----

----

| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|-----------------------------------------------------------------------------------------|

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

----

| DELAWARE                        | 87-0656515                           |
|---------------------------------|--------------------------------------|
| (STATE OR OTHER JURISDICTION OF | (I.R.S. EMPLOYER IDENTIFICATION NO.) |
| INCORPORATION OR ORGANIZATION)  |                                 |

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

| Class:                                   |   | Outstanding at April 29, 2011: |
|------------------------------------------|--------|--------------------------------|
| Common Stock, $0.001 par value per share |   | 1,543,112,438 shares           |

----

| PART I. FINANCIAL INFORMATION                                                                       |   |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|
| ITEM 1. FINANCIAL STATEMENTS                                                                        |   | 3      |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   | 22     |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                  |   | 26     |
| ITEM 4. CONTROLS AND PROCEDURES                                                                     |   | 26     |
| PART II. OTHER INFORMATION                                                                          |   |   |
| ITEM 1. LEGAL PROCEEDINGS                                                                           |   | 26     |
| ITEM 1A. RISK FACTORS                                                                               |   | 26     |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                 |   | 26     |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                             |   | 27     |
| ITEM 4. [REMOVED AND RESERVED]                                                                      |   | 27     |
| ITEM 5. OTHER INFORMATION                                                                           |   | 27     |
| ITEM 6. EXHIBITS                                                                                    |   | 27     |
| SIGNATURE                                                                                           |   | 28     |

----

|                                                                                                                                                                                                                 |   | March 31, |             |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------------|--------|-------------------|--------|
|                                                                                                                                                                                                                 |   | 2011           |             |   | 2010              |   |
|                                                                                                                                                                                                                 |   | (unaudited)    |             |   |              |   |
| ASSETS                                                                                                                                                                                                               |   |           |             |   |              |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |
| CURRENT ASSETS:                                                                                                                                                                                                      |   |           |             |   |              |   |
| Cash and cash equivalents                                                                                                                                                                                            |   | $              | 13,749,973       |   |              | $      | 15,889,409 |   |
| Deferred royalty fees, current portion                                                                                                                                                                               |   |           | 91,598           |   |              |   | 91,598 |   |
| Prepaid expenses                                                                                                                                                                                                     |   |           | 36,999           |   |              |   | - |   |
| Total current assets                                                                                                                                                                                                 |   |           | 13,878,570       |   |              |   | 15,981,007 |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| Property and equipment, net                                                                                                                                                                                          |   |           | 182,889          |   |              |   | 185,102 |   |
| Deferred royalty fees, less current portion                                                                                                                                                                          |   |           | 272,189          |   |              |   | 295,089 |   |
| Deposits                                                                                                                                                                                                             |   |           | 14,766           |   |              |   | 14,766 |   |
| Deferred issuance costs                                                                                                                                                                                              |   |           | 1,983,541        |   |              |   | 2,578,188 |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| TOTAL ASSETS                                                                                                                                                                                                         |   | $              |  16,331,955 |   |              | $      |  19,054,152 |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                                                |   |           |             |   |              |   |   |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| Accounts payable                                                                                                                                                                                                     |   | $              | 1,958,550        |   |              | $      | 1,982,743 |   |
| Accrued expenses                                                                                                                                                                                                     |   |           | 2,906,515        |   |              |   | 4,971,304 |   |
| Accrued settlement                                                                                                                                                                                                   |   |           | -                |   |              |   | 3,205,856 |   |
| Deferred revenue, current portion                                                                                                                                                                                    |   |           | 408,415          |   |              |   | 506,418 |   |
| 2009 Convertible promissory notes, current portion, net of discounts of $0 and $19,229, respectively                                                                                                                 |   |           | -                |   |              |   | 132,680 |   |
| Embedded conversion option liabilities, current portion                                                                                                                                                              |   |           | -                |   |              |   | 537,249 |   |
| Deferred joint venture obligations, current portion                                                                                                                                                                  |   |           | 3,605            |   |              |   | 6,870 |   |
| Total current liabilities                                                                                                                                                                                            |   |           | 5,277,085        |   |              |   | 11,343,120 |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| Convertible promissory notes, less current portion, net of discounts of $253,724 and $285,005, respectively                                                                                                          |   |           | 34,061           |   |              |   | 2,780 |   |
| Embedded conversion option liabilities, less current portion                                                                                                                                                         |   |           | 628,242          |   |              |   | 482,686 |   |
| Warrant and option derivative liabilities                                                                                                                                                                            |   |           | 19,108,579       |   |              |   | 27,307,218 |   |
| Deferred revenue, less current portion                                                                                                                                                                               |   |           | 2,243,312        |   |              |   | 2,298,997 |   |
| Total liabilities                                                                                                                                                                                                    |   |           | 27,291,279       |   |              |   | 41,434,801 |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| Series A-1 redeemable preferred stock, $0.001 par value; 50,000,000 shares authorized, and 113 shares issued and outstanding; aggregate liquidation value, net of discounts: $1,377,806 and $1,349,657, respectively |   |           | 1,308,993        |   |              |   | 1,272,441 |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| Commitments and contingencies                                                                                                                                                                                        |   |           |             |   |              |   |   |   |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| STOCKHOLDERS' DEFICIT:                                                                                                                                                                                               |   |           |             |   |              |   |   |   |
| Preferred stock, Series B; $0.001 par value; 50,000,000 shares authorized, and 1,000 shares issued and outstanding                                                                                                   |   |           | 1                |   |              |   | 1 |   |
| Preferred stock, Series C; $0.001 par value; 50,000,000 shares authorized, and 400 shares issued and outstanding                                                                                                     |   |           | -                |   |              |   | - |   |
| Common stock, $0.001par value; 1,750,000,000 shares authorized, 1,508,731,348 and 1,439,826,362 shares issued and outstanding                                                                                        |   |           | 1,508,731        |   |              |   | 1,439,826 |   |
| Additional paid-in capital                                                                                                                                                                                           |   |           | 181,002,598      |   |              |   | 166,033,976 |   |
| Promissory notes receivable, net of discount of $3,071,575 and $3,322,630, respectively                                                                                                                              |   |           | (10,428,425      | )      |              |   | (10,177,370 | ) |
| Accumulated deficit                                                                                                                                                                                                  |   |           | (184,351,222     | )      |              |   | (180,949,523 | ) |
| Total stockholders' deficit                                                                                                                                                                                          |   |           | (12,268,317      | )      |              |   | (23,653,090 | ) |
|                                                                                                                                                                                                                 |   |           |             |   |              |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                                          |   | $              |  16,331,955 |   |              | $      |  19,054,152 |   |

----

|                                     |   | Three Months Ended March 31, |             |
|------------------------------------------|--------|--------------------------------------------------|------------------|
|                                     |   | 2011                                             |             |   | 2010 |   |
|                                     |   | (unaudited)                                      |             |   | (unaudited) |   |
|                                     |   |                                             |             |   |   |   |
| Revenue (License fees and royalties)     |   | $                                                | 153,688          |   |   | $ | 205,158 |   |
| Cost of Revenue                          |   |                                             | 22,900           |   |   |   | 66,650 |   |
| Gross profit                             |   |                                             | 130,788          |   |   |   | 138,508 |   |
|                                     |   |                                             |             |   |   |   |   |   |
| Operating expenses:                      |   |                                             |             |   |   |   |   |   |
| Research and development                 |   |                                             | 1,474,773        |   |   |   | 3,895,581 |   |
| General and administrative expenses      |   |                                             | 3,197,526        |   |   |   | 11,218,243 |   |
| Loss on settlement of litigation         |   |                                             | 294,144          |   |   |   | - |   |
| Total operating expenses                 |   |                                             | 4,966,443        |   |   |   | 15,113,824 |   |
| Loss from operations                     |   |                                             | (4,835,655       | ) |   |   | (14,975,316 | ) |
|                                     |   |                                             |             |   |   |   |   |   |
| Non-operating income (expense):          |   |                                             |             |   |   |   |   |   |
| Interest income                          |   |                                             | 11,784           |   |   |   | 3,043 |   |
| Interest expense and late fees           |   |                                             | (681,710         | ) |   |   | (3,352,774 | ) |
| Finance cost                             |   |                                             | (2,625,875       | ) |   |   | (1,109,290 | ) |
| Adjustments to fair value of derivatives |   |                                             | 4,789,419        |   |   |   | 1,584,704 |   |
| Total non-operating income (expense)     |   |                                             | 1,493,618        |   |   |   | (2,874,317 | ) |
|                                     |   |                                             |             |   |   |   |   |   |
| Loss before income tax                   |   |                                             | (3,342,037       | ) |   |   | (17,849,633 | ) |
|                                     |   |                                             |             |   |   |   |   |   |
| Income tax                               |   |                                             | -                |   |   |   | - |   |
|                                     |   |                                             |             |   |   |   |   |   |
| Net loss                                 |   | $                                                |  (3,342,037 | ) |   | $ |  (17,849,633 | ) |
|                                     |   |                                             |             |   |   |   |   |   |
| Weighted average shares outstanding :    |   |                                             |             |   |   |   |   |   |
| Basic and diluted                        |   |                                             | 1,478,231,834    |   |   |   | 700,573,791 |   |
|                                     |   |                                             |             |   |   |   |   |   |
| Loss per share:                          |   |                                             |             |   |   |   |   |   |
| Basic and diluted                        |   | $                                                | (0.00            | ) |   | $ | (0.03 | ) |

----

|                                          |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          | Additional    |   |   | Promissory           |   |   |    |        |   | Total   |   |
|----------------------------------------------------|--------|-----------------------------------------|--------|--------|-----------------------------------------|--------|--------|-------------------|--------|--------|---------|--------|--------|--------|--------|--------|-------------|--------|---------------|---------------|--------|--------|----------------------|--------|--------|---------|-------------|--------|---------|--------|
|                                               |   | Series B Preferred Stock |   |   | Series C Preferred Stock |   |   | Common Stock |   |   | Paid-in |   |   | Notes  |   |   | Accumulated |   |          | Stockholders' |   |
|                                               |   | Shares                                  |   |   | Amount                                  |   |   | Shares            |   |   | Amount  |   |   | Shares |   |   | Amount      |   |          | Capital       |   |   | Receivable, net |   |   | Deficit |        |   | Deficit |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |
| Balance December 31, 2010                          |   |                                    | 1,000  |   |                                    | $      | 1      |              |   |   | 400     |   |   | $      | -      |   |        |   | 1,439,826,362 |          |   | $      | 1,439,826            |   |   | $       | 166,033,976 |   |    | $      | (10,177,370 | ) |   | $ | (180,949,523 | ) |   | $ | (23,653,090 | ) |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Convertible debenture redemptions                  |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | 1,519,077     |          |   |   | 1,519                |   |   |    | 150,390     |   |    |   | - |   |   |   | - |   |   |   | 151,909 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued for compensation                     |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | 17,421,101    |          |   |   | 17,421               |   |   |    | 1,275,478   |   |    |   | - |   |   |   | - |   |   |   | 1,292,899 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued for settlements                |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | 7,413,000     |          |   |   | 7,413                |   |   |    | 3,492,587   |   |    |   | - |   |   |   | - |   |   |   | 3,500,000 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued for finance costs              |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | 23,222,786    |          |   |   | 23,223               |   |   |    | 4,230,777   |   |    |   | - |   |   |   | - |   |   |   | 4,254,000 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Warrant exercises                                  |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | 16,656,572    |          |   |   | 16,657               |   |   |    | 4,573,051   |   |    |   | - |   |   |   | - |   |   |   | 4,589,708 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Option exercises                                   |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | 636,126       |          |   |   | 636                  |   |   |    | 159,525     |   |    |   | - |   |   |   | - |   |   |   | 160,161 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued for board compensation               |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | 406,324       |          |   |   | 406                  |   |   |    | 72,732      |   |    |   | - |   |   |   | - |   |   |   | 73,138 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Shares issued for services                         |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | 1,630,000     |          |   |   | 1,630                |   |   |    | 340,670     |   |    |   | - |   |   |   | - |   |   |   | 342,300 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Accrued dividends on Series B Preferred Stock      |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | -             |          |   |   | -                    |   |   |    | 251,539     |   |    |   | - |   |   |   | (251,539 | ) |   |   | - |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Accrued dividends on Series C Preferred Stock      |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | -             |          |   |   | -                    |   |   |    | 59,178      |   |    |   | - |   |   |   | (59,178 | ) |   |   | - |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Accretion of note receivable discount              |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | -             |          |   |   | -                    |   |   |    | -           |   |    |   | (251,055 | ) |   |   | 251,055 |   |   |   | - |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Option compensation charges                        |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | -             |          |   |   | -                    |   |   |    | 362,695     |   |    |   | - |   |   |   | - |   |   |   | 362,695 |   |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Net loss for the three months ended March 31, 2011 |   |                                    | -      |   |                                    |   | -      |              |   |   | -       |   |   |   | -      |   |        |   | -             |          |   |   | -                    |   |   |    | -           |   |    |   | - |   |   |   | (3,342,037 | ) |   |   | (3,342,037 | ) |
|                                               |   |                                    |   |   |                                    |   |   |              |   |   |    |   |   |   |   |   |        |   |          |          |   |   |                 |   |   |    |        |   |    |   |   |   |   |   |   |   |   |   |   |   |
| Balance March 31, 20100 (unaudited)                |   |                                    | 1,000  |   |                                    | $      | 1      |              |   |   | 400     |   |   | $      | -      |   |        |   | 1,508,731,348 |          |   | $      | 1,508,731            |   |   | $       | 181,002,598 |   |    | $      | (10,428,425 | ) |   | $ | (184,351,222 | ) |   | $ |  (12,268,317 | ) |

----

|                                                                                            |   | Three Months Ended March 31, |       |
|-------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|------------|
|                                                                                            |   | 2011                                             |       |   | 2010 |   |
|                                                                                            |   | (unaudited)                                      |       |   | (unaudited) |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                           |   |                                             |       |   |   |   |
| Net loss                                                                                        |   | $                                                | (3,342,037 | ) |   | $ | (17,849,633 | ) |
| Adjustments to reconcile net loss to net cash  used in operating activities:          |   |                                             |       |   |   |   |   |   |
| Depreciation and amortization                                                                   |   |                                             | 21,285     |   |   |   | 45,580 |   |
| Amortization of deferred royalties                                                              |   |                                             | 22,900     |   |   |   | 22,900 |   |
| Amortization of deferred revenue                                                                |   |                                             | (153,688   | ) |   |   | (205,158 | ) |
| Redeemable preferred stock dividend accrual                                                     |   |                                             | 28,149     |   |   |   | 9,887 |   |
| Stock based compensation                                                                        |   |                                             | 362,695    |   |   |   | 199,392 |   |
| Amortization of deferred issuance costs                                                         |   |                                             | 594,647    |   |   |   | 213,464 |   |
| Amortization of discounts                                                                       |   |                                             | 58,913     |   |   |   | 3,129,424 |   |
| Adjustments to fair value of derivatives                                                        |   |                                             | (4,789,419 | ) |   |   | (1,584,704 | ) |
| Shares of common stock issued for services                                                      |   |                                             | 590,438    |   |   |   | 3,515,562 |   |
| Non-cash financing costs                                                                        |   |                                             | 2,625,875  |   |   |   | 1,109,290 |   |
| Loss on settlement of litigation                                                                |   |                                             | 294,144    |   |   |   | - |   |
| Amortization of deferred joint venture obligations                                              |   |                                             | (3,265     | ) |   |   | (33,798 | ) |
| Warrants issued for consulting services                                                         |   |                                             | 664,944    |   |   |   | 50,232 |   |
| (Increase) / decrease in assets:                                                                |   |                                             |       |   |   |   |   |   |
| Prepaid expenses                                                                                |   |                                             | (36,999    | ) |   |   | 9,054 |   |
| Increase / (decrease) in current liabilities:                                                   |   |                                             |       |   |   |   |   |   |
| Accounts payable and accrued expenses                                                           |   |                                             | (317,082   | ) |   |   | 8,438,438 |   |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| Net cash used in operating activities                                                           |   |                                             | (3,378,500 | ) |   |   | (2,930,070 | ) |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                            |   |                                             |       |   |   |   |   |   |
| Purchases of property and equipment                                                             |   |                                             | (19,072    | ) |   |   | (77,352 | ) |
| Payment of lease deposits                                                                       |   |                                             | -          |   |   |   | (12,596 | ) |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| Net cash used in investing activities                                                           |   |                                             | (19,072    | ) |   |   | (89,948 | ) |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                           |   |                                             |       |   |   |   |   |   |
| Proceeds from exercise of warrants                                                              |   |                                             | 1,258,136  |   |   |   | 3,700 |   |
| Proceeds from issuance of convertible debentures                                                |   |                                             | -          |   |   |   | 1,685,000 |   |
| Proceeds from convertible promissory notes                                                      |   |                                             | -          |   |   |   | 1,650,000 |   |
| Proceeds from issuance of Series A-1 convertible preferred stock, net                           |   |                                             | -          |   |   |   | 830,165 |   |
| Proceeds from issuance of Series B preferred stock,  net                              |   |                                             | -          |   |   |   | 1,490,000 |   |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| Net cash provided by financing activities                                                       |   |                                             | 1,258,136  |   |   |   | 5,658,865 |   |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                            |   |                                             | (2,139,436 | ) |   |   | 2,638,847 |   |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING BALANCE                                                    |   |                                             | 15,889,409 |   |   |   | 2,538,838 |   |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, ENDING BALANCE                                                       |   | $                                                | 13,749,973 |   |   | $ | 5,177,685 |   |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| CASH PAID FOR:                                                                                  |   |                                             |       |   |   |   |   |   |
| Interest                                                                                        |   | $                                                | -          |   |   | $ | - |   |
| Income taxes                                                                                    |   | $                                                | -          |   |   | $ | 6,185 |   |
|                                                                                            |   |                                             |       |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:                                       |   |                                             |       |   |   |   |   |   |
| Issuance of 1,519,077 and 23,950,070 shares of common stock in redemption of debt               |   | $                                                | 151,909    |   |   | $ | 2,152,362 |   |
| Issuance of 0 and 41,183,861 shares of common stock in conversion of debt and preferred stock   |   | $                                                | -          |   |   | $ | 3,551,832 |   |
| Issuance of note receivable on exercise of warrants for 0 and 25,839,112 shares of common stock |   | $                                                | -          |   |   | $ | 2,700,000 |   |
| Issuance of 406,324 and 16,773,597 shares of common stock in payment of board fees              |   | $                                                | 73,138     |   |   | $ | 1,560,213 |   |
| Issuance of 15,643,887 and 0 shares of common stock for accrued liabilities                     |   | $                                                | 1,771,899  |   |   | $ | - |   |
| Issuance of 7,413,000 and 0 shares of common stock for accrued settlement                       |   | $                                                | 3,205,856  |   |   | $ | - |   |
| Issuance of 0 and 250,000 shares of common stock in payment of financing costs                  |   | $                                                | -          |   |   | $ | 22,500 |   |
| Series B preferred stock dividend                                                               |   | $                                                | 251,539    |   |   | $ | 12,739 |   |
| Series C preferred stock dividend                                                               |   | $                                                | 59,178     |   |   | $ | - |   |
| Interest accreted on promissory notes receivable                                                |   | $                                                | 251,055    |   |   | $ | 12,715 |   |
| Issuance of 3,252,066 and 25,867,112 shares of common stock for cashless exercise of warrants   |   | $                                                | 1,156,861  |   |   | $ | 2,703,699 |   |

----

| 1. | ORGANIZATIONAL MATTERS |
|----|------------------------|

| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|----|--------------------------------------------|

----

| Machinery & equipment | 4 years                               |
|---------------------------|---------------------------------------|
| Computer equipment        | 3 years                               |
| Office furniture          | 4 years                               |
| Leasehold improvements    | Lesser of lease life or economic life |
| Capital leases            | Lesser of lease life or economic life |

|   | (a) | Payments, either in cash or share-based, made in connection with the sale of debentures which are amortized using the effective interest method over the lives of the related debentures. These deferred issuance costs are charged to financing costs when and if the related debt instrument is retired or converted early.  The weighted average amortization period for deferred debt issuance costs is 48 months. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Payments made to secure commitments under certain financing arrangements. These amounts are recognized in financing costs ratably over the period of the financing arrangements, and are recognized in financing costs immediately if the arrangement is cancelled, forfeited or the utility of the arrangement to the company is otherwise compromised. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Payments made to financial institutions and consulting firms in order to provide financing related services.  These costs are being amortized over the terms of the related agreements. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   | · | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

----

|                                   |   |                     |       |   | Fair Value Measurements at |   |
|----------------------------------------|--------|--------------------------|------------|--------|-------------------------------------------|--------|
|                                   |   | Fair Value          |       |   | March 31, 2011                  |   |
|                                   |   | As of               |       |   | Using Fair Value Hierarchy |   |
| Derivative Liabilities            |   | March 31, 2011 |       |   | Level 1                              |   |   | Level 2 |   |   | Level 3 |   |
| Warrant derivative liabilities         |   | $                        | 19,108,579 |   |                                      | $      | - |   |   |   | 19,108,579 |   |   |   | - |   |
| Embedded conversion option liabilities |   |                     | 628,242    |   |                                      |   | - |   |   |   | 628,242 |   |   |   | - |   |
|                                   |   | $                        | 19,736,821 |   |                                      | $      | - |   |   |   | 19,736,821 |   |   |   | - |   |

----

|                                      |   | Three Months Ended March 31, |       |
|-------------------------------------------|--------|------------------------------|------------|
|                                      |   | 2011                         |       |   | 2010 |   |
| Net loss                                  |   | $                            | (3,342,037 | ) |   | $ | (17,849,633 | ) |
| Dividends for preferred stockholders      |   |                         | (310,717   | ) |   |   | (12,739 | ) |
| Accretion of note receivable discount     |   |                         | 251,055    |   |   |   | 12,715 |   |
| Net loss available to common stockholders |   | $                            | (3,401,699 | ) |   | $ | (17,849,657 | ) |

|                                |   | Three Months Ended |   |
|-------------------------------------|--------|------------------------------|--------|
|                                |   | March 31,               |   |
|                                |   | 2011                         |   |   | 2010 |   |
| Exeter Life Sciences, Inc.          |   |                         | 20     | % |   |   | 15 | % |
| START Licensing, Inc.               |   |                         | 16     | % |   |   | 12 | % |
| International Stem Cell Corporation |   |                         | 24     | % |   |   | 18 | % |
| Transition Holdings, Inc.           |   |                         | -      |   |   |   | 25 | % |
| CHA Biotech and SCRMI               |   |                         | 21     | % |   |   | 16 | % |
| Lifeline                            |   |                         | 11     | % |   |   | * |   |

----

| 3.  | SETTLEMENT AND CANCELATION OF LICENSE AGREEMENT |
|----------|-------------------------------------------------|

| 4.  | INVESTMENT IN JOINT VENTURE |
|----------|-----------------------------|

|                   |   | March 31, |      |
|------------------------|--------|-----------|-----------|
|                   |   | 2011      |      |   | 2010 |   |
| Current assets         |   | $         | 618,343   |   |   | $ | 766,420 |   |
| Noncurrent assets      |   | $         | 996,473   |   |   | $ | 605,597 |   |
| Current liabilities    |   | $         | 1,302,939 |   |   | $ | 909,851 |   |
| Noncurrent liabilities |   | $         | 1,912,428 |   |   | $ | 481,604 |   |
| Net revenue            |   | $         | 6,693     |   |   | $ | 6,693 |   |
| Net loss               |   | $         | (424,431  | ) |   | $ | (482,110 | ) |

----

| 5.  | PROPERTY AND EQUIPMENT |
|----------|------------------------|

|                        |   | March 31, |       |   | December 31, |   |
|-----------------------------|--------|----------------|------------|--------|-------------------|--------|
|                        |   | 2011           |       |   | 2010              |   |
| Machinery & equipment   |   | $              | 1,488,527  |   |              | $      | 1,488,527 |   |
| Computer equipment          |   |           | 449,893    |   |              |   | 449,893 |   |
| Office furniture            |   |           | 76,201     |   |              |   | 76,201 |   |
| Leasehold improvements      |   |           | 300,455    |   |              |   | 281,383 |   |
| Capital leases              |   |           | 51,235     |   |              |   | 51,235 |   |
| Accumulated depreciation    |   |           | (2,183,422 | )      |              |   | (2,162,137 | ) |
| Property and equipment, net |   | $              | 182,889    |   |              | $      | 185,102 |   |

| 6.  | CONVERTIBLE PROMISSORY NOTES |
|----------|------------------------------|

----

| 7.  | SERIES A-1 REDEEMABLE CONVERTIBLE PREFERRED STOCK |
|----------|---------------------------------------------------|

|                         |   | March 31, |      |   | December 31, |   |
|------------------------------|--------|----------------|-----------|--------|-------------------|--------|
|                         |   | 2011           |      |   | 2010              |   |
| Principal due                |   | $              | 1,130,164 |   |              |   | 1,130,165 |   |
| Accrued dividend             |   |           | 247,642   |   |              |   | 219,492 |   |
| Discount                     |   |           | (68,813   | )      |              |   | (77,216 | ) |
| Non-current portion          |   | $              | 1,308,993 |   |              |   | 1,272,441 |   |
|                         |   |           |      |   |              |   |   |   |
| Aggregate liquidation value* |   | $              | 1,377,806 |   |              |   | 1,349,657 |   |

----

| 8.  | SERIES B PREFERRED STOCK |
|----------|--------------------------|

----

| ·  | On the sixth (6th) Trading Day following the Tranche Notice Date, the Exercise Price of the Optimus Warrant shall be adjusted  to equal the VWAP for the 5 trading days beginning on and including the Tranche Notice Date (as so adjusted, the “Adjusted Exercise Price”); and |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | If the Adjusted Exercise Price results in additional Warrant Shares being issuable to the Holder, such additional shares shall be delivered to the Holder within one Trading Day following the Adjustment Date.  If the Adjusted Exercise Price results in less Warrant Shares being issuable to the Holder, the excess Warrant Shares shall be returned by the Holder to the Company within one Trading Day following on the Adjustment Date. |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 9.  | SERIES C PREFERRED STOCK |
|----------|--------------------------|

| · | The Company agreed to sell, and Socius agreed to purchase, in one or more purchases from time to time (each such purchase, a “Series C Tranche”) in the Company’s sole discretion (subject to the conditions set forth therein), (i) up to 2,500 shares of Series C Preferred Stock (the “Series C Preferred Shares”) at a purchase price of $10,000 per share, for an aggregate purchase price of up to $25,000,000, and (ii) a two-year warrant (the “Socius Warrant”) obligating Socius to purchase shares of the Company’s common stock (the “Common Stock” ) with an aggregate exercise price equal to 20% of the purchase price paid by Socius for the Series C Preferred Shares sold in each Series C Tranche, at an exercise price per share equal to the closing bid price of the Company’s Common Stock on the date the Company provides notice of such Series C Tranche (the “Series C Tranche Notice”). On each date that the Company delivers a Series C Tranche Notice to Socius, Socius shall also become obligated, pursuant to a right automatically vesting on such Series C Tranche Notice date, to purchase that number of shares of Common Stock (such shares of Common Stock the “Additional Investment Shares”) equal in dollar amount to 100% of the Series C Tranche amount set forth in the Series C Tranche Notice at a price per share equal to the closing bid price of the Common Stock on the Series C Tranche Notice date. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | The Series C Purchase Agreement requires that, when the Company requests Socius to purchase a tranche of Series C Preferred Shares, the mandatory purchase by Socius of the related Additional Investment Shares must occur no later than sixty (60) calendar days following the Series C Tranche Notice date. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | The Socius Warrant was issued to Socius on December 30, 2010 (the “Closing Date”) simultaneous with entering into the Series C Purchase Agreement. The Socius Warrant was issued with an initial exercise price per warrant is of $0.16 per share and for a total of up to 31,250,000 shares, subject to adjustment as described therein. On January 10, 2011, Socius and the Company entered into a letter agreement in which the parties agreed that, following arms-length negotiations and notwithstanding anything to the contrary in the Socius Warrant, that the initial number of shares issuable under the Socius Warrant, subject to the adjustment mechanism set forth therein, was equal to 30,000,000. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | As required by the Purchase Agreement, the Socius Warrant must be exercised for such number of shares of Common Stock equal in amount to 20% of the cumulative purchase price paid by Socius for the Series C Preferred Shares. The maximum amount of Series C Preferred Stock that Socius may become obligated to purchase under all Series C Tranches is $25,000,000. Assuming the maximum drawdown of $25,000,000 by the Company under the Series C Purchase Agreement, Socius would be required to exercise the Socius Warrant to purchase 20% of this total dollar amount, or $5,000,000 worth of shares of Common Stock. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ● | The Letter Agreement modified the Socius Warrant only with respect to the initial number of underlying shares and expressly provides that, except as so modified, the Socius Warrant shall remain unchanged and shall continue in full force and effect. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | At the initial closing pursuant to the Series C Purchase Agreement, which occurred on the Closing Date, (i) Socius purchased 400 Preferred Shares and the Company received gross proceeds of $4,000,000 (ii) the Company delivered to Socius an initial warrant (the “Initial Warrant”) obligating Socius to purchase shares of Common Stock with an aggregate purchase price of $800,000, which shall be automatically exercisable on the date a registration statement for the resale of all shares of Common Stock issuable pursuant to the Series C Purchase Agreement is declared effective (which effectiveness occurred on April 13, 2011), with delivery of such shares made to Socius on the trading day immediately following the exercise date at a per-share price equal to the closing bid price of the Common Stock on the delivery date, and (iii) Socius became obligated to purchase additional shares of Common Stock equal in aggregate dollar amount to $4,000,000 ( such shares of Common Stock the “Initial Investment Shares”), with delivery of such shares made to Socius on the trading day immediately following the date the registration statement is declared effective at a price per share equal to the closing bid price of Common Stock on the delivery date. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The Company agreed to pay to Socius a commitment fee of $1,250,000 (the “Commitment Fee”), at the earlier of the closing of the first Series C Tranche or the six month anniversary of the Series C Effective Date. This Commitment Fee is payable solely at the Company’s election, in cash or in the alternative, in shares of common stock valued at 88% of the volume weighted average price of the Company’s Common Stock on the five trading days preceding the payment date. If the Company elects to pay the Commitment Fee in shares of Common Stock, no cash payment would be due as the issuance of shares would satisfy the Commitment Fee obligation in full. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The Company agreed to use its best efforts to file within 60 days of the Series C Effective Date, and cause to become effective as soon as possible thereafter, a registration statement with the Securities and Exchange Commission for the resale of all shares of Common Stock issuable pursuant to the Series C Purchase Agreement, including the shares of Common Stock underlying the Socius Warrant, shares of the Common Stock issuable upon exercise of the Initial Warrant, shares of Common Stock issuable as Initial Investment Shares, shares of Common Stock issuable as Additional Investment Shares, and shares of Common Stock issuable in payment of the Commitment Fee. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | In the event that Socius does not comply with its obligations under the Series C Purchase Agreement (including its obligations to exercise the Socius Warrant), the Series C Purchase Agreement provides that, in addition to being entitled to exercise all rights provided therein or granted by law, the Company would be entitled to seek specific performance by Socius under the Series C Purchase Agreement and the Socius Warrant. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 10.  | WARRANT SUMMARY |
|-----------|-----------------|

|                                    |   |           |        |   |         |   |   | Weighted                  |   |   |      |         |
|-----------------------------------------|--------|----------------|-------------|--------|--------------|--------|--------|---------------------------|--------|--------|-----------|--------------|
|                               |   |           |        |   | Weighted     |   |   | Average                   |   |   | Aggregate |         |
|                                    |   |           |        |   | Average      |   |   | Remaining                 |   |   | Intrinsic |         |
|                                    |   | Number of |        |   | Exercise     |   |   | Contractual               |   |   | Value     |         |
|                                    |   | Warrants       |        |   | Price $ |   |   | Life (in years) |   |   |      | (000) $ |   |
| Outstanding, December 31, 2010          |   |           | 134,931,242 |   |         |   | 0.12   |                      |   |   | 3.54      |         |   |   |   |   |
| Granted                                 |   |           | 5,663,445   |   |         |   | 0.27   |                      |   |   |      |         |   |   |   |   |
| Exercised                               |   |           | (27,613,443 | )      |         |   | 0.10   |                      |   |   |      |         |   |   |   |   |
| Forfeited/Canceled                      |   |           | (300,000    | )      |         |   | 0.96   |                      |   |   |      |         |   |   |   |   |
| Outstanding, March 31, 2011 (unaudited) |   |           | 112,681,244 |   |         |   | 0.13   |                      |   |   | 3.36      |         |   |   | 8,387 |   |
|                                    |   |           |        |   |         |   |   |                      |   |   |      |         |   |   |   |   |
| Exercisable, March 31, 2011 (unaudited) |   |           | 112,681,244 |   |         |   | 0.13   |                      |   |   | 3.36      |         |   |   | 8,387 |   |

| Warrants Outstanding and Exercisable |   |
|-----------------------------------------------------|--------|
|                                                |   |   |   |   | Weighted |   |   | Weighted |   |
|                                                |   |   |   |   | Average |   |   | Average |   |
| Exercise                                            |   | Number |   |   | Remaining |   |   | Exercise |   |
| Price $                                             |   | of Shares |   |   | Life (Years) |   |   | Price $ |   |
| .10 - .11                                           |   |   | 106,261,441 |   |   |   | 3.31 |   |   |   | 0.10 |   |
| .20 - .30                                           |   |   | 1,630,000 |   |   |   | 4.76 |   |   |   | 0.25 |   |
| .38-.39                                             |   |   | 1,330,636 |   |   |   | 6.32 |   |   |   | 0.39 |   |
| .40-.45                                             |   |   | 2,065,000 |   |   |   | 2.82 |   |   |   | 0.42 |   |
| .70-.85                                             |   |   | 1,001,250 |   |   |   | 3.94 |   |   |   | 0.73 |   |
| 2.20-2.54                                           |   |   | 392,917 |   |   |   | 0.12 |   |   |   | 2.48 |   |
|                                                |   |   | 112,681,244 |   |   |   |   |   |   |   |   |   |

----

| 11. | STOCKHOLDERS’ EQUITY TRANSACTIONS |
|-----|-----------------------------------------|

----

| 12.  | STOCK-BASED COMPENSATION |
|-----------|--------------------------|

|               |   |           |       |   |        |   |       | Options/Shares |   |
|--------------------|--------|----------------|------------|--------|-------------|--------|------------|----------------|--------|
|               |   | Options/Shares |       |   | Options     |   |       | Available      |   |
| Stock Plan    |   | Issued         |       |   | Outstanding |   |       | For Grant |   |
| 2004 Stock Plan    |   |           | 2,492,000  |   |        |   | 820,000    |           |   |   | 370,000 |   |
| 2004 Stock Plan II |   |           | 1,301,161  |   |        |   | 1,071,161  |           |   |   | 230,000 |   |
| 2005 Stock Plan    |   |           | 53,952,983 |   |        |   | 49,442,457 |           |   |   | 126,563,995 |   |
|               |   |           | 57,746,144 |   |        |   | 51,333,618 |           |   |   | 127,163,995 |   |

|                                          |   |           |       |   |     |   |   | Weighted                  |   |   |      |   |
|-----------------------------------------------|--------|----------------|------------|--------|----------|--------|--------|---------------------------|--------|--------|-----------|--------|
|                                          |   |           |       |   | Weighted |   |   | Average                   |   |   | Aggregate |   |
|                                          |   |           |       |   | Average  |   |   | Remaining                 |   |   | Intrinsic |   |
|                                          |   | Number of |       |   | Exercise |   |   | Contractual               |   |   | Value     |   |
|                                          |   | Options        |       |   | Price    |   |   | Life (in years) |   |   |      | (000)  |   |
| Outstanding, December 31, 2010                |   |           | 48,376,119 |   |     | $      | 0.23   |                      |   |   | 7.56      |   |   | $ | 3,825 |   |
| Granted                                       |   |           | 4,457,499  |   |     |   | -      |                      |   |   |      |   |   |   |   |   |
| Exercised                                     |   |           | (1,500,000 | )      |     |   | -      |                      |   |   |      |   |   |   |   |   |
| Forfeited/canceled                            |   |           | -          |   |     |   | -      |                      |   |   |      |   |   |   |   |   |
| Outstanding, March 31, 2011                   |   |           | 51,333,618 |   |     | $      | 0.23   |                      |   |   | 7.74      |   |   | $ | 2,663 |   |
|                                          |   |           |       |   |     |   |   |                      |   |   |      |   |   |   |   |   |
| Vested and expected to vest at March 31, 2011 |   |           | 48,968,533 |   |     | $      | 0.24   |                      |   |   | 7.63      |   |   | $ | 2,541 |   |
| Exercisable, March 31, 2011                   |   |           | 33,140,654 |   |     | $      | 0.29   |                      |   |   | 6.56      |   |   | $ | 1,721 |   |

----

|     |        |           | Options Outstanding |       |     | Options Exercisable |   |
|----------|-------------|----------------|--------------------------|------------|----------|--------------------------|--------|
|     |        |           |                     |       |     | Weighted                 |   |   | Weighted |   |   |   |   |   | Weighted |   |   | Weighted |   |
|     |        |           |                     |       |     | Average                  |   |   | Average |   |   |   |   |   | Average |   |   | Average |   |
| Exercise |        | Number         |                     |       | Exercise |                     |   | Remaining |   |   | Number |   |   | Exercise |   |   | Remaining |   |
| Price    |        | of Shares |                     |       | Price    |                     |   | Life (Years) |   |   | of Shares |   |   | Price |   |   | Life (Years) |   |
| $        | 0.05        |           |                     | 820,000    |     |                     | $      | 0.05 |   |   |   | 3.37 |   |   |   | 820,000 |   |   | $ | 0.05 |   |   |   | 3.37 |   |
|     | 0.09        |           |                     | 12,390,000 |     |                     |   | 0.09 |   |   |   | 8.85 |   |   |   | 3,484,689 |   |   |   | 0.09 |   |   |   | 8.85 |   |
|     | 0.10 - 0.14 |           |                     | 20,501,273 |     |                     |   | 0.11 |   |   |   | 8.48 |   |   |   | 16,334,606 |   |   |   | 0.10 |   |   |   | 7.32 |   |
|     | 0.19 - 0.21 |           |                     | 10,269,168 |     |                     |   | 0.20 |   |   |   | 7.99 |   |   |   | 5,148,181 |   |   |   | 0.21 |   |   |   | 6.87 |   |
|     | 0.25        |           |                     | 1,071,161  |     |                     |   | 0.25 |   |   |   | 3.76 |   |   |   | 1,071,161 |   |   |   | 0.25 |   |   |   | 3.76 |   |
|     | 0.85        |           |                     | 5,604,099  |     |                     |   | 0.85 |   |   |   | 3.84 |   |   |   | 5,604,100 |   |   |   | 0.85 |   |   |   | 3.84 |   |
| $        | 1.35 - 2.48 |           |                     | 677,917    |     |                     | $      | 2.04 |   |   |   | 4.61 |   |   |   | 677,917 |   |   | $ | 2.04 |   |   |   | 4.61 |   |
|     |        |           |                     | 51,333,618 |     |                     |   |   |   |   |   |   |   |   |   | 33,140,654 |   |   |   |   |   |   |   |   |   |

|                         |   | 2011       |   |
|------------------------------|--------|------------|--------|
| Risk-free interest rate      |   |       | 1.93   | % |
| Expected life of the options |   | 5.27 years |   |
| Expected volatility          |   |       | 170    | % |
| Expected dividend yield      |   |       | 0      | % |
| Expected forfeitures         |   |       | 13     | % |

| 13.  | COMMITMENTS AND CONTINGENCIES |
|-----------|-------------------------------|

| 14.  | SUBSEQUENT EVENTS |
|-----------|-------------------|

----

|   | · | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|

|   | · | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|                                |   | Three Months Ended March 31, |       |   | Three Months Ended March 31, |   |
|-------------------------------------|--------|--------------------------------------------------|------------|--------|--------------------------------------------------|--------|
|                                |   | 2011                                             |       |   | 2010                                             |   |
|                                |   |                                             |       |   | % of                                        |   |   |   |   |   | % of |   |
|                                |   | Amount                                           |       |   | Revenue                                          |   |   | Amount |   |   | Revenue |   |
| Revenue                             |   | $                                                | 153,688    |   |                                             |   | 100.0 | % |   | $ | 205,158 |   |   |   | 100.0 | % |
| Cost of revenue                     |   |                                             | 22,900     |   |                                             |   | 14.9 | % |   |   | 66,650 |   |   |   | 32.5 | % |
| Gross profit                        |   |                                             | 130,788    |   |                                             |   | 85.1 | % |   |   | 138,508 |   |   |   | 67.5 | % |
| Research and development expenses   |   |                                             | 1,474,773  |   |                                             |   | 959.6 | % |   |   | 3,895,581 |   |   |   | 1898.8 | % |
| General and administrative expenses |   |                                             | 3,197,526  |   |                                             |   | 2080.5 | % |   |   | 11,218,243 |   |   |   | 5468.1 | % |
| Loss on settlement of litigation    |   |                                             | 294,144    |   |                                             |   | 191.4 | % |   |   | - |   |   |   | 0.0 | % |
| Non-operating income (expense)      |   |                                             | 1,493,618  |   |                                             |   | 971.9 | % |   |   | (2,874,317 | ) |   |   | -1401.0 | % |
| Net loss                            |   | $                                                | (3,342,037 | )      |                                             |   | -2174.6 | % |   | $ | (17,849,633 | ) |   |   | -8700.4 | % |

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|                                                 |   | Three Months Ended March 31, |       |
|------------------------------------------------------|--------|--------------------------------------------------|------------|
|                                                 |   | 2011                                             |       |   | 2010 |   |
| Net cash used in operating activities                |   | $                                                | (3,378,500 | ) |   | $ | (2,930,070 | ) |
| Net cash used in investing activities                |   |                                             | (19,072    | ) |   |   | (89,948 | ) |
| Net cash provided by financing activities            |   |                                             | 1,258,136  |   |   |   | 5,658,865 |   |
| Net increase (decrease) in cash and cash equivalents |   |                                             | (2,139,436 | ) |   |   | 2,638,847 |   |
| Cash and cash equivalents at the end of the period   |   | $                                                | 13,479,973 |   |   | $ | 5,177,685 |   |

|   | · | As of March 31, 2011, we have approximately $13,750,000 in cash. |
|--------|--------|------------------------------------------------------------------|

|   | · | As of March31, 2011, approximately $1,580,000 is available to us upon the sale of our Series A-1 preferred stock for a maximum placement commitment of $5 million. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | As of March 31, 2011, $21,000,000 is available to us upon the sale of our Series C preferred stock for a maximum placement commitment of $25,000,000. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We continue to repay our debt financings in shares of common stock, enabling us to use our cash resources to fund our operations. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

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| 31.1   | Section 302 Certification of Principal Executive Officer and Principal Financial Officer.*                        |
|--------|------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                   |
| 32.1   | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350.* |

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|                     | ADVANCED CELL TECHNOLOGY, INC. |
|--------------------------|--------------------------------|
|                |                           |
|                | By:                       |  /s/ Gary Rabin |
|                |                           | Gary Rabin |
|                |                           | Interim Chief Executive Officer and Chairman(Principal Executive Officer, Principal Financial Officer and Principal Accounting Oficer) |
| Dated: May 6, 2011  |                           |   |

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