeds from sale of equity interest                                                    |   |                   | -          |   |                |   | -          |          |   |   | 885,000 |   |
| Proceeds from settlement of NMXS.com                                                     |   |                   | -          |   |                |   | -          |          |   |   | 50,000 |   |
| Proceeds received from sale of investment                                                |   |                   | -          |   |                |   | -          |          |   |   | 1690,000 |   |
|                                                                                     |   |                   |       |   |                |   |       |          |   |   |   |   |
| Net cash provided by (used in) investing activities                                      |   |                   | 7,000      |   |                |   | -          |          |   |   | 2,118,000 |   |

----

| MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES      |   |   |
|---------------------------------------------------|--------|--------|
| (a development stage enterprise)                  |   |   |
| CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) |   |   |

|                                                                                          |   |                    |    |   |                |   |      | PERIOD FROM   |
|-----------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|---------------------|--------|-----------|---------------|
|                                                                                          |   |                    |    |   |                |   |      | JULY 31, 1992 |
|                                                                                          |   |                    |    |   | (INCEPTION) THROUGH |
|                                                                                          |   | YEAR ENDED DECEMBER 31, |    |   | December 31, 2008   |
|                                                                                          |   | 2008                    |    |   | 2007                |   |      | (unaudited)   |
| CASH FLOWS FROM (TO) FINANCING ACTIVITIES:                                                    |   |                    |    |   |                |   |      |          |
| Repurchase of common stock                                                                    |   |                    | -       |   |                |   | (215,000  | )             |   |   | (315,000 | ) |
| Note payable to stockholders                                                                  |   |                    | -       |   |                |   | -         |          |   |   | 2,374,000 |   |
| Proceeds from convertible notes payable                                                       |   |                    | -       |   |                |   | 1,060,000 |          |   |   | 1,060,000 |   |
| Proceeds from note payable – other                                                      |   |                    | -       |   |                |   | -         |          |   |   | 634,000 |   |
| Repayment of note payable – other                                                       |   |                    | -       |   |                |   | -         |          |   |   | (435,000 | ) |
| Repayment of note payable to officers                                                         |   |                    | -       |   |                |   | (5,000    | )             |   |   | (530,000 | ) |
| Net proceeds from issuance of preferred stock                                                 |   |                    | -       |   |                |   | -         |          |   |   | 3,569,000 |   |
| Proceeds from issuance of common stock, net of offering costs of $46,000                      |   |                    | 808,000 |   |                |   | -         |          |   |   | 10,379,000 |   |
| Loan repayment to preferred stockholder                                                       |   |                    | -       |   |                |   | -         |          |   |   | (148,000 | ) |
| Capital lease payments                                                                        |   |                    | -       |   |                |   | -         |          |   |   | (13,000 | ) |
| Return of security deposit                                                                    |   |                    | -       |   |                |   | -         |          |   |   | 16,000 |   |
|                                                                                          |   |                    |    |   |                |   |      |          |   |   |   |   |
| Net cash provided by (used in) financing activities                                           |   |                    | 808,000 |   |                |   | 840,000   |          |   |   | 16,591,000 |   |
|                                                                                          |   |                    |    |   |                |   |      |          |   |   |   |   |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                          |   |                    | 115,000 |   |                |   | 303,000   |          |   |   | 567,000 |   |
| Cash and cash equivalents, beginning of period                                                |   |                    | 452,000 |   |                |   | 149,000   |          |   |   | - |   |
|                                                                                          |   |                    |    |   |                |   |      |          |   |   |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                      |   | $                       | 567,000 |   |                | $      | 452,000   |          |   | $ | 567,000 |   |
|                                                                                          |   |                    |    |   |                |   |      |          |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                             |   |                    |    |   |                |   |      |          |   |   |   |   |
| Interest paid                                                                                 |   | $                       | -       |   |                | $      | -         |          |   | $ | 111,000 |   |
|                                                                                          |   |                    |    |   |                |   |      |          |   |   |   |   |
| SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:                       |   |                    |    |   |                |   |      |          |   |   |   |   |
| Fixed assets contributed to the company in exchange for Series A preferred stock              |   |                    | -       |   |                |   | -         |          |   | $ | 45,000 |   |
| Issuance of 14,391,627 common shares to acquire intangible assets                             |   |                    | -       |   |                |   | -         |          |   | $ | 15,000 |   |
| Special distribution of 14,391,627 shares of common stock to                                  |   |                    |    |   |                |   |      |          |   |   |   |   |
| stockholder in settlement of stockholder advances                                             |   |                    | -       |   |                |   | -         |          |   | $ | 376,000 |   |
| Issuance of 7,200,000 common shares to acquire intangible assets                              |   |                    | -       |   |                |   | -         |          |   | $ | 1,440,000 |   |
| Issuance of Series A preferred stock and warrants in settlement                               |   |                    |    |   |                |   |      |          |   |   |   |   |
|      of note payable and accrued interest                            |   |                    | -       |   |                |   | -         |          |   | $ | 1,830,000 |   |
| Issuance of 1,000,000 common shares to acquire intangible assets                              |   |                    | -       |   |                |   | -         |          |   | $ | 1,000,000 |   |
| Issuance of 100,000 common shares to acquire furniture and fixtures                           |   |                    | -       |   |                |   | -         |          |   | $ | 49,000 |   |
| Issuance of 78,000 common shares in satisfaction of accrued expenses                          |   |                    | -       |   |                |   | -         |          |   | $ | 15,000 |   |
| Issuance of 10,500 shares to acquire furniture and fixtures                                   |   |                    | -       |   |                |   | -         |          |   | $ | 40,000 |   |
| Issuance of 1,400,00 of common shares to acquire Teneo Computing                              |   |                    | -       |   |                |   | -         |          |   | $ | 785,000 |   |
| Issuance of 1,000,000 of common shares to purchase 42% of Novint Technologies                 |   |                    | -       |   |                |   | -         |          |   | $ | 561,000 |   |
| Issuance of 641,274 shares of common stock in settlement of note payable                      |   |                    | -       |   |                |   | -         |          |   | $ | 48,000 |   |
| Issuance of 3,180,552 common shares in satisfaction of accrued expenses                       |   |                    | -       |   |                |   | -         |          |   | $ | 159,000 |   |
| Issuance of 1,277,685 common shares in satisfaction of accrued expenses                       |   |                    | -       |   |                |   | -         |          |   | $ | 83,000 |   |
| Issuance of 795,324 of common shares in settlement of note payable                            |   |                    | -       |   |                |   | -         |          |   | $ | 45,000 |   |
| Issuance of 1,184,220 common shares in satisfaction of accrued expenses                       |   |                    | -       |   |                |   | -         |          |   | $ | 59,000 |   |
| Issuance of 106,000,000 common shares for conversion of convertible notes                     |   |                    |    |   |                | $      | 1,060,000 |          |   | $ | 1,060,000 |   |
| Issuance of 14,200,106 common shares in satisfaction of related party  note payable |   |                    |    |   |                | $      | 71,000    |          |   | $ | 71,000 |   |
| Issuance of 15,000,000 common shares for acquisition of Metallicum, Inc.                      |   | $                       | 300,000 |   |                |   |      |          |   | $ | 300,000 |   |
| Issuance of 1,125,926 common shares in satisfaction of accrued expenses                       |   | $                       | 45,000  |   |                |   |      |          |   | $ | 45,000 |   |

----

----

----

|   |          |                                                                                                                                                                                                                                                                                                             |
|--------|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •  | Marketable equity securities The Company acquires these equity investments for the promotion of business and strategic objectives. The Company records  the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.  |

|   |          |                                                                                                                                                                                                                           |
|--------|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •  | Non-marketable cost method investments when the equity method does not apply. We record the realized gains or losses on the sale of non-marketable cost method investments in gains (losses) on other equity investments, net. |

----

----

----

|                                                          |   | Year Ended December 31, |        |
|---------------------------------------------------------------|--------|-------------------------|-------------|
|                                                          |   | 2008                    |        |   | 2007 |   |
| Net income (loss) – available to common shareholders    |   | $                       | (2,142,000  | ) |   | $ | (3,014,000 | ) |
| Weighted average common shares outstanding: Basic and diluted |   |                    | 328,469,378 |   |   |   | 249,567,399 |   |
| Total shares outstanding at end of period                     |   |                    | 378,977,926 |   |   |   | 318,545,000 |   |
| Net income (loss) per common share: Basic and diluted         |   | $                       | (0.01       | ) |   | $ | (0.01 | ) |

|                                 |   | 2008   |       |   | 2007   |   |
|--------------------------------------|--------|--------|------------|--------|--------|--------|
| Series B Preferred Stock             |   |   | 499,990    |   |   |   | 499,990 |   |
| Options and Warrants                 |   |   | 44,245,000 |   |   |   | 51,495,000 |   |
| Convertible debt                     |   |   | 600,000    |   |   |   | 825,000 |   |
| Potential equivalent shares excluded |   |   | 45,344,990 |   |   |   | 52,819,990 |   |

----

----

| Current assets (including cash of $255,000)  |   | $      | 3,987,000  |   |
|--------------------------------------------------------|--------|--------|------------|--------|
| Property and equipment                                 |   |   | 444,000    |   |
| Other assets                                           |   |   | 1,218,000  |   |
|                                                   |   | $      | 5,649,000  |   |
| Liabilities                                            |   | $      | 732,000    |   |
| Equity                                                 |   |   | 4,917,000  |   |
|                                                   |   | $      | 5,649,000  |   |
|                                                   |   |   |       |   |
| Revenue                                                |   | $      | 415,000    |   |
| Net/ Loss                                              |   | $      | (8,096,000 | )      |

----

----

----

----

| Equity Compensation Plan Information                       |   |
|------------------------------------------------------------|--------|
| Plan category                                              |   | Number of securities to be issued upon exercise of outstanding options, warrants and rights(a) |   |   | Weighted-average exercise price of outstanding options, warrants and rights |   |   | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) |   |
| Equity compensation plans approved by security holders     |   |   | - |   |   |   | - |   |   |   | - |   |
| Equity compensation plans not approved by security holders |   |   | - |   |   |   | - |   |   |   | 30,649,763 |   |
| Total                                                      |   |   | - |   |   |   | - |   |   |   | 30,649,763 |   |

|                                |   | Number of Options |        |   | Exercise Price Per Share |   |   | Weighted Average Exercise Price |   |   | Number of Options Exercisable |   |
|-------------------------------------|--------|-------------------|-------------|--------|--------------------------|--------|--------|---------------------------------|--------|--------|-------------------------------|--------|
| Outstanding as of December 31, 2006 |   |              | 28,245,000  |   |                     |   | 0.013  |                            |   |   | 0.013                         |   |   |   | 28,245,000 |   |
| Granted/Vested                      |   |              | 10,000,000  |   |                     |   | 0.014  |                            |   |   | 0.014                         |   |   |   | 10,000,000 |   |
| Canceled                            |   |              | -           |   |                     |   |   |                            |   |   |                          |   |   |   | -  |   |
|                                |   |              |        |   |                     |   |   |                            |   |   |                          |   |   |   |   |   |
| Outstanding as of December 31, 2007 |   |              | 38,245,000  |   |                     |   |   |                            |   |   | 0.011                         |   |   |   | 38,245,000 |   |
| Granted                             |   |              | 18,000,000  |   |                     |   | 0.013  |                            |   |   | 0.013                         |   |   |   | 18,000,000 |   |
| Cancelled                           |   |              | (16,000,000 | )      |                     |   | 0.050  |                            |   |   | 0.050                         |   |   |   | (16,000,000 | ) |
|                                |   |              |        |   |                     |   |   |                            |   |   |                          |   |   |   |   |   |
| Outstanding as of December 31, 2008 |   |              | 40,245,000  |   |                     |   |   |                            |   |   | 0.011                         |   |   |   | 40,245,000 |   |

|  Options Outstanding |   |   |   Options Exercisable |   |
|---------------------------|--------|--------|----------------------------|--------|
|  Exercise Price      |   |   |  Number Outstanding   |   |   | Weighted Average Remaining Contractual Life |   |   | Weighted Average Exercise Price |   |   |  Number Exercisable |   |   | Weighted Average Exercise Price |   |
| $                         | 0.01   |   |                       |   | 28,000,000 |   |   |   | 8.68 |   |   |   | 0.013 |   |   |   | 28,000,000 |   |   |   | 0.01 |   |
|                      | 0.02   |   |                       |   | 1,800,000 |   |   |   | 4.68 |   |   |   | 0.020 |   |   |   | 1,800,000 |   |   |   | 0.02 |   |
|                      | 0.05   |   |                       |   | 2,625,000 |   |   |   | 1.65 |   |   |   | 0.050 |   |   |   | 2,625,000 |   |   |   | 0.05 |   |
|                      | 0.05   |   |                       |   | 1,000,000 |   |   |   | 6.58 |   |   |   | 0.055 |   |   |   | 1,000,000 |   |   |   | 0.05 |   |
|                      | 0.20   |   |                       |   | 5,760,000 |   |   |   | 0.71 |   |   |   | 0.200 |   |   |   | 5,760,000 |   |   |   | 0.20 |   |
|                      | 0.39   |   |                       |   | 250,000 |   |   |   | 3.98 |   |   |   | 0.390 |   |   |   | 250,000 |   |   |   | 0.39 |   |
|                      | 1.25   |   |                       |   | 200,000 |   |   |   | 3.98 |   |   |   | 1.250 |   |   |   | 200,000 |   |   |   | 1.25 |   |
|                      | 2.25   |   |                       |   | 110,000 |   |   |   | 2.46 |   |   |   | 2.250 |   |   |   | 110,000 |   |   |   | 2.25 |   |
|                      | 2.40   |   |                       |   | 500,000 |   |   |   | 2.33 |   |   |   | 2.400 |   |   |   | 500,000 |   |   |   | 2.40 |   |

----

|                                |   | Number ofWarrants |        |   | Weighted average Exercise Price |   |
|-------------------------------------|--------|-------------------|-------------|--------|--------------------------------------|--------|
| Outstanding as of December 31, 2006 |   |              | 19,250,000  |   |                                 | $      | 0.13 |   |
| Issued                              |   |              | 4,000,000   |   |                                 |   | 0.01 |   |
| Cancelled                           |   |              | (10,000,000 | )      |                                 |   | 0.05 |   |
|                                |   |              |        |   |                                 |   |   |   |
| Outstanding as of December 31, 2007 |   |              | 13,250,000  |   |                                 |   | 0.15 |   |
| Issued                              |   |              | -           |   |                                 |   |   |   |
| Expired                             |   |              | (9,250,000  | )      |                                 |   | 0.32 |   |
|                                |   |              |        |   |                                 |   |   |   |
| Outstanding as of December 31, 2008 |   |              | 4,000,000   |   |                                 |   | 0.03 |   |

| Date             |   | Number of Warrants |      |   | Exercise Price |   | Contractual Life |   | Number of Shares Exercisable |   |
|------------------|--------|--------------------|-----------|--------|----------------|--------|------------------|--------|------------------------------|--------|
| October 11, 2007 |   |               | 3,200,000 |   |           |   | .01              |   | 10 years                     |   |   | 3,200,000 |   |
| November 9, 2007 |   |               | 800,000   |   |           |   | .01              |   | 10 years                     |   |   | 800,000 |   |
|             |   |               | 4,000,000 |   |           |   |             |   |                         |   |   | 4,000,000 |   |
|             |   |               |      |   |           |   |             |   |                         |   |   |   |   |

----

|                                  |   | 2008   |        |          | 2007   |   |
|---------------------------------------|--------|--------|-------------|---------------|--------|--------|
| Net operating loss carryforward  |   | $      | 8,696,800   |          |   | $      | 8,287,000 |   |
| Temporary Differences                 |   |   | 4,854,600   |          |   |   | 4,441,000 |   |
| Less valuation allowance              |   |   | (13,551,400 | )   |   |   | (12,728,000 | ) |

|                                                  |   | 2008   |     |   | 2007   |   |
|-------------------------------------------------------|--------|--------|----------|--------|--------|--------|
|  Tax benefit computed at 34%      |   | $      | 414,800  |   |   | $      | 629,600 |   |
|  Change in valuation allowance    |   |   | (828,400 | )      |   |   | (708,400 | ) |
|  Change in carryovers and tax attributes         |   |   | 413,600  |   |   |   | 78,800 |   |

----

| Cash and cash equivalents                      |   | $      | 7,000   |   |
|------------------------------------------------|--------|--------|---------|--------|
| Other current assets                           |   |   | 1,000   |   |
| Intangible assets                              |   |   | 305,000 |   |
|   Total assets acquired              |   |   | 313,000 |   |
| Accounts payable and other current liabilities |   |   | (13,000 | )      |
|   Total liabilities assumed          |   |   | (13,000 | )      |
| Net assets acquired                            |   | $      | 300,000 |   |

| 1.   | Metallicum is granted an exclusive license by The Los Alamos National Laboratory (LANL) on patent numbers U.S.7152448, U.S.6399215 and U.S. 6197129 related to nanostructured materials. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Metallicum sells nanostructured titanium to a partner or customer company which manufactures and sells in the United States a nonostructured titanium product which receives, if required, FDA approval. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | Metallicum, with purchaser’s cooperation, develops and submits U.S. patent applications to protect the current titanium nanostructuring technology for dental implants and additional medical device applications |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | Metallicum secures commercial contracts for, in purchaser’s reasonable good faith judgment, material sales of nanostructured metal with at least two customers. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.   | The nanostructured metals enterprise is functioning on June 30, 2010. |
|----------------|-----------------------------------------------------------------------|

----

|                                                       |   | For the year ended December 31, 2008 |       |
|------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                       |   | ConsolidatedAs Reported              |       |   | Pro Forma Adjustments |   |   | Pro Forma Consolidated |   |
| Revenue                                                    |   | $                                    | -          |   |   | $ | 2,000 |   |   | $ | 2,000 |   |
|                                                       |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Operating costs and expenses:                              |   |                                 |       |   |   |   |   |   |   |   |   |   |
|   General and administrative                     |   |                                 | 1,952,000  |   |   |   | 2,000 |   |   |   | 1,954,000 |   |
|   Research and development costs                 |   |                                 | 198,000    |   |   |   | 3,000 |   |   |   | 201,000 |   |
|     Total operating costs and expenses |   |                                 | 2,150,000  |   |   |   | 5,000 |   |   |   | 2,155,000 |   |
|     Loss from operations               |   |                                 | (2,150,000 | ) |   |   | (5,000 | ) |   |   | (2,155,000 | ) |
|                                                       |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Other income (expenses):                                   |   |                                 | 8,000      |   |   |   | (1,000 | ) |   |   | 7,000 |   |
|                                                       |   |                                 |       |   |   |   |   |   |   |   |   |   |
|     Net Loss                           |   | $                                    | (2,142,000 | ) |   | $ | (6,000 | ) |   | $ | (2,148,000 | ) |
|                                                       |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Loss per share                                             |   | $                                    | 0.01       |   |   | $ | 0.00 |   |   | $ | 0.01 |   |

|                                                       |   | For the year ended December 31, 2007 |       |
|------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                       |   | ConsolidatedAs Reported              |       |   | Pro Forma Adjustments |   |   | Pro Forma Consolidated |   |
| Revenue                                                    |   | $                                    | -          |   |   | $ | 4,000 |   |   | $ | 4,000 |   |
|                                                       |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Operating costs and expenses:                              |   |                                 |       |   |   |   |   |   |   |   |   |   |
|   General and administrative                     |   |                                 | 3,233,000  |   |   |   | 6,000 |   |   |   | 3,239,000 |   |
|   Research and development costs                 |   |                                 | 210,000    |   |   |   | 3,000 |   |   |   | 213,000 |   |
|     Total operating costs and expenses |   |                                 | 3,443,000  |   |   |   | 9,000 |   |   |   | 3,452,000 |   |
|     Loss from operations               |   |                                 | (3,443,000 | ) |   |   | (5,000 | ) |   |   | (3,448,000 | ) |
|                                                       |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Other income (expenses):                                   |   |                                 | 429,000    |   |   |   | (1,000 | ) |   |   | 428,000 |   |
|                                                       |   |                                 |       |   |   |   |   |   |   |   |   |   |
|     Net income (loss)                  |   | $                                    | (3,014,000 | ) |   | $ | (6,000 | ) |   | $ | (3,020,000 | ) |
|                                                       |   |                                 |       |   |   |   |   |   |   |   |   |   |
| Loss per share                                             |   | $                                    | 0.01       |   |   | $ | 0.00 |   |   | $ | 0.01 |   |

----

----

|   | 1.   | the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to our company nor oral advice was provided that PMB Helin Donovan, LLP concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or |
|--------|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.   | any matter that was either subject of disagreement or event, as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instruction to Item 304 of Regulation S-K, or a reportable event, as that term is explained in Item 304(a)(1)(iv) of Regulation S-K. |
|--------|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| NAME                  |   | AGE |   | POSITION                                                     |
|-----------------------|--------|-----|--------|--------------------------------------------------------------|
| Emmanuel Tsoupanarias |   | 56  |   | Chairman of the Board, President and Chief Executive Officer |
| Leonard Friedman      |   | 71  |   | Secretary and Director                                       |
| Frank Georgiou        |   | 58  |   | Director                                                     |
| Chris Theoharis       |   | 56  |   | Director                                                     |
| Marvin Maslow         |   | 71  |   | Chairman Emeritus                                            |

| ·   | been convicted in a criminal proceeding and none of our directors or executive officers is subject to a pending criminal proceeding, |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ·   | been subject to any order, judgment, or decree not subsequently reversed, suspended or vacated of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities, or |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Name                                   | Year        | Salary ($)  | Bonus ($) | Stock Awards ($)  | Option Awards($) | Non-Equity Incentive Plan Compensation ($) | Changes in Pension Value and Nonqualified Deferred Compensation Earnings($) | All Other Compensation ($) | Total($) |
|----------------------------------------|-------------|-------------|-----------|-------------------|------------------|--------------------------------------------|-----------------------------------------------------------------------------|----------------------------|----------|
| Emmanuel Tsoupanarias CEO and Chairman |        |        | -         | -                 |             | -                                          | -                                                                           | -                          |     |
| 2007                                   | 100,000     | -           | -         | (1) 49,768        | -                | -                                          | (2) 284,002                                                                 | 433,770                    |
| 2008                                   | 100,000     | -           | -         |              | -                |                                       | -                                                                           | 100,000                    |
| Marvin MaslowChairman Emeritus         | 2006        | (3) 225,000 | -         |  (4) 600,000 | -                | -                                          | -                                                                           | 48,000                     | 873,000  |
| 2007                                   | (3) 183,340 | -           |  -   | (5) 119,093       | -                | -                                          | -                                                                           | 302,433                    |
| 2008                                   | -           | -           |  -   | (6) 861,667       | -                | -                                          | -                                                                           | 861,667                    |

| (1) | In November 2007, a warrant for 800,000 shares of common stock with an exercise price of $0.013 was granted.  The value of this option totaled $49,768 which was valued using the Black-Scholes option pricing model. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | In May 2007, 14,200,106 shares of common stock were issued for services rendered before appointment as a director and officer. |
|-----|--------------------------------------------------------------------------------------------------------------------------------|

|  (3) | All salary earned for these years by Marvin Maslow was deferred and accrued.  The deferred salary for the years ended December 31, 2005 and 2006 was settled and written off. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  (4) | In May 2006, stock awards of 10,000,000 shares were made to Marvin Maslow. |
|-----------|----------------------------------------------------------------------------|

| (5) | In March 2007, an option for 10,000,000 shares of common stock with an exercise price of $0.014 was granted for services previously provided.  The value of this option totaled $109,982 which was valued using the Black-Scholes option pricing model. In October 2007, warrants for 800,000 shares of common stock with an exercise price of $0.013 were issued.  The value of these warrants totaled $9,111 which were valued using the Black-Scholes option pricing model. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | In January 2008, we granted options for 15,000,000 shares of common stock with an exercise price of $0.013.  The value of these options approximated $861,667 which was valued using the Black-Scholes option pricing model based upon the following assumptions: stock price of $0.06 at grant date; 5 year term; volatility of 144%; and discount rate of 4.5%. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                             |   Option Awards |
|----------------------------------|----------------------|
| Name                             | Grant Date           |   | Number of Securities Underlying Unexercised Options (#) Exercisable |   |   | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |   |   | Number of Securities Underlying Unexercised Options (#) Unexercisable (1) |   |   | Option Exercise Price($) |   | Option Expiration Date |
|                             |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Marvin Maslow, Chairman Emeritus | 3/7/20071/5/2008     |   |   | 10,000,00015,000,000 |   |   |   | -- |   |   |   | -- |   |   | $$ | 0.01350.0130 |   | 3/7/20171/5/2019 |

|                                    |  Warrant Awards |
|-----------------------------------------|----------------------|
| Name                                    | Grant Date           |   | Number of Securities Underlying Unexercised Warrants (#) Exercisable |   |   | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Warrants (#) |   |   | Number of Securities Underlying Unexercised Warrants (#) Unexercisable (1) |   |   | Warrant Exercise Price($) |   | Warrant Expiration Date |
|                                    |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Emmanuel Tsoupanarias, Chairman and CEO | 11/9/2007            |   |   | 800,000 |   |   |   | - |   |   |   | - |   |   | $ | 0.013 |   | 11/9/2017 |
|                                    |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Marvin Maslow, Chairman Emeritus        | 10/11/2007           |   |   | 800,000 |   |   |   | - |   |   |   | - |   |   | $ | 0.013 |   | 10/11/2017 |
|                                    |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Leonard Friedman, Director              | 10/11/2007           |   |   | 800,000 |   |   |   | - |   |   |   | - |   |   | $ | 0.013 |   | 10/11/2017 |
|                                    |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Frank Georgiou, Director                | 10/11/2007           |   |   | 800,000 |   |   |   | - |   |   |   | - |   |   | $ | 0.013 |   | 10/11/2017 |
|                                    |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Chris Theoharis, Director               | 10/11/2007           |   |   | 800,000 |   |   |   | - |   |   |   | - |   |   | $ | 0.013 |   | 10/11/2017 |

----

|  Name and Address of Beneficial Owner              |   | Number of Shares Beneficially Owned |        |   | Percent of Class(1) |   |
|---------------------------------------------------------|--------|-------------------------------------|-------------|--------|---------------------|--------|
|                                                    |   |                                |        |   |                |   |
| Marvin Maslow (2)                                       |   |                                | 58,767,606  |   |                |   | 14.4 | % |
|                                                    |   |                                |        |   |                |   |   |   |
| Emmanuel Tsoupanarias (3)                               |   |                                | 15,250,106  |   |                |   | 4.0 | % |
|                                                    |   |                                |        |   |                |   |   |   |
| Leonard C. Friedman (4)                                 |   |                                | 7,500,000   |   |                |   | 2.0 | % |
|                                                    |   |                                |        |   |                |   |   |   |
| Frank Georgiou (5)                                      |   |                                | 25,000,106  |   |                |   | 6.6 | % |
|                                                    |   |                                |        |   |                |   |   |   |
| Chris Theoharis (6)                                     |   |                                | 5,000,105   |   |                |   | 1.3 | % |
|                                                    |   |                                |        |   |                |   |   |   |
| Directors and Executive Officers as a group (5 persons) |   |                                | 113,517,923 |   |                |   | 27.2 | % |

| (1)   | This tabular information is intended to conform with Rule 13d-3 promulgated under the Securities Exchange Act of 1934 relating to the determination of beneficial ownership of securities.  The percent of class is based on 378,977,926 shares and, for each beneficial owner, gives effect to the exercise of warrants or options exercisable within 60 days of the date of this table owned, in each case, by the person or group whose percentage ownership is set forth herein. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes 28,947,606 shares of Common Stock, options to purchase 25,000,000 shares of Common Stock, a warrant to purchase 800,000 shares of Common Stock and 2,400,000 shares of Common Stock owned by his son and 1,120,000 shares of Common Stock owned by Mr. Maslow's wife and son. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Includes 14,200, 106 owned by Saraklis Inc, a corporation controlled by Mr. Tsoupanarias and a warrant to purchase 800,000 shares at a price of $0.013 per share. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Includes a warrant to purchase 800,000 shares at a price of $0.013 per share. |
|-----------------|-------------------------------------------------------------------------------|

| (5)   | Includes 2,500,000 shares of Common Stock owned by his son and a warrant to purchase 800,000 shares at a price of $0.013 per share. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | Includes a warrant to purchase 800,000 shares at a price of $0.013 per share. |
|-----------------|-------------------------------------------------------------------------------|

----

| Fee Category |   | Fiscal 2008 |   |   | Fiscal 2007 |   |
|--------------|--------|-------------|--------|--------|-------------|--------|
| Audit fees   |   | $           | 50,000 |   |        | $      | 89,750 |   |
| Tax fees     |   |        | -      |   |        |   | - |   |
| Other fees   |   |        | -      |   |        |   | - |   |
| Total fees   |   | $           | 50,000 |   |        | $      | 89,750 |   |

----

|          |   |                                                                                                                            |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |   | Description of Exhibit                                                                                                          |
| 2.1           |   | Agreement and Plan of Reorganization (1)                                                                                        |
| 2.2           |   | Agreement and Plan of Merger (1)                                                                                                |
| 3.1           |   | Certificate of Incorporation (1)                                                                                                |
| 3.2           |   | Amendment to Certificate of Incorporation (1)                                                                                   |
| 3.3           |   | Bylaws (1)                                                                                                                      |
| 4.1           |   | Amended Certificate of Designation, Preferences and Rights of Series C Preferred Stock (2)                                      |
| 10.1          |   | License/Assignment Agreement with Robert Glenn Hockaday, and DKY, Inc. (1)                                                      |
| 10.2          |   | Research and Development Agreement with Energy Related Devices, Inc. (1)                                                        |
| 10.3          |   | Letter Agreement with Energy Related Devices, Inc. and Robert Glenn Hockaday (1)                                                |
| 10.4          |   | Intellectual Property Assignment and Research and Development Agreement with Novars Gesellschaft fur neue Technologien GmbH (1) |
| 10.5          |   | License Option Agreement with The Regents of the University of California (1)                                                   |
| 10.6          |   | Manhattan Scientifics, Inc. 1998 Stock Option Plan (1)                                                                          |
| 10.7          |   | Employment Agreement with Robert Hermes (1)                                                                                     |
| 10.8          |   | Agreement with Stanton Crenshaw Communications (1)                                                                              |
| 10.9          |   | Agreement with Equilink (1)                                                                                                     |
| 10.10         |   | Stock Purchase Agreement between Manhattan Scientifics, Inc., Projectavision, Inc., and Lancer Partners, L.P. (3)               |
| 10.11         |   | License Option Agreement with Mr. Edward Vanzo (4)                                                                              |
| 10.12         |   | Manhattan Scientifics, Inc. 2000 Equity Incentive Plan (5)                                                                      |
| 10.13         |   | 2004 Consultant Stock Plan (6)                                                                                                  |
| 10.14         |   | Loan Agreement with Oro Valley Associates, LLC (7)                                                                              |
| 10.15         |   | Warrant Agreement with Oro Valley Associates, LLC (7)                                                                           |
| 10.16         |   | Manhattan Scientifics 2005 Equity Incentive Plan  (8)                                                                 |
| 21.1          |   | List of Subsidiaries (3)                                                                                                        |
| 31.1          |   | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and 15d- 14(a)(9)                                       |
| 31.2          |   | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and 15d- 14(a)(9)                                       |
| 32.1          |   | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002(9) |
|          |   |                                                                                                                            |

----

|   | MANHATTAN SCIENTIFIC, INC. |                           |
|--------|----------------------------|--------------------------------|
|   |                       |                           |   |
|   | By:                        | /s/ Emmanuel Tsoupanarias |   |
|   |                       | Emmanuel Tsoupanarias          |   |
|   |                       | Chief Executive Officer        |   |
|   |                       |                           |   |

| Signature                 |   | Title                                                                                  |
|---------------------------|--------|----------------------------------------------------------------------------------------|
|                      |   |                                                                                   |
| /s/ Emmanuel Tsoupanarias |   | Chief Executive Officer, President, Chairman of the Board  Principal Executive Officer |
| Emmanuel Tsoupanarias     |   | and Principal Accounting Officer                                                       |
|                      |   |                                                                                   |
| /s/ Leonard Friedman      |   | Secretary and Director                                                                 |
| Leonard Friedman          |   |                                                                                   |
|                      |   |                                                                                   |
| /s/ Frank Georgiou        |   | Director                                                                               |
| Frank Georgiou            |   |                                                                                   |
|                      |   |                                                                                   |
| /s/ Chris Theoharis       |   | Treasurer and Director Principal Financial Officer                                     |
| Chris Theoharis           |   |                                                                                   |
|                      |   |                                                                                   |