----

----

| UTAH                                                                | 87-0447580                             |
|---------------------------------------------------------------------|----------------------------------------|
| (State      or other jurisdiction of incorporation or organization) | (IRS      Employer Identification No.) |

----

|                                                |                                                                                                                                                                                                                                     | Page   |
|-----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| PART I      – FINANCIAL      INFORMATION |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      1.                                        | Financial      Statements                                                                                                                                                                                                                |   |
|                                                |                                                                                                                                                                                                                                     |   |
|                                                | Condensed      Balance Sheets as of March 31, 2008 (unaudited) and June 30, 2007      (audited)                                                                                                                                     | F-1    |
|                                                |                                                                                                                                                                                                                                     |   |
|                                                | Unaudited      Condensed Statements of Operations for the Three and Nine      Months  Ended March 31, 2008 and 2007 and for the      Period  from September 26, 1986 (Date of Inception) through      March 31, 2008 | F-2    |
|                                                |                                                                                                                                                                                                                                     |   |
|                                                | Unaudited      Condensed Statements of Cash Flows for the Nine Months Ended March 31,      2008 and 2007 and for the Period from September 26, 1986 (Date of      Inception) through March 31, 2008                                      | F-3    |
|                                                |                                                                                                                                                                                                                                     |   |
|                                                | Notes      to Unaudited Condensed Financial Statements                                                                                                                                                                                   | F-5    |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      2.                                        | Management’s      Discussion and Analysis or Plan of Operation                                                                                                                                                                     | 1      |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      3.                                        | Controls      and Procedures                                                                                                                                                                                                             | 2      |
|                                                |                                                                                                                                                                                                                                     |   |
| PART II – OTHER      INFORMATION              |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      1.                                        | Legal      Proceedings                                                                                                                                                                                                                   | 3      |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      2.                                        | Changes      in Securities                                                                                                                                                                                                               | 3      |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      3.                                        | Commitments      and Contingencies                                                                                                                                                                                                       | 4      |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      4.                                        | Defaults      Upon Senior Securities                                                                                                                                                                                                     | 4      |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      5.                                        | Submission      of Matters to a Vote of Security Holders                                                                                                                                                                                 | 4      |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      6.                                        | Other      Information                                                                                                                                                                                                                   | 4      |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      7.                                        | Exhibits      and Reports on Form 8-K                                                                                                                                                                                                    | 4      |
|                                                |                                                                                                                                                                                                                                     |   |
| Item      8.                                        | Subsequent      Event                                                                                                                                                                                                                    | 5      |

----

INTERNATIONAL AUTOMATED SYSTEMS, INC.

| ASSETS                                                                                                                                                                                           |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                             |   | Unaudited |   |   | Audited |   |
|                                                                                                                                                                                             |   | March      31, |   |   | June      30, |   |
|                                                                                                                                                                                             |   | 2008 |   |   | 2007 |   |
| CURRENT      ASSETS                                                                                                                                                                              |   |   |   |   |   |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |
| Cash                                                                                                                                                                                             |   | $ | 206,758 |   |   | $ | 595,381 |   |
| Prepaid      expenses                                                                                                                                                                            |   |   | 320 |   |   |   | 320 |   |
| Inventory                                                                                                                                                                                        |   |   | 158,260 |   |   |   | 86,587 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Total      Current Assets                                                                                                                                                                        |   |   | 365,338 |   |   |   | 682,288 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Property      and Equipment, net of $176,417 and $125,558 accumulated depreciation,      respectively                                                                                            |   |   | 498,464 |   |   |   | 435,623 |   |
| Patents,      net of $20,270 and $15,857 accumulated amortization,      respectively                                                                                                             |   |   | 174,531 |   |   |   | 185,163 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| TOTAL      ASSETS                                                                                                                                                                                |   | $ | 1,038,333 |   |   | $ | 1,303,074 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS' DEFICIT                                                                                                                                                       |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| CURRENT      LIABILITIES                                                                                                                                                                         |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Accounts      payable                                                                                                                                                                            |   | $ | 163,868 |   |   | $ | 286,426 |   |
| Accrued      payroll taxes                                                                                                                                                                       |   |   | 57,642 |   |   |   | 58,262 |   |
| Related      party payable                                                                                                                                                                       |   |   | 1,241,877 |   |   |   | 980,081 |   |
| Warranty      liability                                                                                                                                                                          |   |   | 2,591,649 |   |   |   | - |   |
| Deposits      from customers                                                                                                                                                                |   |   |  812,250 |   |   |   |  713,250 |   |
| Notes      payable-current portion                                                                                                                                                               |   |   | 11,015 |   |   |   | 10,328 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Total      Current Liabilities                                                                                                                                                                   |   |   | 4,878,301 |   |   |   | 2,048,347 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Long-Term      Liabilities - Notes payable                                                                                                                                                       |   |   | 108,730 |   |   |   | 114,634 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| TOTAL      LIABILITIES                                                                                                                                                                           |   |   | 4,987,031 |   |   |   | 2,162,981 |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| STOCKHOLDERS'      EQUITY (DEFICIT)                                                                                                                                                              |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| Preferred      stock, Class A, no par value; 4,400,000 shares authorized, 3,400,000      shares issued and outstanding                                                                           |   |   | 294,786 |   |   |   | 294,786 |   |
| Preferred      stock, Class B, no par value, 600,000 shares authorized, 300,000 shares      issued and outstanding                                                                               |   |   | - |   |   |   | - |   |
| Common      stock, no par value, 45,000,000 shares authorized, 29,624,522 and      28,344,622 issued and outstanding, net 4,962,018 and 705,918 shares held      in escrow account, respectively |   |   | 22,615,483 |   |   |   | 20,077,384 |   |
| Deficit      accumulated during the development stage                                                                                                                                            |   |   | (26,858,967 | ) |   |   | (20,881,577 | ) |
| Less:      Treasury stock of 0 and 550,000, respectively at cost                                                                                                                                 |   |   | - |   |   |   | (350,500 | ) |
| Total      Stockholders' Deficit                                                                                                                                                                 |   |   | (3,948,698 | ) |   |   | (859,907 | ) |
|                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
| TOTAL      LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                 |   | $ | 1,038,333 |   |   | $ | 1,303,074 |   |

----

|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   | For      the Period |       |
|----------------------------------------------------|--------|---------------------------------|------------|---------|--------------------------------|--------|------------|---------------------|--------|--------|------------|---------|--------|---------------------|------------|
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   | From      Inception |       |
|                                               |   | For      the Three Months Ended |       |    | For      the Nine Months Ended |   |       | (September      26, |   |
|                                               |   | March      31,                  |       |    | March      31,                 |   |       | 1986)      Through  |   |
|                                               |   | 2008                            |       |    | 2007                           |   |       | 2008                |   |   | 2007       |    |   | March      31, 2008 |       |
| REVENUES                                           |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |
| Sales                                              |   | $                               | -          |    |                           | $      | -          |                |   | $      | -          |    |   | $                   | -          |   |   | $ | 111,226 |   |
| Income      from related party                     |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | 32,348 |   |
| Total      Revenue                                 |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   | 143,574 |   |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| COST      OF GOODS SOLD                            |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| Cost      of sales                                 |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | 81,927 |   |
| Write      down of carrying value of inventories   |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | 233,131 |   |
| Total      Costs of Sales                          |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | 315,058 |   |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| GROSS      LOSS                                    |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | (171,484 | ) |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| OPERATING      EXPENSES                            |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| General      and administrative                    |   |                            | 1,605,021  |    |                           |   | 1,971,354  |                |   |   | 5,236,010  |    |   |                | 5,857,702  |   |   |   | 20,521,433 |   |
| Research      and development                      |   |                            | 174,398    |    |                           |   | 113,924    |                |   |   | 440,971    |    |   |                | 510,171    |   |   |   | 6,598,123 |   |
| Impairment      of patents                         |   |                            | 10,275     |    |                           |   | -          |                |   |   | 10,275     |    |   |                | -          |   |   |   | 127,880 |   |
| License      fees                                  |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | 270,634 |   |
| Loss      on disposal of property and equipment    |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | 17,359 |   |
| Total      Operating Expenses                      |   |                            | 1,789,694  |    |                           |   | 2,085,278  |                |   |   | 5,687,256  |    |   |                | 6,367,873  |   |   |   | 27,535,429 |   |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| LOSS      FROM OPERATIONS                          |   |                            | (1,789,694 | )       |                           |   | (2,085,278 | )                   |   |   | (5,687,256 | )       |   |                | (6,367,873 | ) |   |   | (27,706,913 | ) |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| OTHER      INCOME (EXPENSES)                       |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| Loss      on impairment of assets                  |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | (583 | ) |
| Forfeiture      of deposits                        |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | (236,803 | ) |
| Interest      income                               |   |                            | 147        |    |                           |   | -          |                |   |   | 1,392      |    |   |                | -          |   |   |   | 26,184 |   |
| Interest      expense                              |   |                            | -          |    |                           |   | -          |                |   |   | (4,920     | )       |   |                | -          |   |   |   | (6,877 | ) |
| Revaluation      of warrant liability         |   |                            | (194,374   | )  |                           |   |       |                |   |   | (194,374   | )  |   |                |       |   |   |   | (194,374 | )  |
| Other      income                                  |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | (29,392 | ) |
| Total      Other Income (Expenses)                 |   |                            | (194,227   | )  |                           |   | -          |                |   |   | (197,902   | )       |   |                | -          |   |   |   | (441,845 | ) |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| LOSS      BEFORE EXTRAORDINARY GAIN                |   |                            | (1,983,921 | )       |                           |   | (2,085,278 | )                   |   |   | (5,885,158 | )       |   |                | (6,367,873 | ) |   |   | (28,148,758 | ) |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| Extraordinary      Gain on Sale of Patents         |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   | 1,382,023 |   |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| NET      LOSS                                      |   | $                               | (1,983,921 | )       |                           | $      | (2,085,278 | )                   |   | $      | (5,885,158 | )       |   | $                   | (6,367,873 | ) |   | $ | (26,766,735 | ) |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| Basic      and Diluted Loss Per Share              |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| Loss      before extraordinary gain                |   | $                               | (0.07      | )       |                           | $      | (0.08      | )                   |   | $      | (0.20      | )       |   | $                   | (0.24      | ) |   |   |   |   |
| Extraordinary      gain                            |   |                            | -          |    |                           |   | -          |                |   |   | -          |    |   |                | -          |   |   |   |   |   |
| NET      LOSS APPLICABLE TO                        |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| COMMON      SHAREHOLDERS                           |   | $                               | (0.07      | )       |                           | $      | (0.08      | )                   |   | $      | (0.20      | )       |   | $                   | (0.24      | ) |   |   |   |   |
|                                               |   |                            |       |    |                           |   |       |                |   |   |       |    |   |                |       |   |   |   |   |   |
| Weighted      Shares Used in Per Share Calculation |   |                            | 29,515,640 |    |                           |   | 26,848,810 |                |   |   | 28,924,294 |    |   |                | 26,412,325 |   |   |   |   |   |

----

|                                                                             |   | For      the Nine Months Ended |       |   | For      the Period From Inception (September 26, 1986) Through |   |
|----------------------------------------------------------------------------------|--------|--------------------------------|------------|--------|-----------------------------------------------------------------|--------|
|                                                                             |   | March      31,                 |       |   | March      31,                                                  |   |
|                                                                             |   | 2008                           |       |   | 2007                                                            |   |   | 2008 |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                        |   |                           |       |   |                                                            |   |   |   |   |
| Net      loss                                                                    |   | $                              | (5,885,158 | )      |                                                            | $      | (6,367,873 | ) |   | $ | (26,766,735 | ) |
| Adjustments      to reconcile net loss to net cash from operating    activities: |   |                           |       |   |                                                            |   |   |   |   |   |   |   |
| Depreciation      and amortization                                               |   |                           | 55,270     |   |                                                            |   | 29,424 |   |   |   | 451,734 |   |
| Stock      based compensation                                                    |   |                           | 4,390,169  |   |                                                            |   | 5,006,513 |   |   |   | 13,624,815 |   |
| Forfeiture      of deposits                                                      |   |                           | -          |   |                                                            |   | - |   |   |   | 236,803 |   |
| Write      down of inventory                                                     |   |                           | -          |   |                                                            |   | - |   |   |   | 16,945 |   |
| Write      off of equipment to research & development                        |   |                           | -          |   |                                                            |   | - |   |   |   | 23,900 |   |
| Loss      on disposal of equipment                                               |   |                           | -          |   |                                                            |   | - |   |   |   | 17,942 |   |
| Impairment      of patents and abandonment of in-process rights to    technology |   |                           | 10,275     |   |                                                            |   | - |   |   |   | 374,430 |   |
| Gain      on sale of patents                                                     |   |                           | -          |   |                                                            |   | - |   |   |   | (1,382,023 | ) |
| Gain      on settlement of debt                                                  |   |                           | -          |   |                                                            |   | - |   |   |   | (6,123 | ) |
| Stock      issued for services                                                   |   |                           | 36,980     |   |                                                            |   | - |   |   |   | 100,580 |   |
| Revaluation      of warrant liability                                       |   |                           | 194,374    |   |                                                            |   |   |   |   |   | 194,374 |   |
| Changes      in current assets and liabilities:                                  |   |                           |       |   |                                                            |   |   |   |   |   |   |   |
| (Increase)      / decrease in prepaid sales commissions                          |   |                           | -          |   |                                                            |   | (2,166 | ) |   |   | (320 | ) |
| (Increase)      / decrease in inventory                                          |   |                           | (71,673    | )      |                                                            |   | - |   |   |   | (158,260 | ) |
| Increase      / (decrease) in deposits from customers                            |   |                           | 99,000     |   |                                                            |   | 126,000 |   |   |   | 812,250 |   |
| Increase      / (decrease) in accounts payable                                   |   |                           | (122,558   | )      |                                                            |   | (91,208 | ) |   |   | 163,868 |   |
| Increase      / (decrease) in related party payable                              |   |                           | 661,796    |   |                                                            |   | 537,447 |   |   |   | 1,732,258 |   |
| Increase      / (decrease) in accrued liabilities                                |   |                           | (620       | )      |                                                            |   | (15,484 | ) |   |   | 157,641 |   |
| Net      Cash From Operating Activities                                          |   |                           | (632,145   | )      |                                                            |   | (777,347 | ) |   |   | (10,405,921 | ) |
|                                                                             |   |                           |       |   |                                                            |   |   |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                        |   |                           |       |   |                                                            |   |   |   |   |   |   |   |
| Purchase      of property and equipment                                          |   |                           | (113,699   | )      |                                                            |   | (129,847 | ) |   |   | (727,979 | ) |
| Purchase      of rights to technology                                            |   |                           | (4,055     | )      |                                                            |   | (36,848 | ) |   |   | (698,816 | ) |
| Organization      costs                                                          |   |                           | -          |   |                                                            |   | - |   |   |   | (1,880 | ) |
| Net      cash advanced to related party                                          |   |                           | -          |   |                                                            |   | - |   |   |   | (1,644,988 | ) |
| Proceeds      from capital lease receivable                                      |   |                           | -          |   |                                                            |   | - |   |   |   | 44,220 |   |
| Repayment      of cash loaned to related party                                   |   |                           | -          |   |                                                            |   | - |   |   |   | 53,254 |   |
| Net      proceeds from sale of patents                                           |   |                           | -          |   |                                                            |   | - |   |   |   | 1,382,023 |   |
| Net      Cash From Investing Activities                                          |   |                           | (117,754   | )      |                                                            |   | (166,695 | ) |   |   | (1,594,166 | ) |
|                                                                             |   |                           |       |   |                                                            |   |   |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                        |   |                           |       |   |                                                            |   |   |   |   |   |   |   |
| Proceeds      from issuance of common stock                                      |   |                           | 108,225    |   |                                                            |   | 440,078 |   |   |   | 5,348,601 |   |
| Proceeds      from reissuance of treasury stock                                  |   |                           | 258,268    |   |                                                            |   | - |   |   |   | 551,518 |   |
| Cash      from controlling shareholder                                           |   |                           | -          |   |                                                            |   | - |   |   |   | 6,270,559 |   |
| Payments      for treasury stock                                                 |   |                           | -          |   |                                                            |   | - |   |   |   | (3,325 | ) |
| Payments      for stock offering costs                                           |   |                           | -          |   |                                                            |   | - |   |   |   | (56,509 | ) |
| Proceeds      from net borrowings from related party                             |   |                           | -          |   |                                                            |   | - |   |   |   | 78,101 |   |
| Proceeds      from notes payable                                                 |   |                           | -          |   |                                                            |   | - |   |   |   | 29,857 |   |
| Payments      on note payable and obligations capital lease                      |   |                           | (5,217     | )      |                                                            |   | (9,293 | ) |   |   | (167,616 | ) |
| Proceeds      from related party deposits                                        |   |                           | -          |   |                                                            |   | - |   |   |   | 224,400 |   |
| Purchases      of equipment held for distribution                                |   |                           | -          |   |                                                            |   | - |   |   |   | (68,741 | ) |
| Net      Cash From Financing Activities                                          |   |                           | 361,276    |   |                                                            |   | 430,785 |   |   |   | 12,206,845 |   |
|                                                                             |   |                           |       |   |                                                            |   |   |   |   |   |   |   |
| NET      CHANGE IN CASH                                                          |   |                           | (388,623   | )      |                                                            |   | (513,257 | ) |   |   | 206,758 |   |
| CASH      AT BEGINNING OF PERIOD                                                 |   |                           | 595,381    |   |                                                            |   | 708,379 |   |   |   | - |   |
| CASH      AT END OF PERIOD                                                       |   | $                              | 206,758    |   |                                                            | $      | 195,122 |   |   | $ | 206,758 |   |

----

|                                                          |   | For      the Nine |    |
|---------------------------------------------------------------|--------|-------------------|---------|
|                                                          |   | Months      Ended |    |
|                                                          |   | March      31,    |    |
|                                                          |   | 2008              |    |   | 2007 |   |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW INFORMATION        |   |              |    |   |   |   |
|                                                          |   |              |    |   |   |   |
| Purchase      of land with notes payable                      |   | $                 | -       |   |   | $ | 66,000 |   |
| Issuance      of common stock in exchange for payment of debt |   | $                 | 400,000 |   |   | $ | 250,000 |   |

----

----

|                                |   | May      14, 2004 |
|-------------------------------------|--------|-------------------|
|                                |   | Agreement         |
|                                |   |              |
| Expected      Life (in years) (1)   |   | 10                |
| Risk-free      interest rate (2)    |   | 4.79%             |
| Expected      volatility factor (3) |   | 138.76%           |
| Expected      dividend yield        |   | 0.00%             |

|   | (1) | The      expected lives of options were determined based on the “simplified” method      under the provisions of SAB 107.  Due to limited history, we      believe that we do not have appropriate historical experience to estimate      future exercise patterns.  As more information becomes      available, we may revise this estimate on a prospective    basis. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The      risk-free rate for periods within the contractual life of the options is      based on the Federal risk-free rate on a ten year t-bill in effect at the      time of grant. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | During      May 2004, we estimated the expected volatility based on historical share      price data. |
|--------|-----|-------------------------------------------------------------------------------------------------------|

----

|                                |   | August      2000 |
|-------------------------------------|--------|------------------|
|                                |   | Agreement        |
|                                |   |             |
| Expected      Life (in years) (1)   |   | 10               |
| Risk-free      interest rate (2)    |   | 5.73%            |
| Expected      volatility factor (3) |   | 137.47%          |
| Expected      dividend yield        |   | 0.00%            |

|   | (1) | The      expected lives of options were determined based on the “simplified” method      under the provisions of SAB 107.  Due to limited history, we      believe that we do not have appropriate historical experience to estimate      future exercise patterns.  As more information becomes      available, we may revise this estimate on a prospective    basis. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The      risk-free rate for periods within the contractual life of the options is      based on the Federal risk-free rate on a ten year t-bill in effect at the      time of grant. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | During      August 2000 we estimated the expected volatility based on historical share      price data. |
|--------|-----|---------------------------------------------------------------------------------------------------------|

|                                |   | August      2000 |
|-------------------------------------|--------|------------------|
|                                |   | Agreement        |
|                                |   |             |
| Expected      Life (in years) (1)   |   | 5                |
| Risk-free      interest rate (2)    |   | 5.73%            |
| Expected      volatility factor (3) |   | 137.47%          |
| Expected      dividend yield        |   | 0.00%            |

|   | (1) | The      expected lives of options were determined based on the “simplified” method      under the provisions of SAB 107.  Due to limited history, we      believe that we do not have appropriate historical experience to estimate      future exercise patterns.  As more information becomes      available, we may revise this estimate on a prospective    basis. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The      risk-free rate for periods within the contractual life of the options is      based on the Federal risk-free rate on a ten year t-bill in effect at the      time of grant. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | During      August 2000 we estimated the expected volatility based on historical share      price data. |
|--------|-----|---------------------------------------------------------------------------------------------------------|

----

|                               |   | Options     |   | Weighted      AverageExercise      Price              |   | Weighted      Average RemainingLife      in Years |   | Aggregate      Intrinsic Value               |
|------------------------------------|--------|-------------|--------|-------------------------------------------------------|--------|---------------------------------------------------|--------|----------------------------------------------|
| Outstanding      at June 30, 2007  |   | 99,475,000  |   | $        0.44 |   | 27.2                                              |   |                                         |
|                               |   |        |   |                                                  |   |                                              |   |                                         |
| Activity      during the period:   |   |        |   |                                                  |   |                                              |   |                                         |
|     Exercised  |   | (1,000,000) |   |                                                  |   |                                              |   |                                         |
|                               |   |        |   |                                                  |   |                                              |   |                                         |
| Outstanding      at March 31, 2008 |   | 98,475,000  |   | $        0.44 |   | 26.15                                             |   | $   1,937,500                 |
| Exercisable      at March 31, 2008 |   | 23,275,000  |   | $        0.56 |   | 25.09                                             |   | $      437,500 |

|                              |   | Warrants/Options |        |   | Weighted      Average Grant Date Fair Value |   |
|-----------------------------------|--------|------------------|-------------|--------|---------------------------------------------|--------|
|                              |   |             |        |   |                                        |   |
| Non-vested      at June 30, 2007  |   |             | 85,300,000  |   |                                        | $      | 0.38 |   |
|                              |   |             |        |   |                                        |   |   |   |
| Activity      during the period:  |   |             |        |   |                                        |   |   |   |
|     Vested    |   |             | (10,100,000 | )      |                                        | $      | 0.39 |   |
|                              |   |             |        |   |                                        |   |   |   |
| Non-vested      at March 31, 2008 |   |             | 75,200,000  |   |                                        | $      | 0.37 |   |

| Options      Outstanding at 03/31/08 |   | Weighted      Average Remaining Contractual Life |   | Weighted      Average Exercise Price |   | Number      Exercisable at 03/31/08 |   | Weighted      Average Exercisable Price |
|--------------------------------------|--------|--------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|-----------------------------------------|
|   1,600,000                |   | 2.40      years                                  |   | $   3.00              |   |   1,400,000               |   | $   3.00                 |
| 96,875,000                           |   | 26.54      years                                 |   | $   0.40              |   | 21,875,000                          |   | $   0.40                 |

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|   | 31.1 | Certification      by the Chief Executive Officer Pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 |
|--------|------|------------------------------------------------------------------------------------------------------------------|

|   | 31.2 | Certification      by the Chief Financial Officer Pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 |
|--------|------|------------------------------------------------------------------------------------------------------------------|

|   | 32.1 | Certification      by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted      Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.2 | Certification      by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted      Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

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