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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2009

Commission File Number: 33-17598-NY

THE TIREX CORPORATION(Exact name of registrant as specified in its charter)

|Delaware                        | 22-3282985         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

1771 Post Road East Westport, CT 06880(Address of Principal Executive Offices)

(203)292-6922(Registrant's Telephone Number,
including Area Code)

Securities registered under Section 12(b) of the Exchange Act:
NONE

Securities registered pursuant to Section 12(g) of the Exchange
Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No[X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes [  ] No[X]

Indicate by check mark whether the
registrant(1)has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)has been subject
to such filing requirements for the past 90 days.

Yes[X]         No [  ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12
months (of for such shorter period that the registrant was required to submit
and post such files).

Yes[X]         No [  ]

Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-K (section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large
accelerated filer,an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

Large accelerated filer[  ]        Accelerated filer [  ]         Non-accelerated
[  ] Small reporting company[X]

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No[X]

As of June 30, 2009, the aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant computed
by reference to the average bid and asked price of such common equity as of such
date, was $0.

2,233,499,756 (as of March 1, 2011)Number of shares outstanding of the Registrant's common stock)

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TABLE OF CONTENTS

|PART I                                                                                                                                                                             | F-1 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                                                                   |     
|Item 1 Business                                                                                                                                                                    | F-1 
|Item 1A Risk Factors                                                                                                                                                               | F-5 
|Item 1B Unresolved Staff Comments                                                                                                                                                  | F-5 
|Item 2 Properties                                                                                                                                                                  | F-5 
|Item 3 Legal Proceedings                                                                                                                                                           | F-5 
|Item 4 Submission of Matters to a Vote of Security Holders                                                                                                                         | F-6 
|                                                                                                                                                                                   |     
|PART II                                                                                                                                                                            | F-7 
|                                                                                                                                                                                   |     
|Item 5 Market for Registrants Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity Securities                                                          | F-7 
|Item 6 Selected Financial Data                                                                                                                                                     | F-7 
|Item 7 Managements Discussion and Analysis of Financial
      Condition and Results of Operations                                                                                 | F-7 
|Item 7A Quantitative and Qualitative
      Disclosures about Market Risk                                                                                                           | F-12
|Item 8 Financial Statements and Supplementary Data                                                                                                                                 | F-12
|Item 9 Changes In and Disagreements with
      Accountants on Accounting and Financial Disclosure                                                                                  | F-12
|Item 9A Controls and Procedures                                                                                                                                                    | F-12
|Item 9B Other Information                                                                                                                                                          | F-13
|                                                                                                                                                                                   |     
|PART III                                                                                                                                                                           | F-13
|                                                                                                                                                                                   |     
|Item 10 Directors, Executive Officers and
      Corporate Governance                                                                                                               | F-13
|Item 11 Executive Compensation                                                                                                                                                     | F-16
|Item 12 Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder Matters                                                                       | F-18
|Item 13 Certain Relationships and Related Transactions, and
      Director Independence                                                                                            | F-20
|Item 14 Principal Accountant Fees and
      Services                                                                                                                               | F-21
|                                                                                                                                                                                   |     
|PART IV                                                                                                                                                                            | F-22
|                                                                                                                                                                                   |     
|Item 15 Report of Independent Registered
      Public Accounting Firm, Consolidated Financial Statements, Reports
      Filed on Form 8-K, Financial Statement Schedules, Exhibits | F-22

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PART I

ITEM 1. BUSINESS

FORWARD LOOKING STATEMENTS

This Annual Report contains forward-looking statements that
involve risks and uncertainties. These statements relate to future events
or our future financial performance. In some cases, you can identify
forward-looking statements by terminology including could, many,
will, should, expect, plan, anticipate believe, estimate,
predict, potential and the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially.

While these forward-looking statements, and any assumptions
upon which theu are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results,will almost
always vary, sometimes materially, from any estimates, predictions,
projections, assumptions or other future performance suggested in this
report.

As used in this Annual Report, the terms we, us and
our mean The Tirex Corporation, unless otherwise indicated.

All dollar amounts in this Annual Report refer to U.S.
dollars, unless otherwise indicated.

BUSINESS OVERVIEW

The CompanyThe Tirex Corporation (hereinafter
referred to as "we", "us", Tirex or the "Company") is engaged in the business
of developing for sale, license or lease an environmentally safe patented "turn
key" cryogenic tire recycling system, known as the "TCS System" The TCS System
was designed and developed by Tirex and separates tires into clean and saleable
rubber crumb, steel wire, and fiber. The Company was incorporated in Delaware on
August 19, 1987 under the name "Concord Enterprises, Inc." The Company's name
was changed to "Stopwatch Inc." on June 20, 1989 and to "Tirex America Inc." on
March 10, 1993. On July 11, 1997, the Company's name was changed to "The Tirex
Corporation" in order to better reflect our business.

Since 1993, our core business has been to develop and to
initiate marketing efforts by sale or license of an environmentally friendly
semi- cryogenic tire recycling system, which we intend to sell to recycling
companies and governmental agencies to enable them to recycle tires. We devoted
much of our earlier efforts to completing the design and development of the TCS
Prototype and raising the financing required to do so but during the last nine
years, our efforts have turned to marketing the first commercial facility. Tirex
is in the development stage, seeking to commercialize its TCS Technology and
produce revenues sufficient to sustain its operations.

The TCS-SystemOur TCS-System comprises a complete,
turn-key, environmentally safe, semi-cryogenic tire recycling system designed
to: (i) disintegrate scrap tires with its patented fracturing mill integrated
with its proprietary rubber freezing process which uses less energy than is
required by existing, ambient methods (which shred and/or chop tires at
"ambient" or normal room temperatures) or other currently available, cryogenic
methods (which freezes the rubber with the use of liquid nitrogen) and (ii)
produce commercially exploitable, high quality, clean rubber crumb and
marketable, intact steel and fiber strands.

The TCS System is a semi cryogenic system in that the
precise, scientific definition of cryogenics describes temperatures much colder
than what is actually required to freeze tire pieces to the point where they can
be mechanically disintegrated. Liquid nitrogen systems are truly cryogenic in
that the temperature of liquid nitrogen qualifies under the cryogenic
definition. The operating cost of truly cryogenic systems, however, is
significantly higher than that of a semi-cryogenic system, because the
incremental cost of attaining cryogenic temperatures, which are not necessary,
imposes a substantial cost of cold premium to the process of tire chip
freezing. At issue is that the incremental cost of attaining each additional,
lower degree of cold temperature costs a little more than obtaining the
previous, lower degree. While not an exponential relationship, neither is it a
linear relationship. The semi-cryogenic process, on the other hand, avoids the
incremental cost of acquiring these additional and unnecessary degrees of cold.

The beta-version freezing chamber of the TCS Prototype,
previously located in Montreal, was a large tank through which the tire chips
were circulated having temperatures of approximately 170 degrees below zero,
Fahrenheit. The current, proposed commercial version of the TCS has been
re-designed to run approximately 20 degrees colder than the beta-version of the
TCS

F-1

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Prototype to ensure that no pieces of rubber can warm up from
the "glass point" before being entirely processed by our patented fracturing
mill.

During the process, the frozen tire parts are passed through a
fracturing mill that separates the recycled tires into their component parts,
including rubber powder, clean steel wire and twine. The rubber mesh is then
physically separated from the metal and twine and is finally subjected to other
steps to achieve the desired mesh size. The configuration of the back end of the
system can be modified, as required, to produce proportions of mesh sizes
appropriate to local crumb rubber customers, such as 100% -30 mesh or even
finer.

The functions and mechanisms of the TCS System were originally
designed for the purpose of disintegrating automobile tires, although relatively
minor modifications could be introduced to accept other kinds of tires as well.
Such modifications would focus on the front-end tire chip operation, which is
not part of the Tirex technology, and which is widely available.

The TCS System has been designed to operate continuously (with
minimum amounts of scheduled downtime for maintenance) and to require less
energy than is used, to the best of the Company's knowledge, by other existing
tire recycling systems.

Step-by-Step Operations The step-by step operations
of the TCS-System comprise the following:

Tire Feedstock Preparation

The TCS System is not designed to accept whole tires; whole
tires must undergo preliminary preparation to produce pieces of tire having
dimensions which permit their introduction into the patented fracturing mill.
Feedstock preparation can be accomplished in a number of ways including
chipping, shredding and removal of sidewalls followed by die cutting. None of
these techniques form part of the TCS System technology and the tire feedstock
preparation technique ultimately chosen by the tire recycling entrepreneur will
depend upon capital and operating costs as well as possible issues of
transportation costs respecting whole tires.

Freezing the Tire Pieces

The prepared tire pieces are deposited on a conveyor belt that
brings a continuous stream of tire pieces to a freezing chamber. Super cooled
air, produced on-site by an Air Plant, is continuously blown into the freezing
chamber, and this cold air freezes the tire pieces moving through the chamber to
the point where these pieces can be made to shatter like glass when subjected to
forces such as pressure and bending. After approximately thirty minutes in the
freezing chamber the frozen pieces exit the freezing chamber and enter our
patented disintegrators.

Size Reduction and Materials Separation in the Fracturing
Mill

The frozen tire pieces pass through Tirexs patented
disintegrators (the "Fracturing Mill") where the pieces are reduced to three
separate output materials, including rubber crumb of varying degrees of
fineness, intact pieces of steel and intact pieces of fiber. This operation does
not involve any chopping, shredding, or hammer-milling. Therefore, the steel
wires are neither cut nor broken. The fiber threads retain their basic shapes
and characteristics. No steel powder or fiber fluff is produced.

Separation of the Steel from the rubber and fiber

On the front end steel beads can be removed before entering the
freezing chamber. Upon completion of the freezing process the pieces enter the
Fracturing Mill which separates the remaining steel from the rubber and fiber
and the output is conveyed to a magnetic separation system where the intact
steel wires are magnetically removed, leaving the rubber crumb and the fiber.
The steel can then be baled for sale.

Fiber Removal

The fiber and rubber crumb is then passed through vibrating
screens to separate the crumb from the fiber threads. The fiber threads are then
conveyed out of the machine. The fiber can then be baled or put into a container
for sale.

F-2

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Rubber Crumb Finishing

Rubber crumb finishing operations are dictated by the output
requirements of the producer and his or her customers. The basic TCS System has
been configured to produce rubber crumb in mesh sizes ranging from 10 mesh to 30
mesh, at the option of the entrepreneur (limited quantities of even finer mesh
rubber are also produced), and in such proportions of mesh sizes as the producer
decides, according to market requirements. Back-end configuration modifications
can be added to increase the proportion of finer mesh crumb rubber, even beyond
30 mesh. This reconfiguration could imply the addition of auxiliary processing
equipment which does not form part of the TCS System technology.

It is possible that some very small pieces of steel and fiber
can be trapped in the larger pieces of rubber coming out of the Fracturing Mill.
These small amounts of steel and fiber are released during auxiliary processing
and can be separated during the auxiliary processing operation, magnetically for
the steel and by an air separation system for the residual fiber. Alternatively,
these larger pieces could be drawn off and refrozen and re-introduced into the
fracturing mills. The rubber crumb is then passed through a series of screens to
sort the rubber crumb by mesh size, which is thence packaged for customer
requirements.

Manufacturing

Our earlier activities focused primarily on the design and
development of the original TCS Prototype, and, subsequently, on the completion
of the design of a second generation version of this technology. In connection
with these activities, we have been dependent upon arrangements with
subcontractors for the manufacture and assembly of the principal components
incorporated into a TCS System Plant. Pursuant to our signing of the exclusive
manufacturing license agreement with Simpro, S.p.A., headquartered in Turin,
Italy, as licensee (Simpro), all manufacturing activities of our company were
then to be undertaken though Simpro. Under the exclusive arrangement, Simpro had
the right of first refusal to any customer contract. Simpro and Tirex are
currently reviewing the documentation for a contract renewal. In the event that
Simpro refuses a contract offer or is unwilling to participate to the
satisfaction of Tirex, Tirex has the option to seek alternate sources in the
manufacture and installation of customer systems.

Simpro is a designer and manufacturer of high-technology
production systems, primarily for the automobile industry, and is active
internationally. Simpro has its ISO 9001, ISO 14001 and EMAS certifications.
Simpros ability to offer us insurance-backed contract performance guarantees
and to guarantee a minimum tire weight throughput on fabricated TCS systems,
installed and commissioned as a turn key TCS Facility, were instrumental to our
choosing Simpro as our manufacturing partner.

Patent ProtectionWe were issued a United States
patent on our Cryogenic Tire Disintegration Process and Apparatus on April 7,
1998 (Patent No. 5,735,471). The duration of the patent is 20 years from the
date the original application was filed. In November 1998, we filed our patent,
for review, with the Canadian Patent Office. Canadian patent number 2193334 was
granted on August 17, 2004. Canadian patents have a duration of seventeen (17)
years. The US patent maintenance fee was paid in March 2010. However, the
Canadian patent lapsed on December 18, 2007.

Prior to the issuance of our US patent, we relied solely on
trade secrets, proprietary know-how and technological innovation to develop our
technology and the designs and specifications for the TCS Prototype. The
Companys patents are free of liens. We do not presently hold any patents for
our products or systems outside of the United States. We have lacked the
financial resources to apply for a process patent on an international basis, but
the Company intends to file for additional patent protection, in accordance with
our Agreement with Simpro, should sufficient financial resources become
available.

We have entered into confidentiality and invention assignment
agreements with certain employees and consultants, which limit access to, and
disclosure or use of, our technology. There can be no assurance, however, that
the steps we have taken to deter misappropriation of our intellectual property
or third party development of our technology and/or processes will be adequate,
that others will not independently develop similar technologies and/or processes
or that secrecy will not be breached. In addition, although Management believes
that our technology has been independently developed and does not infringe on
the proprietary rights of others, there can be no assurance that our technology
does not and will not so infringe or that third parties will not assert
infringement claims against us in the future. Management believes that the steps
they have taken to date will provide some degree of protection to Tirexs
technology; however, no assurance can be given that this will be the case.

EmployeesAs of September 2010, we have three
persons employed either directly or as consultants which act as the Companys
three executive officers. All three of these individuals devote their full time
to our business and affairs, as required. At times, we also utilize the services
of part-time consultants to assist us with market research and development and
other matters. We could hire additional personnel, as needed, and as our
financial resources permit.

F-3

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Potential MarketsWe believe that the potential
markets for our TCS System will be directly affected by the level of demand for
economical, high quality rubber crumb derived from the recycling of scrap tires.
The following discussion of the potential markets for rubber crumb assumes that
the TCS System will actually be capable of economically producing high quality
recycled rubber crumb and in a variety of sizes, and capable of being used in
wide range of products. Our manufacturing partner, Simpro, is prepared to offer
tire throughput guarantees as a function of scrap tire weight. Simpro is also
prepared to offer limited performance guarantees, backed by insurance
policies.

Sales of TCS systems have been hampered by the devaluation of
the U.S. dollar versus the Euro. Our manufacturing partner, Simpro, quotes
system installations in Euros. When the manufacturing agreement was signed with
Simpro, the US dollar and the Euro were fairly close to being at par with each
other. In December 2010, one Euro was worth approximately U.S.$1.3230. This
represents a large price increase for entrepreneurs.

1 US dollar is worth in Euros
    1 Euro is worth in U.S. dollarsJanuary 2003
    0.9413 Euros
    U.S.$1.0624January 2004
    0.7908 Euros
    U.S.$1.2645January 2005
    0.7634 Euros
    U.S.$1.3099January 2006
    0.8247 Euros
    U.S.$1.2126January 2007
    0.7699 Euros
    U.S.$1.2989January 2008
    0.6796 Euros
    U.S.$1.4715January 2009
    0.7547 Euros
    U.S.$1.3251January 2010
    0.7012 Euros
    U.S.$1.4262January 2011
    0.7483 Euros
    U.S.$1.3363


Source of exchange rates is Pacific Exchange Rate Service
http.www.fx.sauder.ubc.ca.

The manufacturing agreement with Simpro is essentially a right
of first refusal agreement. In the event that Simpro would decide against
accepting a specific fabrication and installation contract, for whatever reason
Tirex has the right to engage any other supplier and/or sub-contractor to
undertake the contract.

Rubber is a valuable raw material and we believe that recycling
this valuable resource from scrap tires is an ideal way to recover that value.
Recycled scrap tire rubber is already used in a great variety of products,
promoting longevity by adding it to asphalt pavement, adding bulk and providing
drainage as a soil additive, providing durability as a carpet under padding,
increasing resiliency and enhancement in track and athletic surfaces, absorbing
shock and lessening the potential for injuries as a ground cover for playgrounds
and other recreational areas, and as a significant component added to plastic
resins for making extruded or molded products. We are aware of significant
recent developments in making finished products from crumb rubber compounded
with plastic resins, particularly polypropylene. We believe that the potential
for crumb rubber to substitute for either virgin or recycled plastic resins is
very significant, given the relative market price for crumb rubber versus the
commodity prices for such plastic resins.

Marketing ActivitiesOriginally we concentrated our
efforts on completing the design, development, and construction of our TCS
Prototype and raising adequate financing to support such efforts. Our long-term
objective, however, is to market TCS Systems worldwide, through national and
international sales representatives, licensees or strategic partners. Pursuant
to an extensive technical audit, our TCS Prototype permitted our company to be
certified as an Accredited Tire Recycler by Recyc-Québec, a Quebec-governmental
agency. Users of the TCS technology in Quebec could have access to tipping fees
paid by Recyc-Québec, which currently work out to approximately US$0.85 per
passenger car tire, based on current exchange rates. Management believes that
this accreditation will be beneficial to our marketing efforts respecting our
technology, not only in Quebec but elsewhere.

We can make no assurances with respect to the degree of success
of our marketing and distribution strategy of our TCS Systems. Furthermore, we
have limited resources to achieve the distribution of our TCS Systems and to
date we have made no sales, leases or licenses. We believe that we may need
additional financing, which may not be available, to achieve our long-term
objectives.

Government RegulationInsofar as the Company is not
actually a tire recycler, government regulations have little direct effect on
our activities. Of greater importance is the possible effect on our customers
for the TCS technology. The TCS-System is a "closed loop" system which does not
use any chemicals, solvents, gases or other substances which could result in
noxious emissions of any kind from the operation of the Plant. The operation of
a TCS-System will not result in the emission of any pollutants, the disposal of
combustion residues, the storage of hazardous substances, or the production of any
significant amounts of solid waste which would have to be land filled, which
solid waste would not be classified as scrap tires.

F-4

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Simpro has undertaken a formal environmental assessment of our
technology using the comparatively stringent European standards, the results of
which confirm these environmental assertions. However, the operation of a TCS
System will involve, to varying degrees and for varying periods of time, the
storage of scrap tires or tire pieces representing the feedstock to the System,
and limited storage of crumb rubber prior to shipment to customers. Rubber,
regardless of its physical dimensions or form, is widely defined as being a fire
hazard by fire protection services in most industrially-advanced countries. As a
result, many US states and Canadian provinces have either passed or have pending
legislation regarding discarded tires including legislation limiting the storage
of used tires to specifically designated areas. The regulatory environment of
the European Union is already very stringent.

Operators of TCS Systems will therefore be subject to various
local, state, and federal laws and regulations including, without limitation,
regulations promulgated by federal and state environmental, health and labor
agencies. Establishing and operating a TCS System for tire recycling will
require numerous permits and compliance with environmental and other government
regulations, on the part of our customers, both in the United States and Canada
and in most other foreign countries. The process of obtaining required
regulatory approvals may be lengthy and expensive for some customers of our TCS
Systems. Moreover, regulatory approvals, if granted, may include significant
limitations on operations. The US-EPA and comparable US state and local
regulatory agencies, and similar government bodies in Canada and in other
jurisdictions where TCS Systems will be marketed, for the most part, actively
enforce environmental regulations and conduct periodic inspections to determine
compliance with government regulations. Failure to comply with applicable
regulatory requirements can result in, among other things, fines, suspension of
approvals, seizure or recall of products, operating restrictions, and criminal
prosecutions.

We believe that existing government regulations, while
extensive, will not prevent customers of Tirexs TCS System to operate
profitably and in compliance with such regulations. In fact, we believe that
restrictions on land filling and on combustion-based technologies will benefit
our technology. While these regulations are usually stringent, the huge scrap
tire problem must also be dealt with on a daily basis and the need for economic
and environmentally friendly recycling operations is critical.

Additionally, the initiatives of the Obama Administration with
respect to carbon reduction, and thus greenhouse gases, could have a significant
positive impact on tire supply. Furthermore, the debate on the classification of
scrap tires as fuel under the Clean Air Act (Article 112 versus Article 129)
could also have a significant impact on scrap tire supply in that if the EPA
would decide to apply Article 129, this would become a strong disincentive to
TDF users.

Nevertheless, the burden of compliance with laws and
regulations governing the installation and/or operation of TCS Systems could
discourage potential customers from purchasing a TCS System. This would
adversely affect our business, prospects, results, and financial condition. As a
result, our business could be directly and indirectly affected by government
regulations.

ITEM 1A. RISK FACTORS

Not required.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters is located at Westport, Connecticut.
We were previously located in Stratford CT. Prior to moving to Stratford, during
Fiscal 2006, the Company occupied premises in a residential and office complex
in Montreal. Prior to its residential and office complex location in Montreal,
Tirex occupied an industrial building on 3828 St. Patrick Street in Montreal,
where the TCS Prototype was located. After having accumulated very substantial
arrearages in rent and property taxes, for which we were financially
responsible, our former landlord instructed us to vacate these premises such
that he could lease the space out to another lessee. As part of the settlement
agreement with this former landlord, we agreed to pay to this former landlord
the sum of US$560,000 out of the proceeds of the first four sales of TCS
Systems, at the rate of U.S.$140,000 per system sold.

ITEM 3. LEGAL PROCEEDINGS

We are presently a party in the following legal proceedings:

F-5

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IM2 Merchandising and
Manufacturing, Inc and David B. Sinclair v.The Tirex Corporation,
Tirex Corporation Canada, Inc., et al.

The Plaintiffs, a Canadian resident and a Canadian corporation,
in March 2001, sued in the Delaware, U.S. Federal District Court claiming fraud,
breach of contract, unjust enrichment and other allegations, that the
Defendants, which include Tirex Corporation Canada and The Tirex Corporation,
allegedly conspired to profit from their failure to comply with terms of a
manufacturing agreement. The monetary demand of this complaint was unspecified.
We were prepared to move to dismiss Plaintiffs' Complaint, but after
consultations with the Plaintiffs' Attorneys, the Plaintiffs' withdrew this
complaint voluntarily. Plaintiffs later filed a second action in the Chancery
Court of Delaware alleging certain of the same allegations; fraud, breach of
contract, unjust enrichment, breach of fiduciary duty and misrepresentation, but
eliminated other counts including the securities fraud allegations. The
Defendants in the State Court action are the same named in the Federal Court
action, and again the monetary damages are unspecified. We moved to dismiss the
State Court Chancery case alleging defective service of process and asserting
that the Court had no jurisdiction over the Defendants in Delaware and for
removal of the case to Canada based on forum non convenience and other
considerations. Our motion was granted and the case dismissed.

Subsequently, on or about April 25, 2001, the Plaintiffs
instituted a lawsuit in Superior Court, judicial district of Montreal alleging
breach of contract and claims damages of CA$794,690 representing expenses and an
additional Canadian$5,411,158 in loss of profits (court docket #
500-05-063730-021).Unlike the suit filed in the US Federal District
Court in Delaware, there was no accusation of fraud. We have filed a detailed
answer denying all liability, stating further that Plaintiffs failed to comply
with their obligations. We believe we have meritorious defenses to all of the
Plaintiffs' claims. The action is still pending.

There has been no activity relative to this suit for the last
eight years.

Lefebvre Freres Limited v. The Tirex
Corporation

Lefebvre Frères Limited instituted an action against us on
August 13, 2001 in the Superior Court, judicial district of Montreal (court
docket #500-05-066942-010)claiming Canadian $98,513 is due and
owing for the manufacturer and delivery of car tire disintegrators. We have
prepared a defense and cross claim against Plaintiff as the product delivered
was defective and included used parts in direct contravention of the supply
agreement. We believe we are entitled to a reimbursement of sums paid.

There has been no activity relative to this suit for the last
eight years.

Protection Incendie PyroSpec Inc. v.
The Tirex Corporation

An action was instituted before the Court of Quebec, District
of Montreal, by Protection Incendie PyroSpec Inc., which action was instituted
on or about March 31, 2001, bearing docket number 500-22-055984-010. The
Corporation did not defend the action and, as such, a judgment was rendered
against it on or about August 8, 2001, by which judgment it was condemned to pay
to the Plaintiff CA$28,442.83. Execution of judgment was attempted in 2002,
without success. This matter has remained effectively dormant since February 7,
2002.

Tri-Steel Industries Inc. v. The Tirex
Corporation

Our landlord Tri-Steel Industries Inc. instituted an action
against us, and our subsidiaries Tirex Canada and Tirex Canada R & D Inc.,
on or about June 22, 2001 for arrears of rent in the amount of Canadian
$177,973.62. Subsequent to the Plaintiffs instituting this action, we continued
to accumulate very substantial arrearages for rent and property taxes for which
we were financially responsible. Subsequent to our vacating the premises which
had been the object of the lease, we settled with our former landlord for a
total amount of US$560,000, to be paid at the rate of US$140,000 from each of
our first four TCS System sales.

No director, officer, or affiliate of the Company, or any
associate of any of them, is a party to or has a material interest in any
proceeding adverse to us.

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

During the fiscal year ended June 30, 2009, the Corporation
applied to the State of Delaware to increase its common share authorization from
five hundred million shares to one billion, five hundred million shares. During
the fiscal year 2008, the Corporation established a class of Preferred Shares,
issuable in series on terms to be determined from time to time by the Board of Directors with a maximum preferred class authorization of one
hundred million shares. See Report 8-K dated February 14, 2008. Series A
Preferred Shares in a total of three million (3,000,000) shares was initially
designated and subsequently issued to directors and officers. See Reports 8-K,
dated May 16, 2008 and June 23, 2008. This designation was subsequently changed
to fifteen (15) million shares, all 15,000,000 of which Series A Preferred
Shares have been issued. These shares do not have a dividend attached, do have
preference on residual assets in case of bankruptcy, are convertible into common
shares at the rate of five common shares for each preferred share and have
super-voting rights equal to 100 voting rights per share. These modifications to
the Corporations share structure were ratified by shareholder vote during of
fiscal 2009.

F-6

---

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market InformationOur common stock is not traded on
any exchange. The Company's common stock, under the trading symbol TXMC, is
traded on a limited basis in the over-the-counter (OTC) market and, since
January 2003, was listed on the Gray Sheets. In September 2008, we applied to
FINRA for upgrading our listing to the Pink Sheets. This was accomplished.
Following listing on the Pink Sheets, we filed amended returns in respect of
those fiscal years and the Fiscal 2009 quarters and became fully-reporting. Our
intention is to apply for re-listing on the the OTC Bulletin Board once we are
in position to remain there with secured TCS Facility sale(s) resulting in a
considerably better financial position.

Trading in stocks quoted on the Pink Sheets is often thin and
is characterized by wide fluctuations in trading prices due to many factors that
may have little to do with a companys operations or business prospects. We
cannot assure you that there will be a market for our common stock in the
future.

HoldersAs of March 1, 2011, the number of
holders of record of the Company's common stock was approximately 670 according
to our Stock transfer agent. The shareholders on the list who have changed does
not include shares held by persons or companies in street or nominee name.

DividendsThe Company has paid no cash dividends and
has no present plan to pay cash dividends, intending instead to reinvest its
earnings, if any. Payment of future cash dividends will be determined from time
to time by its Board of Directors, based upon its future earnings (if any),
financial condition, capital requirements and other factors, the company is not
presently subject to any contractual or similar restriction on its present or
future ability to pay such dividends.

Equity Compensation PlansAs of October 11, 2010, we
did not have any equity compensation plans except for executive stock options
provided to the three executives of the Company as part of their executive
employment agreements as further described under Item 11 (Executive
Compansation).

Recent Sales of Unregistered SecuritiesDuring the
fiscal year ended June 30, 2009, we did not complete any unreported sales of our
equity securities that were not registered under the Securities Act.

ITEM 6. SELECTED FINANCIAL DATA

Not required.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our
consolidated financial statements for the fiscal year ended June 30, 2009,
including the notes thereto, appearing elsewhere in this Annual Report. The
discussion of results, causes and trends should not be construed to imply any
conclusion that these results or trends will necessarily continue into the
future.

Overview and Business Events

F-7

---

Tirex's primary objective is to sell its patented and
proprietary tire recycling process, called the TCS System, to tire recyclers
throughout the world (www.tirex-tcs.com). In March 2000, we announced that our
TCS technology prototype was ready for replication and commercialization. The
intellectual property owned by Tirex comprises both the patented "Fracturing
Mill" (both US and Canadian patents) plus the proprietary freezing process of
using super-cooled air (rather than the competitions liquid nitrogen process--
which we believe employs expensive overkill in terms of what is required to
freeze tire chips) to freeze the tire chips to the "glass point," which permits
the effective separation and disintegration of the tire components by our
patented "fracturing mill", producing a semi-cryogenic crumb rubber at a
significant cost savings. The intellectual property of our TCS System process is
recognized in the Manufacturing License Agreement (2003) that we are currently
renegotiating with Simpro S.p.A. (Simpro), headquartered in Torino,
Italyhttp://www.simpro.it/home.php?argid=49&pagid=18&lang=en.
Simpro had a semi-exclusive manufacturing license to manufacture the TCS System
to the extent that they have a right of first refusal for the fabrication,
installation and commissioning of any TCS system anywhere in the world, with the
exclusivity lost on a case-by-case basis in those circumstances where they would
elect to not accept an order, under which circumstances Tirex has the right to
contract the same services to other companies. Our patent renewals and
continuation for both the USA and Canada were documented in 2005 and renewed
again in March 2010 for the *US patent.

In 2001 Tirex's TCS System tire recycling prototype was
accredited by Recyc-Québec, the provincial recycling agency in Montreal, Quebec,
Canada, as an economically viable and environmentally-friendly process that
produced quality recycled rubber. While numerous Letters of Intent were signed
during this early stage, none materialized into firm purchase contracts.
Management attributed these failures to acquire sales contracts to the lack of a
commercial history for the TCS technology, or alternatively, to the Company's
inability at the time to provide performance guarantees. With the signing of the
License Agreement with Simpro we engaged a reputable, highly accredited
manufacturer which created the potential to offer performance guarantees. The
TCS System prototype was disassembled and the Fracturing Mill was sent to
Simpro's facility in Italy. Simpro is prepared to build the first commercial TCS
System. However, as of February 2011, no purchase/sale contracts have been
written.

Tirex has continued with its marketing structure consisting
primarily of Tirex's President, John L. Threshie Jr., assisted by the Companys
Chief Financial Officer, Michael Ash, combined with Simpro's significant
marketing and sales efforts, as well as independent representatives. We are also
renegotiating Simpros non-exclusive marketing agreement applicable on a
worldwide basis. Tirex continues to entertain requests for marketing agreements
on several continents, but adheres to its policy of offering commissions out of
sales proceeds only, and not providing exclusivities in the absence of
prior-established results.

The lack of a commercial track record relative to the operation
and output of the TCS System has proven to be a difficult hurdle to overcome in
realizing TCS System sales. The installed cost of a TCS-2 System to a recycler,
depending on the system configuration, the condition of the feedstock and the
output requirements and excluding building and infrastructure costs, is in the
vicinity of Euros 5,500,000 (approximately US$7.89 million at prevailing
exchange rates), depending on the extent of automation requested by the
customer. When one adds infrastructure costs, pre-production expenses and a
reasonable provision for working capital after system commissioning, we are of
the opinion that the entrepreneur has to consider his gross investment cost
(prior to debt financing possibilities) to be in the vicinity of US$9 million to
$10 million, depending on the customs duties which could be imposed on US and
Canadian customers respecting the importing of products from non-NAFTA
countries. US$9,000,000 or more represents a substantial investment for a
start-up company. Simpro has been able to obtain insurance backing to support
their offer of limited performance guarantees, and such potential is expected to
assist the marketing effort. Simpro is now offering limited feedstock throughput
guarantees on a case by case basis.

Market and sales efforts of the TCS System continues to evolve
and has attracted the interests of qualified and capable companies over the past
year. During Fiscal years 2009 and 2010, the Company and Simpro have entertained
numerous potential TCS System customers. Out of these developments, several
opportunities have presented themselves that have merited and continue to merit
the expenditure of considerable time and effort to attempt close on a Purchase
and Sales Agreement. Tirex and Simpro continue to pursue sales efforts in
Europe, the US and Canada.

The 2009 New York negotiations ended due to terms and
conditions that Tirexs management concluded were not satisfactory to Tirex and
its shareholders.

Simpros signing of a Memorandum of Understanding in 2009 for a
US$20.8 million TCS Facility with Exchangtech in Malaysia continues to
experience delays in reaching a definitive agreement due to financing facilities
involved in the entire industrial project as reported by Simpro management.

Simpros management also reported in 2009 that the patented
fracturing mill parts of the TCS technology is 75% complete but remains on
hold in the Brazilian factory until further developments. Simpro and Tirex also
pursued opportunities in Brazil where the production of crumb rubber would be
linked to products for the railroad and synthetic turf industries. Management
has since learned that the use of ambient crumb, as opposed to Tirexs
semi-cryogenic crumb, was chosen for the synthetic fields because it was less
expensive.

F-8

---

Our listing on the Internet Recycling Exchange will be renewed
when our crumb becomes available. Our web site www.tirex-tcs.com continues to
generate inquiries from all over the world. We believe that these enquiries
confirm the interest for our new technology in the industry. These opportunities
may not conclude, however, until there is a commercial system in operation and
regardless of Management's optimism there can be no assurance that these
opportunities will actually result in unconditional sales contracts.

The finalizing and potential renewal of the License Agreement
with Simpro requires that the gross revenues from sales will be recorded on
Simpro's books, not in the books of Tirex, unless Simpro would refuse the
proposed contract. The revenue remitted back to Tirex will take the form of
royalty payments and will be accounted for as such. Regardless of the contract
structure and the accounting effects which result, generally accepted accounting
principles in effect in the USA have the effect that the revenues to Tirex
resulting from such transactions will not be recognizable until the systems will
have been accepted by the customers. Given the time line required to
manufacture, install and have accepted these systems, it is unlikely that any
revenues would become recognizable during the fiscal year ending June 30, 2010.
While the Company will benefit from the periodic cash inflows resulting from
progress payments during the next approximately ten months, the royalty will, in
fact, not have been earned until the systems are accepted by the customers.

In the third and fourth quarters of fiscal 2008 and continuing
into fiscal 2009, management undertook a restructuring of the corporation. This
was engaged because management believed (and still does) that the structure of
the Tirex was creating an impediment to marketing efforts. We engaged the
services of the Otto Law Group (Seattle WA) to assist us in the restructuring of
our position. Their services are being remunerated in shares of the corporation.
We also engaged the services of Legacy Trading and their affiliate company,
Southern Capital Consulting, based in Oklahoma, to consult us in getting our
shares listed first back onto the Pink Sheets with the goal of being re-listed
onto the Bulletin Board. These services are also being remunerated by means of a
share issuance. In order to be eligible for re-listing on the Bulletin Board,
the Corporation is required to file audited financial statements and remain
current in all of its required public filings for 12 months, and thereafter to
maintain eligibility. The statements of the Corporation had not been audited
since the fiscal year ended June 30, 2004. We engaged the services of Moore
& Associates (Las Vegas) to undertake the audit of our accounts for the
years 2004 through 2007 with a continuation for the fiscal year 2008. These
audits were completed and amended filings were made. We also filed amended 10-Q
reports for the periods ended December 31, 2008 and March 31, 2009, with the
result that we are now fully-reporting.

In the course of this restructuring, debts to officers,
directors and consultants were converted in whole or in part to equity through
the issuance of shares. Part of this was accomplished through the auspices of
Sequoia International which accepted assignment of $100,000 of executive accrued
salaries in exchange for 100 million shares, a transaction approved by a Florida
court. This transaction also provided for the creation of funding for Tirex in
its restructuring efforts. Third party liabilities were examined and deleted as
permitted by US and Canadian law (the term in Canada is prescription, in the
USA Statute of Limitations). Management is of the opinion that the measures
undertaken in the last half of fiscal 2008 and continuing into fiscal 2009 will
be beneficial to the development of the Corporation.

In August 2009 we were advised that Moore & Associates
registration with the PCAOB had been revoked and that they were thus abandoning
audit services of public companies. We were advise that they had transferred it
audit clients and staff to Seale & Beers. We immediately attempted to engage
this firm, given a long-standing ongoing relationship with the audit technician
from Moore, who was engaged by Seale & Beers, to continue with our
independent accounting services. Seale & Beers thence declined to perform
the audit, citing a lack of international resources to verify our assets
currently located in Italy. On September 16, 2009, the Board of Directors
approved the appointment of M&K, CPAs. located in Houston, Texas, to
undertake the audit of our accounts. An 8-K was filed noting this change in
certifying accountant. Management asserts that there were no disagreements
respecting accounting principles, auditing standards, auditing practices or any
other professional issue with Moore & Associates. Management further asserts
this it had had no contact with M&K, CPAs in the two years prior to their
engagement, other than the most recent discussions and negotiations in September
2009 to engage their services. The revocation of the registration of Moore with
the PCAOB meant that fiscal 2008 had to be re-audited such that M&K could
provide standard format audited financial statements for fiscal 2009 with
comparative data for fiscal 2008.

In December 2009 Tirex engaged Capital Business Brokers (CBB)
with an exclusive 3 month financing agreement to raise capital for TCS
facilities and $50,000 working capital. CBBs contract subsequently expired with
no results.

F-9

---

In June 2010 the Board of Directors approved the engagement of
Boysen Consulting (Boysen), a North American tire recycling expert, to augment
TCS marketing efforts.

Previous and Current Financings

In February of 2001, we concluded a private financing with an
investor group. Under the terms of the Agreement, we had the contractual right
to require the Investor to purchase up to US$5,000,000 of put notes. We drew
down US$750,000 of this amount and used the proceeds of this financing toward
legal and consulting fees due, normal operating expenses such as payroll, rent
and taxes and the acquisition of equipment for our prototype TCS-1 Plant. In
July of 2001, the Company entered into a technical default with respect to the
Agreement by not having an SB-2 Registration Statement declared effective by the
SEC. After several months of negotiations, the Company entered into a Settlement
Agreement with the Investor Group which provided for a cash pay down of the
amount owed, including interest and penalties over a period of approximately two
years starting with the date the Settlement Agreement was signed, the right of
the Investor Group to continue to be able to sell up to 600,000 collateral and
Rule 144 shares per month and the issuance of three series of warrants, 500,000
each, exercisable at prices of one cent, five cents and ten cents over a three
year period. This Settlement Agreement was announced in April of 2002, and
details of the terms of the Agreement are filed on Edgar. The Company, in the
absence of having completed its first sales of TCS Systems according to our
expectations, was unable to generate the cash flow necessary to pay down the
Convertible Note in accordance with the terms of the Settlement Agreement. Thus,
the Company once again found itself in a position of default. Numerous recourses
are available to the holders of the Convertible Notes, but to date, these
recourses have not been exercised. Such recourses can be exercised at any time
and the fact that they have not been exercised so far does not preclude their
being exercised now or in the future. The Company has kept the Convertible Note
holders apprised of its efforts to sell TCS Systems and thus restart the
repayments on the Convertible Notes.

Since Fiscal year 2006, the expenses of the Company have been
funded by a series of non-interest bearing convertible loans with no specific
terms of repayment made by a significant number of individuals investing modest
amounts for a grand total of U.S.$264,400. These investors, fully cognizant of
the Companys situation and so documented in writing, accepted that their
investments were being made and represented by a convertible debt, the
conversion of which could occur only once the Company would have shares
available for issuance. These debts are convertible at fixed prices rather than
as a discount to market.

Fiscal years
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscal
    
    
    Fiscal2006 & 2007
    
    
    year 2008
    
    
    year 2008
    
    
    year 2008
    
    
    year 2008Q-2
    
    
    Q-3
    
    
    Q-4Dollars received
    $
    114,700
    
    $
    10,700
    
    $
    19,400
    
    $
    22,000
    
    $
    25,000Shares
    
    26,040,000
    
    
    3,840,000
    
    
    5,460,000
    
    
    5,400,000
    
    
    7,000,000


Fiscal year
    
    
    Fiscal year
    
    
    Fiscal
    
    
    Fiscal2009
    
    
    2009
    
    
    Year 2009
    
    
    YearQ-1
    
    
    Q-3
    
    
    Q-4
    
    
    2010&2011Q-1 &Q-2Dollars Received
    $
    19,000
    
    $
    2,500
    
    $
    25,800
    
    $
    116,285Shares
    
    9,400,000
    
    
    3,571,429
    
    
    25,400,000
    
    
    71,405,000


The shares referred to in the above table were mostly issued,
unrestricted, during the Fiscal years 2009 and 2010.

We expect that some portion of our future overhead costs, which
may be significant, will continue to be covered from sources other than
commercial revenues. Since March of 2003, our monthly our-of-pocket cash costs
were reduced to minimal amounts.

Our greatest expense, from an accounting standpoint, is for
salaries. These salaries have not been paid for over seven years, but rather set
up as payables. A portion of these payables has been converted to equity through
the issuance of common stock. The company intends to continue this process to
convert recorded liabilities into equity. Our cash flow deficit condition will
continue until such time as the Company will start generating revenues from the
sale of TCS Systems. Until we can succeed in securing an unconditional sales
contract for the sale of one or more systems employing our technology, the
company will not be engaging any significant financial commitments and will not
be engaging in any significant research and development activities nor
increasing employment.

While we continue to market TCS Systems and have in place the
Simpro License Agreement, as of June 30, 2009, no unconditional sales orders for
TCS Systems had been received and manufacturing of TCS Systems has not been
initiated. We anticipate that we will begin selling or licensing out the sale of
TCS Systems and thus initiating the manufacturing of these systems on a
commercial basis inevitably as long as there is a demand for new recycling
technology. Until we successfully develop and commence TCS System manufacturing
and sales operations on a full-scale commercial level, however, we will not
generate significant revenues from operations. Accordingly, we would be
obligated to attempt to seek non-commercial sources of revenues to support
operations until TCS Systems sales and manufacturing operations would become a
reality. In the event of such a circumstance, there can further be no assurance
that such non-commercial revenue funding would be available at all or on terms
acceptable to management. Except for research, development and sales and
marketing activities related to the recycled crumb rubber industry, as noted
above and in previous filings, we have never engaged in any other significant
business activities.

F-10

---

During the first quarter of Fiscal 2007, Tirex completed the
negotiation of the employment agreements with respect to Tirex CEO and
President, John L. Threshie Jr., Tirex Vice President Engineering and Research
and Development, Louis V. Muro and Tirex Secretary-Treasurer and Chief Financial
Officer, Michael Ash. These versions were ratified by all respective parties.
Under the terms of these agreements, Mr. Threshies salary was augmented to
US$150,000 retroactive to July 1, 2002 while Mr. Muros salary was reduced
retroactively to July 1, 2002 to US$75,000. The salary of Mr. Muro was
subsequently reinstated at $150,000, effective July 1, 2008, on a retroactive
basis. The salary of Mr. Ash remained unchanged at US$100,000. Also under the
terms of the agreements, Mr. Threshie received an option to acquire 3,000,000
shares of the corporation at the beginning of each year of his three-year
agreement, the effective inception date being July 1 2007. Similarly, Mr. Muro
received options to purchase 1,000,000 shares per year. Mr. Muros employment
was also effective July 1, 2007. Other than for the number of shares involved,
Mr. Muros options proposed agreement are identical to that of Mr. Threshie. As
for Mr. Ash, his three-year employment agreement was be effective January 1,
2007 and provided for him to acquire 2,000,000 shares of Tirex in each of the
three years of his contract. In all cases, the exercise window is three years.
These options could be exercised on a cashless basis and are described in more
detail elsewhere in this report.

Liquidity and Capital Resources

As of June 30, 2009, the Company had total assets of $1 as
compared to $1 at June 30, 2008 reflecting a change of $0. There was no change
in the value of Patents from June 30, 2008 to June 30, 2009. There were no other
changes in the value of individual assets from June 30, 2008 to June 30, 2009.

As of June 30, 2009, the Company had total liabilities of
$4,981,442 as compared to $7,507,611 at June 30, 2008, reflecting a decrease in
liabilities of $2,526,169. The decrease in total liabilities from June 30, 2008
to June 30, 2009 is primarily attributable to: (i) a decrease in Accounts
Payable and Accrued Liabilities in the amount of $201,845 from $1,742,273 as of
June 30, 2008 to $1,540,428 as of June 30, 2009, (ii) a decrease in Accrued
Liabilities-Related Parties in the amount of $822,373 from $2,357,021 as of June
30, 2008 to $1,534,648 as of June 30, 2009, (iii) a decrease in Notes
Payable-Related Party in the amount of $162,500 from $162,500 as of June 30,
2008 to $0 as of June 30, 2009, (iv) a decrease in Convertible Notes-Non-Related
Parties in the amount of $244,500 from $920,245 as of June 30, 2008 to $675,745
as of June 30, 2009, and (v) a decrease in Derivative Liability in the amount of
$1,094,951 from $2,325,572 as of June 30, 2008 to $1,230,621 as of June 30,
2009.

Reflecting the foregoing, the financial statements indicate
that as at June 30, 2009, the Company had a working capital deficit (current
assets minus current liabilities) of $4,981,442 and that as at June 30, 2008,
the Company had a working capital deficit of $7,507,611, a working capital
deficit decrease of $2,526,169. There were no changes in current assets, as
noted above, while there were reductions to current liabilities.

The financial statements, which are included in this report,
reflect total operations and other expenses of $636,938 and a gain on change in
the value of the derivative liability of $1,094,951 for the year ended June 30,
2009, which reflects a decrease in total operations and other expenses of
$386,790 and a decrease in the gain from the change in the value of the
derivative liability of $2,811,115 over the year ended June 30, 2008. The
Company has ceased Research and Development activities thereby resulting in a
significant decrease in personnel expenses and other Research and Development
expenses compared with prior periods.

The success of the tire recycling manufacturing business and
the ability to continue as a going concern will be dependent upon the ability of
the Company to obtain adequate financing to commence profitable, commercial
manufacturing and sales activities and the TCS Systems ability to meet
anticipated performance specifications on a continuous, long term commercial
basis.

The Company believes that the amounts accrued to date in
respect of the shares issued to compensate the executive officers and
consultants reflect the fair value of the services rendered, and that the
recipients of such shares received such shares at an appropriate and reasonable
discount from the then current public market price. The Company believes that
the discount is warranted due to the fact that there are often restrictions on
the transfer of said shares arising out of the absence of registration, and the
uncertainty respecting our ability to continue as a going concern.

F-11

---

From inception (July 15, 1987) through June 30, 2009, the
Company has incurred a cumulative net loss of $32,557,086. Approximately
$1,057,356 of such cumulative net loss was incurred prior to the inception of
the Companys present business plan, in connection with the Companys
discontinued proposed health care business and was due primarily to the
expending of costs associated with the unsuccessful attempt to establish such
health care business. The Company never commenced the proposed health care
operations and therefore, generated no revenues there from.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Not required.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements required to be included
in this Annual Report pursuant to Item 310(a) of Regulation S-X, are included
under Item 15.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

Following the end of Fiscal 2009, our former independent
certifying accountant informed us that he was abandoning all SEC-oriented work
because their registration with PCAOB had been revoked. Moore & Associates
transferred all of their audit clients and audit staff to Seale & Beers. We
immediately proposed to engage the services of this firm. The resignation of our
former certifying accountant was not related in any way to any disputes
respecting the Companys accounting or its financial disclosures to shareholders
or other interested parties. Seale Beers declined the audit on the basis that
they did not have the resources for auditing assets located offshore. Their
resignation was accepted on September 5, 2009. On September 16, 2009, the
directors of the Corporation approved the appointment of M&K CPAS, PLLC
(Houston, Texas) to undertake the audit of our fiscal 2009 accounts, The were
never any disagreements of any nature with Seale & Beers.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
ProceduresWe maintain disclosure controls and procedures, as defined
in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.

As of the end of the period covered by this report, our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of our
disclosure controls and procedures. Based upon this evaluation, and the material
weaknesses outlined in our Management Report on Internal Control Over Financial
Reporting, our management concluded that our disclosure controls and procedures
were not effective to ensure that information we are required to disclose in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and
forms, and that such information was not accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.

Management Report on Internal Control Over Financial
Reporting

Our management is responsible for establishing and maintaining
effective internal control over financial reporting. Under the supervision of
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
as of June 30, 2009 and 2008 using the criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis. In our
assessment of the effectiveness of internal control over financial reporting as
of June 30, 2009 and 2008, we determined that there were control deficiencies
that constituted material weaknesses, as described below.

F-12

---

|1. | Certain entity level controls establishing a tone at the
      top were considered material weaknesses. We have not established an audit
      committee. We do not have a formal policy on fraud.                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                           
|2. | Management override of existing controls is possible
      given our small size and lack of personnel.                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                           
|3. | We do not have a system in place to review and monitor
      internal control over financial reporting. We maintain an insufficient
      complement of personnel to carry out ongoing monitoring responsibilities
      and ensure effective internal control over financial
  reporting.

Management is currently evaluating remediation plans for the
above control deficiencies.

In light of the existence of these control deficiencies, we
concluded that there is a reasonable possibility that a material misstatement of
our annual or interim financial statements will not be prevented or detected on
a timely basis by our internal controls.

As a result of the material weaknesses described above,
management has concluded that we did not maintain effective internal control
over financial reporting as of June 30, 2009 and 2008 based on criteria
established in Internal ControlIntegrated Frameworkissued by COSO.

Changes in Internal Control

During the fiscal quarter ended June 30, 2009 there were no
changes in our internal control over financial reporting (as defined in Rule
13a-15(e) and Rule 15d-15(e) under the Exchange Act) that materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

Directors and Executive Officers

The following sets forth, as of June 30, 2009, the name age,
office held and the terms of said office held of our directors and executive
officers. Each director will hold office until the next annual meeting of
shareholders and until his or her successor has been elected and qualified:

|                      | Offices |                                                                                  | Term of                        
|--------------------- | ------- | -------------------------------------------------------------------------------- | -------------------------------
|Name                  | Age     | Held                                                                             | Office                         
|                      |         |                                                                                  |                                
|John L. Threshie, Jr. | 56      | Chairman of the Board of Directors, President, and Chief
      Executive Officer | November 1999 -
      present  
|                      |         | Director                                                                         | June 1995 - February 1999      
|                      |         | Vice President                                                                   | June 1995-
      November 1999 
|                      |         | Secretary                                                                        | December 1996 February 1999    
|                      |         |                                                                                  |                                
|Louis V. Muro         | 77      | Vice President of
      Engineering and Director                                 | January 1996 - present         
|                      |         | President                                                                        | March 1994 -
      January 1995
|                      |         | Director                                                                         | December 1992 - Present        
|                      |         |                                                                                  |                                
|Henry Meier           | 53      | Director                                                                         | Feb. 11, 1999 to present       
|                      |         |                                                                                  |                                
|Michael D.A. Ash      | 60      | Secretary,
      Treasurer, and Chief Financial
 and Accounting Officer          | February 1999- present         



F-13

---

Significant EmployeesOther than our executive
officers, we have no employees that make a significant contribution to our
business.

Family RelationshipsThere are no family
relationships among our directors or executive officers.

Legal ProceedingsNone of our directors, executive
officers, promoters or control persons has been involved in any of the following
events during the past ten years:

- any bankruptcy petition filed by or against any business of which such
  person was a general partner or executive officer at the time of the
  bankruptcy or within two years prior to that time;
- any conviction in a criminal proceeding or being subject to a pending
  criminal proceeding (excluding traffic violations and other minor offences);
- being subject to any order, judgment or decree, not subsequently reversed,
  suspended or vacated, of any court of competent jurisdiction, permanently or
  temporarily enjoining or otherwise limiting his involvement in any type of
  business, securities or banking activities;
- being found by a court of competent jurisdiction in a civil action or by
  the SEC or the Commodity Futures Trading Commission to have violated a federal
  or state securities or commodities law, and the judgment has not been
  subsequently reversed, suspended or vacated;
- any judicial or administrative proceedings resulting from involvement in
  mail or wire fraud or fraud in connection with any business activity;
- any judicial or administrative proceedings based on violations of federal
  or state securities, commodities, banking or insurance laws and regulations,
  or any settlement to such actions; or
- any disciplinary sanctions or orders imposed by a stock, commodities or
  derivatives exchange or other self-regulatory organization.

Section 16(a) Beneficial Ownership Compliance ReportingSection 16(a) of the Exchange Act requires our directors, executive
officers and persons who own more than 10% of our common stock to file reports
regarding ownership of, and transactions in, our securities with the SEC and to
provide us with copies of those filings. Based solely on our review of the
copies of such forms received by us, or written representations from certain
reporting persons, we believe that, during the fiscal year ended June 30, 2009,
our directors, executive officers and 10% stockholders complied with all
applicable filing requirements.

Code of EthicsWe have not yet adopted a code of
ethics that applies to our Chief Executive Officer, Chief Financial Officer or
persons performing similar functions because we have not yet finalized the
content of such a code.

Board of Directors Committees

F-14

---

The Board of Directors has no standing committees.

Nominating CommitteeWe do not have a nominating
committee and we have not undertaken any material changes to the procedures by
which security holders may recommend nominees to our Board of Directors since
our last Annual Report on Form 10K.

Business ExperienceThe following summarizes the
occupation and business experience during the past five years for each director,
executive officer and significant employee of the Company. A significant
employee is a person who is not an executive officer of the Company but who is
expected to make a significant contribution to the business of the Company.

JOHN L. THRESHIE, JR.Mr. Threshie has served as
President and Chief Executive Officer of the Company since November of 1999.
Prior to that time he served as a Vice President of the Company since June 1995.
He was appointed Assistant Secretary of the Company on February 11, 1999. From
December 1996 until February 11, 1999, Mr. Threshie held the position of
Secretary, and from June 1995 until February 11, 1999, as a Director, of the
Company. He also served as a Director for The Tirex Corporation Canada Inc. and
Tirex Canada R&D Inc. from June 1998 and June 1995, respectively, until
February 11, 1999. He has more than 30 years of experience in the areas of
management, marketing and sales including 13 years developing and marketing a
new technology in the recycling industry with Tirex. Mr. Threshie holds a
Bachelors Degree in Political Science from the University of North Carolina. He
was employed as an insurance and financial broker by Primerica Financial
Services from 1991 through 1994. From 1988 to 1990, Mr. Threshie was an
advertising account supervisor for Ammirati & Puris Inc., an advertising
firm in New York. From 1983 to 1988 Mr. Threshie was employed as a senior
account executive at the advertising firm of Saatchi and Saatchi, Inc. From 1979
to 1983 Mr. Threshie was employed by Milliken & Co. as a sales
representative.

LOUIS V. MURO.Mr. Muro acted as an engineering
consultant to the Company from January 18, 1995 until January 1, 1996 when he
was appointed as a Director and as Vice President in charge of engineering. Mr.
Muro served as a Director of the Company from December 29, 1992 until January
18, 1995. He also served as the Company's Secretary from December 29, 1992 until
March 1994 when he was appointed President of the Company, a position he held
until January 18, 1995. He has also served as the Vice President in charge of
engineering and as a director of The Tirex Corporation Canada Inc. and Tirex
Canada R&D Inc. since June 1998 and May 1995 respectively. Mr. Muro received
a B.S. degree in Chemical Engineering from Newark College of Engineering in
1954, since which time he has continually been employed as a chemical engineer.
From 1974 to 1993 Mr. Muro has been the sole proprietor of Ace Refiners Corp. of
New Jersey, a precious metals refinery. From 1971 to 1974, he worked as an
independent consultant and from 1964 until 1971, he was director of research and
development for Vulcan Materials Corporation in Pittsburgh, Pa., a public
company engaged in the business of recovering useable tin and clean steel from
scrap tin plate. From 1960 to 1964, Mr. Muro was the sole proprietor of Space
Metals Refining Co. in Woodbridge, NJ, a company involved in the purification of
scrap germanium to transistor grade metal. From 1959 to 1960 he was employed by
Chemical Construction Co., of New Brunswick, NJ, where he developed a process
for the waste-free production of urea from ammonia, carbon dioxide and water.
From 1954 to 1959, Mr. Muro worked in the research and development department at
U.S. Metals Refining Co. in Carteret, NJ where he was involved with the
refinement of precious metals.

MICHAEL D.A. ASH. Mr. Ash joined the Company on January
11, 1999. On February 11, 1999, Mr. Ash was appointed Secretary, Treasurer, and
Chief Financial and Accounting Officer of the Company. Mr. Ash graduated with a
Bachelor's Degree in Business Administration, Magna Cum Laude, from Bishop's
University in Quebec in 1970, and with an MBA, With Distinction, from Harvard
Business School in 1975. Mr. Ash received his Chartered Accountant
certification, (Canadian equivalent to a CPA) in 1972 while employed by Coopers
& Lybrand (now Price Waterhouse Coopers). Mr. Ash voluntarily abandoned his
C.A. designation following the ENRON and WorldCom incidents, being no longer
willing to certify financial statements nor to incur the very expensive
professional insurance costs associated with professional private practice as a
sole practitioner. As such, the annual professional fees were no longer
justifiable. Since graduation from Harvard, Mr. Ash spent a large portion of his
career with the Government of Canada, until early 1999 when he joined Tirex,
first with the Office of the Comptroller General in Ottawa and, for the
subsequent eighteen years, with a federal regional economic and industrial
development agency in Montreal where he gained exposure to a very large number
of companies and industrial sectors, ranging from developmental companies to
major multi-national corporations. For ten years during this time period, Mr.
Ash was also a part-time lecturer in accountancy at Concordia University in
Montreal for students registered in the program leading to the Chartered
Accountancy designation.

Compliance With Section 16(a) of the Exchange Act.

F-15

---

None of the securities have been
registered pursuant to Section 12 of the Exchange Act of 1934, as amended (the
"Exchange Act"). Therefore, Section 16(a) of the Exchange Act is not applicable.

ITEM 11. EXECUTIVE COMPENSATION

Current Remuneration

The following table sets forth information concerning the
annual compensation received or accrued for services provided in all capacities
for the fiscal years ended June 30, 2007, 2008 and 2009 by our Chief Executive
Officer and all our executive officers serving as such as at June 30, 2009 or at
any time during the year ended June 30, 2009. Future announcements concerning
us, our competitors, results of testing, technological innovations or new
commercial products may have a significant impact on the market price of our
common stock. We believe that, as of the dates when such shares were issued, the
actual market value of such shares was, and as of the date hereof remains,
highly contingent upon, and subject to, extremely high risks.

Summary Compensation Table:ANNUAL COMPENSATION (See note below)Name and Principal Position
    Year
    Salary $
    Bonus $
    Other $John L. Threshie Jr. President
    2009 2008 2007
    $150,000 (1) $150,000
      $150,000
    Nil
    NilLouis V. Muro Vice President -
      Engineering
    2009 2008 2007
    $150,000 (1) $75,000
      $75,000
    Nil
    NilMichael D.A. Ash Secretary-Treasurer
      & CFO
    2009 2008 2007
    $100,000 (1) $100,000
      $100,000
    Nil
    Nil


The employment agreements of all of the above persons were
re-negotiated during the second quarter of Fiscal 2007. The primary focus of the
negotiations was on salary and options in all three cases. In the case of Mr.
Threshie, his salary was be increased from U.S.$125,000 to U.S.$150,000
retroactive to July 1, 2002. In the case of Mr. Muro, his salary was reduced
from U.S.$150,000 to U.S.$75,000 also effective July 1, 2002. His former salary
of U.S.$150,000 was re-instated during the fourth quarter of Fiscal 2009,
retroactive to July 1, 2008. Mr. Ashs salary remained unchanged at
U.S.$100,000. Under the terms of these three employment agreements, all three
persons received stock options with three-year exercise windows to acquire Tirex
shares, with the possibility of a cashless exercise. These annual options for
Mr. Threshie, Mr. Ash and Mr. Muro imply 3,000,00 shares, 2,000,000 and
1,000,000 shares respectively. All exercises are subject to share structure
modifications such as stock splits and reverse splits on a proportional
basis.

|(1) | No compensation was paid in cash to Messrs. Threshie,
      Muro and Ash during Fiscal 2008 and 2009. The amounts due have been
      recorded as liabilities of the Company. However common shares have been
      issued to all three persons in partial payment of salaries due. During
      fiscal 2008, Tirex assigned $100,000 of accrued salaries to each of
      Messrs. Threshie and Ash to Sequoia International in exchange for a
      Florida court approved issuance of 100 million shares. The Settlement
      Agreement was made under Paragraph 10(a)3 of the Securities Act. During
      fiscal 2009, Tirex issued shares in lieu of salary and expenses to its
      executive officers. As of October 2, 2008, Mr. Threshie had 47,528,721. As
      of September 25, 2009, he had 82,919, 925 million shares. On October 2,
      2008, Mr Muro had 32,853,991 shares. On September 25, 2009, he had
      77,428,344 shares (including 1,723,514 replacement collateral shares). On
      October 2, 2008 Mr. Ash had 30,805,000 shares, including held by his wife,
      two adult children and his family trust. On September 25, 2009, he had
      62,355,000 shares, including shares owned his wife, two adult children and
      the family trust. Mr. Joe Sanzaro (brother of deceased former director,
      Lou Sanzaro). 1,500,000 shares were issued to Michael Ash in respect to
      stock options exercised but unpaid.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Executive Stock Options

F-16

---

As discussed elsewhere in this Annual Report, the following is
a summary of those stock options and warrants outstanding or proposed to be
outstanding, with respect to the purchase of the common stock of the Company:

|Beneficiary          | Issuable                                                                                     | Exercise Window                          | Price                                                                                                                                          
|-------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|                     |                                                                                              |                                          |                                                                                                                                                
|John L. Threshie Jr. | 3,000,000 share options at the
      beginning of each of Fiscal Years 2008, 2009 and 2010   | Three (3) years from date of
      issue | Year 1: lesser of 20 cents or 50% of market Year 2: lesser of 40
      cents or 50% of market Year 3: lesser of 50 cents or 50% of market      
|                     |                                                                                              |                                          |                                                                                                                                                
|Michael Ash          | 2,000,000 share options at the
      beginning of each of Calendar Years 2007, 2008 and 2009 | Three (3) years from date of
      issue | Year 1: lesser of 20 cents or
      50% of market Year 2: lesser of 40 cents or 50% of market Year 3:
      lesser of 50 cents or 50% of market
|                     |                                                                                              |                                          |                                                                                                                                                
|Louis V. Muro        | 1,000,000 share
      options at the beginning of each of Fiscal Years 2008, 2009 and 2010   | Three (3) years from
      date of issue | Year 1: lesser of 20
      cents or 50% of market Year 2: lesser of 40 cents or 50% of market
      Year 3: lesser of 50 cents or 50% of market

In September 2008, Mr. Threshie, Mr. Ash and Mr. Muro issued
their notices of exercise of 12,000,000 options on a cashless basis, relating to
the Fiscal years 2008 and 2009. In August 2009, Mr. Threshie, Mr. Ash and Mr.
Muro exercised their remaining 6,000,000 options on a cashless basis, relating
to the Fiscal year 2010. Thusfar, common shares have been issued to Mr.
Threshie, Mr. Ash and Mr. Muro relating to the exercise of their stock options
for the Fiscal year 2008. These shares were issued in the Fiscal year 2009.

Employment AgreementsWe seek to maintain employment
agreements with all of our executive officers (the "Executive Agreements"). We
currently have an employment agreement with Mr. Threshie that provides for an
annual salary of $150,000 until June 30, 2010. Mr. Threshie also has options, as
noted above, to purchase shares of the Company. Mr. Threshie was granted options
to purchase 3,000,000 shares at each anniversary date of his Employment
Agreement for the three years following the effective date of his employment
contract, and, for each series of options, would have a three-year period to
exercise that option. The options are exercisable at the lesser of 50% of market
and 20(cent) for the first year, 40(cent) for the second year and 50(cent) for
the third year. We currently employ Mr. Muro on a month-to-month basis, based on
a revised annual salary of $150,000, retroactive to July 1, 2008. Mr. Muros
salary had been reduced to $75,000 retroactively to Fiscal 2002, but was
re-instated to $150,000 effective July 1, 2008. Mr. Muro also has share options
which, other than for the number of shares implicated, are identical to the
options of Mr. Threshie. In Mr. Muros case the number of shares is 1,000,000
shares annually. Under the employment agreement with Mr. Ash, he is due an
annual salary of $100,000 and he has been given stock options to acquire
2,000,000 shares in each of the three calendar years of his agreement, which
ends December 31, 2009.

All of the above agreements provide for the payment of bonuses
at the sole discretion of the Board of Directors based upon an evaluation of the
executive's performance, with payment of any such bonuses to be reviewed
annually. The Executive Agreements also provide for the participation by each of
the foregoing persons in any pension plan, profit-sharing plan, life insurance,
hospitalization or surgical program, or insurance program hereafter adopted by
us, reimbursement of business related expenses, the non-disclosure of
information which we deem to be confidential to it, non-competition by the
executive with us for the one-year period following termination of employment
with us and for various other terms and conditions of employment.

The Executive Agreements with Messrs. Threshie, Muro and Ash
also include severance provisions which provide, among other things, for
severance compensation in the event that the employment of the executive is
terminated by us other than for cause, or by the executive for "good reason", as
that term is defined in the Executive Agreements, or pursuant to a change in
control of the Company, for which the severance terms, under certain
circumstances, as described below, could be different. The various Executive
Agreements provide for severance compensation, as follows:

F-17

---

In the case of Messrs. Threshie, Muro and Ash, 200% of the
amount of the base salary for a period of twelve months, except that in the
event of a termination following a hostile takeover of the Corporation, the
termination is 300%. In addition, the amount of severance compensation for
termination other than for cause, or by the executive for "good reason", as that
term is defined in the Executive Agreements, or pursuant to a change in control
of the Company, amounts to the compensation as described above plus two months
of base salary for each year of service, either under an employment agreement or
under a consulting agreement.

Because of the early stage of our development, our lack of
operations and insignificant cash flow, since January 18, 1995, we have not had
the resources to meet fully our financial obligations under the Executive
Agreements. As a result, a major portion of compensation which has been
available to our executive officers has consisted of shares of our common stock,
which such individuals accepted, in lieu of cash compensation, for a substantial
portion of salary and/or consulting fees due to them.

Pension, Retirement or Similar Benefit PlansThere
are no arrangements or plans pursuant to which we provide pension, retirement or
similar benefits to our directors or executive officers.

Compensation CommitteeWe currently do not have a
compensation committee of the Board of Directors or a committee performing a
similar function. It is the view of the Board of Directors that it is
appropriate for us not to have such a committee because of our size and because
the Board of Directors, as a whole, determines executive compensation.

Compensation of DirectorsThe Directors of the
Company were not compensated for their services during the fiscal year ended
June 30, 2009. We have no standard arrangement pursuant to which our directors
are compensated for their services in their capacity as directors.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth information as of March 1,
2011, with respect to the persons known to the Company to be the beneficial
owners of more than 5% of the common stock, $.001 par value of the Company and
of more than 5% of the Class A Common Stock of the Company's subsidiary, Tirex
R&D and of all Officers and Directors of the Company as that term is defined
in Item 402(a)(2) of Regulation S-B. Neither the Company nor Tirex R&D have
any shares of any class other than common shares and Series A preferred shares
issued and outstanding.

The Corporation has a total of twenty-five million (25,000,000)
Series A preferred shares outstanding, There are no other designated classes of
preferred shares, but the Corporation is authorized to issue a total of one
hundred million (100,000,000) Series A preferred shares.

F-18


---

|                             | Name and                                                                           | Amount and         |             
|---------------------------- | ---------------------------------------------------------------------------------- | ------------------ | ------------
|Title                        | Address of                                                                         | Nature of          |             
|of                           | Beneficial                                                                         | Percent            | Percent     
|Class                        | Owner                                                                              | Ownership          | of Class (1)
|                             |                                                                                    |                    |             
|Common The Tirex Corporation | John L. Threshie, Jr. 1771
      Post Road East Westport, CT 06880                 | 82,919,925(2)      | 5.70%       
|Class A Common Tirex R&D     |                                                                                    | 34 (5)             | 34%         
|Common The Tirex Corporation | Louis V. Muro 2063
      Desjardins Avenue, Apt #2 Montreal, Quebec Canada H1V 2H1 | 77,428,344 (2),(3) | 5.32%       
|Class A Common Tirex R&D     |                                                                                    | 17(5)              | 17%         
|Common The Tirex Corporation | Henry P. Meier P.O. Box 895
      Lakehurst, NJ 07755                              | 2,500,000 (6)      | 0.17%       
|Common The Tirex Corporation | Michael D.A. Ash 310 Montée Sabourin
      St. Bruno, Quebec Canada J3V 4P6        | 62,355,000 (4)     | 4.28%       
|Common The Tirex Corporation | All directors and officers as a
      group (4 persons)                            | 225,203,269        | 15.48%      
|Class A Common Tirex R&D     | All directors and officers as a group (2
      persons)                            | 51                 | 51.0%       
|Series A Preferred Shares    | John L. Threshie, Jr. 1771
      Post Road East Westport, CT 06880                 | 7,500,000 (7)      | 50% of class
|Series A Preferred Shares    | Louis V. Muro 2063 Desjardins Avenue, Apt
      #2 Montreal, Quebec Canada H1V 2H1 | 3,750,000 (7)      | 25% of class
|Series A Preferred Shares    | Michael D.A. Ash 310 Montée
      Sabourin St. Bruno, Quebec Canada J3V 4P6        | 3,750,000 (7)      | 25% of class

(1) The percentages listed in the table is calculated on the
basis of 1,454,283,645 common shares of the common stock, $.001 par value, of
the Company outstanding as at September 25, 2009.

(2) Our executive officers, directors (including a deceased
director, Louis A. Sanzaro) and principal shareholders pledged an aggregate of
11,986,315 (approximately 6% of our then outstanding shares) of their personal
shareholdings in the Company as a security interest for our issuance of $750,000
of 8% convertible notes, pursuant to a Subscription Agreement and Security
Agreement dated February 26, 2001. Specifically, John L. Threshie, Jr. pledged
1,891,204 shares, Louis Muro pledged 1,723,514 shares and Louis Sanzaro pledged
8,371,597 shares of our common stock. The Company was unable to respect its
financial obligations under the terms of a Settlement Agreement and negotiations
with respect to a new settlement have not been started. Under the terms of the
first settlement agreement, the investors acquired a right to dispose of the
collateral shares in their possession and did so. According to a confirmation
received from the investors with respect to the convertible note, as of June 30,
2005, they were in possession of 4,000,000 conversion shares, issued in 2003,
but the collateral shares were sold. The collateral shares pledged by Messrs.
Threshie, Muro and Sanzaro were replaced subsequent to June 30, 2008. These 4
million conversion shares represent approximately 0.27% of our current
outstanding stock.

(3) Includes: (i) 77,428,344 shares held of record by Mr. Muro
as of September 25, 2009; and (ii) 734,000 shares held of record by Mr. Muro's
previous wife, recently deceased, Nina Aviles Muro. There have been no
subsequent changes.

F-19

---

(4) Includes: (i) 32,625,000 shares held of record by Mr. Ash
as of September 25, 2009; (ii) 10,230,000 shares held of record in the name of
Loryta Investments Limited, an entity directly owned by Loryta Trust and thus
beneficially owned by the family of Mr. Ash. Mr. Ash is not himself a
beneficiary of this trust nor does he have decisional powers over its
activities. Also includes 5,250,000 shares owned by the wife of Mr. Ash and
5,750,000 shares held by each of his two adult age children.

(5) Messrs. Threshie and Muro hold all shares of Tirex R&D
Class A Common Stock pursuant to the terms of a Shareholders Agreement among
them and the Company (the "Tirex R&D Shareholders Agreement"), pursuant to
which they will be obligated to transfer all such shares to the Company, for no
consideration, on May 2, 2001, unless the term of such Agreement would be
unilaterally extended by the Company. The Company does not intend to take any
actions of any kind with respect to such shares which would be in violation of
any Canadian government regulations governing tax and other financial incentives
which may be available to the Company. Tirex Canada R&D Inc. was dissolved
by the Quebec government for lack of filing of annual returns. The company can
be re-established through the filing of appropriate documentation and the
payment of required government fees. It is for this reason that we continue to
list Mr. Threshie and Mr. Muro as shareholders, but until such time as such
action would be undertaken, such share distribution has no effect.

(6) Includes 1,250,000 shares owned in the name of Mr. Meiers
two adult-age children.

(7) The Series A Preferred Shares are not dividend-bearing but
have preferential rights versus the common stock in terms of participation in
residual assets in the event of liquidation. The Series A Preferred Shares have
voting rights equal to 100 votes per share and are exercisable in all
circumstances. The Series A preferred shares are convertible into common shares
at the rate of five (5) common shares for each Series A preferred share.

Change of ControlOn February 26, 2001, we issued
$750,000 worth of convertible notes at an annual rate of eight percent (8%) to
certain investors (Investor Group). Interest payable on these notes is payable
quarterly commencing June 30, 2001. In addition, all principal and unpaid
interest due on the outstanding notes is immediately due and payable on February
26, 2003, or earlier in the event of a default. One of the conditions of this
transaction was that we would file with the Securities and Exchange Commission a
Registration Statement on Form SB-2 to register various securities, issuable
upon the conversion of these convertible notes, by a certain date and that the
Registration Statement would be effective by August 15, 2001. We failed to meet
these deadlines and the investors served a notice of default on us on July 19,
2001. Negotiations were undertaken throughout the remainder of Calendar 2001 and
into 2002 until a Settlement Agreement was reached on April 26, 2002. Under the
terms of the Agreement, a copy of which was previously filed, the Company was
obligated to pay down the amount owed to the Investor Group, including interest
and penalties, over a period of approximately two years. During the time when an
amount continues to be owed to the Investor Group, the Investor Group had the
right to sell up to 600,000 collateral or Rule 144 shares per month and apply
the proceeds to interest due, fees and finally to the reduction of the principle
amount outstanding. As of June 30, 2005, all of the collateral shares had been
sold. As of June 30, 2005, the Investor Group had 4,000,000 conversion shares,
issued in 2003, in their possession.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE

The following is a description of transactions during the last
two fiscal years or any presently proposed transactions to which the Company was
or is to be a party, in which the amount involved in such transaction (or series
of transactions) was $60,000 or more and which any of the following persons had
or is to have a direct or indirect material interest: (i) any director or
executive officer of the Company; (ii) any person who owns or has the right to
acquire 5% or more of the issued and outstanding common stock of the Company;
and (iii) any member of the immediate family of any such persons.

Pursuant to a Subscription Agreement dated February 26, 2001,
we issued $750,000 of 8% convertible notes, due February 26, 2003 to three
investors. Under the Subscription Agreement, we had the option, subject to
conditions, to require the investors to purchase additional convertible put
notes up to $4,250,000. Interest only payments were due quarterly commencing
June 30, 2001, and the principal was due in one lump sum on February 26, 2003,
or upon certain events of default. The number of shares of common stock issuable
upon conversion of the convertible notes is 15,000,000, was based on a
conversion price of $0.05 per share. The option exercise window has expired. One
of the conditions of this transaction was that we would file with the Securities
and Exchange Commission a Registration Statement on Form SB-2 to register
various securities issuable upon the conversion of the notes by a date certain
and that the Registration Statement would be effective by August 15, 2001. We
failed to meet these deadlines and the investors served a notice of default on
us on July 19, 2001. The conversion price for the convertible notes is the
lesser of (i) 80% of the average of the three lowest closing bid prices of the
common stock for the twenty-two (22) trading days prior to the closing date, or
(ii) 80% of the average of the five lowest closing bid prices of the common
stock for the sixty (60) trading days prior to the conversion date, as defined
in the convertible note.

F-20

---

During the years ended June 30, 2001 through 2009, the
Company's directors and executive officers and certain consultants to the
Company necessarily waived cash payment of all of their salaries, fees and/or
unreimbursed expenses made by them on behalf of, and for the account of, the
Company. During fiscal 2009 and fiscal 2010 (the period following the fiscal
year covered by this Annual Report) common shares were issued to such directors
and executive officers and certain consultants in partial payment of accrued and
unpaid salaries, fees and expenses.

Director Independence

The Pink Sheets on which our common stock is quoted on does not
have any director independence requirements. We have also not developed a
definition of independence, as three out of our four directors occupy the three
executive officer positions of the Company and would therefore not qualify as
independent. We may appoint additional directors in the future, at which time we
plan to develop a definition of independence and scrutinize our Board of
Directors with regard to this definition.

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the fees for professional
services rendered by our auditors in connection with the audit of our financial
statements for the years ended June 30, 2009 and 2008 and the review of our
quarterly financial statements during such years, as well as any other fees
billed for services rendered by our auditors during these periods:

2009
    
    
    2008Audit fees
    $
    63,000
    
    $
    20,000Audit-related fees
    $
    0
    
    $
    0Tax fees
    $
    0
    
    $
    0All other fees
    $
    0
    
    $
    0Total
    $
    63,000
    
    $
    20,000


Since our inception, our Board of Directors, performing the
duties of the Audit Committee. Has reviewed all audit fees and non audit-related
fees at least annually. The Board of Directors, acting as the Audit Committee,
pre-approved all audit related services for the year ended June 30, 2009.

F-21

---

PART IV

ITEM 15 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM, CONSOLIDATED FINANCIAL STATEMENTS, REPORTS FILED ON FORM 8-K, FINANCIAL
STATEMENT SCHEDULES, EXHIBITS

|Consolidated
      Financial Statements                                                                                                                                             |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|The consolidated financial
      statements filed as a partof this Annual Report are as follows:                                                                                    |     
|Report of
      Independent Registered Public Accounting Firm                                                                                                                       | F-23
|Consolidated Balance Sheets as of June 30, 2009
      and 2008                                                                                                                      | F-24
|Consolidated Statements of
      Operations for the years ended June 30, 2009 and 2008, and cumulative for
      the period from March 26, 1993 to June 30, 2009                    | F-25
|Consolidated Statements of Stockholders' Equity
      (Deficit) for the years ended June 30, 2009 and 2008 and cumulative for
      the period from March 26, 1993 to June 30, 2009 | F-26
|Consolidated Statements of Cash
      Flows for the years ended June 30, 2009 and 2008 and cumulative for the
      period from March 26, 1993 to June 30, 2009                     | F-27

F-22

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Tirex
Corporation

We have audited the accompanying balance sheets of the Tirex
Corporation, as of June 30, 2009 and 2008, and the related statements of
operations, stockholders equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. An audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of the Tirex
Corporation as of June 30, 2009 and 2008, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has an accumulated deficit of
$32,557,086, which raises substantial doubt about its ability to continue as a
going concern. Managements plans concerning these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ M&K CPAS, PLLC

Houston, Texas

March 1, 2011

www.mkacpas.com

F-23

---

|THE TIREX CORPORATION       
|----------------------------
|A DEVELOPMENT STAGE COMPANY 
|                            
|CONSOLIDATED BALANCE SHEETS 
|JUNE 30, 2009
      and 2008

|                                                                                                                                                                          |   | June 30,    |   |   | June 30,    |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                                                                                                          |   | 2009        |   |   | 2008        |  
|                                                                                                                                                                          |   |             |   |   |             |  
|ASSETS                                                                                                                                                                    |   |             |   |   |             |  
|                                                                                                                                                                          |   |             |   |   |             |  
|Other assets                                                                                                                                                              |   |             |   |   |             |  
|Patents                                                                                                                                                                   | $ | 1           |   | $ | 1           |  
|Total Other Assets                                                                                                                                                        |   | 1           |   |   | 1           |  
|                                                                                                                                                                          |   |             |   |   |             |  
|Total Assets                                                                                                                                                              | $ | 1           |   | $ | 1           |  
|                                                                                                                                                                          |   |             |   |   |             |  
|                                                                                                                                                                          |   |             |   |   |             |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                     |   |             |   |   |             |  
|                                                                                                                                                                          |   |             |   |   |             |  
|Current Liabilities                                                                                                                                                       |   |             |   |   |             |  
|Accounts payable and accrued
      liabilties                                                                                                                             | $ | 1,540,428   |   | $ | 1,742,273   |  
|Accrued liabilties - related parties                                                                                                                                      |   | 1,534,648   |   |   | 2,357,021   |  
|Notes payable - related party                                                                                                                                             |   | -           |   |   | 162,500     |  
|Convertible notes - non-related parties                                                                                                                                   |   | 675,745     |   |   | 920,245     |  
|Derivative liability                                                                                                                                                      |   | 1,230,621   |   |   | 2,325,572   |  
|Total Current Liabilities                                                                                                                                                 |   | 4,981,442   |   |   | 7,507,611   |  
|                                                                                                                                                                          |   |             |   |   |             |  
|Total Liabilities                                                                                                                                                         |   | 4,981,442   |   |   | 7,507,611   |  
|                                                                                                                                                                          |   |             |   |   |             |  
|Stockholders' Deficit                                                                                                                                                     |   |             |   |   |             |  
|Preferred stock, $.005 par value,
      authorized 15,000,000 Series A shares, issued and outstanding
      15,000,000 Series A shares (June 30, 2008 - 3,000,000 shares) |   | 75,000      |   |   | 15,000      |  
|Common stock, $.001 par value, authorized 1,000,000,000
      shares, issued and outstanding 1,119,492,216 shares (June 30, 2008 -
      291,995,892 shares)              |   | 1,119,492   |   |   | 291,996     |  
|Common stock payable                                                                                                                                                      |   | 43,500      |   |   | -           |  
|Additional paid-in capital                                                                                                                                                |   | 26,797,293  |   |   | 25,805,465  |  
|Deficit accumulated prior to entering
      development stage                                                                                                             |   | (1,057,356  | ) |   | (1,057,356  | )
|Deficit accumulated during the development stage                                                                                                                          |   | (31,499,730 | ) |   | (31,957,743 | )
|Unrealized loss on foreign exchange                                                                                                                                       |   | (459,640    | ) |   | (604,972    | )
|                                                                                                                                                                          |   | (4,981,441  | ) |   | (7,507,610  | )
|                                                                                                                                                                          |   |             |   |   |             |  
|                                                                                                                                                                          |   |             |   |   |             |  
|Total Liabilities and Stockholders' Deficit                                                                                                                               | $ | 1           |   | $ | 1           |  

F-24

---

|THE TIREX CORPORATION                                             
|------------------------------------------------------------------
|A DEVELOPMENT STAGE COMPANY                                       
|                                                                  
|CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

|                                                              |   | Twelve months ended |   |   | Cumulative from   |  
|------------------------------------------------------------- | - | ------------------- | - | - | ----------------- | -
|                                                              |   | June 30             |   |   | March 26, 1993 to |  
|                                                              |   | 2009                |   |   | 2008              |  
|                                                              |   |                     |   |   | (Restated)        |  
|Revenues                                                      | $ | -                   |   | $ | -                 |  
|Cost of Sales                                                 |   | -                   |   |   | -                 |  
|                                                              |   |                     |   |   |                   |  
|Gross profit                                                  |   | -                   |   |   | -                 |  
|Operations                                                    |   |                     |   |   |                   |  
|General and administrative                                    |   | 838,404             |   |   | 854,945           |  
|Depreciation and amortization                                 |   | -                   |   |   | -                 |  
|Research and development                                      |   | -                   |   |   | -                 |  
|Total Expense                                                 |   | 838,404             |   |   | 854,945           |  
|Income (loss) before other expenses                           |   | (838,404            | ) |   | (854,945          | )
|Other expenses (income)                                       |   |                     |   |   |                   |  
|Interest expense                                              |   | 92,235              |   |   | (18,617           | )
|Accretion expense                                             |   | -                   |   |   | -                 |  
|Interest income                                               |   | -                   |   |   | -                 |  
|Income from stock options                                     |   | -                   |   |   | -                 |  
|Impairment of fixed assets                                    |   | -                   |   |   | 25,000            |  
|(Gain) on change in derivative
      liability                |   | (1,094,951          | ) |   | (3,906,066        | )
|Loss (gain) on settlement of debt                             |   | (293,701            | ) |   | 162,400           |  
|Loss on disposal of equipment                                 |   | -                   |   |   | -                 |  
|Total Other expenses (income)                                 |   | (1,296,417          | ) |   | (3,737,283        | )
|Provision for income taxes                                    |   | -                   |   |   | -                 |  
|Net income (loss)                                             |   | 458,013             |   |   | 2,882,338         |  
|Other comprehensive loss                                      |   |                     |   |   |                   |  
|Loss (gain) on foreign exchange                               |   | -                   |   |   | -                 |  
|Net income and comprehensive income                           | $ | 458,013             |   | $ | 2,882,338         |  
|                                                              |   |                     |   |   |                   |  
|Net income and comprehensive income per
      share - basic   | $ | 0.00                |   | $ | 0.01              |  
|                                                              |   |                     |   |   |                   |  
|Net income and comprehensive income per
      share - diluted | $ | 0.00                |   | $ | 0.00              |  
|                                                              |   |                     |   |   |                   |  
|Weighted average number of shares - basic                     |   | 740,673,574         |   |   | 252,126,303       |  
|                                                              |   |                     |   |   |                   |  
|Weighted average number of shares - diluted                   |   | 1,195,411,253       |   |   | 10,185,751,788    |  

F-25

---

|THE TIREX CORPORATION                                          
|---------------------------------------------------------------
|A DEVELOPMENT STAGE COMPANY                                    
|                                                               
|CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

|                                                    |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  | Deficit           |   |  | Deficit       |   |   |             |  |  |                 |  
|--------------------------------------------------- |  | ------------ | - |  | --------------- | - |  | ------ |  |  | ------- |  |  | ------------- |  |  | ------------- | - |  | ----------------- | - |  | ------------- | - | - | ----------- |  |  | --------------- | -
|                                                    |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  | Accumulated       |   |  | Accumulated   |   |   | Unrealized  |  |  |                 |  
|                                                    |  |              |   |  |                 |   |  |        |  |  |         |  |  | Common        |  |  | Additional    |   |  | Prior to Entering |   |  | During        |   |   | gain (loss) |  |  | Total           |  
|                                                    |  | Common Stock |   |  | Preferred Stock |   |  | Stock  |  |  | Paid-in |  |  | Developmental |  |  | Developmental |   |  | on foreign        |   |  | Stockholders' |  
|                                                    |  | Shares       |   |  | Amount          |   |  | Shares |  |  | Amount  |  |  | Payable       |  |  | Capital       |   |  | Stage             |   |  | Stage         |   |   | exchange    |  |  | Equity (Deficit |  
|Balance June 30, 1992 (Unaudited)                   |  | 3,383,050    |   |  | 3,383           |   |  |        |  |  | -       |  |  | -             |  |  | - 194,980     |   |  | (1,057,356        | ) |  | -             |   | $ | -           |  |  | (858,993        | )
|Stock issued for reorganization                     |  | 18,650,000   |   |  | 18,650          |   |  |        |  |  |         |  |  |               |  |  | 76,155        |   |  |                   |   |  |               |   |   |             |  |  | 94,805          |  
|Stock issued for services                           |  | 100,000      |   |  | 100             |   |  |        |  |  |         |  |  |               |  |  | (100          | ) |  |                   |   |  |               |   |   |             |  |  |                 |  
|Stock issued in exchange for Warrants               |  | 363,656      |   |  | 364             |   |  |        |  |  |         |  |  |               |  |  | (364          | ) |  |                   |   |  |               |   |   |             |  |  |                 |  
|Forgiveness of debt                                 |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  | 728,023       |   |  |                   |   |  |               |   |   |             |  |  | 728,023         |  
|Net loss and comprehensive loss                     |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  | (165,296      | ) |   |             |  |  | (165,296        | )
|                                                    |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |   |             |  |  |                 |  
|Balance June 30, 1993 (Unaudited)                   |  | 22,496,706   |   |  | 22,497          |   |  |        |  |  | -       |  |  | -             |  |  | - 998,694     |   |  | (1,057,356        | ) |  | (165,296      | ) |   | -           |  |  | (201,461        | )
|                                                    |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |   |             |  |  |                 |  
|Stock issued                                        |  | 2,000        |   |  | 2               |   |  |        |  |  |         |  |  |               |  |  | (2            | ) |  |                   |   |  |               |   |   |             |  |  |                 |  
|Stock issued for services                           |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |   |             |  |  |                 |  
|Exchange for Debt                                   |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  | 149,170       |   |  |                   |   |  |               |   |   |             |  |  | 149,170         |  
|Payments received for stock
      previously issued |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  | 237,430       |   |  |                   |   |  |               |   |   |             |  |  | 237,430         |  
|Net loss and comprehensive loss                     |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  | (179,296      | ) |   |             |  |  | (179,296        | )
|                                                    |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |   |             |  |  |                 |  
|Balance June 30, 1994 (Unaudited)                   |  | 22,498,706   |   |  | 22,499          |   |  |        |  |  | -       |  |  | -             |  |  | - 1,385,292   |   |  | (1,057,356        | ) |  | (344,592      | ) |   | -           |  |  | 5,843           |  
|                                                    |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |   |             |  |  |                 |  
|Revision of common stock                            |  | (11,900,000  | ) |  | (11,900         | ) |  |        |  |  |         |  |  |               |  |  | 11,900        |   |  |                   |   |  |               |   |   |             |  |  |                 |  
|Stock issued for services                           |  | 5,592,857    |   |  | 5,592           |   |  |        |  |  |         |  |  |               |  |  | 513,908       |   |  |                   |   |  |               |   |   |             |  |  | 519,500         |  
|Exchange for Debt                                   |  | 200,000      |   |  | 200             |   |  |        |  |  |         |  |  |               |  |  | 24,300        |   |  |                   |   |  |               |   |   |             |  |  | 24,500          |  
|Issuance of common stock
      previously issued    |  | 402,857      |   |  | 401             |   |  |        |  |  |         |  |  |               |  |  | 21,915        |   |  |                   |   |  |               |   |   |             |  |  | 22,316          |  
|Net loss and comprehensive loss                     |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  | (575,771      | ) |   |             |  |  | (575,771        | )
|                                                    |  |              |   |  |                 |   |  |        |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |   |             |  |  |                 |  
|Balance June 30, 1995 (Unaudited)                   |  | 16,794,420   |   |  | 16,792          |   |  |        |  |  | -       |  |  | -             |  |  | - 1,957,315   |   |  | (1,057,356        | ) |  | (920,363      | ) |   | -           |  |  | (3,612          | )

See Notes to Consolidated Financial Statements

F-26

---

|THE TIREX CORPORATION                                          
|---------------------------------------------------------------
|A DEVELOPMENT STAGE COMPANY                                    
|                                                               
|CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  | Deficit           |   |  | Deficit       |   |  |             |  |  |                  |  
|------------------------------------ |  | ------------ |  |  | --------------- |  |  | ------ |  |  | ------- |  |  | ------------- |  |  | ------------- |  |  | ----------------- | - |  | ------------- | - |  | ----------- |  |  | ---------------- | -
|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  | Accumulated       |   |  | Accumulated   |   |  | Unrealized  |  |  |                  |  
|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  | Common        |  |  | Additional    |  |  | Prior to Entering |   |  | During        |   |  | gain (loss) |  |  | Total            |  
|                                     |  | Common Stock |  |  | Preferred Stock |  |  | Stock  |  |  | Paid-in |  |  | Developmental |  |  | Developmental |  |  | on foreign        |   |  | Stockholders' |  
|                                     |  | Shares       |  |  | Amount          |  |  | Shares |  |  | Amount  |  |  | Payable       |  |  | Capital       |  |  | Stage             |   |  | Stage         |   |  | exchange    |  |  | Equity (Deficit) |  
|Balance June 30, 1995 (Unaudited)    |  | 16,794,420   |  |  | 16,792          |  |  |        |  |  | -       |  |  | -             |  |  | - 1,957,315   |  |  | (1,057,356        | ) |  | (920,363      | ) |  | -           |  |  | (3,612           | )
|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |  |  |                  |  
|Stock issued                         |  | 3,975,662    |  |  | 5,090           |  |  |        |  |  |         |  |  |               |  |  | 846,612       |  |  |                   |   |  |               |   |  |             |  |  | 851,702          |  
|Exchange for Debt                    |  | 391,857      |  |  | 392             |  |  |        |  |  |         |  |  |               |  |  | 29,008        |  |  |                   |   |  |               |   |  |             |  |  | 29,400           |  
|Issuance of common stock             |  | 710,833      |  |  | 710             |  |  |        |  |  |         |  |  |               |  |  | 80,161        |  |  |                   |   |  |               |   |  |             |  |  | 80,871           |  
|Net loss and comprehensive loss      |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (1,127,044    | ) |  |             |  |  | (1,127,044       | )
|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |  |  |                  |  
|Balance June 30, 1996 (Unaudited)    |  | 21,872,772   |  |  | 22,984          |  |  |        |  |  | -       |  |  | -             |  |  | - 2,913,096   |  |  | (1,057,356        | ) |  | (2,047,407    | ) |  | -           |  |  | (168,683         | )
|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |  |  |                  |  
|Stock issued for options             |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 912,838       |  |  |                   |   |  |               |   |  |             |  |  | 912,838          |  
|Stock issued for services            |  | 5,067,912    |  |  | 3,955           |  |  |        |  |  |         |  |  |               |  |  | 690,234       |  |  |                   |   |  |               |   |  |             |  |  | 694,189          |  
|Stock in Exchange for Debt           |  | 251,382      |  |  | 252             |  |  |        |  |  |         |  |  |               |  |  | 43,965        |  |  |                   |   |  |               |   |  |             |  |  | 44,217           |  
|Issuance of common stock             |  | 10,257,936   |  |  | 10,259          |  |  |        |  |  |         |  |  |               |  |  | 335,132       |  |  |                   |   |  |               |   |  |             |  |  | 345,391          |  
|Grants received                      |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 408,597       |  |  |                   |   |  |               |   |  |             |  |  | 408,597          |  
|Net loss and comprehensive loss      |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (2,376,279    | ) |  |             |  |  | (2,376,279       | )
|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |  |  |                  |  
|Balance June 30, 1997 (Unaudited)    |  | 37,450,002   |  |  | 37,450          |  |  |        |  |  | -       |  |  | -             |  |  | - 5,303,862   |  |  | (1,057,356        | ) |  | (4,423,686    | ) |  | -           |  |  | (139,730         | )
|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |  |  |                  |  
|Stock issued for options             |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 948,500       |  |  |                   |   |  |               |   |  |             |  |  | 948,500          |  
|Stock issued for services            |  | 4,396,466    |  |  | 4,396           |  |  |        |  |  |         |  |  |               |  |  | 922,180       |  |  |                   |   |  |               |   |  |             |  |  | 926,576          |  
|Issuance of common stock             |  | 21,795,000   |  |  | 21,796          |  |  |        |  |  |         |  |  |               |  |  | 1,176,755     |  |  |                   |   |  |               |   |  |             |  |  | 1,198,551        |  
|Stock options issued and outstanding |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 1,236,913     |  |  |                   |   |  |               |   |  |             |  |  | 1,236,913        |  
|Grants received                      |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 669,906       |  |  |                   |   |  |               |   |  |             |  |  | 669,906          |  
|Unrealized foreign exchange          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  | 183,785     |  |  | 183,785          |  
|Net loss and comprehensive loss      |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (4,570,441    | ) |  |             |  |  | (4,570,441       | )
|                                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |  |  |                  |  
|Balance June 30, 1998 (Unaudited)    |  | 63,641,468   |  |  | 63,642          |  |  |        |  |  | -       |  |  | -             |  |  | - 10,258,116  |  |  | (1,057,356        | ) |  | (8,994,127    | ) |  | 183,785     |  |  | 454,060          |  

F-27

---

|THE TIREX CORPORATION                                    
|---------------------------------------------------------
|A DEVELOPMENT STAGE COMPANY                              
|                                                         
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  | Deficit           |   |  | Deficit       |   |  |             |   |  |                  |  
|--------------------------------------------------------- |  | ------------ |  |  | --------------- |  |  | ------ |  |  | ------- |  |  | ------------- |  |  | ------------- |  |  | ----------------- | - |  | ------------- | - |  | ----------- | - |  | ---------------- | -
|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  | Accumulated       |   |  | Accumulated   |   |  | Unrealized  |   |  |                  |  
|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  | Common        |  |  | Additional    |  |  | Prior to Entering |   |  | During        |   |  | gain (loss) |   |  | Total            |  
|                                                          |  | Common Stock |  |  | Preferred Stock |  |  | Stock  |  |  | Paid-in |  |  | Developmental |  |  | Developmental |  |  | on foreign        |   |  | Stockholders' |  
|                                                          |  | Shares       |  |  | Amount          |  |  | Shares |  |  | Amount  |  |  | Payable       |  |  | Capital       |  |  | Stage             |   |  | Stage         |   |  | exchange    |   |  | Equity (Deficit) |  
|Balance June 30, 1998
    (Unaudited)                     |  | 63,641,468   |  |  | 63,642          |  |  |        |  |  | -       |  |  | -             |  |  | 10,258,116    |  |  | (1,057,356        | ) |  | (8,994,127    | ) |  | 183,785     |   |  | 454,060          |  
|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Stock issued for options                                  |  | 2,234,567    |  |  | 2,235           |  |  |        |  |  |         |  |  |               |  |  | 38,765        |  |  |                   |   |  |               |   |  |             |   |  | 41,000           |  
|Stock issued for services                                 |  | 24,200,439   |  |  | 24,200          |  |  |        |  |  |         |  |  |               |  |  | 2,735,544     |  |  |                   |   |  |               |   |  |             |   |  | 2,759,744        |  
|Shares issued in exchange for
      debt                  |  | 3,787,947    |  |  | 3,788           |  |  |        |  |  |         |  |  |               |  |  | 340,164       |  |  |                   |   |  |               |   |  |             |   |  | 343,952          |  
|Conversion of debentures                                  |  | 2,816,966    |  |  | 2,817           |  |  |        |  |  |         |  |  |               |  |  | 290,102       |  |  |                   |   |  |               |   |  |             |   |  | 292,919          |  
|Issuance of common stock                                  |  | 677,966      |  |  | 678             |  |  |        |  |  |         |  |  |               |  |  | 49,322        |  |  |                   |   |  |               |   |  |             |   |  | 50,000           |  
|Stock options issued and outstanding                      |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 385,600       |  |  |                   |   |  |               |   |  |             |   |  | 385,600          |  
|Grants received                                           |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 1,057,742     |  |  |                   |   |  |               |   |  |             |   |  | 1,057,742        |  
|Unrealized foreign exchange                               |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  | (29,142     | ) |  | (29,142          | )
|Net loss and comprehensive
      loss                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (4,909,879    | ) |  |             |   |  | (4,909,879       | )
|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 1999
    (Unaudited)                     |  | 97,359,353   |  |  | 97,360          |  |  |        |  |  | -       |  |  | -             |  |  | - 15,155,355  |  |  | (1,057,356        | ) |  | (13,904,006   | ) |  | 154,643     |   |  | 445,996          |  
|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Stock issued for options                                  |  | 5,327,486    |  |  | 5,327           |  |  |        |  |  |         |  |  |               |  |  | 381,600       |  |  |                   |   |  |               |   |  |             |   |  | 386,927          |  
|Stock issued for services                                 |  | 28,873,210   |  |  | 28,873          |  |  |        |  |  |         |  |  |               |  |  | 2,217,758     |  |  |                   |   |  |               |   |  |             |   |  | 2,246,631        |  
|Shares issued in exchange for
      debt                  |  | 7,342,055    |  |  | 7,342           |  |  |        |  |  |         |  |  |               |  |  | 382,556       |  |  |                   |   |  |               |   |  |             |   |  | 389,898          |  
|Conversion of debentures                                  |  | 12,010,073   |  |  | 12,010          |  |  |        |  |  |         |  |  |               |  |  | 815,796       |  |  |                   |   |  |               |   |  |             |   |  | 827,806          |  
|Issuance of common stock                                  |  | 221,000      |  |  | 221             |  |  |        |  |  |         |  |  |               |  |  | 16,039        |  |  |                   |   |  |               |   |  |             |   |  | 16,260           |  
|Grants received                                           |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 395,683       |  |  |                   |   |  |               |   |  |             |   |  | 395,683          |  
|Unrealized foreign exchange                               |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  | 5,789       |   |  | 5,789            |  
|Net loss and comprehensive loss                           |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (5,548,829    | ) |  |             |   |  | (5,548,829       | )
|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2000 (Unaudited)                         |  | 151,133,177  |  |  | 151,133         |  |  |        |  |  | -       |  |  | -             |  |  | - 19,364,787  |  |  | (1,057,356        | ) |  | (19,452,835   | ) |  | 160,432     |   |  | (833,839         | )
|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Stock issued for services                                 |  | 7,375,483    |  |  | 7,375           |  |  |        |  |  |         |  |  |               |  |  | 864,840       |  |  |                   |   |  |               |   |  |             |   |  | 872,215          |  
|Stock issued for options                                  |  | 5,378,507    |  |  | 5,379           |  |  |        |  |  |         |  |  |               |  |  | 506,998       |  |  |                   |   |  |               |   |  |             |   |  | 512,377          |  
|Shares issued in exchange for debt                        |  | 11,646,312   |  |  | 11,646          |  |  |        |  |  |         |  |  |               |  |  | 1,547,455     |  |  |                   |   |  |               |   |  |             |   |  | 1,559,101        |  
|Conversion of debentures                                  |  | 100,000      |  |  | 100             |  |  |        |  |  |         |  |  |               |  |  | 19,900        |  |  |                   |   |  |               |   |  |             |   |  | 20,000           |  
|Issuance of common stock                                  |  | 732,929      |  |  | 733             |  |  |        |  |  |         |  |  |               |  |  | 39,427        |  |  |                   |   |  |               |   |  |             |   |  | 40,160           |  
|Unrealized foreign exchange                               |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  | (340,661    | ) |  | (340,661         | )
|Grants issued                                             |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 249,294       |  |  |                   |   |  |               |   |  |             |   |  | 249,294          |  
|Net loss and comprehensive
      loss                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (3,242,572    | ) |  |             |   |  | (3,242,572       | )
|                                                          |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2001
      
    (Restated and Unaudited) |  | 176,366,408  |  |  | 176,366         |  |  |        |  |  | -       |  |  | -             |  |  | - 22,592,701  |  |  | (1,057,356        | ) |  | (22,695,407   | ) |  | (180,229    | ) |  | (1,163,925       | )

See Notes to Consolidated Financial Statements

F-28

---

|THE TIREX CORPORATION                                          
|---------------------------------------------------------------
|A DEVELOPMENT STAGE COMPANY                                    
|                                                               
|CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  | Deficit           |   |  | Deficit       |   |  |             |   |  |                  |  
|--------------------------------------------------- |  | ------------ |  |  | --------------- |  |  | ------ |  |  | ------- |  |  | ------------- |  |  | ------------- |  |  | ----------------- | - |  | ------------- | - |  | ----------- | - |  | ---------------- | -
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  | Accumulated       |   |  | Accumulated   |   |  | Unrealized  |   |  |                  |  
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  | Common        |  |  | Additional    |  |  | Prior to Entering |   |  | During        |   |  | gain (loss) |   |  | Total            |  
|                                                    |  | Common Stock |  |  | Preferred Stock |  |  | Stock  |  |  | Paid-in |  |  | Developmental |  |  | Developmental |  |  | on foreign        |   |  | Stockholders' |  
|                                                    |  | Shares       |  |  | Amount          |  |  | Shares |  |  | Amount  |  |  | Payable       |  |  | Capital       |  |  | Stage             |   |  | Stage         |   |  | exchange    |   |  | Equity (Deficit) |  
|Balance June 30, 2001 
    (Restated and Unaudited) |  | 176,366,408  |  |  | 176,366         |  |  |        |  |  | -       |  |  | -             |  |  | - 22,592,701  |  |  | (1,057,356        | ) |  | (22,695,407   | ) |  | (180,229    | ) |  | (1,163,925       | )
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Stock issued for services                           |  | 18,466,162   |  |  | 18,466          |  |  |        |  |  |         |  |  |               |  |  | 314,859       |  |  |                   |   |  |               |   |  |             |   |  | 333,325          |  
|Shares issued in exchange for debt                  |  | 24,075,502   |  |  | 24,076          |  |  |        |  |  |         |  |  |               |  |  | 1,649,442     |  |  |                   |   |  |               |   |  |             |   |  | 1,673,518        |  
|Issuance of common stock                            |  | 5,849,487    |  |  | 5,850           |  |  |        |  |  |         |  |  |               |  |  | 61,897        |  |  |                   |   |  |               |   |  |             |   |  | 67,747           |  
|Interest expense on convertible note discount       |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 3,403         |  |  |                   |   |  |               |   |  |             |   |  | 3,403            |  
|Unrealized foreign exchange                         |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  | (19,940     | ) |  | (19,940          | )
|Net loss and comprehensive loss                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (4,089,933    | ) |  |             |   |  | (4,089,933       | )
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2002 
    (Restated and Unaudited) |  | 224,757,559  |  |  | 224,758         |  |  |        |  |  | -       |  |  | -             |  |  | - 24,622,302  |  |  | (1,057,356        | ) |  | (26,785,340   | ) |  | (200,169    | ) |  | (3,195,805       | )
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Stock issued for services                           |  | 5,455,000    |  |  | 5,455           |  |  |        |  |  |         |  |  |               |  |  | 130,920       |  |  |                   |   |  |               |   |  |             |   |  | 136,375          |  
|Shares issued in exchange for
      debt            |  | 15,400,000   |  |  | 15,400          |  |  |        |  |  |         |  |  |               |  |  | 441,183       |  |  |                   |   |  |               |   |  |             |   |  | 456,583          |  
|Issuance of common stock                            |  | 4,283,333    |  |  | 4,283           |  |  |        |  |  |         |  |  |               |  |  | 31,217        |  |  |                   |   |  |               |   |  |             |   |  | 35,500           |  
|Interest expense on
      convertible note discount |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 999           |  |  |                   |   |  |               |   |  |             |   |  | 999              |  
|Unrealized foreign exchange                         |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  | (182,365    | ) |  | (182,365         | )
|Net loss and comprehensive
      loss               |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (2,763,145    | ) |  |             |   |  | (2,763,145       | )
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2003(Restated and Unaudited)       |  | 249,895,892  |  |  | 249,896         |  |  |        |  |  | -       |  |  | -             |  |  | - 25,226,621  |  |  | (1,057,356        | ) |  | (29,548,485   | ) |  | (382,534    | ) |  | (5,511,858       | )
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Interest expense on
      convertible note discount |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  | 1,000         |  |  |                   |   |  |               |   |  |             |   |  | 1,000            |  
|Unrealized foreign exchange                         |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  | (30,325     | ) |  | (30,325          | )
|Net loss and comprehensive
      loss               |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (82,082       | ) |  |             |   |  | (82,082          | )
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2004(Restated and Unaudited)       |  | 249,895,892  |  |  | 249,896         |  |  |        |  |  | -       |  |  | -             |  |  | - 25,227,621  |  |  | (1,057,356        | ) |  | (29,630,567   | ) |  | (412,859    | ) |  | (5,623,265       | )
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Unrealized foreign exchange                         |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  | (63,448     | ) |  | (63,448          | )
|Net loss and comprehensive loss                     |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  | (7,717,592    | ) |  |             |   |  | (7,717,592       | )
|                                                    |  |              |  |  |                 |  |  |        |  |  |         |  |  |               |  |  |               |  |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2005
    (Restated and Unaudited)  |  | 249,895,892  |  |  | 249,896         |  |  |        |  |  | -       |  |  | -             |  |  | - 25,227,621  |  |  | (1,057,356        | ) |  | (37,348,159   | ) |  | (476,307    | ) |  | (13,404,305      | )

F-29

---

|THE TIREX CORPORATION                                          
|---------------------------------------------------------------
|A DEVELOPMENT STAGE COMPANY                                    
|                                                               
|CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  | Deficit           |   |  | Deficit       |   |  |             |   |  |                  |  
|--------------------------------------------------- |  | ------------- |  |  | --------------- |  |  | ---------- |  |  | ------- |  |  | ------------- |  |  | ------------- | - |  | ----------------- | - |  | ------------- | - |  | ----------- | - |  | ---------------- | -
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  | Accumulated       |   |  | Accumulated   |   |  | Unrealized  |   |  |                  |  
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  | Common        |  |  | Additional    |   |  | Prior to Entering |   |  | During        |   |  | gain (loss) |   |  | Total            |  
|                                                    |  | Common Stock  |  |  | Preferred Stock |  |  | Stock      |  |  | Paid-in |  |  | Developmental |  |  | Developmental |   |  | on foreign        |   |  | Stockholders' |  
|                                                    |  | Shares        |  |  | Amount          |  |  | Shares     |  |  | Amount  |  |  | Payable       |  |  | Capital       |   |  | Stage             |   |  | Stage         |   |  | exchange    |   |  | Equity (Deficit) |  
|Balance June 30, 2005 
    (Restated and Unaudited) |  | 249,895,892   |  |  | 249,896         |  |  | -          |  |  | -       |  |  |               |  |  | 25,227,621    |   |  | (1,057,356        | ) |  | (37,348,159   | ) |  | (476,307    | ) |  | (13,404,305      | )
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  |                  |  
|Unrealized foreign exchange                         |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  | (78,596     | ) |  | (78,596          | )
|Net income and comprehensive income                 |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  | 2,624,041     |   |  |             |   |  | 2,624,041        |  
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2006(Restated and Unaudited)       |  | 249,895,892   |  |  | 249,896         |  |  | -          |  |  | -       |  |  | -             |  |  | 25,227,621    |   |  | (1,057,356        | ) |  | (34,724,118   | ) |  | (554,903    | ) |  | (10,858,860      | )
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  |                  |  
|Unrealized foreign exchange                         |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  | (44,174     | ) |  | (44,174          | )
|Net loss and comprehensive
      loss               |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  | (115,963      | ) |  |             |   |  | (115,963         | )
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2007(Restated and Unaudited)       |  | 249,895,892   |  |  | 249,896         |  |  | -          |  |  | -       |  |  | -             |  |  | 25,227,621    |   |  | (1,057,356        | ) |  | (34,840,081   | ) |  | (599,077    | ) |  | (11,018,997      | )
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  |                  |  
|Common stock issued for
      settlement            |  | 20,000,000    |  |  | 20,000          |  |  |            |  |  |         |  |  |               |  |  | 124,000       |   |  |                   |   |  |               |   |  |             |   |  | 144,000          |  
|Common stock issued for services                    |  | 22,100,000    |  |  | 22,100          |  |  |            |  |  |         |  |  |               |  |  | 130,500       |   |  |                   |   |  |               |   |  |             |   |  | 152,600          |  
|Preferred stock issued                              |  |               |  |  |                 |  |  | 3,000,000  |  |  | 15,000  |  |  |               |  |  | 271,000       |   |  |                   |   |  |               |   |  |             |   |  | 286,000          |  
|Stock options granted                               |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  | 24,000        |   |  |                   |   |  |               |   |  |             |   |  | 24,000           |  
|Imputed interest                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  | 28,344        |   |  |                   |   |  |               |   |  |             |   |  | 28,344           |  
|Unrealized foreign exchange                         |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  | (5,895      | ) |  | (5,895           | )
|Net income and comprehensive
      income           |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  | 2,882,338     |   |  |             |   |  | 2,882,338        |  
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2008
      (Restated)              |  | 291,995,892   |  |  | 291,996         |  |  | 3,000,000  |  |  | 15,000  |  |  | -             |  |  | 25,805,465    |   |  | (1,057,356        | ) |  | (31,957,743   | ) |  | (604,972    | ) |  | (7,507,610       | )
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  |                  |  
|Common stock issued for
      liability settlements |  | 191,750,000   |  |  | 191,750         |  |  |            |  |  |         |  |  |               |  |  | 157,366       |   |  |                   |   |  |               |   |  |             |   |  | 349,116          |  
|Common stock issued for services                    |  | 64,900,000    |  |  | 64,900          |  |  |            |  |  |         |  |  |               |  |  | 22,563        |   |  |                   |   |  |               |   |  |             |   |  | 87,463           |  
|Common stock issued for debt
      conversion       |  | 50,140,000    |  |  | 50,140          |  |  |            |  |  |         |  |  |               |  |  | 153,660       |   |  |                   |   |  |               |   |  |             |   |  | 203,800          |  
|Common stock issued to related parties              |  | 513,206,324   |  |  | 513,206         |  |  |            |  |  |         |  |  | 43,500        |  |  | 520,739       |   |  |                   |   |  |               |   |  |             |   |  | 1,077,445        |  
|Stock options exercised on a
      cashless basis   |  | 7,500,000     |  |  | 7,500           |  |  |            |  |  |         |  |  |               |  |  | (7,500        | ) |  |                   |   |  |               |   |  |             |   |  | -                |  
|Preferred stock issued                              |  |               |  |  |                 |  |  | 12,000,000 |  |  | 60,000  |  |  |               |  |  | 115,000       |   |  |                   |   |  |               |   |  |             |   |  | 175,000          |  
|Stock options granted                               |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  | 30,000        |   |  |                   |   |  |               |   |  |             |   |  | 30,000           |  
|Derivative financial instruments                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  | -                |  
|Unrealized foreign exchange                         |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  | 145,332     |   |  | 145,332          |  
|Net income and comprehensive income                 |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  | 458,013       |   |  |             |   |  | 458,013          |  
|                                                    |  |               |  |  |                 |  |  |            |  |  |         |  |  |               |  |  |               |   |  |                   |   |  |               |   |  |             |   |  |                  |  
|Balance June 30, 2009                               |  | 1,119,492,216 |  |  | 1,119,492       |  |  | 15,000,000 |  |  | 75,000  |  |  | 43,500        |  |  | 26,797,293    |   |  | (1,057,356        | ) |  | (31,499,730   | ) |  | (459,640    | ) |  | (4,981,441       | )

See Notes to Consolidated Financial Statements

F-30

---

|THE TIREX CORPORATION                      
|-------------------------------------------
|A DEVELOPMENT STAGE COMPANY                
|CONSOLIDATED
      STATEMENTS OF CASH FLOWS

|                                                                                    |   | Twelve months ended |   |   | Cumulative from   |  
|----------------------------------------------------------------------------------- | - | ------------------- | - | - | ----------------- | -
|                                                                                    |   | June 30             |   |   | March 26, 1993 to |  
|                                                                                    |   | 2009                |   |   | 2008              |  
|                                                                                    |   |                     |   |   | (Restated)        |  
|Cash flows from operating activities:                                               |   |                     |   |   |                   |  
|                                                                                    |   |                     |   |   |                   |  
|Net
      income (loss)                                                             | $ | 458,013             |   | $ | 2,882,338         |  
|                                                                                    |   |                     |   |   |                   |  
|Adjustments to
      reconcile net income to net cash used in operating activities: |   |                     |   |   |                   |  
|Depreciation and
      amortization                                                 |   | -                   |   |   | -                 |  
|Imputed
      interest                                                              |   | -                   |   |   | 28,344            |  
|Accretion expense                                                                   |   | -                   |   |   | -                 |  
|Impairment of fixed assets                                                          |   | -                   |   |   | 25,000            |  
|(Gain) loss on disposal
      and abandonment of assets                             |   | -                   |   |   | -                 |  
|(Gain)
      loss on settlement of debt                                             |   | (293,701            | ) |   | 162,400           |  
|Loss on issuance of
      preferred stock                                           |   | 115,000             |   |   | 271,000           |  
|Common
      stock issued in exchange for services and expenses                     |   | 102,335             |   |   | 102,200           |  
|Stock options issued in
      exchange for services                                 |   | 30,000              |   |   | 24,000            |  
|Change in
      derivative liability                                                |   | (1,094,951          | ) |   | (3,906,066        | )
|                                                                                    |   |                     |   |   |                   |  
|Changes in assets and liabilities:                                                  |   |                     |   |   |                   |  
|(Increase) decrease in:                                                             |   |                     |   |   |                   |  
|Inventory                                                                           |   | -                   |   |   | -                 |  
|Sales tax receivable                                                                |   | -                   |   |   | -                 |  
|Other
      assets                                                                  |   | -                   |   |   | -                 |  
|(Decrease) increase in :                                                            |   |                     |   |   |                   |  
|Accounts
      payable and accrued liabilities                                      |   | 103,403             |   |   | 106,416           |  
|Accrued liabilities -
      related parties                                         |   | 387,269             |   |   | 233,163           |  
|                                                                                    |   |                     |   |   |                   |  
|Net cash used in operating activities                                               |   | (192,632            | ) |   | (71,205           | )
|                                                                                    |   |                     |   |   |                   |  
|Cash flow from investing activities:                                                |   |                     |   |   |                   |  
|Increase
      in notes receivable                                                  |   | -                   |   |   | -                 |  
|Reduction in notes
      receivable                                                 |   | -                   |   |   | -                 |  
|Investment                                                                          |   | -                   |   |   | -                 |  
|Equipment                                                                           |   | -                   |   |   | -                 |  
|Equipment
      assembly costs                                                      |   | -                   |   |   | -                 |  
|Organization cost                                                                   |   | -                   |   |   | -                 |  
|Reduction
      in security deposit                                                 |   | -                   |   |   | -                 |  
|                                                                                    |   |                     |   |   |                   |  
|Net cash used in investing activities                                               |   | -                   |   |   | -                 |  
|                                                                                    |   |                     |   |   |                   |  
|Cash flow from financing activities:                                                |   |                     |   |   |                   |  
|Loans from related
      parties                                                    |   |                     |   |   |                   |  
|Deferred
      financing costs                                                      |   | -                   |   |   | -                 |  
|Due to stockholders                                                                 |   | -                   |   |   | -                 |  
|Proceeds
      from deposits                                                        |   | -                   |   |   | -                 |  
|Payments on notes payable                                                           |   | -                   |   |   | -                 |  
|Proceeds
      from convertible notes                                               |   | -                   |   |   | -                 |  
|Proceeds from notes
      payable                                                   |   | -                   |   |   | -                 |  
|Payments
      on lease obligations                                                 |   | -                   |   |   | -                 |  
|Proceeds from issuance of
      convertible subordinated debentures                 |   | -                   |   |   | -                 |  
|Proceeds
      from convertible debts - non-related parties                         |   | 47,300              |   |   | 77,100            |  
|Proceeds from loan
      payable                                                    |   | -                   |   |   | -                 |  
|Payments
      on loan payable                                                      |   | -                   |   |   | -                 |  
|Proceeds from issuance of
      stock options                                       |   | -                   |   |   | -                 |  
|Proceeds
      from grants                                                          |   | -                   |   |   | -                 |  
|Proceeds from issuance of
      common stock                                        |   | -                   |   |   | -                 |  
|Proceeds
      from additional paid-in capital                                      |   | -                   |   |   | -                 |  
|                                                                                    |   |                     |   |   |                   |  
|Net cash provided by financing activities                                           |   | 47,300              |   |   | 77,100            |  
|                                                                                    |   |                     |   |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                  |   | 145,332             |   |   | (5,895            | )
|                                                                                    |   |                     |   |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                          |   | (145,332            | ) |   | 5,895             |  
|                                                                                    |   |                     |   |   |                   |  
|Cash and cash equivalents - beginning of
      period                               |   | -                   |   |   | -                 |  
|                                                                                    |   |                     |   |   |                   |  
|Cash and cash equivalents - end of period                                           | $ | -                   |   | $ | -                 |  

F-31

---

|                                                                                              |  | Twelve months
       ended | 
|--------------------------------------------------------------------------------------------- |  | -------------------------- | 
|                                                                                              |  | June 30,                   | 
|                                                                                              |  | 2009                       | 
|                                                                                              |  |                            | 
|Non-Cash Financing and Investing Activities:                                                  |  |                            | 
|                                                                                              |  |                            | 
|Issuance of common stock for exercise of stock options                                        |  | 7,500                      | 
|Issuance of common stock for the settlement of accounts payable and
      accrued liabilities |  | 257,018                    | 
|Issuance of common stock for the settlement of accrued liabilities -
      related parties    |  | 1,154,372                  | 
|Common stock to be issued to related parties for accrued expenses                             |  | 43,500                     | 
|Issuance of common stock for the settlement of convertible notes - related
      parties      |  | 162,500                    | 
|Issuance of common stock for the settlement of convertible notes -
      non-related parties  |  | 291,800                    | 
|                                                                                              |  |                            | 
|Supplemental Disclosures
       - Cash paid for:                                              |  |                            | 
|                                                                                              |  |                            | 
|Interest                                                                                      |  | -                          | 
|Income taxes                                                                                  |  | -                          | 

F-32

---

NOTE 1 BACKGROUND

NATURE OF BUSINESS The Tirex Corporation (the "Company" or
Tirex) was incorporated under the laws of the State of Delaware on August 19,
1987 as Tirex America, Inc. The Company was originally organized to provide
comprehensive health care services, but due to its inability to raise sufficient
capital, was unable to implement its business plan. The Company became inactive
in November 1990.

REORGANIZATION On March 26, 1993, the Company entered into
an acquisition agreement (the "Acquisition Agreement") with Louis V. Muro,
currently an officer and a director of the Company, and former Officers and
Directors of the Company (collectively the "Seller"), for the purchase of
certain technology owned and developed by the Seller (the "Technology") to be
used to design, develop and construct a prototype machine and thereafter a
production quality machine for the cryogenic disintegration of used tires. The
Technology was conceptually developed by the Seller prior to their affiliation
or association with the Company. On March 26, 1993, the Company entered the
development stage.

CHANGE OF NAME On July 11, 1997, the Company changed its
name from Tirex America, Inc. to The Tirex Corporation.

DEVELOPMENT STAGE At June 30, 2009, the Company is still in
the development stage. The operations consist mainly of raising capital,
obtaining financing, developing equipment, obtaining customers and supplies,
installing and testing equipment and administrative activities.

NOTE 2 GOING CONCERN

The Companys consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business.

In March 1993, the Company had begun its developmental stage
with a new business plan. As of March 2000, the Company had developed a
production quality prototype of its patented system for the disintegration of
scrap tires, but nonetheless continued its research and development efforts to
improve the machine's performance and to permit greater flexibility in design
for specific customer applications. Due to the Companys lack of working capital
during the year ended June 30, 2002, all rubber crumb production was suspended
and research and development efforts have been hampered. Pending receipt of
funding from operations, government assistance, loans or equity financing, crumb
rubber production and previous research and development efforts will not be
resumed. While the Company has engaged the process of marketing the TCS System
to numerous potential clients since the beginning of the fiscal year commencing
July 1, 2000, as of June 30, 2009, the Company had not yet consummated an
unconditional purchase order for a TCS System. As a result, the Company expects
to continue to incur operating losses and may not have enough capital to grow
its business in the future or continue as a going concern. The Company can give
no assurance that it will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result if the Company is unable to continue as a going concern.

To successfully grow the business, the Company must decrease
its cash outflows, improve its cash position and succeed in its ability to raise
additional capital through a combination of primarily public or private equity
offerings or strategic alliances. The Company is also dependent on the success
of its marketing of its TCS Systems. The Company's uncertainty as to its ability
to generate revenue and its ability to raise sufficient capital, raise substantial doubt
about the entity's ability to continue as a going concern.

F-33

---

The Company is currently in the process of trying to obtain
additional financing for its current operations and consummate an initial sale
of its TCS Systems.

As reported in the accompanying financial statements, the
Company incurred a net profit of $458,013 for the year ended June 30, 2009 and a
net profit of $2,882,338 for the year ended June 30, 2008. The net profit
realized is primarily due to the change in derivative value. The change in
derivative value is recorded in other income and expense in the statements of
operations and is a non-cash transaction.

NOTE 3 SUMMARY OF ACCOUNTING POLICIES

This summary of significant accounting policies is provided to
assist the reader in understanding the Companys financial statements. The
financial statements and notes thereto are the representations of the Companys
management. The Companys management is responsible for their integrity and
objectivity. These accounting policies conform to accounting principles
generally accepted in the United States and have been consistently applied in
the preparation of the financial statements.

BASIS OF PRESENTATION These consolidated financial
statements and related notes are presented in accordance with accounting
principles generally accepted in the United States, and are expressed in U.S.
Dollars. The Companys fiscal year-end is June 30.

BASIS OF CONSOLIDATION The consolidated financial
statements include the consolidated accounts of The Tirex Corporation, Tirex
Canada R&D Inc., The Tirex Corporation Canada Inc., Tirex Advanced Products
Quebec Inc. and Tirex Acquisition Corp., all of these subsidiaries currently
being dormant. Certain of these companies have actually been de-registered by
government authorities but could easily be revived if circumstances would
warrant such action. Tirex Canada R&D Inc. is held 51% by two shareholders
of the Company. The shares owned by these shareholders are held in escrow by the
Company's attorney and are restricted from transfer thereby, substantively for
recording purposes, allowing for a full consolidation of this Company. The Tirex
Corporation Canada Inc., Tirex Advanced Products Quebec Inc. and Tirex
Acquisition Corp. are 100% held by the Company. All subsidiary companies are
dormant. All material inter-company transactions and accounts have been
eliminated in consolidation.

CASH AND CASH EQUIVALENTS For purposes of the statement of
cash flows, the Company considers all highly liquid debt instruments, with a
maturity of three months or less, to be cash equivalents. There were no cash
equivalents as of June 30, 2009 and 2008.

PROPERTY AND EQUIPMENT Property and equipment are stated at
cost less accumulated depreciation and provisions for write-downs. Depreciation
is calculated using the straight-line method over the estimated useful lives of
the assets which is generally five years for machinery and equipment.

Maintenance and repair costs are expensed as incurred while
additions and betterments are capitalized. The cost and related accumulated
depreciation of assets sold or retired are eliminated from the accounts and any
gains or losses are reflected in earnings.

The Company has taken depreciation and impairment charges over
the years on its machinery and equipment bringing its carrying value, at June
30, 2009 and 2008, to $0.

F-34

---

INTANGIBLE ASSETS Intangible assets are carried at the
purchased cost less accumulated amortization. Amortization is computed over the
estimated useful lives of the respective assets, generally from fifteen to
twenty years.

ESTIMATES The preparation of the accompanying consolidated
financial statements in conformity with accounting principles generally accepted
in the United States (U.S. GAAP) requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE Basic net
income (loss) per share includes no dilution and is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
shares of common stock outstanding for the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of shares
outstanding and, when dilutive, potential shares from stock options, stock
warrants to purchase common stock using the treasury method, and conversions of
preferred stock and outstanding debt using the if converted method.

Diluted EPS Calculation SummaryFor the year ended June 30, 2008Weighted average shares outstanding, basic
    
    252,126,303Net Income
    
    2,882,338Basic EPS
    
    0.01Adjustments to WASO due to dilution
    
    9,933,625,485Adjustments to net income due to dilution
    
    87,234New WASO
    
    10,185,751,788New Net Income
    
    2,969,572Diluted EPS
    
    0.00Diluted EPS Calculation SummaryFor the year ended June 30, 2009Weighted average shares outstanding, basic
    
    740,673,574Net Income
    
    458,013Basic EPS
    
    0.00Adjustments to WASO due to dilution
    
    454,737,679Adjustments to net income due to dilution
    
    71,890New WASO
    
    1,195,411,253New Net Income
    
    529,903Diluted EPS
    
    0.00


FAIR VALUE OF FINANCIAL INSTRUMENTS The Company accounts
for its financial instruments in accordance with ASC Topic 825, which requires
the disclosure of fair value information about financial instruments when it is
practicable to estimate that value. The Companys financial instruments consist
of cash and cash equivalents, accounts receivable, inventory, accounts payable,
accrued liabilities and convertible notes. The estimated fair value of cash,
cash equivalents, accounts receivable, accounts payable and accrued liabilities
and other short-term liabilities approximate their carrying amounts due to the
short-term nature of these instruments. The fair value of related party
transactions is not determinable due to their related party nature. The carrying
value of the convertible notes also approximates fair value since
their terms are similar to those in the lending market for comparable loans with
comparable risks. None of these instruments are held for trading purposes.

F-35

---

FAIR VALUE MEASUREMENTS In accordance with the
authoritative guidance on fair value measurements and disclosure under U.S.
GAAP, the Company determines fair value using a fair value hierarchy that
distinguishes between market participant assumptions developed based on market
data (observable inputs) obtained from sources independent of the reporting
entity, and a reporting entitys own assumptions (unobservable inputs) about
market participant assumptions developed based on the best information available
in the circumstances and expands disclosure about fair value measurements.

Fair value is the price that would be received to sell an asset
or paid to transfer a liability in the Companys principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants at the measurement date, essentially the exit price.

The levels of fair value hierarchy are as follows:

- Level one  Quoted market prices in active markets for identical assets or
  liabilities;
- Level two  Inputs other than level one inputs that are either directly or
  indirectly observable; and
- Level three  Unobservable inputs developed using estimates and
  assumptions, which are developed by the reporting entity and reflect those
  assumptions that a market participant would use.

Level 1 investments are valued based on quoted market prices in
active markets. Level 2 investments are valued based on quoted prices in markets
that are not active, broker or dealer quotations, or alternative pricing sources
with reasonable levels of price transparency.

A financial instruments level within the fair value hierarchy
is based upon the lowest level of any input that is significant to the fair
value measurement. However, the determination of what constitutes observable
requires significant judgment by the Company. The Company evaluates its
hierarchy disclosures each quarter.

The Company utilizes various types of financing to fund its
business needs including convertible notes with warrants attached. The Company
reviews its warrants and conversion features of securities issued as to whether
they are freestanding or contain an embedded derivative, and if so, whether they
are classified as a liability at each reporting period until the amount is
settled and reclassified into equity with changes in fair value recognized in
current earnings. At June 30, 2009 and 2008, the Companys only asset or
liability measured at fair value on a recurring basis is its derivative
liability associated with the units consisting of convertible notes. The Company
classifies the fair value of these warrants under level three. The fair value of
the derivative liability as of June 30, 2009 was $1,230,621 (June 30, 2008 -
$2,325,572) and the gain due to valuation for the twelve months ended June 30,
2009 and 2008 was $1,007,865 and $4,088,506, respectively.

INCOME TAXES The Company uses the liability method of
accounting for income taxes under which deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as part of the provision for
income taxes in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized in the future.

F-36

---

The Company has net operating loss carry forwards of
approximately $18.6 million as of June 30, 2009, expiring through 2029, that may
be offset against future taxable income. Because of the uncertainties discussed
in Note 2, however, any deferred tax asset established for utilization of the
Company's tax-loss carry forwards correspondingly requires a valuation allowance
of the same amount. The Company had no uncertain tax positions at June 30, 2009
or 2008.

Utilization of net operating loss carry forwards may be subject
to a substantial annual limitation due to ownership change limitations provided
by the Internal Revenue Code of 1986, as well as state and foreign provisions.
These ownership changes may limit the amount of net operating loss carry
forwards that can be utilized annually to offset future taxable income and tax,
respectively. Subsequent ownership changes could further affect the limitation
in future years. These annual limitation provisions may result in the expiration
of certain net operating losses and credits before utilization.

DERIVATIVE INSTRUMENTS

The Company does not enter into derivative contracts for
purposes of risk management or speculation. However, from time to time, the
Company enters into contracts, namely convertible notes, that are not considered
derivative financial instruments in their entirety, but that include embedded
derivative features.

In accordance with FASB ASC Topic 815-15, Embedded Derivatives,
and guidance provided by the SEC Staff, the Company accounts for these embedded
features as a derivative liability at fair value, and the unrealized changes in
the values of these derivatives are recorded in the statement of operations as
gain or loss on derivatives.

FOREIGN CURRENCY TRANSLATION

a) Reporting Currency The Company's functional currency is
the Canadian dollar. Accordingly, the consolidated financial statements are
converted into the reporting currency (the U.S. dollar) using the current rate
method. Under this method, the consolidated financial statements are converted
into U.S. dollars as follows: assets and liabilities are converted at the
exchange rate in effect at the date of the balance sheet, and revenue and
expenses are converted using the average exchange rate for the period. All gains
and losses resulting from the conversion of the consolidated financial
statements into the reporting currency are included in other comprehensive
income or loss for the period and accumulated in a separate component of
stockholders equity as accumulated other comprehensive income or loss.

b) Foreign Currency Transactions Transactions denominated
in currencies other than the functional currency are converted into Canadian
dollars (the functional currency) using the exchange rate in effect at the date
of the transaction or the average rate for the period in the case of recurring
revenue and expense transactions. Monetary assets and liabilities are revalued
into the functional currency at each balance sheet date using the exchange rate
in effect at that date, with any resulting exchange gains or losses being
credited or charged to the statement of operations. Non-monetary assets and
liabilities are recorded in the functional currency using the exchange rate in
effect at the date of the transaction and are not revalued for subsequent
changes in exchange rates.

STOCK BASED COMPENSATION The Company estimates the fair
value of share-based payment awards made to employees and directors, including
stock options, restricted stock and employee stock purchases related to employee
stock purchase plans, on the date of grant using an option-pricing model. The
value of the portion of the award that is ultimately expected to vest is
recognized as an expense ratably over the requisite service periods. The Company
uses the Black-Scholes option pricing model to determine the fair value of the
stock-based compensation that it grants to employees and non-employees. The
Company is required to make certain assumptions in connection with this
determination, the most important of which involves the calculation of
volatility with respect to the price of its common stock. The computation of
volatility is intended to produce a volatility value that is representative of the Companys
expectations about the future volatility of the price of its common stock over
an expected term. The Company used its share price history to determine
volatility and cannot predict how the price of its common shares of common stock
will react on the open market in the future. As a result, the volatility value
that the Company calculated may differ from the future volatility of the price
of its shares of common stock.

F-37

---

CASHLESS EXERCISE OF STOCK OPTIONS The Company issued stock
options to directors to purchase common stock where the holder is entitled to
exercise the stock options on a cashless basis. The Company accounts for the
issuance of common stock on the cashless exercise of stock options on a net
basis.

REVENUE RECOGNITION The Company will generally recognize
revenue from the sale of TCS Systems using the percentage-of-completion method
when persuasive evidence of an arrangement exists, the fee is fixed or
determinable and collectability is probable. The percentage-of-completion method
will also require management to make certain estimates and assumptions that will
affect the reported amounts of revenues and expenses. All other revenue from
other products will be recognized when shipped to the customer. The Company has
recognized a small amount of revenue since entering the development stage.

PRIOR PERIOD RECLASSIFICATION Certain reclassifications to
the financial statements have been made to prior period amounts to conform to
the presentation of the current period.

RECENT ACCOUNTING PRONOUNCEMENTS Effective January 1, 2010,
the Company adopted changes issued by the Financial Accounting Standards Board
(FASB) on January 21, 2010, to disclosure requirements for fair value
measurements. Specifically, the changes require a reporting entity to disclose
separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reasons for the transfers. The
changes also clarify existing disclosure requirements related to how assets and
liabilities should be grouped by class and valuation techniques used for
recurring and nonrecurring fair value measurements. The adoption of these
changes had no impact on the interim condensed consolidated financial
statements.

Effective January 1, 2010, the Company adopted changes issued
by the FASB on February 24, 2010, to accounting for and disclosure of events
that occur after the balance sheet date, but before financial statements are
issued or available to be issued, otherwise known as subsequent events.
Specifically, these changes clarified that an entity that is required to file or
furnish its financial statements with the Securities and Exchange Commission
(SEC) is not required to disclose the date through which subsequent events
have been evaluated. Other than the elimination of disclosing the date through
which management has performed its evaluation for subsequent events, the
adoption of these changes had no impact on the interim condensed consolidated
financial statements.

In January 2010, the FASB issued changes to disclosure
requirements for fair value measurements. Specifically, the changes require a
reporting entity to disclose, in the reconciliation of fair value measurements
using significant unobservable inputs (Level 3), separate information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). These changes become effective for the Company
beginning January 1, 2011. Other than the additional disclosure requirements,
management has determined these changes will not have an impact on the interim
condensed consolidated financial statements.

In October 2009, the Financial Accounting Standards Board
(FASB) issued new revenue recognition standards for arrangements with multiple
deliverables, where certain of those deliverables are non-software related. The
new standards permit entities to initially use managements best estimate of
selling price to value individual deliverables when those deliverables
do not have Vendor Specific Objective Evidence (VSOE) of fair value or when
third-party evidence is not available. Additionally, these new standards modify
the manner in which the transaction consideration is allocated across the
separately identified deliverables by no longer permitting the residual method
of allocating arrangement consideration. These new standards are effective for
annual periods ending after June 15, 2010 and early adoption is permitted. The
adoption of the new standards will not have an impact on the Companys
consolidated financial position, results of operations and cash flows.

F-38

---

In June 2009, the FASB issued guidance establishing the
Codification as the source of authoritative U.S. Generally Accepted Accounting
Principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange
Commission (SEC) under authority of federal securities laws are also sources
of authoritative U.S. GAAP for SEC registrants. The Codification supersedes all
existing non-SEC accounting and reporting standards. All other non-grandfathered
non-SEC accounting literature not included in the Codification will become
non-authoritative. The FASB will no longer issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts.
Instead, the FASB will issue Accounting Standards Updates, which will serve only
to update the Codification, provide background information about the guidance
and provide the vases for conclusions on changes in the Codification. All
content in the Codification carries the same level of authority, and the U.S.
GAAP hierarchy was modified to include only two levels of U.S. GAAP:
authoritative and non-authoritative. The Codification is effective for the
Companys interim and annual periods beginning with the Companys year ending
June 30, 2009. Adoption of the Codification affected disclosures in the
Consolidated Financial Statements by eliminating references to previously issued
accounting literature, such as SFASs, EITFs and FSPs.

In June 2009, the FASB issued amended standards for determining
whether to consolidate a variable interest entity. These new standards amend the
evaluation criteria to identify the primary beneficiary of a variable interest
entity and require ongoing reassessment of whether an enterprise is the primary
beneficiary of the variable interest entity. The provisions of the new standards
are effective for annual reporting periods beginning after November 15, 2009 and
interim periods within those fiscal years. The adoption of the new standards
will not have an impact on the Companys consolidated financial position,
results of operations and cash flows.

In May 2009, the FASB issued guidance establishing general
standards for accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued and shall be
applied to subsequent events not addressed in other applicable generally
accepted accounting principles. This guidance, among other things, sets forth
the period after the balance sheet date during which management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures an entity should make about events or
transactions that occurred after the balance sheet date. The adoption of this
guidance had no impact on the Companys consolidated financial position, results
of operations and cash flows.

Note 4 PROPERTY AND EQUIPMENT

As at June 30, 2009 and 2008, plant and equipment consisted of
the following:

Furniture, fixtures and equipment
    $
    149,516Manufacturing equipment
    
    87,400Subtotal
    
    236,916Less: Accumulated depreciation and
      amortization
    
    236,916


|Total | $ | 0 | 
|----- | - | - | 

F-39

---

Depreciation and amortization expense charged to operations for
the years ended June 30, 2009 and 2008 was $0.

During the year ended June 30, 2008, the Company recorded an
impairment in the value of its remaining manufacturing equipment in the amount
of $25,000 reducing its carrying value to $0.

NOTE 5 PATENTS

The Companys technology is patent protected in both the United
States and Canada. Patent maintenance fees are current in both countries. The
valuation on the Balance Sheet reflects a nominal value in recognition of valid
patents initiated and obtained by the Company and does not attempt to establish
the true commercial value.

NOTE 6 CONVERTIBLE SUBORDINATED DEBENTURES

The Company issued Type B Convertible Subordinated Debentures
between December 1997 and February 1998. These debentures bore interest at 10%
and were convertible into common shares of the Company at $0.20 per share. The
conversion privilege on the remaining $55,000 of these debentures expired.

NOTE 7 CONVERTIBLE NOTES

The Convertible Notes appearing on the balance sheet consisted
of an investment arrangement with a group of institutional investors involving a
multi-stage financing under which the Company had access to, at its option, up
to $5,000,000. A first tranche of $750,000 was completed but no further draw
downs were made. The terms of the convertible note were:

|Balance at June 30, 2009 and 2008 | $399,389                                                                                                                                                                                                                                                                                                      
|--------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                  |                                                                                                                                                                                                                                                                                                               
|Interest rate                     | 8%, payable quarterly, commencing June 30, 2001, and 18%
      after March 10, 2003, the default date                                                                                                                                                                                                         
|                                  |                                                                                                                                                                                                                                                                                                               
|Issue date                        | February 26, 2001                                                                                                                                                                                                                                                                                             
|                                  |                                                                                                                                                                                                                                                                                                               
|Maturity date                     | February 26, 2003                                                                                                                                                                                                                                                                                             
|                                  |                                                                                                                                                                                                                                                                                                               
|Redemption rights                 | If not converted, the holder may require the Company to
      redeem at any time after maturity for the principal amount plus interest.                                                                                                                                                                       
|                                  |                                                                                                                                                                                                                                                                                                               
|Conversion ratio                  | Lower of (i)  80% of the average of the three lowest
      closing bid prices for the thirty trading days prior to the issue date,
      which equals $.073, or (ii)  80% of the average of the three lowest
      closing bid prices for the sixty trading days prior to the conversion
      date.        
|                                  |                                                                                                                                                                                                                                                                                                               
|Common stock warrants             | The Convertible Notes carried an option to purchase
      Common stock warrants at the rate of one Warrant for each $1.25 of
      purchase price. The exercise price on the first tranche of $
      750,000 is $ .077 per share. As of June 30, 2009 and 2008, the term of
      these warrants had expired.

F-40

---

Certain current and previous Directors and Officers of the
Company have pledged approximately 12,000,000 of their personal shares of Common
Stock of the Company as security for the Convertible Notes until such time as
the Company would successfully file with the Securities and Exchange Commission
a Registration Statement on Form SB-2, to register common stock and warrants
issuable upon the conversion of the notes, no later than 150 days after the
issue date of the Convertible Notes. This deadline was not met and, as such, the
investors served a notice of default to the Company on July 19, 2001. The
Registration Statement was never declared effective by the Securities and
Exchange Commission and was eventually withdrawn. Thus, the Convertible Notes
cannot be converted to Common Stock nor may the Common Stock warrants be
exercised. On April 24, 2002 the Company entered into a Settlement Agreement
with the Note holders. The Company was forced to default on this Settlement
Agreement. Accordingly, the terms of the Convertible Notes have become effective
once again. 8,371,597 collateral common shares provided to the investors were
the property of former Tirex Director, Louis A, Sanzaro, now deceased. The
shares due to Louis A. Sanzaro have been issued during the quarter ended
September 30, 2008 to a family member. The collateral shares provided by Louis
V. Muro, 1,723,514 common shares, were replaced during the quarter ended
September 30, 2008. The collateral shares provided by John L. Threshie Jr.,
1,891,204 shares, were replaced during the quarter ended December 31, 2008.

A convertible note, under a private arrangement, consists of
the following:

|Balance at June 30, 2009 and 2008 | $ 185,556                                                                                                                                                                                                                                                                                                                                                                                
|--------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                  |                                                                                                                                                                                                                                                                                                                                                                                          
|Interest rate                     | 8%                                                                                                                                                                                                                                                                                                                                                                                       
|                                  |                                                                                                                                                                                                                                                                                                                                                                                          
|Issue date                        | July 19th, 2000                                                                                                                                                                                                                                                                                                                                                                          
|                                  |                                                                                                                                                                                                                                                                                                                                                                                          
|Maturity date                     | January 19th, 2002                                                                                                                                                                                                                                                                                                                                                                       
|                                  |                                                                                                                                                                                                                                                                                                                                                                                          
|Redemption rights                 | If not converted, the holder may require the Company to
      redeem at any time after maturity for the principal amount plus interest.                                                                                                                                                                                                                                                  
|                                  |                                                                                                                                                                                                                                                                                                                                                                                          
|Conversion ratio                  | As stated in the note agreement, it is not convertible
      prior to July 19th, 2001, at 20% discount to market between
      July 19th, 2001 and January 19th, 2002 or at 25%
      to market if held to maturity, to a maximum of not more than 2,500,000
      shares. The note holder subsequently amended the agreement to provide for
      a conversion price of $0.33 per share.

|A convertible note, under a private arrangement,
      consisted of the following: |  
|---------------------------------------------------------------------------------- | -
|Balance at June 30, 2009                                                           | $
|Balance at June 30, 2008                                                           | $

The note is due on demand and is non-interest bearing. The note
was converted in 2009 to common stock.

F-41

---

NOTE 8 CONVERTIBLE NOTES - PRIVATE INVESTORS

Commencing in Fiscal year 2006, certain expenses of the Company
have been funded by a series of non-interest bearing convertible notes with no
specific terms of repayment made by a significant number of private individuals
investing modest amounts. The total dollars received from these private
investors up to June 30, 2009 is U.S.$239,100. These private investors, fully
cognizant of the Companys situation, accepted that their investments were being
made and represented by a convertible debt, the conversion of which could occur
only once the Company would have shares available for issuance. These debts are
convertible at fixed prices rather than as a discount to market and range from
$.0007 to $.006 per share.

Fiscal year
    
    
    Fiscal year
    
    
    Fiscal year
    
    
    Fiscal year2006
    
    
    2007
    
    
    2008
    
    
    2009Dollars received
    $
    60,700
    
    $
    54,000
    
    $
    77,100
    
    $
    47,300Shares to be issued
    
    13,140,000
    
    
    12,900,000
    
    
    21,700,000
    
    
    38,371,429


Of the above shares, most were issued, unrestricted, during the
year ended June 30, 2009. The remaining shares will be issued during Fiscal year
2010. The balance owing to private investors awaiting conversion to common
shares, at June 30, 2009 and 2008, was $35,300 and $191,800, respectively.

NOTE 9 DERIVATIVE FINANCIAL INSTRUMENTS

ASC Topic 815 (ASC 815) requires that all derivative
financial instruments be recorded on the balance sheet at fair value. Fair
values for exchange traded securities and derivatives are based on quoted market
prices. Where market prices are not readily available, fair values are
determined using market based pricing models incorporating readily observable
market data and requiring judgment and estimates.

The Company issued convertible notes and stock warrants and has
evaluated the terms and conditions of the conversion features contained in the
notes and warrants to determine whether they represent embedded or freestanding
derivative instruments under the provisions of ASC 815. The Company determined
that the conversion features contained in the notes and warrants represent
freestanding derivative instruments that meet the requirements for liability
classification under ASC 815. As a result, the fair value of the derivative
financial instruments in the notes and warrants is reflected in the Companys
balance sheet as a liability. The fair value of the derivative financial
instruments of the convertible notes and warrants was measured at the inception
date of the notes and warrants and each subsequent balance sheet date. Any
changes in the fair value of the derivative financial instruments are recorded
as non-operating, non-cash income or expense at each balance sheet date.

Tirex valued the conversion features in its convertible notes
using the Black-Scholes model. The Black-Scholes model values the embedded
derivatives based on a risk-free rate of return ranging from 1.32% to 4.87%,
grant dates of stock warrants, the term of the stock warrants, conversion prices
ranging from $0.00008 to $0.33, current stock prices on the measurement date
ranging from $0.0007 to $0.076, and the computed measure of the Companys stock
volatility, ranging from 166% to 2,986%. The balances as of June 30, 2008 and
2009 are $2,325,572 and $1,230,621, respectively.

F-42

---

Derivative Liability Summary:Derivative liability, June 30, 2007
    
    6,231,638Change in derivative liability
    
    (3,906,066
    )Derivative liability, June 30, 2008
    
    2,325,572Change in derivative liability
    
    (1,094,951
    )Derivative liability, June 30, 2009
    
    1,230,621


NOTE 10 RELATED PARTY TRANSACTIONS

Accrued liabilities include amounts primarily due to Directors,
Officers and employees. Historically, such amounts due have been repaid through
the issuance of stock. At June 30, 2009 and June 30, 2008, the balances owing to
Directors and Officers was $1,534,648 and $2,357,021, respectively. These
amounts are without interest or terms of repayment. An amount of $9,750 for
rental expense was charged by John Threshie, the Companys President & CEO,
for the year ended June 30, 2009.

Notes payable at June 30, 2008 included an amount of $162,500
which was payable to Ocean Tire Recycling & Processing Co., Inc., a company
previously owned by a former Director of the Company, Louis A. Sanzaro, and now
deceased. The Company negotiated a Settlement Agreement with the family of Louis
A. Sanzaro with respect to this note, lease obligations and other expenses paid
by Mr. Sanzaro, under which the Company would issue a total of 50,000,000
shares. 34,249,800 million shares were issued during the quarter ended September
30, 2008 and the remaining 15,750,200 shares will be issued in the future. A
common stock payable of $43,500 has been recorded for the remaining 15,750,200
shares to be issued in the future.

Note 11 COMMON STOCK

On January 31, 2001, the Company's stockholders approved an
amendment to the Articles of Incorporation of the Company to increase the number
of authorized shares of Common stock, par value $0.001, from 165,000,000 shares
to 250,000,000 shares. On February 11, 2008, the Company's Board of Directors
approved an amendment to the Articles of Incorporation of the Company to
increase the number of authorized shares of Common stock, par value $0.001, from
250,000,000 shares to 1,000,000,000 shares. On May 7, 2009, the Company's Board
of Directors approved an amendment to the Articles of Incorporation of the
Company to increase the number of authorized shares of Common stock, par value
$0.001, from 1,000,000,000 shares to 1,500,000,000 shares. As at June 30, 2009,
the Company had 1,119,492,216 Common shares issued and outstanding.

During the year ended June 30, 2009, the Company issued
827,496,324 common shares summarized as follows:

| | a) | Common Stock Issued for Settlement of Convertible Notes
      and Accounts Payable and Accrued Liabilities  Non-Related
  Parties                                                                                                                                                                   
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                      
| |    | During 2009, the Company issued 191,750,000 common
      shares, valued at $349,116, in settlement of $345,018 of convertible notes
      previously issued by the Company and accounts payable and accrued
      liabilities at stock prices between .001 and .004, recording a total net
      loss

F-43

---

| |    | on settlement of $4,098. The common stock was valued at
      the conversion rate in accordance with the convertible debt or at the
      market price on the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | b) | Common Stock Issued for Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | During 2009, the Company issued 64,900,000 common shares,
      valued at $87,463, in settlement of $102,335 of services rendered at stock
      prices between $.001 and $.004, recording a total net gain on settlement
      of $14,872. The common stock was valued at the market price on the date of
      grant.                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | c) | Common Stock Issued for Conversion of Debt (private
      investors)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | During 2009, the Company issued 50,140,000 common shares
      in settlement of $203,800 of funding from private investors, as described
      in Note 8, at stock prices between $.0007 and $.006. The common stock was
      valued using the conversion rate in accordance with the terms of the
      agreement. No gain or loss on conversion was recorded.                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | d) | Common Stock Issued to Related Parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | During 2009, the Company issued 513,206,324 common
      shares, valued at $1,033,946, in settlement of $1,316,873 of convertible
      debts and accrued liabilities from related parties, Directors and
      Officers, as described in Note 10, at stock prices between $.001 and
      $.008, recording a total net gain on settlement of $282,927. The common
      stock was valued at the market price on the date of grant.                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | e) | Common Stock Issued for Stock Options exercised on a
      Cashless Basis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | During 2009, the Company issued 6,000,000 common shares
      in settlement of options exercised by Directors and Officer, as described
      in Note 13, on a cashless basis at an exercise price of $.002. During the
      year ended June 30, 2004, an Officer of the Company exercised stock
      options pursuant to a services agreement. The exercise of these stock
      options entitled the Officer to 1,500,000 common shares of the Company on
      a cashless basis. These shares were issued during the first quarter of
      Fiscal year 2009 at an exercise price of $.001.

During the year ended June 30, 2008, the Company issued
42,100,000 common shares summarized as follows:

| | a) | Common Stock Issued for Settlement of Convertible Notes
      and Accounts Payable and Accrued Liabilities  Non-Related
  Parties                                                                                                                                                                                                                                                                                                                                            
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | During 2008, the Company issued 20,000,000 common shares,
      valued at $144,000, in settlement of $40,000 of convertible notes
      previously issued by the Company and accounts payable and accrued
      liabilities at stock prices between .005 and .008, recording a total loss
      on settlement of $104,000. The common stock was valued at the conversion
      rate in accordance with the convertible debt or at the market price on the
      date of grant.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | b) | Common Stock Issued for Services                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | During 2008, the Company issued 22,100,000 common shares,
      valued at $152,600, in settlement of $94,200 of services rendered at stock
      prices between $.006 and $.007, recording a loss on settlement of $58,400.
      The common stock was valued at the market price on the date of
    grant.                                                                                                                                                                   

F-44

---

Note 12 PREFERRED STOCK

On June 19, 2008, the Companys Board of Directors approved an
amended Certificate of Designation with respect to the authorization and
issuance of up to 3,000,000 Series A Preferred shares, an increase from the
1,000,000 shares of Series A Preferred stock that were authorized to be issued
in the Certificate of Designation of Series A Preferred stock passed by the
Board of Directors on February 12, 2008. No cash dividends shall be paid with
respect to the shares of Series A Preferred stock. The Series A Preferred stock
shall give its holders the right to 100 votes per share on any matter properly
before the shareholders for a vote. The voting rights of the Series A Preferred
stock shall be subject to all splits and each share will be convertible into 5
shares of Common stock upon the earlier of: (i) the holders election or (ii)
January 8, 2009. The holders of all shares of Series A Preferred stock shall not
be subject to any non-cash distributions to holders of shares of Common stock,
including without limitation, stock dividends, stock splits and securities
issued in a recapitalization. In the event of liquidation or winding up of the
Corporation, the holders of the Series A Preferred stock will be entitled to
receive, prior and in preference to the holders of the Common stock, an amount
up to but not greater than the original purchase price per share of Series A
Preferred stock, notwithstanding the par value of the Series A Preferred stock.
These three million Series A Preferred Shares were issued to three Directors and
Officers in June 2008. The value assigned to this issuance is $286,000, based on
an estimate of the fair market value on the issuance date. The fair market value
is calculated as the greater of (i) the converted value to common stock at a
ratio of 1:5 and, (ii) the value of the voting rights. These shares as a group
represent a controlling voting interest. The fair market value also takes into
account this control premium. The control premium is based on publicly traded
companies or comparable entities which have been recently acquired in
arms-length transactions. The preferred shares were issued to settle accrued
liabilities to the Directors and Officers in the amount of $15,000. A loss on
issuance of these preferred shares was recognized in the income statement in the
amount of $271,000.

On March 31, 2009, the Companys Board of Directors approved an
amended Certificate of Designation with respect to the authorization and
issuance of up to 15,000,000 Series A Preferred shares, an increase from the
3,000,000 shares of Series A Preferred stock that were authorized to be issued
in the Certificate of Designation of Series A Preferred stock passed by the
Board of Directors on May 12, 2008. No cash dividends shall be paid with respect
to the shares of Series A Preferred stock. The Series A Preferred stock shall
give its holders the right to 100 votes per share on any matter properly before
the shareholders for a vote. The voting rights of the Series A Preferred stock
shall be subject to all splits and each share will be convertible into 5 shares
of Common stock upon the earlier of: (i) the holders election or (ii) January
8, 2009. The holders of all shares of Series A Preferred stock shall not be
subject to any non-cash distributions to holders of shares of Common stock,
including without limitation, stock dividends, stock splits and securities
issued in a recapitalization. In the event of liquidation or winding up of the
Corporation, the holders of the Series A Preferred stock will be entitled to
receive, prior and in preference to the holders of the Common stock, an amount
up to but not greater than the original purchase price per share of Series A
Preferred stock, notwithstanding the par value of the Series A Preferred stock.
These twelve million Series A Preferred Shares were issued to three Directors
and Officers in March 2009. The value assigned to this issuance is $175,000,
based on an estimate of the fair market value on the issuance date. The fair
market value is calculated as the greater of (i) the converted value to common
stock at a ratio of 1:5 and, (ii) the value of the voting rights. These shares
as a group represent a controlling voting interest. The the fair market value
also takes into account this control premium. The control premium is based on
publicly traded companies or comparable entities which have been recently
acquired in arms-length transactions. The preferred shares were issued to
settle accrued liabilities to the Directors and Officers in the amount of
$60,000. A loss on issuance of these preferred shares was recognized in the
income statement in the amount of $115,000.

F-45

---

Note 13 STOCK OPTIONS

a) Stock Options

Under executive employment agreements
with Tirex, its three officers, John Threshie, Lou Muro and Michael Ash have
been granted stock options for each of the fiscal years June 30, 2008 and
2009.

1) John L. Threshie Jr., President

3,000,000 stock options at the
beginning of the fiscal years 2008 and 2009. The stock options are exercisable
within three years of the date of issue of the stock options. The exercise price
of the stock options are as follows:

Year 1  Lesser of $.20 or 50% of
market

Year 2  Lesser of $.40 or 50% of
market

Year 3  Lesser of $.50 or 50% of
market

2) Michael D.A. Ash,
Secretary-Treasurer & Chief Financial Officer

2,000,000 stock options at the
beginning of the fiscal years 2008 and 2009. The stock options are exercisable
within three years of the date of issue of the stock options. The exercise price
of the stock options are as follows:

Year 1  Lesser of $.20 or 50% of
market.

Year 2  Lesser of $.40 or 50% of
market.

Year 3  Lesser of $.50 or 50% of
market.

3) Louis V. Muro, Vice President -
Engineering

1,000,000 stock options at the
beginning of the fiscal years 2008 and 2009. The stock options are exercisable
within three years of the date of issue of the stock options. The exercise price
of the stock options are as follows:

Year 1  Lesser of $.20 or 50% of
market.

Year 2  Lesser of $.40 or 50% of
market.

Year 3  Lesser of $.50 or 50% of
market.

A summary of the changes in the Companys common share stock
options is presented below:

F-46

---

| |                                  |  | June 30, 2009 |   |  | June 30, 2008    |  
| | -------------------------------- |  | ------------- | - |  | ---------------- | -
| |                                  |  |               |   |  |                  |  
| |                                  |  |               |   |  | Weighted         |  
| |                                  |  | Number of     |   |  | Average Exercise |  
| |                                  |  | Stock Options |   |  | Price ($)        |  
| | Balance at beginning of the year |  | 6,000,000     |   |  | 0.002            |  
| | Granted                          |  | 6,000,000     |   |  | 0.001            |  
| | Exercised                        |  | (6,000,000    | ) |  | (0.002           | )
| | Forfeited                        |  | -             |   |  | -                |  
| | Balance at end of the year       |  | 6,000,000     |   |  | 0.001            |  

The fair value of the options granted during the year was
measured at the date of grant using the Black-Scholes option pricing model with
the following weigthed-average assumptions:

| |                                            |  | Year ended |  |  |         | 
| | ------------------------------------------ |  | ---------- |  |  | ------- | 
| |                                            |  | June 30,   |  |  |         | 
| |                                            |  | 2009       |  |  | 2008    | 
| | Risk - free interest rate                  |  | 0.795%     |  |  | 2.51%   | 
| | Expected volatility                        |  | 1805.3%    |  |  | 2739.2% | 
| | Expected life of stocks options (in years) |  | 1.5        |  |  | 1.50    | 
| | Assumed dividends                          |  | None       |  |  | None    | 

The Company recognized compensation expense related to stock
options for the years ended June 30, 2009 and 2008 of $30,000 and $24,000,
respectively.

Note 14 RENTAL EXPENSE AND COMMITMENTS

Rental expense for the year ended June 30, 2009 amounted to
$9,750, and was payable to John Threshie, the Companys President & CEO.
Rental expense for the year ended June 30, 2008 amounted to $0.

At June 30, 2009, the Company was in arrears of rent, including
interest and related charges, in the approximate amount of $560,000 related to
its former occupation of premises in Montreal up to the end of Fiscal year 2003.
A settlement agreement with the former landlord is in place under the terms of
which the Company would pay to the former landlord the sum of $140,000 from the
proceeds to the Company of revenues from each of the first four sales of TCS
Systems.

As of June 30, 2009, the Company does not have any outstanding
lease commitments or minimum annual rental payments and sub-lease income.

Note 15 LITIGATION

An action was instituted by Plaintiffs, an individual and a
corporation, in March 2001, in a Canadian court alleging a breach of contract
and claims damages of approximately $795,000 representing expenses and an
additional approximate amount of $5,411,000 in loss of profits. The current
action follows two similar actions taken in United States courts, the first of
which was withdrawn and the second of which was dismissed based on forum non
convenience and other considerations. A detailed answer has been filed by the
Company denying all liability, stating further that Plaintiffs failed to comply
with their obligations. Counsel for the Company believes that the Company has
meritorious defenses to all of the Plaintiff's claims. The action is still
pending.

F-47

---

A Plaintiff instituted an action, a corporation, in August 2001
in a Canadian court claiming approximately $99,000 is due and owing for the
manufacture and delivery of tire disintegrators. The Company has prepared its
defense and a cross claim of $100,000 against the Plaintiff as the product
delivered was defective and the Company believes it is entitled to a
reimbursement of sums paid. The action is still pending.

An action was instituted by a Plaintiff, the Companys
landlord, against the Company in June 2001 for arrears of rent in the amount of
approximately $113,900. Subsequent additions to arrearages with respect to rent
and property taxes raised the amount due to approximately $560,000. A settlement
agreement with the former landlord is in place, under the terms of which the
Company would pay to the former landlord the sum of $140,000 from the proceeds
to the Company of revenues from the first four sales of TCS Systems.

An action was instituted by a Plaintiff, a corporation, in
March 2001 in a Canadian court. The Company did not defend the action and, as
such, a judgment was rendered against it in August 2001, by which judgment it
was ordered to pay the Plaintiff $28,443. Execution of the judgment was
attempted in 2002, without success. This matter has remained effectively dormant
since February 2002. The Company has fully accrued the amount of the judgment.

Note 16 RESTATEMENT OF FINANCIAL STATEMENTS (UNAUDITED)

On August 27, 2009, the Company was informed that the Public
Company Accounting Oversight Board (PCAOB) revoked the registration of Moore
& Associates who was serving as the Companys independent registered public
accounting firm. The revocation was a result of Moores violation of PCAOB rules
and auditing standards. This revocation of Moores registration required the
Company to have the financial statements previously issued for the fiscal year
ended June 30, 2008 reaudited.

This reaudit produced material differences from the previously
issued financial statements. These misstatements are the result of errors
described in the annotations following the restated financial statements. One
such significant error is described more fully in the following paragraph:

The Company issued Convertible Notes on February 26, 2001
having a face value of $750,000 but had not implemented ASC Topic 815 (ASC
815). As a result of the implementation of ASC 815 during Fiscal 2009, the
Company recorded a derivative liability, note discount, gain (loss) on the
change in the fair value of the derivative liability, accretion expense and
interest expense on the accretion of the note discount, as applicable, during
the Fiscal years 2001 to 2009. The accounting policies adopted are more fully
explained in Note 3, Fair Value Measurements, and Note 9, Derivative Financial
Instruments. The restated financial statements provide the impact, for each of
the years, on the balance sheet and statement of operations and comprehensive
income (loss).

Included in this note are the restated 2001 to 2008 fiscal year
financial statements, presented by annual period restatements and by each years
quarterly period restatements. For comparative purposes, the table below
presents the restated balance sheets and income statements compared to the
original financial statements issued. With the exception of the 2008 fiscal
year, all the adjustments relate to the liabilities and shareholders equity
(deficit) sections of the balance sheet. Since the restated balance sheets from
2001 to 2007 do not include adjustments to any asset values, only the value of
total assets has been presented on the balance sheet for each of those restated
fiscal years.

a) Annual Periods

F-48

---

|CONSOLIDATED BALANCE SHEET
|--------------------------
|JUNE 30,
      2008       

|                                                                                                                                      |   | June 30,    |   |  |            |   |  |            |  |   | June 30,    |  
|------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | ---------- |  | - | ----------- | -
|                                                                                                                                      |   | 2008        |   |  | Net Change |   |  |            |  |   | 2008        |  
|                                                                                                                                      |   | Original    |   |  |            |   |  |            |  |   | Restated    |  
|ASSETS                                                                                                                                |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|Property and equipment                                                                                                                | $ | 25,000      |   |  | (25,000    | ) |  |            |  | $ | -           |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|Other assets                                                                                                                          |   |             |   |  |            |   |  |            |  |   |             |  
|Patents                                                                                                                               |   | 1           |   |  | -          |   |  |            |  |   | 1           |  
|Total Other Assets                                                                                                                    |   | 1           |   |  | -          |   |  |            |  |   | 1           |  
|Total Assets                                                                                                                          | $ | 25,001      |   |  | (25,000    | ) |  | (h)        |  | $ | 1           |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)                                                                                  |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|Current Liabilities                                                                                                                   |   |             |   |  |            |   |  |            |  |   |             |  
|Accounts payable and accrued liabilties                                                                                               | $ | 1,478,922   |   |  | 263,351    |   |  | (g)        |  | $ | 1,742,273   |  
|Accrued liabilties - related parties                                                                                                  |   | -           |   |  | 2,357,021  |   |  | (g)        |  |   | 2,357,021   |  
|Notes payable - related party                                                                                                         |   | -           |   |  | 162,500    |   |  | (g)        |  |   | 162,500     |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|                                                                                                                                      |   |             |   |  |            |   |  | (g),(b),   |  |   |             |  
|Convertible notes - non-related
      parties                                                                                         |   | -           |   |  | 920,245    |   |  | (d)        |  |   | 920,245     |  
|Derivative liability                                                                                                                  |   | -           |   |  | 2,325,572  |   |  | (a),(c)    |  |   | 2,325,572   |  
|Total Current Liabilities                                                                                                             |   | 1,478,922   |   |  | 6,028,689  |   |  |            |  |   | 7,507,611   |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|Other liabilities                                                                                                                     |   |             |   |  |            |   |  |            |  |   |             |  
|Long-term deposits and convertible notes                                                                                              |   | 306,000     |   |  | (306,000   | ) |  | (g)        |  |   | -           |  
|Convertible notes                                                                                                                     |   | 399,389     |   |  | (399,389   | ) |  | (g)        |  |   | -           |  
|Convertible notes                                                                                                                     |   | 185,556     |   |  | (185,556   | ) |  | (g)        |  |   | -           |  
|Convertible loans                                                                                                                     |   | 2,756,215   |   |  | (2,756,215 | ) |  | (g)        |  |   | -           |  
|Total Other Liabilities                                                                                                               |   | 3,647,160   |   |  | (3,647,160 | ) |  |            |  |   | -           |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|Total Liabilities                                                                                                                     |   | 5,126,082   |   |  | 2,381,529  |   |  |            |  |   | 7,507,611   |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                                        |   |             |   |  |            |   |  |            |  |   |             |  
|Preferred stock, $.005 par value,
      authorized 15,000,000 Series A shares, issued and outstanding
      3,000,000 Series A shares |   | 15,000      |   |  | -          |   |  |            |  |   | 15,000      |  
|Common stock, $.001 par value, authorized 1,000,000,000
      shares, issued and outstanding 291,995,892 shares                       |   | 291,996     |   |  | -          |   |  |            |  |   | 291,996     |  
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|                                                                                                                                      |   |             |   |  |            |   |  | (e),(f),(j |  |   |             |  
|Additional paid-in capital                                                                                                            |   | 25,255,619  |   |  | 549,846    |   |  | ),(k)      |  |   | 25,805,465  |  
|Deficit accumulated prior to entering development
      stage                                                                         |   | -           |   |  | (1,057,356 | ) |  | (s)        |  |   | (1,057,356  | )
|                                                                                                                                      |   |             |   |  |            |   |  | (c),(d),   |  |   |             |  
|                                                                                                                                      |   |             |   |  |            |   |  | (e),(f),   |  |   |             |  
|                                                                                                                                      |   |             |   |  |            |   |  | (h),(i),   |  |   |             |  
|                                                                                                                                      |   |             |   |  |            |   |  | (j),(k),   |  |   |             |  
|                                                                                                                                      |   |             |   |  |            |   |  | (l),(m),   |  |   |             |  
|                                                                                                                                      |   |             |   |  |            |   |  | (n),(o),   |  |   |             |  
|Deficit accumulated during the
      development stage                                                                                |   | (30,058,456 | ) |  | (1,899,287 | ) |  | (p)        |  |   | (31,957,743 | )
|Unrealized loss on foreign exchange                                                                                                   |   | (605,240    | ) |  | 268        |   |  |            |  |   | (604,972    | )
|                                                                                                                                      |   | (5,101,081  | ) |  | (2,406,529 | ) |  |            |  |   | (7,507,610  | )
|                                                                                                                                      |   |             |   |  |            |   |  |            |  |   |             |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                                            | $ | 25,001      |   |  | (25,000    | ) |  |            |  | $ | 1           |  

F-49

---

|CONSOLIDATED STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE INCOME (LOSS)
|---------------------------------------------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2008                                     

|                                                        |   |             |   |  | For the Year   |   |  |          |  |   |                |  
|------------------------------------------------------- | - | ----------- | - |  | -------------- | - |  | -------- |  | - | -------------- | -
|                                                        |   |             |   |  | Ended June 30, |   |  |          |  |   |                |  
|                                                        |   | 2008        |   |  | Net Change     |   |  |          |  |   | 2008           |  
|                                                        |   | Original    |   |  |                |   |  |          |  |   | Restated       |  
|Revenues                                                | $ | -           |   |  | -              |   |  |          |  | $ | -              |  
|Cost of Sales                                           |   | -           |   |  | -              |   |  |          |  |   | -              |  
|Gross profit                                            |   | -           |   |  | -              |   |  |          |  |   | -              |  
|Operations                                              |   |             |   |  |                |   |  |          |  |   |                |  
|                                                        |   |             |   |  |                |   |  | (f),(l), |  |   |                |  
|                                                        |   |             |   |  |                |   |  | (m),(o), |  |   |                |  
|General and administrative                              |   | 451,526     |   |  | 403,419        |   |  | (p)      |  |   | 854,945        |  
|Total Expense                                           |   | 451,526     |   |  | 403,419        |   |  |          |  |   | 854,945        |  
|Income (loss) before other expenses                     |   | (451,526    | ) |  | (403,419       | ) |  |          |  |   | (854,945       | )
|Other expenses (income)                                 |   |             |   |  |                |   |  |          |  |   |                |  
|Interest expense                                        |   | 46,795      |   |  | (65,412        | ) |  | (i)      |  |   | (18,617        | )
|Impairment of fixed assets                              |   | -           |   |  | 25,000         |   |  | (h)      |  |   | 25,000         |  
|(Gain) on change in derivative
      liability          |   | -           |   |  | (3,906,066     | ) |  | (c)      |  |   | (3,906,066     | )
|Loss on settlement of debt                              |   | -           |   |  | 162,400        |   |  | (k)      |  |   | 162,400        |  
|Total Other expenses (income)                           |   | 46,795      |   |  | (3,784,078     | ) |  |          |  |   | (3,737,283     | )
|Provision for income taxes                              |   | -           |   |  | -              |   |  |          |  |   | -              |  
|Net income (loss)                                       |   | (498,321    | ) |  | 3,380,659      |   |  |          |  |   | 2,882,338      |  
|Other comprehensive income (loss)                       |   |             |   |  |                |   |  |          |  |   |                |  
|Loss (gain) on foreign exchange                         |   | -           |   |  | -              |   |  |          |  |   | -              |  
|Net income (loss) and comprehensive income (loss)       | $ | (498,321    | ) |  | 3,380,659      |   |  |          |  | $ | 2,882,338      |  
|                                                        |   |             |   |  |                |   |  |          |  |   |                |  
|Net income and comprehensive income per share - basic   | $ | (0.00       | ) |  |                |   |  |          |  | $ | 0.01           |  
|                                                        |   |             |   |  |                |   |  |          |  |   |                |  
|Net income and comprehensive income per share - diluted |   |             |   |  |                |   |  |          |  | $ | 0.00           |  
|                                                        |   |             |   |  |                |   |  |          |  |   |                |  
|Weighted average number of shares - basic               |   | 252,126,303 |   |  |                |   |  |          |  |   | 252,126,303    |  
|                                                        |   |             |   |  |                |   |  |          |  |   |                |  
|Weighted average number of shares - diluted             |   |             |   |  |                |   |  |          |  |   | 10,185,751,788 |  

F-50

---

|CONSOLIDATED STATEMENTS OF CASH FLOWS 
|--------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2008

|                                                                                             |   |          |   |   | For the Year   |   |  |     |  |   |                     |  
|-------------------------------------------------------------------------------------------- | - | -------- | - | - | -------------- | - |  | --- |  | - | ------------------- | -
|                                                                                             |   |          |   |   | Ended June 30, |   |  |     |  |   |                     |  
|                                                                                             |   | 2008     |   |   | Net Change     |   |  |     |  |   | 2008                |  
|                                                                                             |   | Original |   |   |                |   |  |     |  |   | **Restated**        |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Cash flows from operating activities:                                                        |   |          |   |   |                |   |  |     |  |   |                     |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Net income (loss)                                                                            | $ | (498,322 | ) | $ | 3,380,660      |   |  |     |  | $ | 2,882,338           |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Adjustments to reconcile net income to net
      cash used in operating activities:          |   |          |   |   |                |   |  |     |  |   |                     |  
|Imputed interest                                                                             |   | -        |   |   | 28,344         |   |  | (e) |  |   | 28,344              |  
|Impairment of fixed
      assets                                                             |   | -        |   |   | 25,000         |   |  | (h) |  |   | 25,000              |  
|(Gain) loss on settlement of debt                                                            |   | -        |   |   | 162,400        |   |  | (k) |  |   | 162,400             |  
|Loss on issuance of
      preferred stock                                                    |   | -        |   |   | 271,000        |   |  | (f) |  |   | 271,000             |  
|Common stock issued in exchange for
      services and expenses                              |   | -        |   |   | 102,200        |   |  | (l) |  |   | 102,200             |  
|Stock options issued in
      exchange for services                                          |   | -        |   |   | 24,000         |   |  | (m) |  |   | 24,000              |  
|Change in derivative liability                                                               |   | -        |   |   | (3,906,066     | ) |  | (c) |  |   | (3,906,066          | )
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Changes in assets and liabilities:                                                           |   |          |   |   |                |   |  |     |  |   |                     |  
|(Increase) decrease in:                                                                      |   |          |   |   |                |   |  |     |  |   |                     |  
|(Decrease) increase in :                                                                     |   |          |   |   |                |   |  |     |  |   |                     |  
|Accounts payable and
      accrued liabilities                                               |   | 504,485  |   |   | (398,069       | ) |  | (g) |  |   | 106,416             |  
|Accrued liabilities - related parties                                                        |   | -        |   |   | 233,163        |   |  | (g) |  |   | 233,163             |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Net cash used provided by (used in) operating activities                                     |   | 6,163    |   |   | (77,368        | ) |  |     |  |   | (71,205             | )
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Cash flow from financing activities:                                                         |   |          |   |   |                |   |  |     |  |   |                     |  
|Proceeds from private
      investors                                                        |   | -        |   |   | 77,100         |   |  | (g) |  |   | 77,100              |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Net cash provided by financing activities                                                    |   | -        |   |   | 77,100         |   |  |     |  |   | 77,100              |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Effect of Exchange rate changes on cash and
      cash equivalents                           |   | (6,163   | ) |   | 268            |   |  |     |  |   | (5,895              | )
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Net (decrease) increase in cash and cash
      equivalents                                   |   | -        |   |   | -              |   |  |     |  |   | -                   |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Cash and cash equivalents - beginning of
      period                                        |   | -        |   |   | -              |   |  |     |  |   | -                   |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Cash and cash equivalents - end of period                                                    | $ | -        |   | $ | -              |   |  |     |  | $ | -                   |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   | Twelve months ended |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   | June 30, 2008       |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Non-cash financing and Investing
      Activities:                                           |   |          |   |   |                |   |  |     |  |   |                     |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Issuance of common stock for the settlement
      of accrued liabilities - related parties   |   |          |   |   |                |   |  |     |  |   | 20,000              |  
|                                                                                             |   |          |   |   |                |   |  |     |  |   |                     |  
|Issuance of common stock for the settlement
      of convertible notes - non-related parties |   |          |   |   |                |   |  |     |  |   | 12,000              |  

F-51

---

|CONSOLIDATED BALANCE SHEET
|--------------------------
|JUNE 30,
      2007       

|                                                              |   | June 30,    |   |  |                  |   |  |              |  |   | June 30,    |  
|------------------------------------------------------------- | - | ----------- | - |  | ---------------- | - |  | ------------ |  | - | ----------- | -
|                                                              |   | 2007        |   |  | Net
      Change |   |  |              |  |   | 2007        |  
|                                                              |   | Original    |   |  |                  |   |  |              |  |   | Restated    |  
|ASSETS                                                        |  
|                                                              |   |             |   |  |                  |   |  |              |  |   |             |  
|Total Assets                                                  | $ | 25,001      |   |  | -                |   |  |              |  | $ | 25,001      |  
|                                                              |   |             |   |  |                  |   |  |              |  |   |             |  
|                                                              |   |             |   |  |                  |   |  |              |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)          |  
|                                                              |   |             |   |  |                  |   |  |              |  |   |             |  
|Current Liabilities                                           |   |             |   |  |                  |   |  |              |  |   |             |  
|Accounts payable and accrued
      liabilties                 | $ | 1,488,211   |   |  | 275,856          |   |  | (g)          |  | $ | 1,764,067   |  
|Accrued liabilties - related parties                          |   | -           |   |  | 2,131,148        |   |  | (g)          |  |   | 2,131,148   |  
|Notes payable - related party                                 |   | -           |   |  | 162,500          |   |  | (g)          |  |   | 162,500     |  
|Convertible notes - non-related parties                       |   | -           |   |  | 754,645          |   |  | (g),(b),(d)  |  |   | 754,645     |  
|Derivative liability                                          |   | -           |   |  | 6,231,638        |   |  | (a),(c)      |  |   | 6,231,638   |  
|Total Current Liabilities                                     |   | 1,488,211   |   |  | 9,555,787        |   |  |              |  |   | 11,043,998  |  
|                                                              |   |             |   |  |                  |   |  |              |  |   |             |  
|Other liabilities                                             |   |             |   |  |                  |   |  |              |  |   |             |  
|Long-term deposits and convertible
      notes                |   | 217,500     |   |  | (217,500         | ) |  | (g)          |  |   | -           |  
|Convertible notes                                             |   | 399,389     |   |  | (399,389         | ) |  | (g)          |  |   | -           |  
|Convertible notes                                             |   | 185,556     |   |  | (185,556         | ) |  | (g)          |  |   | -           |  
|Convertible loans                                             |   | 2,421,442   |   |  | (2,421,442       | ) |  | (g)          |  |   | -           |  
|Total Other Liabilities                                       |   | 3,223,887   |   |  | (3,223,887       | ) |  |              |  |   | -           |  
|                                                              |   |             |   |  |                  |   |  |              |  |   |             |  
|Total Liabilities                                             |   | 4,712,098   |   |  | 6,331,900        |   |  |              |  |   | 11,043,998  |  
|                                                              |   |             |   |  |                  |   |  |              |  |   |             |  
|Stockholders' Equity (Deficit)                                |   |             |   |  |                  |   |  |              |  |   |             |  
|Common stock, $.001 par value, authorized                     |   |             |   |  |                  |   |  |              |  |   |             |  
|250,000,000 shares, issued and
      outstanding              |   |             |   |  |                  |   |  |              |  |   |             |  
|249,895,892 shares                                            |   | 249,896     |   |  |                  |   |  |              |  |   | 249,896     |  
|Additional paid-in capital                                    |   | 25,222,219  |   |  | 5,402            |   |  | (e)          |  |   | 25,227,621  |  
|Deficit accumulated prior to entering development
      stage |   | -           |   |  | (1,057,356       | ) |  |              |  |   | (1,057,356  | )
|                                                              |   |             |   |  |                  |   |  | (c),(d),(e), |  |   |             |  
|Deficit accumulated during the development stage              |   | (29,560,135 | ) |  | (5,279,946       | ) |  | (j)          |  |   | (34,840,081 | )
|Unrealized loss on foreign exchange                           |   | (599,077    | ) |  |                  |   |  |              |  |   | (599,077    | )
|                                                              |   | (4,687,097  | ) |  | (6,331,900       | ) |  |              |  |   | (11,018,997 | )
|                                                              |   |             |   |  |                  |   |  |              |  |   |             |  
|Total Liabilities and Stockholders' Equity (Deficit)          | $ | 25,001      |   |  | -                |   |  |              |  | $ | 25,001      |  

F-52

---

|CONSOLIDATED STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE INCOME (LOSS)
|---------------------------------------------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2007                                     

|                                                                    |   |             |   |  | For the Year   |   |  |     |  |   |             |  
|------------------------------------------------------------------- | - | ----------- | - |  | -------------- | - |  | --- |  | - | ----------- | -
|                                                                    |   |             |   |  | Ended June 30, |   |  |     |  |   |             |  
|                                                                    |   | 2007        |   |  | Net Change     |   |  |     |  |   | 2007        |  
|                                                                    |   | Original    |   |  |                |   |  |     |  |   | Restated    |  
|Revenues                                                            | $ | -           |   |  | -              |   |  |     |  | $ | -           |  
|Cost of Sales                                                       |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Gross profit                                                        |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Operations                                                          |   |             |   |  |                |   |  |     |  |   |             |  
|General and administrative                                          |   | 409,054     |   |  |                |   |  | (j) |  |   | 409,054     |  
|Total Expense                                                       |   | 409,054     |   |  | -              |   |  |     |  |   | 409,054     |  
|Income (loss) before other expenses                                 |   | (409,054    | ) |  | -              |   |  |     |  |   | (409,054    | )
|Other expenses (income)                                             |   |             |   |  |                |   |  |     |  |   |             |  
|Interest expense                                                    |   | 46,795      |   |  | -              |   |  |     |  |   | 46,795      |  
|(Gain) on change in derivative liability                            |   | -           |   |  | (339,886       | ) |  | (c) |  |   | (339,886    | )
|Total Other expenses (income)                                       |   | 46,795      |   |  | (339,886       | ) |  |     |  |   | (293,091    | )
|Provision for income taxes                                          |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net income (loss)                                                   |   | (455,849    | ) |  | 339,886        |   |  |     |  |   | (115,963    | )
|Other comprehensive income (loss)                                   |   |             |   |  |                |   |  |     |  |   |             |  
|Loss (gain) on foreign exchange                                     |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net loss and comprehensive loss                                     | $ | (455,849    | ) |  | 339,886        |   |  |     |  | $ | (115,963    | )
|                                                                    |   |             |   |  |                |   |  |     |  |   |             |  
|Net loss and comprehensive loss per share - basic and
      diluted | $ | (0.00       | ) |  |                |   |  |     |  | $ | (0.00       | )
|                                                                    |   |             |   |  |                |   |  |     |  |   |             |  
|Weighted average number of shares - basic and diluted               |   | 249,895,892 |   |  |                |   |  |     |  |   | 249,895,892 |  

F-53

---

|CONSOLIDATED STATEMENTS OF CASH FLOWS 
|--------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2007

|                                                                                    |   |          |   |   | For the Year   |   |  |     |  |   |          |  
|----------------------------------------------------------------------------------- | - | -------- | - | - | -------------- | - |  | --- |  | - | -------- | -
|                                                                                    |   |          |   |   | Ended June 30, |   |  |     |  |   |          |  
|                                                                                    |   | 2007     |   |   | Net Change     |   |  |     |  |   | 2007     |  
|                                                                                    |   | Original |   |   |                |   |  |     |  |   | Restated |  
|Cash flows from operating activities:                                               |   |          |   |   |                |   |  |     |  |   |          |  
|Net income (loss)                                                                   | $ | (455,849 | ) | $ | 339,886        |   |  |     |  | $ | (115,963 | )
|Adjustments to reconcile net income to net
      cash used in operating activities: |   |          |   |   |                |   |  |     |  |   |          |  
|Change in derivative liability                                                      |   | -        |   |   | (339,886       | ) |  | (c) |  |   | (339,886 | )
|Changes in assets and liabilities:                                                  |   |          |   |   |                |   |  |     |  |   |          |  
|(Increase) decrease in:                                                             |   |          |   |   |                |   |  |     |  |   |          |  
|(Decrease) increase in
      :                                                      |   |          |   |   |                |   |  |     |  |   |          |  
|Accounts payable and accrued
      liabilities                                      |   | 446,023  |   |   | (325,000       | ) |  | (g) |  |   | 121,023  |  
|Accrued liabilities -
      related parties                                         |   | -        |   |   | 325,000        |   |  | (g) |  |   | 325,000  |  
|Net cash used in operating activities                                               |   | (9,826   | ) |   | -              |   |  |     |  |   | (9,826   | )
|Cash flow from financing activities:                                                |   |          |   |   |                |   |  |     |  |   |          |  
|Proceeds from notes payable                                                         |   | 54,000   |   |   | -              |   |  |     |  |   | 54,000   |  
|Net cash provided by financing activities                                           |   | 54,000   |   |   | -              |   |  |     |  |   | 54,000   |  
|Effect of Exchange rate changes on cash and cash
      equivalents                  |   | (44,174  | ) |   | -              |   |  |     |  |   | (44,174  | )
|Net (decrease) increase in cash and cash
      equivalents                          |   | -        |   |   | -              |   |  |     |  |   | -        |  
|Cash and cash equivalents - beginning of period                                     |   | -        |   |   | -              |   |  |     |  |   | -        |  
|Cash and cash equivalents - end of period                                           | $ | -        |   | $ | -              |   |  |     |  | $ | -        |  

F-54

---

|CONSOLIDATED BALANCE SHEET
|--------------------------
|JUNE 30,
      2006       

|                                                              |   | June 30,    |   |  |            |   |  |             |  |   | June 30,    |  
|------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | ----------- |  | - | ----------- | -
|                                                              |   | 2006        |   |  | Net Change |   |  |             |  |   | 2006        |  
|                                                              |   | Original    |   |  |            |   |  |             |  |   | Restated    |  
|ASSETS                                                        |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Assets                                                  | $ | 25,001      |   |  | -          |   |  |             |  | $ | 25,001      |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)          |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Current Liabilities                                           |   |             |   |  |            |   |  |             |  |   |             |  
|Accounts payable and accrued
      liabilties                 | $ | 1,400,688   |   |  | 275,856    |   |  | (g)         |  | $ | 1,676,544   |  
|Accrued liabilties - related parties                          |   | -           |   |  | 1,772,648  |   |  | (g)         |  |   | 1,772,648   |  
|Notes payable - related party                                 |   | -           |   |  | 162,500    |   |  | (g)         |  |   | 162,500     |  
|Convertible notes - non-related parties                       |   | -           |   |  | 700,645    |   |  | (g),(b),(d) |  |   | 700,645     |  
|Derivative liability                                          |   | -           |   |  | 6,571,524  |   |  | (a),(c)     |  |   | 6,571,524   |  
|Total Current Liabilities                                     |   | 1,400,688   |   |  | 9,483,173  |   |  |             |  |   | 10,883,861  |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Other liabilities                                             |   |             |   |  |            |   |  |             |  |   |             |  
|Long-term deposits and convertible
      notes                |   | 217,500     |   |  | (217,500   | ) |  | (g)         |  |   | -           |  
|Convertible notes                                             |   | 399,389     |   |  | (399,389   | ) |  | (g)         |  |   | -           |  
|Convertible notes                                             |   | 185,556     |   |  | (185,556   | ) |  | (g)         |  |   | -           |  
|Convertible loans                                             |   | 2,008,942   |   |  | (2,008,942 | ) |  | (g)         |  |   | -           |  
|Total Other Liabilities                                       |   | 2,811,387   |   |  | (2,811,387 | ) |  |             |  |   | -           |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Liabilities                                             |   | 4,212,075   |   |  | 6,671,786  |   |  |             |  |   | 10,883,861  |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Stockholders' Equity (Deficit)                                |   |             |   |  |            |   |  |             |  |   |             |  
|Common stock, $.001 par value, authorized                     |   |             |   |  |            |   |  |             |  |   |             |  
|250,000,000 shares, issued and
      outstanding              |   |             |   |  |            |   |  |             |  |   |             |  
|249,895,892 shares                                            |   | 249,896     |   |  |            |   |  |             |  |   | 249,896     |  
|Additional paid-in capital                                    |   | 25,222,219  |   |  | 5,402      |   |  | (e)         |  |   | 25,227,621  |  
|Deficit accumulated prior to entering development
      stage |   | -           |   |  | (1,057,356 | ) |  |             |  |   | (1,057,356  | )
|                                                              |   |             |   |  |            |   |  | (c),(d),    |  |   |             |  
|Deficit accumulated during the development stage              |   | (29,104,286 | ) |  | (5,619,832 | ) |  | (e),(j)     |  |   | (34,724,118 | )
|Unrealized loss on foreign exchange                           |   | (554,903    | ) |  |            |   |  |             |  |   | (554,903    | )
|                                                              |   | (4,187,074  | ) |  | (6,671,786 | ) |  |             |  |   | (10,858,860 | )
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Liabilities and Stockholders' Equity (Deficit)          | $ | 25,001      |   |  | -          |   |  |             |  | $ | 25,001      |  

F-55

---

|CONSOLIDATED STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE INCOME (LOSS)
|---------------------------------------------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2006                                     

|                                                        |   |             |   |  | For the Year   |   |  |     |  |   |             |  
|------------------------------------------------------- | - | ----------- | - |  | -------------- | - |  | --- |  | - | ----------- | -
|                                                        |   |             |   |  | Ended June 30, |   |  |     |  |   |             |  
|                                                        |   | 2006        |   |  | Net Change     |   |  |     |  |   | 2006        |  
|                                                        |   | Original    |   |  |                |   |  |     |  |   | Restated    |  
|Revenues                                                | $ | -           |   |  | -              |   |  |     |  | $ | -           |  
|Cost of Sales                                           |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Gross profit                                            |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Operations                                              |   |             |   |  |                |   |  |     |  |   |             |  
|General and administrative                              |   | 173,778     |   |  | -              |   |  |     |  |   | 173,778     |  
|Total Expense                                           |   | 173,778     |   |  | -              |   |  |     |  |   | 173,778     |  
|Income (loss) before other expenses                     |   | (173,778    | ) |  | -              |   |  |     |  |   | (173,778    | )
|Other expenses (income)                                 |   |             |   |  |                |   |  |     |  |   |             |  
|Interest expense                                        |   | 46,794      |   |  | -              |   |  |     |  |   | 46,794      |  
|(Gain) on change in derivative liability                |   | -           |   |  | (2,844,613     | ) |  | (c) |  |   | (2,844,613  | )
|Total Other expenses (income)                           |   | 46,794      |   |  | (2,844,613     | ) |  |     |  |   | (2,797,819  | )
|Provision for income taxes                              |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net income (loss)                                       |   | (220,572    | ) |  | 2,844,613      |   |  |     |  |   | 2,624,041   |  
|Other comprehensive income (loss)                       |   |             |   |  |                |   |  |     |  |   |             |  
|Loss (gain) on foreign exchange                         |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net income (loss) and comprehensive income (loss)       | $ | (220,572    | ) |  | 2,844,613      |   |  |     |  | $ | 2,624,041   |  
|Net income (loss) and comprehensive income
      (loss) |   |             |   |  |                |   |  |     |  |   |             |  
|per common share - basic                                | $ | (0.00       | ) |  |                |   |  |     |  | $ | 0.01        |  
|                                                        |   |             |   |  |                |   |  |     |  |   |             |  
|Net income and comprehensive income per share - diluted |   |             |   |  |                |   |  |     |  | $ | 0.00        |  
|                                                        |   |             |   |  |                |   |  |     |  |   |             |  
|Weighted average number of shares - basic               |   | 249,895,892 |   |  |                |   |  |     |  |   | 249,895,892 |  
|                                                        |   |             |   |  |                |   |  |     |  |   |             |  
|Weighted average number of shares - diluted             |   |             |   |  |                |   |  |     |  |   | 664,391,517 |  

F-56

---

|CONSOLIDATED STATEMENTS OF CASH FLOWS 
|--------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2006

|                                                                                    |   |          |   |   | For the Year   |   |  |     |  |   |            |  
|----------------------------------------------------------------------------------- | - | -------- | - | - | -------------- | - |  | --- |  | - | ---------- | -
|                                                                                    |   |          |   |   | Ended June 30, |   |  |     |  |   |            |  
|                                                                                    |   | 2006     |   |   | Net Change     |   |  |     |  |   | 2006       |  
|                                                                                    |   | Original |   |   |                |   |  |     |  |   | Restated   |  
|Cash flows from operating activities:                                               |   |          |   |   |                |   |  |     |  |   |            |  
|Net income (loss)                                                                   | $ | (220,572 | ) | $ | 2,844,613      |   |  |     |  | $ | 2,624,041  |  
|Adjustments to reconcile net income to net
      cash used in operating activities: |   |          |   |   |                |   |  |     |  |   |            |  
|Change in derivative liability                                                      |   | -        |   |   | (2,844,613     | ) |  | (c) |  |   | (2,844,613 | )
|Changes in assets and liabilities:                                                  |   |          |   |   |                |   |  |     |  |   |            |  
|(Decrease) increase in :                                                            |   |          |   |   |                |   |  |     |  |   |            |  
|Accounts payable
      and accrued liabilities                                      |   | 238,468  |   |   | (219,281       | ) |  | (g) |  |   | 19,187     |  
|Accrued liabilities - related
      parties                                         |   | -        |   |   | 219,281        |   |  | (g) |  |   | 219,281    |  
|Net cash provided by operating activities                                           |   | 17,896   |   |   | -              |   |  |     |  |   | 17,896     |  
|Cash flow from financing activities:                                                |   |          |   |   |                |   |  |     |  |   |            |  
|Proceeds from
      notes payable                                                   |   | 60,700   |   |   | -              |   |  |     |  |   | 60,700     |  
|Net cash provided by financing activities                                           |   | 60,700   |   |   | -              |   |  |     |  |   | 60,700     |  
|Effect of Exchange rate changes on cash and
      cash equivalents                  |   | (78,596  | ) |   | -              |   |  |     |  |   | (78,596    | )
|Net (decrease) increase in cash and cash equivalents                                |   | -        |   |   | -              |   |  |     |  |   | -          |  
|Cash and cash equivalents - beginning of
      period                               |   | -        |   |   | -              |   |  |     |  |   | -          |  
|Cash and cash equivalents - end of period                                           | $ | -        |   | $ | -              |   |  |     |  | $ | -          |  

F-57

---

|CONSOLIDATED BALANCE SHEET
|--------------------------
|JUNE 30,
      2005       

|                                                              |   | June 30,    |   |  |            |   |  |          |  |   | June 30,    |  
|------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | -------- |  | - | ----------- | -
|                                                              |   | 2005        |   |  | Net Change |   |  |          |  |   | 2005        |  
|                                                              |   | Original    |   |  |            |   |  |          |  |   | Restated    |  
|ASSETS                                                        |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Total Assets                                                  | $ | 25,001      |   |  | -          |   |  |          |  | $ | 25,001      |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)          |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Current Liabilities                                           |   |             |   |  |            |   |  |          |  |   |             |  
|Accounts payable and accrued
      liabilties                 | $ | 1,210,657   |   |  | 259,919    |   |  | (g)      |  | $ | 1,470,576   |  
|Accrued liabilties - related parties                          |   | -           |   |  | 1,740,148  |   |  | (g)      |  |   | 1,740,148   |  
|Notes payable - related party                                 |   | -           |   |  | 162,500    |   |  | (g)      |  |   | 162,500     |  
|                                                              |   |             |   |  |            |   |  | (g),(b), |  |   |             |  
|Convertible notes - non-related
      parties                 |   | -           |   |  | 639,945    |   |  | (d)      |  |   | 639,945     |  
|Derivative liability                                          |   | -           |   |  | 9,416,137  |   |  | (a),(c)  |  |   | 9,416,137   |  
|Total Current Liabilities                                     |   | 1,210,657   |   |  | 12,218,649 |   |  |          |  |   | 13,429,306  |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Other liabilities                                             |   |             |   |  |            |   |  |          |  |   |             |  
|Long-term deposits and convertible notes                      |   | 217,500     |   |  | (217,500   | ) |  | (g)      |  |   | -           |  
|Convertible notes                                             |   | 399,389     |   |  | (399,389   | ) |  | (g)      |  |   | -           |  
|Convertible notes                                             |   | 185,556     |   |  | (185,556   | ) |  | (g)      |  |   | -           |  
|Convertible loans                                             |   | 1,899,805   |   |  | (1,899,805 | ) |  | (g)      |  |   | -           |  
|Total Other Liabilities                                       |   | 2,702,250   |   |  | (2,702,250 | ) |  |          |  |   | -           |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Total Liabilities                                             |   | 3,912,907   |   |  | 9,516,399  |   |  |          |  |   | 13,429,306  |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Stockholders' Equity (Deficit)                                |   |             |   |  |            |   |  |          |  |   |             |  
|Common stock, $.001 par value,
      authorized               |   |             |   |  |            |   |  |          |  |   |             |  
|250,000,000 shares, issued and outstanding                    |   |             |   |  |            |   |  |          |  |   |             |  
|249,895,892 shares                                            |   | 249,896     |   |  |            |   |  |          |  |   | 249,896     |  
|Additional paid-in capital                                    |   | 25,222,219  |   |  | 5,402      |   |  | (e)      |  |   | 25,227,621  |  
|Deficit accumulated prior to entering
      development stage |   | -           |   |  | (1,057,356 | ) |  | (r)      |  |   | (1,057,356  | )
|                                                              |   |             |   |  |            |   |  | (c),(d), |  |   |             |  
|Deficit accumulated during the
      development stage        |   | (28,883,714 | ) |  | (8,464,445 | ) |  | (e),(j)  |  |   | (37,348,159 | )
|Unrealized loss on foreign exchange                           |   | (476,307    | ) |  |            |   |  |          |  |   | (476,307    | )
|                                                              |   | (3,887,906  | ) |  | (9,516,399 | ) |  |          |  |   | (13,404,305 | )
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Total Liabilities and Stockholders' Equity
      (Deficit)    | $ | 25,001      |   |  | -          |   |  |          |  | $ | 25,001      |  

F-58

---

|CONSOLIDATED STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE INCOME (LOSS)
|---------------------------------------------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2005                                     

|                                                                    |   |             |   |  | For the Year   |   |  |     |  |   |             |  
|------------------------------------------------------------------- | - | ----------- | - |  | -------------- | - |  | --- |  | - | ----------- | -
|                                                                    |   |             |   |  | Ended June 30, |   |  |     |  |   |             |  
|                                                                    |   | 2005        |   |  | Net Change     |   |  |     |  |   | 2005        |  
|                                                                    |   | Original    |   |  |                |   |  |     |  |   | Restated    |  
|Revenues                                                            | $ | -           |   |  | -              |   |  |     |  | $ | -           |  
|Cost of Sales                                                       |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Gross profit                                                        |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Operations                                                          |   |             |   |  |                |   |  |     |  |   |             |  
|General and administrative                                          |   | 524,146     |   |  | -              |   |  |     |  |   | 524,146     |  
|Total Expense                                                       |   | 524,146     |   |  | -              |   |  |     |  |   | 524,146     |  
|Income (loss) before other expenses                                 |   | (524,146    | ) |  | -              |   |  |     |  |   | (524,146    | )
|Other expenses (income)                                             |   |             |   |  |                |   |  |     |  |   |             |  
|Interest expense                                                    |   | 52,620      |   |  | -              |   |  |     |  |   | 52,620      |  
|Loss on change in derivative liability                              |   | -           |   |  | 7,140,826      |   |  | (c) |  |   | 7,140,826   |  
|Total Other expenses (income)                                       |   | 52,620      |   |  | 7,140,826      |   |  |     |  |   | 7,193,446   |  
|Provision for income taxes                                          |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net loss                                                            |   | (576,766    | ) |  | (7,140,826     | ) |  |     |  |   | (7,717,592  | )
|Other comprehensive income (loss)                                   |   |             |   |  |                |   |  |     |  |   |             |  
|Loss (gain) on foreign exchange                                     |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net loss and comprehensive loss                                     | $ | (576,766    | ) |  | (7,140,826     | ) |  |     |  | $ | (7,717,592  | )
|                                                                    |   |             |   |  |                |   |  |     |  |   |             |  
|Net loss and comprehensive loss per share - basic and
      diluted | $ | (0.00       | ) |  |                |   |  |     |  | $ | (0.03       | )
|                                                                    |   |             |   |  |                |   |  |     |  |   |             |  
|Weighted average number of shares - basic and diluted               |   | 249,895,892 |   |  |                |   |  |     |  |   | 249,895,892 |  

F-59

---

|CONSOLIDATED STATEMENTS OF CASH FLOWS 
|--------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2005

|                                                                                    |   |          |   |   | For the Year   |   |  |     |  |   |            |  
|----------------------------------------------------------------------------------- | - | -------- | - | - | -------------- | - |  | --- |  | - | ---------- | -
|                                                                                    |   |          |   |   | Ended June 30, |   |  |     |  |   |            |  
|                                                                                    |   | 2005     |   |   | Net Change     |   |  |     |  |   | 2005       |  
|                                                                                    |   | Original |   |   |                |   |  |     |  |   | Restated   |  
|Cash flows from operating activities:                                               |   |          |   |   |                |   |  |     |  |   |            |  
|Net income (loss)                                                                   | $ | (576,766 | ) | $ | (7,140,826     | ) |  |     |  | $ | (7,717,592 | )
|Adjustments to reconcile net income to net
      cash used in operating activities: |   |          |   |   |                |   |  |     |  |   |            |  
|Change in derivative liability                                                      |   | -        |   |   | 7,140,826      |   |  | (c) |  |   | 7,140,826  |  
|Changes in assets and liabilities:                                                  |   |          |   |   |                |   |  |     |  |   |            |  
|(Increase) decrease in:                                                             |   |          |   |   |                |   |  |     |  |   |            |  
|(Decrease) increase in
      :                                                      |   |          |   |   |                |   |  |     |  |   |            |  
|Accounts payable and accrued
      liabilities                                      |   | 640,214  |   |   | (255,533       | ) |  | (g) |  |   | 384,681    |  
|Accrued liabilities -
      related parties                                         |   | -        |   |   | 442,500        |   |  | (g) |  |   | 442,500    |  
|Net cash provided by operating activities                                           |   | 63,448   |   |   | 186,967        |   |  |     |  |   | 250,415    |  
|Cash flow from financing activities:                                                |   |          |   |   |                |   |  |     |  |   |            |  
|Convertible notes - non-related parties                                             |   | -        |   |   | (186,967       | ) |  | (g) |  |   | (186,967   | )
|Net cash used in financing activities                                               |   | -        |   |   | (186,967       | ) |  |     |  |   | (186,967   | )
|Effect of Exchange rate changes on cash and cash
      equivalents                  |   | (63,448  | ) |   | -              |   |  |     |  |   | (63,448    | )
|Net (decrease) increase in cash and cash
      equivalents                          |   | -        |   |   | -              |   |  |     |  |   | -          |  
|Cash and cash equivalents - beginning of period                                     |   | -        |   |   | -              |   |  |     |  |   | -          |  
|Cash and cash equivalents - end of period                                           | $ | -        |   | $ | -              |   |  |     |  | $ | -          |  

F-60

---

|CONSOLIDATED BALANCE SHEET
|--------------------------
|JUNE 30,
      2004       

|                                                              |   | June 30,    |   |  |            |   |  |          |  |   | June 30,    |  
|------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | -------- |  | - | ----------- | -
|                                                              |   | 2004        |   |  | Net Change |   |  |          |  |   | 2004        |  
|                                                              |   | Original    |   |  |            |   |  |          |  |   | Restated    |  
|ASSETS                                                        |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Total Assets                                                  | $ | 25,001      |   |  | -          |   |  |          |  | $ | 25,001      |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)          |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Current Liabilities                                           |   |             |   |  |            |   |  |          |  |   |             |  
|Accounts payable and accrued
      liabilties                 | $ | 1,049,489   |   |  | 36,406     |   |  | (g)      |  | $ | 1,085,895   |  
|Accrued liabilties - related parties                          |   | -           |   |  | 1,297,648  |   |  | (g)      |  |   | 1,297,648   |  
|Notes payable - related party                                 |   | -           |   |  | 162,500    |   |  | (g)      |  |   | 162,500     |  
|                                                              |   |             |   |  |            |   |  | (g),(b), |  |   |             |  
|Convertible notes - non-related
      parties                 |   | -           |   |  | 826,912    |   |  | (d)      |  |   | 826,912     |  
|Derivative liability                                          |   | -           |   |  | 2,275,311  |   |  | (a),(c)  |  |   | 2,275,311   |  
|Total Current Liabilities                                     |   | 1,049,489   |   |  | 4,598,777  |   |  |          |  |   | 5,648,266   |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Other liabilities                                             |   |             |   |  |            |   |  |          |  |   |             |  
|                                                              |   |             |   |  |            |   |  |          |  |   | -           |  
|Long-term deposits and convertible
      notes                |   | 217,500     |   |  | (217,500   | ) |  | (g)      |  |   | -           |  
|Convertible notes                                             |   | 586,356     |   |  | (586,356   | ) |  | (g)      |  |   | -           |  
|Convertible notes                                             |   | 185,556     |   |  | (185,556   | ) |  | (g)      |  |   | -           |  
|Convertible loans                                             |   | 1,233,792   |   |  | (1,233,792 | ) |  | (g)      |  |   | -           |  
|Total Other Liabilities                                       |   | 2,223,204   |   |  | (2,223,204 | ) |  |          |  |   | -           |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Total Liabilities                                             |   | 3,272,693   |   |  | 2,375,573  |   |  |          |  |   | 5,648,266   |  
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Stockholders' Equity (Deficit)                                |   |             |   |  |            |   |  |          |  |   |             |  
|Common stock, $.001 par value, authorized                     |   |             |   |  |            |   |  |          |  |   |             |  
|250,000,000 shares, issued and
      outstanding              |   |             |   |  |            |   |  |          |  |   | -           |  
|249,895,892 shares                                            |   | 249,896     |   |  |            |   |  |          |  |   | 249,896     |  
|Additional paid-in capital                                    |   | 25,222,219  |   |  | 5,402      |   |  | (e)      |  |   | 25,227,621  |  
|Deficit accumulated prior to entering development
      stage |   | -           |   |  | (1,057,356 | ) |  | (r)      |  |   | (1,057,356  | )
|                                                              |   |             |   |  |            |   |  | (c),(d), |  |   |             |  
|Deficit accumulated during the development stage              |   | (28,306,948 | ) |  | (1,323,619 | ) |  | (e),(j)  |  |   | (29,630,567 | )
|Unrealized loss on foreign exchange                           |   | (412,859    | ) |  | -          |   |  |          |  |   | (412,859    | )
|                                                              |   | (3,247,692  | ) |  | (2,375,573 | ) |  |          |  |   | (5,623,265  | )
|                                                              |   |             |   |  |            |   |  |          |  |   |             |  
|Total Liabilities and Stockholders' Equity (Deficit)          | $ | 25,001      |   |  | -          |   |  |          |  | $ | 25,001      |  

F-61

---

|CONSOLIDATED STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE INCOME (LOSS)
|---------------------------------------------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2004                                     

|                                                                                             |   |             |   |  | For the Year   |   |  |     |  |   |             |  
|-------------------------------------------------------------------------------------------- | - | ----------- | - |  | -------------- | - |  | --- |  | - | ----------- | -
|                                                                                             |   |             |   |  | Ended June 30, |   |  |     |  |   |             |  
|                                                                                             |   | 2004        |   |  | Net Change     |   |  |     |  |   | 2004        |  
|                                                                                             |   | Original    |   |  |                |   |  |     |  |   | Restated    |  
|Revenues                                                                                     | $ | -           |   |  | -              |   |  |     |  | $ | -           |  
|Cost of Sales                                                                                |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Gross profit                                                                                 |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Operations                                                                                   |   |             |   |  |                |   |  |     |  |   |             |  
|General and administrative                                                                   |   | 666,267     |   |  | -              |   |  |     |  |   | 666,267     |  
|Total Expense                                                                                |   | 666,267     |   |  | -              |   |  |     |  |   | 666,267     |  
|Income (loss) before other expenses                                                          |   | (666,267    | ) |  | -              |   |  |     |  |   | (666,267    | )
|Other expenses (income)                                                                      |   |             |   |  |                |   |  |     |  |   |             |  
|Interest expense                                                                             |   | 83,438      |   |  | 1,000          |   |  | (e) |  |   | 84,438      |  
|Loss on change in derivative liability                                                       |   | -           |   |  | 725,182        |   |  | (c) |  |   | 725,182     |  
|Gain from extinguishment of debt                                                             |   | (1,047,921  | ) |  | (345,884       | ) |  |     |  |   | (1,393,805  | )
|Total Other expenses (income)                                                                |   | (964,483    | ) |  | 380,298        |   |  |     |  |   | (584,185    | )
|Provision for income taxes                                                                   |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net income (loss)                                                                            |   | 298,216     |   |  | (380,298       | ) |  |     |  |   | (82,082     | )
|Other comprehensive income (loss)                                                            |   |             |   |  |                |   |  |     |  |   |             |  
|Loss (gain) on foreign exchange                                                              |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net income (loss) and comprehensive income
      (loss)                                      | $ | 298,216     |   |  | (380,298       | ) |  |     |  | $ | (82,082     | )
|Net income (loss) and comprehensive income (loss) per
      common share - basic and diluted | $ | 0.00        |   |  |                |   |  |     |  | $ | (0.00       | )
|                                                                                             |   |             |   |  |                |   |  |     |  |   |             |  
|Weighted average number of shares - basic and diluted                                        |   | 249,895,892 |   |  |                |   |  |     |  |   | 249,895,892 |  

F-62

---

|FOR THE YEAR
      ENDED JUNE 30, 2004
|--------------------------------------

|                                                                                    |   |          |   |   | For the Year   |   |  |     |  |   |            |  
|----------------------------------------------------------------------------------- | - | -------- | - | - | -------------- | - |  | --- |  | - | ---------- | -
|                                                                                    |   |          |   |   | Ended June 30, |   |  |     |  |   |            |  
|                                                                                    |   | 2004     |   |   | Net Change     |   |  |     |  |   | 2004       |  
|                                                                                    |   | Original |   |   |                |   |  |     |  |   | Restated   |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Cash flows from operating activities:                                               |   |          |   |   |                |   |  |     |  |   |            |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Net income (loss)                                                                   | $ | 298,216  |   | $ | (380,298       | ) |  |     |  | $ | (82,082    | )
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Adjustments to reconcile net income to net
      cash used in operating activities: |   |          |   |   |                |   |  |     |  |   |            |  
|Depreciation and amortization                                                       |   | 25,000   |   |   | -              |   |  |     |  |   | 25,000     |  
|Accretion expense                                                                   |   | -        |   |   | 1,000          |   |  | (d) |  |   | 1,000      |  
|(Gain) from extinguishment of debt                                                  |   | -        |   |   | (1,393,805     | ) |  | (s) |  |   | (1,393,805 | )
|Change in derivative
      liability                                                |   | -        |   |   | 725,182        |   |  | (c) |  |   | 725,182    |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Changes in assets and liabilities:                                                  |   |          |   |   |                |   |  |     |  |   |            |  
|(Increase) decrease in:                                                             |   |          |   |   |                |   |  |     |  |   |            |  
|Account receivable                                                                  |   | -        |   |   | 20,475         |   |  | (s) |  |   | 20,475     |  
|Inventory                                                                           |   | -        |   |   | 73,323         |   |  | (s) |  |   | 73,323     |  
|(Decrease) increase in
      :                                                      |   |          |   |   |                |   |  |     |  |   |            |  
|Accounts payable and accrued
      liabilities                                      |   | (292,891 | ) |   | 658,588        |   |  | (g) |  |   | 365,697    |  
|Accrued liabilities -
      related parties                                         |   | -        |   |   | 378,186        |   |  | (g) |  |   | 378,186    |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Net cash provided by operating activities                                           |   | 30,325   |   |   | 82,651         |   |  |     |  |   | 112,976    |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Cash flow from investing activities:                                                |   |          |   |   |                |   |  |     |  |   |            |  
|Patents                                                                             |   | -        |   |   | (1             | ) |  | (s) |  |   | (1         | )
|Investment                                                                          |   | -        |   |   | 89,500         |   |  | (s) |  |   | 89,500     |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Net cash provided by investing activities                                           |   | -        |   |   | 89,499         |   |  |     |  |   | 89,499     |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Cash flow from financing activities:                                                |   |          |   |   |                |   |  |     |  |   |            |  
|Current portion of long-term debt                                                   |   | -        |   |   | (172,150       | ) |  | (s) |  |   | (172,150   | )
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Net cash used in financing activities                                               |   | -        |   |   | (172,150       | ) |  |     |  |   | (172,150   | )
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Effect of Exchange rate changes on cash and cash
      equivalents                  |   | (30,325  | ) |   | -              |   |  |     |  |   | (30,325    | )
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Net (decrease) increase in cash and cash equivalents                                |   | -        |   |   | -              |   |  |     |  |   | -          |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Cash and cash equivalents - beginning of period                                     |   | -        |   |   | -              |   |  |     |  |   | -          |  
|                                                                                    |   |          |   |   |                |   |  |     |  |   |            |  
|Cash and cash equivalents - end of period                                           | $ | -        |   | $ | -              |   |  |     |  | $ | -          |  

F-63

---

|CONSOLIDATED BALANCE SHEET
|--------------------------
|JUNE 30,
      2003       

|                                                              |   | June 30,    |   |  |            |   |  |             |  |   | June 30,    |  
|------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | ----------- |  | - | ----------- | -
|                                                              |   | 2003        |   |  | Net Change |   |  |             |  |   | 2003        |  
|                                                              |   | Original    |   |  |            |   |  |             |  |   | Restated    |  
|ASSETS                                                        |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Assets                                                  | $ | 233,335     |   |  | -          |   |  |             |  | $ | 233,335     |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)          |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Current Liabilities                                           |   |             |   |  |            |   |  |             |  |   |             |  
|Accounts payable and accrued
      liabilties                 | $ | 1,792,432   |   |  | 321,608    |   |  | (g)         |  | $ | 2,114,040   |  
|Accrued liabilties - related parties                          |   |             |   |  | 919,462    |   |  | (g)         |  |   | 919,462     |  
|Current portion of long-term debt                             |   | 85,070      |   |  | 87,080     |   |  | (g)         |  |   | 172,150     |  
|Notes payable - related party                                 |   |             |   |  | 162,500    |   |  | (g)         |  |   | 162,500     |  
|Convertible notes - non-related
      parties                 |   |             |   |  | 826,912    |   |  | (g),(b),(d) |  |   | 826,912     |  
|Derivative liability                                          |   |             |   |  | 1,550,129  |   |  | (a),(c)     |  |   | 1,550,129   |  
|Total Current Liabilities                                     |   | 1,877,502   |   |  | 3,867,691  |   |  |             |  |   | 5,745,193   |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Other liabilities                                             |   |             |   |  |            |   |  |             |  |   |             |  
|Long-term deposits and convertible notes                      |   | 217,500     |   |  | (217,500   | ) |  | (g)         |  |   | -           |  
|Government loans (net of current)                             |   | 87,080      |   |  | (87,080    | ) |  | (g)         |  |   | -           |  
|Convertible notes                                             |   | 932,240     |   |  | (932,240   | ) |  | (g)         |  |   | -           |  
|Convertible notes                                             |   | 185,556     |   |  | (185,556   | ) |  | (g)         |  |   | -           |  
|Convertible loans                                             |   | 794,924     |   |  | (794,924   | ) |  | (g)         |  |   | -           |  
|Total Other Liabilities                                       |   | 2,217,300   |   |  | (2,217,300 | ) |  |             |  |   | -           |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Liabilities                                             |   | 4,094,802   |   |  | 1,650,391  |   |  |             |  |   | 5,745,193   |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Stockholders' Equity (Deficit)                                |   |             |   |  |            |   |  |             |  |   |             |  
|Common stock, $.001 par value, authorized                     |   |             |   |  |            |   |  |             |  |   |             |  
|250,000,000 shares, issued and
      outstanding              |   |             |   |  |            |   |  |             |  |   |             |  
|249,895,892 shares                                            |   | 249,896     |   |  |            |   |  |             |  |   | 249,896     |  
|Additional paid-in capital                                    |   | 25,222,219  |   |  | 4,402      |   |  | (e)         |  |   | 25,226,621  |  
|Deficit accumulated prior to entering development
      stage |   | -           |   |  | (1,057,356 | ) |  |             |  |   | (1,057,356  | )
|                                                              |   |             |   |  |            |   |  | (c),(d),    |  |   |             |  
|Deficit accumulated during the development stage              |   | (28,951,048 | ) |  | (597,437   | ) |  | (e),(j)     |  |   | (29,548,485 | )
|Unrealized loss on foreign exchange                           |   | (382,534    | ) |  |            |   |  |             |  |   | (382,534    | )
|                                                              |   | (3,861,467  | ) |  | (1,650,391 | ) |  |             |  |   | (5,511,858  | )
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Liabilities and Stockholders' Equity (Deficit)          | $ | 233,335     |   |  | -          |   |  |             |  | $ | 233,335     |  

F-64

---

|CONSOLIDATED STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE INCOME (LOSS)
|---------------------------------------------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2003                                     

|                                                                    |   |             |   |  | For the Year   |   |  |         |  |   |             |  
|------------------------------------------------------------------- | - | ----------- | - |  | -------------- | - |  | ------- |  | - | ----------- | -
|                                                                    |   |             |   |  | Ended June 30, |   |  |         |  |   |             |  
|                                                                    |   | 2003        |   |  | Net Change     |   |  |         |  |   | 2003        |  
|                                                                    |   | Original    |   |  |                |   |  |         |  |   | Restated    |  
|Revenues                                                            | $ | -           |   |  | -              |   |  |         |  | $ | -           |  
|Cost of Sales                                                       |   | -           |   |  | -              |   |  |         |  |   | -           |  
|                                                                    |   |             |   |  |                |   |  |         |  |   |             |  
|Gross profit                                                        |   | -           |   |  | -              |   |  |         |  |   | -           |  
|Operations                                                          |   |             |   |  |                |   |  |         |  |   |             |  
|General and administrative                                          |   | 981,170     |   |  | -              |   |  |         |  |   | 981,170     |  
|Depreciation and amortization                                       |   | 24,960      |   |  | -              |   |  |         |  |   | 24,960      |  
|Research and development                                            |   | 450,000     |   |  | -              |   |  |         |  |   | 450,000     |  
|Total Expense                                                       |   | 1,456,130   |   |  | -              |   |  |         |  |   | 1,456,130   |  
|Income (loss) before other expenses                                 |   | (1,456,130  | ) |  | -              |   |  |         |  |   | (1,456,130  | )
|Other expenses (income)                                             |   |             |   |  |                |   |  |         |  |   |             |  
|Interest expense                                                    |   | 105,245     |   |  | 999            |   |  | (e)     |  |   | 106,244     |  
|Accretion expense                                                   |   | -           |   |  | 490,893        |   |  | (d)     |  |   | 490,893     |  
|Loss on change in derivative liability                              |   | -           |   |  | 609,616        |   |  | (c)     |  |   | 609,616     |  
|Loss (gain) from extinguishment of
      debt                       |   | -           |   |  | 100,262        |   |  | (j),(q) |  |   | 100,262     |  
|Total Other expenses (income)                                       |   | 105,245     |   |  | 1,201,770      |   |  |         |  |   | 1,307,015   |  
|Provision for income taxes                                          |   | -           |   |  | -              |   |  |         |  |   | -           |  
|Net income (loss)                                                   |   | (1,561,375  | ) |  | (1,201,770     | ) |  |         |  |   | (2,763,145  | )
|Other comprehensive income (loss)                                   |   |             |   |  |                |   |  |         |  |   |             |  
|Loss (gain) on foreign exchange                                     |   | -           |   |  | -              |   |  |         |  |   | -           |  
|Net loss and comprehensive loss                                     | $ | (1,561,375  | ) |  | (1,201,770     | ) |  |         |  | $ | (2,763,145  | )
|                                                                    |   |             |   |  |                |   |  |         |  |   |             |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.01       | ) |  |                |   |  |         |  | $ | (0.01       | )
|                                                                    |   |             |   |  |                |   |  |         |  |   |             |  
|Weighted average number of shares - basic
      and diluted         |   | 237,326,726 |   |  |                |   |  |         |  |   | 237,326,726 |  

F-65

---

|CONSOLIDATED STATEMENTS OF CASH FLOWS 
|--------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2003

|                                                                                    |   |            |   |   | For the Year   |   |  |     |  |   |            |  
|----------------------------------------------------------------------------------- | - | ---------- | - | - | -------------- | - |  | --- |  | - | ---------- | -
|                                                                                    |   |            |   |   | Ended June 30, |   |  |     |  |   |            |  
|                                                                                    |   | 2003       |   |   | Net Change     |   |  |     |  |   | 2003       |  
|                                                                                    |   | Original   |   |   |                |   |  |     |  |   | Restated   |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash flows from operating activities:                                               |   |            |   |   |                |   |  |     |  |   |            |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net income (loss)                                                                   | $ | (1,561,375 | ) | $ | (1,201,770     | ) |  |     |  | $ | (2,763,145 | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Adjustments to reconcile net income to net
      cash used in operating activities: |   |            |   |   |                |   |  |     |  |   |            |  
|Depreciation and amortization                                                       |   | 24,960     |   |   | -              |   |  |     |  |   | 24,960     |  
|Imputed interest                                                                    |   | -          |   |   | 999            |   |  | (e) |  |   | 999        |  
|Accretion expense                                                                   |   | -          |   |   | 490,893        |   |  | (e) |  |   | 490,893    |  
|(Gain) loss on disposal
      and abandonment of assets                             |   | 530,651    |   |   | -              |   |  |     |  |   | 530,651    |  
|(Gain) loss on settlement of debt                                                   |   | -          |   |   | 100,262        |   |  | (s) |  |   | 100,262    |  
|Common stock issued in
      exchange for services and expenses                     |   | 43,250     |   |   | -              |   |  |     |  |   | 43,250     |  
|Change in derivative liability                                                      |   | -          |   |   | 609,616        |   |  | (c) |  |   | 609,616    |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Changes in assets and liabilities:                                                  |   |            |   |   |                |   |  |     |  |   |            |  
|(Increase) decrease in:                                                             |   |            |   |   |                |   |  |     |  |   |            |  
|Accounts receivable                                                                 |   | 33,213     |   |   | 1,231          |   |  | (c) |  |   | 34,444     |  
|Inventory                                                                           |   | (8,158     | ) |   | -              |   |  |     |  |   | (8,158     | )
|Sales tax receivable                                                                |   | 22,053     |   |   | -              |   |  |     |  |   | 22,053     |  
|Research and
      experimental development tax credits receivable                  |   | 246,970    |   |   | -              |   |  |     |  |   | 246,970    |  
|Other assets                                                                        |   | 242,956    |   |   | -              |   |  |     |  |   | 242,956    |  
|(Decrease) increase in
      :                                                      |   |            |   |   |                |   |  |     |  |   |            |  
|Accounts payable and accrued
      liabilities                                      |   | 306,666    |   |   | (143           | ) |  | (g) |  |   | 306,523    |  
|Accrued liabilities -
      related parties                                         |   | -          |   |   | (10,567        | ) |  | (g) |  |   | (10,567    | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net cash used in operating activities                                               |   | (118,814   | ) |   | (9,479         | ) |  |     |  |   | (128,293   | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash flow from investing activities:                                                |   |            |   |   |                |   |  |     |  |   |            |  
|Increase in notes receivable                                                        |   | (2,415     | ) |   | -              |   |  |     |  |   | (2,415     | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net cash used in investing activities                                               |   | (2,415     | ) |   | -              |   |  |     |  |   | (2,415     | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash flow from financing activities:                                                |   |            |   |   |                |   |  |     |  |   |            |  
|Loans from related
      parties                                                    |   | 133,600    |   |   | -              |   |  |     |  |   | 133,600    |  
|Payments on loan payable                                                            |   | (52,628    | ) |   | -              |   |  |     |  |   | (52,628    | )
|Proceeds from grants                                                                |   | 187,122    |   |   | -              |   |  |     |  |   | 187,122    |  
|Proceeds from issuance of common stock                                              |   | 4,283      |   |   | -              |   |  |     |  |   | 4,283      |  
|Proceeds from
      additional paid-in capital                                      |   | 31,217     |   |   | -              |   |  |     |  |   | 31,217     |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net cash provided by financing activities                                           |   | 303,594    |   |   | -              |   |  |     |  |   | 303,594    |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Effect of Exchange rate changes on cash and
      cash equivalents                  |   | (182,365   | ) |   | -              |   |  |     |  |   | (182,365   | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net (decrease) increase in cash and cash
      equivalents                          |   | -          |   |   | (9,479         | ) |  |     |  |   | (9,479     | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash and cash equivalents - beginning of
      period                               |   | -          |   |   | -              |   |  |     |  |   | -          |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash and cash equivalents - end of period                                           | $ | -          |   | $ | (9,479         | ) |  |     |  | $ | (9,479     | )

F-66

---

|CONSOLIDATED BALANCE SHEET
|--------------------------
|JUNE 30,
      2002       

|                                                              |   | June 30,    |   |  |            |   |  |             |  |   | June 30,    |  
|------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | ----------- |  | - | ----------- | -
|                                                              |   | 2002        |   |  | Net Change |   |  |             |  |   | 2002        |  
|                                                              |   | Original    |   |  |            |   |  |             |  |   | Restated    |  
|ASSETS                                                        |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Assets                                                  | $ | 1,302,955   |   |  | -          |   |  |             |  | $ | 1,302,955   |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)          |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Current Liabilities                                           |   |             |   |  |            |   |  |             |  |   |             |  
|Accounts payable and accrued
      liabilties                 | $ | 1,485,767   |   |  | 110,250    |   |  | (g)         |  | $ | 1,596,017   |  
|Accrued liabilties - related parties                          |   | -           |   |  | 902,528    |   |  | (g)         |  |   | 902,528     |  
|Current portion of long-term debt                             |   | 62,033      |   |  | 153,266    |   |  | (g)         |  |   | 215,299     |  
|Notes payable - related party                                 |   | -           |   |  | 162,500    |   |  | (g)         |  |   | 162,500     |  
|Convertible notes - non-related
      parties                 |   | -           |   |  | 681,903    |   |  | (g),(b),(d) |  |   | 681,903     |  
|Derivative liability                                          |   | -           |   |  | 940,513    |   |  | (a),(c)     |  |   | 940,513     |  
|Total Current Liabilities                                     |   | 1,547,800   |   |  | 2,950,960  |   |  |             |  |   | 4,498,760   |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Other liabilities                                             |   |             |   |  |            |   |  |             |  |   |             |  
|Long-term deposits and convertible notes                      |   | 217,500     |   |  | (217,500   | ) |  | (g)         |  |   | -           |  
|Government loans (net of current)                             |   | 139,707     |   |  | (139,707   | ) |  | (g)         |  |   | -           |  
|Capital lease obligations (net of current)                    |   | 13,559      |   |  | (13,559    | ) |  | (g)         |  |   | -           |  
|Convertible notes                                             |   | 932,240     |   |  | (932,240   | ) |  | (g)         |  |   | -           |  
|Convertible notes                                             |   | 185,556     |   |  | (185,556   | ) |  | (g)         |  |   | -           |  
|Convertible loans                                             |   | 1,012,778   |   |  | (1,012,778 | ) |  | (g)         |  |   | -           |  
|Total Other Liabilities                                       |   | 2,501,340   |   |  | (2,501,340 | ) |  |             |  |   | -           |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Liabilities                                             |   | 4,049,140   |   |  | 449,620    |   |  |             |  |   | 4,498,760   |  
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Stockholders' Equity (Deficit)                                |   |             |   |  |            |   |  |             |  |   |             |  
|Common stock, $.001 par value,
      authorized               |   |             |   |  |            |   |  |             |  |   |             |  
|250,000,000 shares, issued and outstanding                    |   |             |   |  |            |   |  |             |  |   |             |  
|224,757,559 shares                                            |   | 224,758     |   |  |            |   |  |             |  |   | 224,758     |  
|Additional paid-in capital                                    |   | 24,618,899  |   |  | 3,403      |   |  | (e)         |  |   | 24,622,302  |  
|Deficit accumulated prior to entering
      development stage |   | -           |   |  | (1,057,356 | ) |  |             |  |   | (1,057,356  | )
|Deficit accumulated during the development stage              |   | (27,389,673 | ) |  | 604,333    |   |  | (c),(d),(e) |  |   | (26,785,340 | )
|Unrealized loss on foreign exchange                           |   | (200,169    | ) |  |            |   |  |             |  |   | (200,169    | )
|                                                              |   | (2,746,185  | ) |  | (449,620   | ) |  |             |  |   | (3,195,805  | )
|                                                              |   |             |   |  |            |   |  |             |  |   |             |  
|Total Liabilities and Stockholders' Equity (Deficit)          | $ | 1,302,955   |   |  | -          |   |  |             |  | $ | 1,302,955   |  

F-67

---

|CONSOLIDATED STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE INCOME (LOSS)
|---------------------------------------------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2002                                     

|                                                                    |   |             |   |  | For the Year   |   |  |     |  |   |             |  
|------------------------------------------------------------------- | - | ----------- | - |  | -------------- | - |  | --- |  | - | ----------- | -
|                                                                    |   |             |   |  | Ended June 30, |   |  |     |  |   |             |  
|                                                                    |   | 2002        |   |  | Net Change     |   |  |     |  |   | 2002        |  
|                                                                    |   | Original    |   |  |                |   |  |     |  |   | Restated    |  
|Revenues                                                            | $ | 28,515      |   |  | -              |   |  |     |  | $ | 28,515      |  
|Cost of Sales                                                       |   | 12,981      |   |  | -              |   |  |     |  |   | 12,981      |  
|                                                                    |   |             |   |  |                |   |  |     |  |   |             |  
|Gross profit                                                        |   | 15,534      |   |  | -              |   |  |     |  |   | 15,534      |  
|Operations                                                          |   |             |   |  |                |   |  |     |  |   |             |  
|General and administrative                                          |   | 1,209,913   |   |  | -              |   |  |     |  |   | 1,209,913   |  
|Depreciation and amortization                                       |   | 53,184      |   |  | -              |   |  |     |  |   | 53,184      |  
|Research and development                                            |   | 2,297,577   |   |  | -              |   |  |     |  |   | 2,297,577   |  
|Total Expense                                                       |   | 3,560,674   |   |  | -              |   |  |     |  |   | 3,560,674   |  
|Income (loss) before other expenses                                 |   | (3,545,140  | ) |  | -              |   |  |     |  |   | (3,545,140  | )
|Other expenses (income)                                             |   |             |   |  |                |   |  |     |  |   |             |  
|Interest expense                                                    |   | 222,204     |   |  | 3,403          |   |  | (e) |  |   | 225,607     |  
|Accretion expense                                                   |   | -           |   |  | 186,524        |   |  | (d) |  |   | 186,524     |  
|Loss on change in derivative liability                              |   | -           |   |  | 132,662        |   |  | (c) |  |   | 132,662     |  
|Total Other expenses (income)                                       |   | 222,204     |   |  | 322,589        |   |  |     |  |   | 544,793     |  
|Provision for income taxes                                          |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net loss                                                            |   | (3,767,344  | ) |  | (322,589       | ) |  |     |  |   | (4,089,933  | )
|Other comprehensive income (loss)                                   |   |             |   |  |                |   |  |     |  |   |             |  
|Loss (gain) on foreign exchange                                     |   | -           |   |  | -              |   |  |     |  |   | -           |  
|Net loss and comprehensive loss                                     | $ | (3,767,344  | ) |  | (322,589       | ) |  |     |  | $ | (4,089,933  | )
|                                                                    |   |             |   |  |                |   |  |     |  |   |             |  
|Net loss and comprehensive loss per share - basic and
      diluted | $ | (0.02       | ) |  |                |   |  |     |  | $ | (0.02       | )
|                                                                    |   |             |   |  |                |   |  |     |  |   |             |  
|Weighted average number of shares - basic and diluted               |   | 204,212,265 |   |  |                |   |  |     |  |   | 204,212,265 |  

F-68

---

|CONSOLIDATED STATEMENTS OF CASH FLOWS 
|--------------------------------------
|FOR THE YEAR
      ENDED JUNE 30, 2002

|                                                                                    |   |            |   |   | For the Year   |   |  |     |  |   |            |  
|----------------------------------------------------------------------------------- | - | ---------- | - | - | -------------- | - |  | --- |  | - | ---------- | -
|                                                                                    |   |            |   |   | Ended June 30, |   |  |     |  |   |            |  
|                                                                                    |   | 2002       |   |   | Net Change     |   |  |     |  |   | 2002       |  
|                                                                                    |   | Original   |   |   |                |   |  |     |  |   | Restated   |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash flows from operating activities:                                               |   |            |   |   |                |   |  |     |  |   |            |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net income (loss)                                                                   | $ | (3,767,344 | ) | $ | (322,589       | ) |  |     |  | $ | (4,089,933 | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Adjustments to reconcile net income to net
      cash used in operating activities: |   |            |   |   |                |   |  |     |  |   |            |  
|Depreciation and amortization                                                       |   | 53,184     |   |   | -              |   |  |     |  |   | 53,184     |  
|Accretion expense                                                                   |   | -          |   |   | 189,927        |   |  | (d) |  |   | 189,927    |  
|Impairment of fixed assets                                                          |   | -          |   |   | -              |   |  |     |  |   | -          |  
|(Gain) loss on disposal
      and abandonment of assets                             |   | 1,500,000  |   |   | -              |   |  |     |  |   | 1,500,000  |  
|Common stock issued in exchange for
      services and expenses                     |   | 333,325    |   |   | -              |   |  |     |  |   | 333,325    |  
|Change in derivative
      liability                                                |   | -          |   |   | 132,662        |   |  | (c) |  |   | 132,662    |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Changes in assets and liabilities:                                                  |   |            |   |   |                |   |  |     |  |   |            |  
|(Increase) decrease in:                                                             |   |            |   |   |                |   |  |     |  |   |            |  
|Account receivable                                                                  |   | (33,213    | ) |   | -              |   |  |     |  |   | (33,213    | )
|Inventory                                                                           |   | 10,794     |   |   | -              |   |  |     |  |   | 10,794     |  
|Sales tax receivable                                                                |   | 25,261     |   |   | -              |   |  |     |  |   | 25,261     |  
|Research and experimental development
      tax credits receivable                  |   | 114,059    |   |   | -              |   |  |     |  |   | 114,059    |  
|Other assets                                                                        |   | 193,297    |   |   | -              |   |  |     |  |   | 193,297    |  
|(Decrease) increase in :                                                            |   |            |   |   |                |   |  |     |  |   |            |  
|Accounts payable and
      accrued liabilities                                      |   | 135,447    |   |   | 415,273        |   |  | (g) |  |   | 550,720    |  
|Accrued liabilities - related parties                                               |   | 90,874     |   |   | (415,273       | ) |  | (g) |  |   | (324,399   | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net cash used in operating activities                                               |   | (1,344,316 | ) |   | -              |   |  |     |  |   | (1,344,316 | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash flow from investing activities:                                                |   |            |   |   |                |   |  |     |  |   |            |  
|Increase in notes
      receivable                                                  |   | (5,949     | ) |   | -              |   |  |     |  |   | (5,949     | )
|Investment                                                                          |   | (89,500    | ) |   | -              |   |  |     |  |   | (89,500    | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net cash used in investing activities                                               |   | (95,449    | ) |   | -              |   |  |     |  |   | (95,449    | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash flow from financing activities:                                                |   |            |   |   |                |   |  |     |  |   |            |  
|Loans from related
      parties                                                    |   | 1,070,823  |   |   |                |   |  |     |  |   | 1,070,823  |  
|Deferred financing costs                                                            |   | 100,614    |   |   | -              |   |  |     |  |   | 100,614    |  
|Payments on lease
      obligations                                                 |   | (7,668     | ) |   | -              |   |  |     |  |   | (7,668     | )
|Payments on loan payable                                                            |   | (342,278   | ) |   | -              |   |  |     |  |   | (342,278   | )
|Proceeds from grants                                                                |   | 569,111    |   |   | -              |   |  |     |  |   | 569,111    |  
|Proceeds from issuance of common stock                                              |   | 5,850      |   |   | -              |   |  |     |  |   | 5,850      |  
|Proceeds from
      additional paid-in capital                                      |   | 61,897     |   |   | -              |   |  |     |  |   | 61,897     |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net cash provided by financing activities                                           |   | 1,458,349  |   |   | -              |   |  |     |  |   | 1,458,349  |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Effect of Exchange rate changes on cash and
      cash equivalents                  |   | (19,940    | ) |   | -              |   |  |     |  |   | (19,940    | )
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Net (decrease) increase in cash and cash
      equivalents                          |   | 18,584     |   |   | -              |   |  |     |  |   | 18,584     |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash and cash equivalents - beginning of
      period                               |   | 1,356      |   |   | -              |   |  |     |  |   | 1,356      |  
|                                                                                    |   |            |   |   |                |   |  |     |  |   |            |  
|Cash and cash equivalents - end of period                                           | $ | -          |   | $ | -              |   |  |     |  | $ | -          |  

F-69

---



CONSOLIDATED BALANCE SHEETJUNE 30,
2001

|                                                                                                                          |   | June 30,    |   |  |            |   |  |             |  |   | June 30,    |  
|------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | ----------- |  | - | ----------- | -
|                                                                                                                          |   | 2001        |   |  | Net Change |   |  |             |  |   | 2001        |  
|                                                                                                                          |   | Original    |   |  |            |   |  |             |  |   | Restated    |  
|ASSETS                                                                                                                    |  
|                                                                                                                          |   |             |   |  |            |   |  |             |  |   |             |  
|Total Assets                                                                                                              | $ | 3,072,245   |   |  | -          |   |  |             |  | $ | 3,072,245   |  
|                                                                                                                          |   |             |   |  |            |   |  |             |  |   |             |  
|                                                                                                                          |   |             |   |  |            |   |  |             |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                            |  
|                                                                                                                          |   |             |   |  |            |   |  |             |  |   |             |  
|Current Liabilities                                                                                                       |   |             |   |  |            |   |  |             |  |   |             |  
|Accounts payable and accrued liabilties                                                                                   | $ | 1,259,446   |   |  | 83,835     |   |  | (g)         |  | $ | 1,343,281   |  
|Accrued liabilties - related parties                                                                                      |   | -           |   |  | 1,120,828  |   |  | (g)         |  |   | 1,120,828   |  
|Current portion of long-term debt                                                                                         |   | 381,111     |   |  | 107,460    |   |  | (g)         |  |   | 488,571     |  
|Notes payable - related party                                                                                             |   | -           |   |  | 162,500    |   |  | (g)         |  |   | 162,500     |  
|Convertible notes - non-related parties                                                                                   |   | -           |   |  | 313,139    |   |  | (g),(b),(d) |  |   | 313,139     |  
|Derivative liability                                                                                                      |   | -           |   |  | 807,851    |   |  | (a),(c)     |  |   | 807,851     |  
|Total Current Liabilities                                                                                                 |   | 1,640,557   |   |  | 2,595,613  |   |  |             |  |   | 4,236,170   |  
|                                                                                                                          |   |             |   |  |            |   |  |             |  |   |             |  
|Other liabilities                                                                                                         |   |             |   |  |            |   |  |             |  |   |             |  
|Long-term deposits and convertible notes                                                                                  |   | 217,500     |   |  | (217,500   | ) |  | (g)         |  |   | -           |  
|Government loans (net of current)                                                                                         |   | 80,500      |   |  | (80,500    | ) |  | (g)         |  |   | -           |  
|Capital lease obligations (net of current)                                                                                |   | 26,960      |   |  | (26,960    | ) |  | (g)         |  |   | -           |  
|Convertible notes                                                                                                         |   | 750,000     |   |  | (750,000   | ) |  | (g)         |  |   | -           |  
|Convertible notes                                                                                                         |   | 185,556     |   |  | (185,556   | ) |  | (g)         |  |   | -           |  
|Convertible loans                                                                                                         |   | 1,204,663   |   |  | (1,204,663 | ) |  | (g)         |  |   | -           |  
|Total Other Liabilities                                                                                                   |   | 2,465,179   |   |  | (2,465,179 | ) |  |             |  |   | -           |  
|                                                                                                                          |   |             |   |  |            |   |  |             |  |   |             |  
|Total Liabilities                                                                                                         |   | 4,105,736   |   |  | 130,434    |   |  |             |  |   | 4,236,170   |  
|                                                                                                                          |   |             |   |  |            |   |  |             |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                            |   |             |   |  |            |   |  |             |  |   |             |  
|Common stock, $.001 par value, authorized
         250,000,000 shares, issued and outstanding    176,366,408
      shares |   | 176,366     |   |  |            |   |  |             |  |   | 176,366     |  
|Additional paid-in capital                                                                                                |   | 22,592,701  |   |  |            |   |  |             |  |   | 22,592,701  |  
|Deficit accumulated prior to entering
      development stage                                                             |   | -           |   |  | (1,057,356 | ) |  |             |  |   | (1,057,356  | )
|Deficit accumulated during the development stage                                                                          |   | (23,622,329 | ) |  | 926,922    |   |  | (c),(d)     |  |   | (22,695,407 | )
|Unrealized loss on foreign exchange                                                                                       |   | (180,229    | ) |  |            |   |  |             |  |   | (180,229    | )
|                                                                                                                          |   | (1,033,491  | ) |  | (130,434   | ) |  |             |  |   | (1,163,925  | )
|                                                                                                                          |   |             |   |  |            |   |  |             |  |   |             |  
|Total Liabilities and Stockholders' Equity (Deficit)                                                                      | $ | 3,072,245   |   |  | -          |   |  |             |  | $ | 3,072,245   |  

F-70

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE YEAR ENDED JUNE 30, 2001

|                                                              |   | For the Year   |   |  |            |   |  |     | 
|------------------------------------------------------------- | - | -------------- | - |  | ---------- | - |  | --- | 
|                                                              |   | Ended June 30, |   |  |            |   |  |     | 
|                                                              |   | 2001           |   |  | Net Change |   |  |     | 
|                                                              |   | Original       |   |  |            |   |  |     | 
|Revenues                                                      | $ | -              |   |  | -          |   |  |     | 
|Cost of Sales                                                 |   | -              |   |  | -          |   |  |     | 
|                                                              |   |                |   |  |            |   |  |     | 
|Gross profit                                                  |   | -              |   |  | -          |   |  |     | 
|Operations                                                    |   |                |   |  |            |   |  |     | 
|General and administrative                                    |   | 1,992,559      |   |  | -          |   |  |     | 
|Depreciation and amortization                                 |   | 147,611        |   |  | -          |   |  |     | 
|Research and development                                      |   | 807,272        |   |  | -          |   |  |     | 
|Total Expense                                                 |   | 2,947,442      |   |  | -          |   |  |     | 
|Income (loss) before other expenses                           |   | (2,947,442     | ) |  | -          |   |  |     | 
|Other expenses (income)                                       |   |                |   |  |            |   |  |     | 
|Interest expense                                              |   | 161,956        |   |  | -          |   |  |     | 
|Accretion expense                                             |   | -              |   |  | 72,583     |   |  | (d) | 
|Loss on change in derivative liability                        |   | -              |   |  | 57,851     |   |  | (c) | 
|Total Other expenses (income)                                 |   | 161,956        |   |  | 130,434    |   |  |     | 
|Provision for income taxes                                    |   | -              |   |  | -          |   |  |     | 
|Net loss                                                      |   | (3,109,398     | ) |  | (130,434   | ) |  |     | 
|Other comprehensive income (loss)                             |   |                |   |  |            |   |  |     | 
|Loss on foreign exchange                                      |   | 2,740          |   |  | -          |   |  |     | 
|Net loss and comprehensive loss                               | $ | (3,112,138     | ) |  | (130,434   | ) |  |     | 
|                                                              |   |                |   |  |            |   |  |     | 
|Net loss and comprehensive loss per share - basic and diluted | $ | (0.02          | ) |  |            |   |  |     | 
|                                                              |   |                |   |  |            |   |  |     | 
|Weighted average number of shares - basic and diluted         |   | 170,139,483    |   |  |            |   |  |     | 

F-71

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
YEAR ENDED JUNE 30, 2001

|                                                                                                   |   | For the Year   |  
|-------------------------------------------------------------------------------------------------- | - | -------------- | -
|                                                                                                   |   | Ended June 30, |  
|                                                                                                   |   | 2001           |  
|                                                                                                   |   | Original       |  
|                                                                                                   |   |                |  
|Cash flows from operating activities:                                                              |   |                |  
|                                                                                                   |   |                |  
|Net income (loss)                                                                                  | $ | (3,112,138     | )
|                                                                                                   |   |                |  
|Adjustments to
      reconcile net income to net cash         
      used in operating activities: |   |                |  
|Depreciation and amortization                                                                      |   | 147,611        |  
|Accretion expense                                                                                  |   | -              |  
|(Gain) loss on disposal and abandonment
      of assets                                            |   | (47,492        | )
|Common stock issued in
      exchange for interest                                                 |   | 4,200          |  
|Common stock issued in exchange for services
      and expenses                                    |   | 872,215        |  
|Stock options issued in
      exchange for services                                                |   | 512,377        |  
|Change in derivative liability                                                                     |   | -              |  
|                                                                                                   |   |                |  
|Changes in assets and liabilities:                                                                 |   |                |  
|(Increase) decrease in:                                                                            |   |                |  
|Inventory                                                                                          |   | 34,002         |  
|Sales tax receivable                                                                               |   | (28,062        | )
|Research and experimental development tax
      credits receivable                                 |   | 114,192        |  
|Other assets                                                                                       |   | (109,361       | )
|(Decrease) increase in :                                                                           |   |                |  
|Accounts payable and accrued
      liabilities                                                     |   | 71,734         |  
|Accrued liabilities - related parties                                                              |   | -              |  
|                                                                                                   |   |                |  
|Net cash used in operating activities                                                              |   | (1,540,722     | )
|                                                                                                   |   |                |  
|Cash flow from investing activities:                                                               |   |                |  
|Reduction in notes receivable                                                                      |   | 116,089        |  
|Equipment                                                                                          |   | (60,769        | )
|                                                                                                   |   |                |  
|Net cash provided by investing activities                                                          |   | 55,320         |  
|                                                                                                   |   |                |  
|Cash flow from financing activities:                                                               |   |                |  
|Loans from related parties                                                                         |   | 728,305        |  
|Deferred financing costs                                                                           |   | 79,943         |  
|Proceeds from convertible
      notes                                                              |   | 754,999        |  
|Payments on lease obligations                                                                      |   | (57,339        | )
|Payments on loan payable                                                                           |   | (75,147        | )
|Proceeds from grants                                                                               |   | 353,725        |  
|Proceeds from issuance
      of common stock                                                       |   | 733            |  
|Proceeds from additional paid-in capital                                                           |   | 39,427         |  
|                                                                                                   |   |                |  
|Net cash provided by financing activities                                                          |   | 1,824,646      |  
|                                                                                                   |   |                |  
|Effect of Exchange rate changes on cash and cash equivalents                                       |   | (340,681       | )
|                                                                                                   |   |                |  
|Net (decrease) increase in cash and cash equivalents                                               |   | 339,244        |  
|                                                                                                   |   |                |  
|Cash and cash equivalents - beginning of period                                                    |   | 2,793          |  
|                                                                                                   |   |                |  
|Cash and cash equivalents - end of period                                                          | $ | 1,356          |  

b) Quarterly Periods

F-72

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED JUNE 30, 2008

|                                                                            |   |               |   |   | **For the
      Three** |   |  |              |  |   |                         |  
|--------------------------------------------------------------------------- | - | ------------- | - | - | ----------------------- | - |  | ------------ |  | - | ----------------------- | -
|                                                                            |   | For the Three |   |   | Months Ended            |   |  |              |  |   | **For the
      Three** |  
|                                                                            |   | Months Ended  |   |   | June 30, 2008           |   |  |              |  |   | Months Ended            |  
|                                                                            |   | June 30, 2008 |   |   | Net Change              |   |  |              |  |   | June 30, 2008           |  
|                                                                            |   | Original      |   |   |                         |   |  |              |  |   | Restated                |  
|Revenues                                                                    | $ | -             |   |   | -                       |   |  |              |  | $ | -                       |  
|Cost of Sales                                                               |   | -             |   |   | -                       |   |  |              |  |   | -                       |  
|Gross profit                                                                |   | -             |   |   | -                       |   |  |              |  |   | -                       |  
|Operations                                                                  |   |               |   |   |                         |   |  |              |  |   |                         |  
|                                                                            |   |               |   |   |                         |   |  | (f),(l),(m), |  |   |                         |  
|General and administrative                                                  |   | 159,980       |   |   | 403,419                 |   |  | (o),(p)      |  |   | 563,399                 |  
|Total Expense                                                               |   | 159,980       |   |   | 403,419                 |   |  |              |  |   | 563,399                 |  
|Loss before other expenses                                                  |   | (159,980      | ) |   | (403,419                | ) |  |              |  |   | (563,399                | )
|Other expenses (income)                                                     |   |               |   |   |                         |   |  |              |  |   |                         |  
|Interest expense                                                            |   | 11,698        |   |   | (16,353                 | ) |  | (i)          |  |   | (4,655                  | )
|Impairment of fixed assets                                                  |   |               |   |   | 25,000                  |   |  | (h)          |  |   | 25,000                  |  
|Loss (gain) on change in derivative
      liability                         |   | -             |   |   | (23,245,092             | ) |  | (c)          |  |   | (23,245,092             | )
|Loss (gain) from extinguishment of debt                                     |   | -             |   |   | 162,400                 |   |  | (k)          |  |   | 162,400                 |  
|Total Other expenses (income)                                               |   | 11,698        |   |   | (23,074,045             | ) |  |              |  |   | (23,062,347             | )
|Provision for income taxes                                                  |   | -             |   |   | -                       |   |  |              |  |   | -                       |  
|Net income (loss)                                                           |   | (171,678      | ) |   | 22,670,626              |   |  |              |  |   | 22,498,948              |  
|Other comprehensive income (loss)                                           |   |               |   |   |                         |   |  |              |  |   |                         |  
|Loss (gain) on foreign exchange                                             |   | -             |   |   | -                       |   |  |              |  |   | -                       |  
|Net income (loss) and comprehensive income
      (loss)                     | $ | (171,678      | ) | $ | 22,670,626              |   |  |              |  | $ | 22,498,948              |  
|Net income (loss) and comprehensive income
      (loss)                     |   |               |   |   |                         |   |  |              |  |   |                         |  
|per share - basic                                                           | $ | (0.00         | ) |   |                         |   |  |              |  | $ | 0.09                    |  
|                                                                            |   |               |   |   |                         |   |  |              |  |   |                         |  
|Net income (loss) and comprehensive income
      (loss) per share - diluted |   |               |   |   |                         |   |  |              |  | $ | 0.00                    |  
|                                                                            |   |               |   |   |                         |   |  |              |  |   |                         |  
|Weighted average number of shares - basic                                   |   | 252,126,303   |   |   |                         |   |  |              |  |   | 252,126,303             |  
|                                                                            |   |               |   |   |                         |   |  |              |  |   |                         |  
|Weighted average number of shares - diluted                                 |   |               |   |   |                         |   |  |              |  |   | 10,188,251,788          |  

F-73

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED JUNE 30, 2008

|                                                                                                   |   |                   |   |   | For the Three    |   |  |             |  |   | **For the Three** |  
|-------------------------------------------------------------------------------------------------- | - | ----------------- | - | - | ---------------- | - |  | ----------- |  | - | ----------------- | -
|                                                                                                   |   | **For the Three** |   |   | **Months Ended** |   |  |             |  |   | **Months**        |  
|                                                                                                   |   | Months Ended      |   |   | June 30, 2008    |   |  |             |  |   | **Ended**         |  
|                                                                                                   |   | June 30, 2008     |   |   | Net Change       |   |  |             |  |   | June 30,2008      |  
|                                                                                                   |   | Original          |   |   |                  |   |  |             |  |   | Restated          |  
|                                                                                                   |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Cash flows from operating activities:                                                              |   |                   |   |   |                  |   |  |             |  |   |                   |  
|                                                                                                   |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Net income (loss)                                                                                  | $ | (171,678          | ) | $ | 22,670,626       |   |  |             |  | $ | 22,498,948        |  
|                                                                                                   |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Adjustments to
      reconcile net income to net cash 
              used in operating activities: |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Impairment of fixed assets                                                                         |   | -                 |   |   | 25,000           |   |  | (h)         |  |   | 25,000            |  
|Loss (gain) on settlement
      of debt                                                            |   | -                 |   |   | 162,400          |   |  | (k)         |  |   | 162,400           |  
|Preferred stock issued for professional
      fees                                                 |   | -                 |   |   | 271,000          |   |  | (f)         |  |   | 271,000           |  
|Stock options issued in
      exchange for services                                                |   | -                 |   |   | 24,000           |   |  | (m)         |  |   | 24,000            |  
|Change in derivative liability                                                                     |   | -                 |   |   | (23,245,092      | ) |  | (c)         |  |   | (23,245,092       | )
|Changes in assets and liabilities:                                                                 |   |                   |   |   |                  |   |  |             |  |   |                   |  
|(Increase) decrease in:                                                                            |   |                   |   |   |                  |   |  |             |  |   |                   |  
|(Decrease) increase in
      :                                                                     |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Accounts payable and accrued liabilities                                                           |   | (12,396           | ) |   | 92,066           |   |  | (o),(p),(i) |  |   | 79,670            |  
|Accrued liabilities - related
      parties                                                        |   | 112,500           |   |   | -                |   |  |             |  |   | 112,500           |  
|                                                                                                   |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Net cash used in operating activities                                                              |   | (71,574           | ) |   | -                |   |  |             |  |   | (71,574           | )
|                                                                                                   |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                 |   | 71,574            |   |   | -                |   |  |             |  |   | 71,574            |  
|                                                                                                   |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Net (decrease) increase in cash and cash equivalents                                               |   | -                 |   |   | -                |   |  |             |  |   | -                 |  
|                                                                                                   |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Cash and cash equivalents - beginning of period                                                    |   | -                 |   |   | -                |   |  |             |  |   | -                 |  
|                                                                                                   |   |                   |   |   |                  |   |  |             |  |   |                   |  
|Cash and cash equivalents - end of period                                                          | $ | -                 |   | $ | -                |   |  |             |  | $ | -                 |  

F-74

---

CONSOLIDATED BALANCE SHEETMARCH 31,
2008

|                                                                                                                       |   | March 31,   |   |  |             |   |  |                   |  |   | March 31,   |  
|---------------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ----------- | - |  | ----------------- |  | - | ----------- | -
|                                                                                                                       |   | 2008        |   |  | Net Change  |   |  |                   |  |   | 2008        |  
|                                                                                                                       |   | Original    |   |  |             |   |  |                   |  |   | Restated    |  
|ASSETS                                                                                                                 |  
|                                                                                                                       |   |             |   |  |             |   |  |                   |  |   |             |  
|Total Assets                                                                                                           | $ | 208,297     |   |  | -           |   |  |                   |  | $ | 208,297     |  
|                                                                                                                       |   |             |   |  |             |   |  |                   |  |   |             |  
|                                                                                                                       |   |             |   |  |             |   |  |                   |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                         |  
|                                                                                                                       |   |             |   |  |             |   |  |                   |  |   |             |  
|Current Liabilities                                                                                                    |   |             |   |  |             |   |  |                   |  |   |             |  
|Accounts payable and accrued liabilties                                                                                | $ | 3,029,086   |   |  | (1,084,341  | ) |  | (g)               |  | $ | 1,944,745   |  
|Accrued liabilties - related parties                                                                                   |   |             |   |  | 2,528,179   |   |  | (g)               |  |   | 2,528,179   |  
|Current portion of long-term debt                                                                                      |   | 108,678     |   |  | -           |   |  | (g)               |  |   | 108,678     |  
|Notes payable - related party                                                                                          |   |             |   |  | 162,500     |   |  | (g)               |  |   | 162,500     |  
|Convertible notes - non-related parties                                                                                |   |             |   |  | 816,745     |   |  | (g),(b),(d)       |  |   | 816,745     |  
|Derivative liability                                                                                                   |   |             |   |  | 25,570,664  |   |  | (a),(c)           |  |   | 25,570,664  |  
|Total Current Liabilities                                                                                              |   | 3,137,764   |   |  | 27,993,747  |   |  |                   |  |   | 31,131,511  |  
|                                                                                                                       |   |             |   |  |             |   |  |                   |  |   |             |  
|Other liabilities                                                                                                      |   |             |   |  |             |   |  |                   |  |   |             |  
|Long-term deposits and convertible notes                                                                               |   | 217,500     |   |  | (217,500    | ) |  | (g)               |  |   | -           |  
|Convertible notes                                                                                                      |   | 399,389     |   |  | (399,389    | ) |  | (g)               |  |   | -           |  
|Convertible notes                                                                                                      |   | 195,556     |   |  | (195,556    | ) |  | (g)               |  |   | -           |  
|Convertible loans                                                                                                      |   | 2,442,885   |   |  | (2,442,885  | ) |  | (g)               |  |   | -           |  
|Total Other Liabilities                                                                                                |   | 3,255,330   |   |  | (3,255,330  | ) |  |                   |  |   | -           |  
|                                                                                                                       |   |             |   |  |             |   |  |                   |  |   |             |  
|Total Liabilities                                                                                                      |   | 6,393,094   |   |  | 24,738,417  |   |  |                   |  |   | 31,131,511  |  
|                                                                                                                       |   |             |   |  |             |   |  |                   |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                         |   |             |   |  |             |   |  |                   |  |   |             |  
|Common stock, $.001 par value, authorized
       250,000,000 shares, issued and outstanding   249,895,892
      shares |   | 249,896     |   |  | -           |   |  |                   |  |   | 249,896     |  
|Additional paid-in capital                                                                                             |   | 25,222,219  |   |  | 5,402       |   |  | (e),(f),(j),(k)   |  |   | 25,227,621  |  
|Deficit accumulated prior to entering
      development stage                                                          |   | -           |   |  | (1,057,356  | ) |  | (r)               |  |   | (1,057,356  | )
|                                                                                                                       |   |             |   |  |             |   |  | (c),(d),(e),(f)   |  |   |             |  
|                                                                                                                       |   |             |   |  |             |   |  | ,(h),(i),(j),(k), |  |   |             |  
|                                                                                                                       |   |             |   |  |             |   |  | (l),(m),(n),(o)   |  |   |             |  
|Deficit accumulated during the development
      stage                                                                 |   | (30,770,228 | ) |  | (23,686,463 | ) |  | ,(p)              |  |   | (54,456,691 | )
|Unrealized loss on foreign exchange                                                                                    |   | (886,684    | ) |  | -           |   |  |                   |  |   | (886,684    | )
|                                                                                                                       |   | (6,184,797  | ) |  | (24,738,417 | ) |  |                   |  |   | (30,923,214 | )
|                                                                                                                       |   |             |   |  |             |   |  |                   |  |   |             |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                             | $ | 208,297     |   |  | -           |   |  |                   |  | $ | 208,297     |  

F-75

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED MARCH 31, 2008

|                                                                            |   |               |   |   | For the Three  |   |  |     |  |   |                      |  
|--------------------------------------------------------------------------- | - | ------------- | - | - | -------------- | - |  | --- |  | - | -------------------- | -
|                                                                            |   | For the Three |   |   | Months Ended   |   |  |     |  |   | **For the Three**    |  
|                                                                            |   | Months Ended  |   |   | March 31, 2008 |   |  |     |  |   | **Months** **Ended** |  
|                                                                            |   | March 31,2008 |   |   | Net Change     |   |  |     |  |   | March 31,2008        |  
|                                                                            |   | Original      |   |   |                |   |  |     |  |   | Restated             |  
|Revenues                                                                    | $ | -             |   |   | -              |   |  |     |  | $ | -                    |  
|Cost of Sales                                                               |   | -             |   |   | -              |   |  |     |  |   | -                    |  
|                                                                            |   |               |   |   |                |   |  |     |  |   |                      |  
|Gross profit                                                                |   | -             |   |   | -              |   |  |     |  |   | -                    |  
|Operations                                                                  |   |               |   |   |                |   |  |     |  |   |                      |  
|General and administrative                                                  |   | 97,219        |   |   | -              |   |  |     |  |   | 97,219               |  
|Total Expense                                                               |   | 97,219        |   |   | -              |   |  |     |  |   | 97,219               |  
|Loss before other expenses                                                  |   | (97,219       | ) |   | -              |   |  |     |  |   | (97,219              | )
|Other expenses (income)                                                     |   |               |   |   |                |   |  |     |  |   |                      |  
|Interest expense                                                            |   | 11,699        |   |   | (16,353        | ) |  | (i) |  |   | (4,654               | )
|Loss (gain) on change in derivative liability                               |   | -             |   |   | (8,438,912     | ) |  | (c) |  |   | (8,438,912           | )
|Total Other expenses (income)                                               |   | 11,699        |   |   | (8,455,265     | ) |  |     |  |   | (8,443,566           | )
|Provision for income taxes                                                  |   | -             |   |   | -              |   |  |     |  |   | -                    |  
|Net income (loss)                                                           |   | (108,918      | ) |   | 8,455,265      |   |  |     |  |   | 8,346,347            |  
|Other comprehensive income (loss)                                           |   |               |   |   |                |   |  |     |  |   |                      |  
|Loss (gain) on foreign exchange                                             |   | -             |   |   | -              |   |  |     |  |   | -                    |  
|Net income (loss) and comprehensive income
      (loss)                     | $ | (108,918      | ) | $ | 8,455,265      |   |  |     |  | $ | 8,346,347            |  
|Net income (loss) and comprehensive income (loss) per share
      - basic   | $ | (0.00         | ) |   |                |   |  |     |  | $ | 0.03                 |  
|                                                                            |   |               |   |   |                |   |  |     |  |   |                      |  
|Net income (loss) and comprehensive income (loss) per share
      - diluted |   |               |   |   |                |   |  |     |  | $ | 0.00                 |  
|                                                                            |   |               |   |   |                |   |  |     |  |   |                      |  
|Weighted average number of shares - basic                                   |   | 249,895,892   |   |   |                |   |  |     |  |   | 249,895,892          |  
|                                                                            |   |               |   |   |                |   |  |     |  |   |                      |  
|Weighted average number of shares - diluted                                 |   |               |   |   |                |   |  |     |  |   | 2,811,899,975        |  

F-76

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED MARCH 31, 2008

|                                                                                                       |   |                |   |   | **For the Three** |   |  |     |  |   |                   |  
|------------------------------------------------------------------------------------------------------ | - | -------------- | - | - | ----------------- | - |  | --- |  | - | ----------------- | -
|                                                                                                       |   | For the Three  |   |   | Months Ended      |   |  |     |  |   | **For the Three** |  
|                                                                                                       |   | Months Ended   |   |   | March 31, 2008    |   |  |     |  |   | **Months Ended**  |  
|                                                                                                       |   | March 31, 2008 |   |   | Net Change        |   |  |     |  |   | March 31, 2008    |  
|                                                                                                       |   | Original       |   |   |                   |   |  |     |  |   | Restated          |  
|                                                                                                       |   |                |   |   |                   |   |  |     |  |   |                   |  
|Cash flows from operating activities:                                                                  |   |                |   |   |                   |   |  |     |  |   |                   |  
|                                                                                                       |   |                |   |   |                   |   |  |     |  |   |                   |  
|Net income (loss)                                                                                      | $ | (108,918       | ) | $ | 8,455,265         |   |  |     |  | $ | 8,346,347         |  
|                                                                                                       |   |                |   |   |                   |   |  |     |  |   |                   |  
|Adjustments
      to reconcile net income to net
      cash        used in operating
      activities: |   |                |   |   |                   |   |  |     |  |   |                   |  
|Change in derivative liability                                                                         |   | -              |   |   | (8,438,912        | ) |  | (c) |  |   | (8,438,912        | )
|Changes in assets and liabilities:                                                                     |   |                |   |   |                   |   |  |     |  |   |                   |  
|(Increase) decrease in:                                                                                |   |                |   |   |                   |   |  |     |  |   |                   |  
|(Decrease) increase in
      :                                                                         |   |                |   |   |                   |   |  |     |  |   |                   |  
|Accounts payable and accrued
      liabilities                                                         |   | (79,875        | ) |   | (16,353           | ) |  | (i) |  |   | (96,228           | )
|Accrued liabilities -
      related parties                                                            |   | 112,500        |   |   | -                 |   |  |     |  |   | 112,500           |  
|                                                                                                       |   |                |   |   |                   |   |  |     |  |   |                   |  
|Net cash used in operating activities                                                                  |   | (76,293        | ) |   | -                 |   |  |     |  |   | (76,293           | )
|                                                                                                       |   |                |   |   |                   |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                     |   | 76,293         |   |   | -                 |   |  |     |  |   | 76,293            |  
|                                                                                                       |   |                |   |   |                   |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                                             |   | -              |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                       |   |                |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of
      period                                                  |   | -              |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                       |   |                |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                                                              | $ | -              |   | $ | -                 |   |  |     |  | $ | -                 |  

F-77

---

CONSOLIDATED BALANCE SHEETDECEMBER 31,
2007

|                                                                                                                        |   | December 31, |   |  |             |   |  |                   |  |   | December 31, |  
|----------------------------------------------------------------------------------------------------------------------- | - | ------------ | - |  | ----------- | - |  | ----------------- |  | - | ------------ | -
|                                                                                                                        |   | 2007         |   |  | Net Change  |   |  |                   |  |   | 2007         |  
|                                                                                                                        |   | Original     |   |  |             |   |  |                   |  |   | Restated     |  
|ASSETS                                                                                                                  |  
|                                                                                                                        |   |              |   |  |             |   |  |                   |  |   |              |  
|Total Assets                                                                                                            | $ | 208,297      |   |  | -           |   |  |                   |  | $ | 208,297      |  
|                                                                                                                        |   |              |   |  |             |   |  |                   |  |   |              |  
|                                                                                                                        |   |              |   |  |             |   |  |                   |  |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                          |  
|                                                                                                                        |   |              |   |  |             |   |  |                   |  |   |              |  
|Current Liabilities                                                                                                     |   |              |   |  |             |   |  |                   |  |   |              |  
|Accounts payable and accrued liabilties                                                                                 | $ | 3,076,624    |   |  | (1,048,488  | ) |  | (g)               |  | $ | 2,028,136    |  
|Accrued liabilties - related parties                                                                                    |   | -            |   |  | 2,446,929   |   |  | (g)               |  |   | 2,446,929    |  
|Current portion of long-term debt                                                                                       |   | 112,537      |   |  | -           |   |  | (g)               |  |   | 112,537      |  
|Notes payable - related party                                                                                           |   | -            |   |  | 162,500     |   |  | (g)               |  |   | 162,500      |  
|Convertible notes - non-related parties                                                                                 |   | -            |   |  | 794,745     |   |  | (g),(b),(d)       |  |   | 794,745      |  
|Derivative liability                                                                                                    |   | -            |   |  | 34,009,576  |   |  | (a),(c)           |  |   | 34,009,576   |  
|Total Current Liabilities                                                                                               |   | 3,189,161    |   |  | 36,365,262  |   |  |                   |  |   | 39,554,423   |  
|                                                                                                                        |   |              |   |  |             |   |  |                   |  |   |              |  
|Other liabilities                                                                                                       |   |              |   |  |             |   |  |                   |  |   |              |  
|Long-term deposits and convertible notes                                                                                |   | 217,500      |   |  | (217,500    | ) |  | (g)               |  |   | -            |  
|Convertible notes                                                                                                       |   | 399,389      |   |  | (399,389    | ) |  | (g)               |  |   | -            |  
|Convertible notes                                                                                                       |   | 195,556      |   |  | (195,556    | ) |  | (g)               |  |   | -            |  
|Convertible loans                                                                                                       |   | 2,359,135    |   |  | (2,359,135  | ) |  | (g)               |  |   | -            |  
|Total Other Liabilities                                                                                                 |   | 3,171,580    |   |  | (3,171,580  | ) |  |                   |  |   | -            |  
|                                                                                                                        |   |              |   |  |             |   |  |                   |  |   |              |  
|Total Liabilities                                                                                                       |   | 6,360,741    |   |  | 33,193,682  |   |  |                   |  |   | 39,554,423   |  
|                                                                                                                        |   |              |   |  |             |   |  |                   |  |   |              |  
|Stockholders' Equity (Deficit)                                                                                          |   |              |   |  |             |   |  |                   |  |   |              |  
|Common stock, $.001 par value, authorized
        250,000,000 shares, issued and outstanding   249,895,892
      shares |   | 249,896      |   |  | -           |   |  |                   |  |   | 249,896      |  
|Additional paid-in capital                                                                                              |   | 25,222,219   |   |  | 5,402       |   |  | (e),(f),(j),(k)   |  |   | 25,227,621   |  
|Deficit accumulated prior to entering
      development stage                                                           |   | -            |   |  | (1,057,356  | ) |  | (r)               |  |   | (1,057,356   | )
|                                                                                                                        |   |              |   |  |             |   |  | (c),(d),(e),(f)   |  |   |              |  
|                                                                                                                        |   |              |   |  |             |   |  | ,(h),(i),(j),(k), |  |   |              |  
|                                                                                                                        |   |              |   |  |             |   |  | (l),(m),(n),(o),  |  |   |              |  
|Deficit accumulated during the development
      stage                                                                  |   | (30,661,310  | ) |  | (32,141,728 | ) |  | (p)               |  |   | (62,803,038  | )
|Unrealized loss on foreign exchange                                                                                     |   | (963,249     | ) |  | -           |   |  |                   |  |   | (963,249     | )
|                                                                                                                        |   | (6,152,444   | ) |  | (33,193,682 | ) |  |                   |  |   | (39,346,126  | )
|                                                                                                                        |   |              |   |  |             |   |  |                   |  |   |              |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                              | $ | 208,297      |   |  | -           |   |  |                   |  | $ | 208,297      |  

F-78

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED DECEMBER 31, 2007

|                                                                    |   | For the Three        |   |   | For the Three        |   |  |     |  |   | **For the Three**    |  
|------------------------------------------------------------------- | - | -------------------- | - | - | -------------------- | - |  | --- |  | - | -------------------- | -
|                                                                    |   | **Months** **Ended** |   |   | **Months** **Ended** |   |  |     |  |   | **Months** **Ended** |  
|                                                                    |   | December 31,         |   |   | December 31,         |   |  |     |  |   | **December
    31,** |  
|                                                                    |   | 2007                 |   |   | 2007 - Net Change    |   |  |     |  |   | 2007                 |  
|                                                                    |   | Original             |   |   |                      |   |  |     |  |   | Restated             |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Revenues                                                            | $ | -                    |   |   | -                    |   |  |     |  | $ | -                    |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Cost of Sales                                                       |   | -                    |   |   | -                    |   |  |     |  |   | -                    |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Gross profit                                                        |   | -                    |   |   | -                    |   |  |     |  |   | -                    |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Operations                                                          |   |                      |   |   |                      |   |  |     |  |   |                      |  
|General and administrative                                          |   | 97,378               |   |   | -                    |   |  |     |  |   | 97,378               |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Total Expense                                                       |   | 97,378               |   |   | -                    |   |  |     |  |   | 97,378               |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Loss before other expenses                                          |   | (97,378              | ) |   | -                    |   |  |     |  |   | (97,378              | )
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Other expenses (income)                                             |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Interest expense                                                    |   | 11,699               |   |   | (16,353              | ) |  | (i) |  |   | (4,654               | )
|Loss (gain) on change in derivative liability                       |   | -                    |   |   | 6,082,964            |   |  | (c) |  |   | 6,082,964            |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Total Other expenses (income)                                       |   | 11,699               |   |   | 6,066,611            |   |  |     |  |   | 6,078,310            |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Provision for income taxes                                          |   | -                    |   |   | -                    |   |  |     |  |   | -                    |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Net loss                                                            |   | (109,077             | ) |   | (6,066,611           | ) |  |     |  |   | (6,175,688           | )
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Other comprehensive income (loss)                                   |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Loss (gain) on foreign exchange                                     |   | -                    |   |   | -                    |   |  |     |  |   | -                    |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Net loss and comprehensive loss                                     | $ | (109,077             | ) | $ | (6,066,611           | ) |  |     |  | $ | (6,175,688           | )
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00                | ) |   |                      |   |  |     |  | $ | (0.02                | )
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                      |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892          |   |   |                      |   |  |     |  |   | 249,895,892          |  

F-79

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED DECEMBER 31, 2007

|                                                                                                 |   | For the Three        |   |   | For the Three        |   |  |     |  |   | **For the
      Three** |  
|------------------------------------------------------------------------------------------------ | - | -------------------- | - | - | -------------------- | - |  | --- |  | - | ----------------------- | -
|                                                                                                 |   | **Months** **Ended** |   |   | **Months** **Ended** |   |  |     |  |   | **Months** **Ended**    |  
|                                                                                                 |   | December 31,         |   |   | December 31,         |   |  |     |  |   | **December
    31,**    |  
|                                                                                                 |   | 2007                 |   |   | 2007 - Net Change    |   |  |     |  |   | 2007                    |  
|                                                                                                 |   | Original             |   |   |                      |   |  |     |  |   | Restated                |  
|                                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Cash flows from operating activities:                                                            |   |                      |   |   |                      |   |  |     |  |   |                         |  
|                                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Net income (loss)                                                                                | $ | (109,077             | ) | $ | (6,066,611           | ) |  |     |  | $ | (6,175,688              | )
|                                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Adjustments to
      reconcile net income to net        cash
      used in operating activities: |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Change in derivative liability                                                                   |   | -                    |   |   | 6,082,964            |   |  | (c) |  |   | 6,082,964               |  
|Changes in assets and liabilities:                                                               |   |                      |   |   |                      |   |  |     |  |   |                         |  
|(Increase) decrease in:                                                                          |   |                      |   |   |                      |   |  |     |  |   |                         |  
|(Decrease) increase in
      :                                                                   |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Accounts payable and accrued
      liabilities                                                   |   | 4,325                |   |   | (16,353              | ) |  | (i) |  |   | (12,028                 | )
|Accrued liabilities -
      related parties                                                      |   | 112,500              |   |   | -                    |   |  |     |  |   | 112,500                 |  
|                                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Net cash used in operating activities                                                            |   | 7,748                |   |   | -                    |   |  |     |  |   | 7,748                   |  
|                                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Effect of Exchange rate changes on cash and
      cash equivalents                               |   | (7,748               | ) |   | -                    |   |  |     |  |   | (7,748                  | )
|                                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Net (decrease) increase in cash and cash
      equivalents                                       |   | -                    |   |   | -                    |   |  |     |  |   | -                       |  
|                                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Cash and cash equivalents - beginning of
      period                                            |   | -                    |   |   | -                    |   |  |     |  |   | -                       |  
|                                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Cash and cash equivalents - end of period                                                        | $ | -                    |   | $ | -                    |   |  |     |  | $ | -                       |  

F-80

---

CONSOLIDATED BALANCE SHEETSEPTEMBER 30,
2007

|                                                                                                                        |   | September 30, |   |  |             |   |  |                   |  |   | September 30, |  
|----------------------------------------------------------------------------------------------------------------------- | - | ------------- | - |  | ----------- | - |  | ----------------- |  | - | ------------- | -
|                                                                                                                        |   | 2007          |   |  | Net Change  |   |  |                   |  |   | 2007          |  
|                                                                                                                        |   | Original      |   |  |             |   |  |                   |  |   | Restated      |  
|ASSETS                                                                                                                  |  
|                                                                                                                        |   |               |   |  |             |   |  |                   |  |   |               |  
|Total Assets                                                                                                            | $ | 208,297       |   |  | -           |   |  |                   |  | $ | 208,297       |  
|                                                                                                                        |   |               |   |  |             |   |  |                   |  |   |               |  
|                                                                                                                        |   |               |   |  |             |   |  |                   |  |   |               |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                          |  
|                                                                                                                        |   |               |   |  |             |   |  |                   |  |   |               |  
|Current Liabilities                                                                                                     |   |               |   |  |             |   |  |                   |  |   |               |  
|Accounts payable and accrued liabilties                                                                                 | $ | 3,043,945     |   |  | (1,015,235  | ) |  | (g)               |  | $ | 2,028,710     |  
|Accrued liabilties - related parties                                                                                    |   | -             |   |  | 2,365,679   |   |  | (g)               |  |   | 2,365,679     |  
|Current portion of long-term debt                                                                                       |   | 112,141       |   |  | -           |   |  | (g)               |  |   | 112,141       |  
|Notes payable - related party                                                                                           |   | -             |   |  | 162,500     |   |  | (g)               |  |   | 162,500       |  
|Convertible notes - non-related parties                                                                                 |   | -             |   |  | 775,345     |   |  | (g),(b),(d)       |  |   | 775,345       |  
|Derivative liability                                                                                                    |   | -             |   |  | 27,926,612  |   |  | (a),(c)           |  |   | 27,926,612    |  
|Total Current Liabilities                                                                                               |   | 3,156,086     |   |  | 30,214,901  |   |  |                   |  |   | 33,370,987    |  
|                                                                                                                        |   |               |   |  |             |   |  |                   |  |   |               |  
|Other liabilities                                                                                                       |   |               |   |  |             |   |  |                   |  |   |               |  
|Long-term deposits and convertible notes                                                                                |   | 217,500       |   |  | (217,500    | ) |  | (g)               |  |   | -             |  
|Convertible notes                                                                                                       |   | 399,389       |   |  | (399,389    | ) |  | (g)               |  |   | -             |  
|Convertible notes                                                                                                       |   | 195,556       |   |  | (195,556    | ) |  | (g)               |  |   | -             |  
|Convertible loans                                                                                                       |   | 2,275,385     |   |  | (2,275,385  | ) |  | (g)               |  |   | -             |  
|Total Other Liabilities                                                                                                 |   | 3,087,830     |   |  | (3,087,830  | ) |  |                   |  |   | -             |  
|                                                                                                                        |   |               |   |  |             |   |  |                   |  |   |               |  
|Total Liabilities                                                                                                       |   | 6,243,916     |   |  | 27,127,071  |   |  |                   |  |   | 33,370,987    |  
|                                                                                                                        |   |               |   |  |             |   |  |                   |  |   |               |  
|Stockholders' Equity (Deficit)                                                                                          |   |               |   |  |             |   |  |                   |  |   |               |  
|Common stock, $.001 par value, authorized
        250,000,000 shares, issued and outstanding   249,895,892
      shares |   | 249,896       |   |  | -           |   |  |                   |  |   | 249,896       |  
|Additional paid-in capital                                                                                              |   | 25,222,219    |   |  | 5,402       |   |  | (e),(f),(j),(k)   |  |   | 25,227,621    |  
|Deficit accumulated prior to entering
      development stage                                                           |   | -             |   |  | (1,057,356  | ) |  | (r)               |  |   | (1,057,356    | )
|                                                                                                                        |   |               |   |  |             |   |  | (c),(d),(e),(f)   |  |   |               |  
|                                                                                                                        |   |               |   |  |             |   |  | ,(h),(i),(j),(k), |  |   |               |  
|                                                                                                                        |   |               |   |  |             |   |  | (l),(m),(n),(o)   |  |   |               |  
|Deficit accumulated during the development
      stage                                                                  |   | (30,552,233   | ) |  | (26,075,117 | ) |  | ,(p)              |  |   | (56,627,350   | )
|Unrealized loss on foreign exchange                                                                                     |   | (955,501      | ) |  | -           |   |  |                   |  |   | (955,501      | )
|                                                                                                                        |   | (6,035,619    | ) |  | (27,127,071 | ) |  |                   |  |   | (33,162,690   | )
|                                                                                                                        |   |               |   |  |             |   |  |                   |  |   |               |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                              | $ | 208,297       |   |  | -           |   |  |                   |  | $ | 208,297       |  

F-81

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2007

|                                                                    |   | For the Three        |   |   | For the Three        |   |  |     |  |   | **For the
    Three**   |  
|------------------------------------------------------------------- | - | -------------------- | - | - | -------------------- | - |  | --- |  | - | ----------------------- | -
|                                                                    |   | **Months** **Ended** |   |   | **Months** **Ended** |   |  |     |  |   | **Months** **Ended**    |  
|                                                                    |   | September 30,        |   |   | September 30,        |   |  |     |  |   | **September
      30,** |  
|                                                                    |   | 2007                 |   |   | 2007 - Net Change    |   |  |     |  |   | 2007                    |  
|                                                                    |   | Original             |   |   |                      |   |  |     |  |   | Restated                |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Revenues                                                            | $ | -                    |   |   | -                    |   |  |     |  | $ | -                       |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Cost of Sales                                                       |   | -                    |   |   | -                    |   |  |     |  |   | -                       |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Gross profit                                                        |   | -                    |   |   | -                    |   |  |     |  |   | -                       |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Operations                                                          |   |                      |   |   |                      |   |  |     |  |   |                         |  
|General and administrative                                          |   | 96,949               |   |   | -                    |   |  |     |  |   | 96,949                  |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Total Expense                                                       |   | 96,949               |   |   | -                    |   |  |     |  |   | 96,949                  |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Loss before other expenses                                          |   | (96,949              | ) |   | -                    |   |  |     |  |   | (96,949                 | )
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Other expenses (income)                                             |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Interest expense                                                    |   | 11,699               |   |   | (16,353              | ) |  | (i) |  |   | (4,654                  | )
|Loss (gain) on change in derivative liability                       |   | -                    |   |   | 21,694,974           |   |  | (c) |  |   | 21,694,974              |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Total Other expenses (income)                                       |   | 11,699               |   |   | 21,678,621           |   |  |     |  |   | 21,690,320              |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Provision for income taxes                                          |   | -                    |   |   | -                    |   |  |     |  |   | -                       |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Net loss                                                            |   | (108,648             | ) |   | (21,678,621          | ) |  |     |  |   | (21,787,269             | )
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Other comprehensive income (loss)                                   |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Loss on foreign exchange                                            |   | -                    |   |   | -                    |   |  |     |  |   | -                       |  
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Net loss and comprehensive loss                                     | $ | (108,648             | ) | $ | (21,678,621          | ) |  |     |  | $ | (21,787,269             | )
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00                | ) |   |                      |   |  |     |  | $ | (0.09                   | )
|                                                                    |   |                      |   |   |                      |   |  |     |  |   |                         |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892          |   |   |                      |   |  |     |  |   | 249,895,892             |  

F-82

---

CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007

|                                                                                                        |   | For the Three        |   |   | For the Three        |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------------------------------------------- | - | -------------------- | - | - | -------------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                        |   | **Months** **Ended** |   |   | **Months** **Ended** |   |  |     |  |   | **Months** **Ended**  |  
|                                                                                                        |   | September 30,        |   |   | September 30,        |   |  |     |  |   | **September
    30,** |  
|                                                                                                        |   | 2007                 |   |   | 2007 - Net Change    |   |  |     |  |   | 2007                  |  
|                                                                                                        |   | Original             |   |   |                      |   |  |     |  |   | Restated              |  
|                                                                                                        |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                                   |   |                      |   |   |                      |   |  |     |  |   |                       |  
|                                                                                                        |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Net income (loss)                                                                                       | $ | (108,648             | ) | $ | (21,678,621          | ) |  |     |  | $ | (21,787,269           | )
|                                                                                                        |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Adjustments
      to reconcile net income to net
      cash         used in operating
      activities: |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Change in derivative liability                                                                          |   | -                    |   |   | 21,694,974           |   |  | (c) |  |   | 21,694,974            |  
|Changes in assets and liabilities:                                                                      |   |                      |   |   |                      |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                                 |   |                      |   |   |                      |   |  |     |  |   |                       |  
|(Decrease) increase in
      :                                                                          |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Accounts payable and accrued
      liabilities                                                          |   | 258,854              |   |   | (16,353              | ) |  | (i) |  |   | 242,501               |  
|Accrued liabilities -
      related parties                                                             |   | 112,500              |   |   | -                    |   |  |     |  |   | 112,500               |  
|                                                                                                        |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                                   |   | 262,706              |   |   | -                    |   |  |     |  |   | 262,706               |  
|                                                                                                        |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | (262,706             | ) |   | -                    |   |  |     |  |   | (262,706              | )
|                                                                                                        |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                    |   |   | -                    |   |  |     |  |   | -                     |  
|                                                                                                        |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                    |   |   | -                    |   |  |     |  |   | -                     |  
|                                                                                                        |   |                      |   |   |                      |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                               | $ | -                    |   | $ | -                    |   |  |     |  | $ | -                     |  

F-83

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED JUNE 30, 2007

|                                                                          |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
      Three** |  
|------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ----------------------- | -
|                                                                          |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**        |  
|                                                                          |   | June 30,         |   |   | June 30, 2007    |   |  |     |  |   | **June
    30,**        |  
|                                                                          |   | 2007             |   |   | Net Change       |   |  |     |  |   | 2007                    |  
|                                                                          |   | Original         |   |   |                  |   |  |     |  |   | Restated                |  
|Revenues                                                                  | $ | -                |   |   | -                |   |  |     |  | $ | -                       |  
|Cost of Sales                                                             |   | -                |   |   | -                |   |  |     |  |   | -                       |  
|Gross profit                                                              |   | -                |   |   | -                |   |  |     |  |   | -                       |  
|Operations                                                                |   |                  |   |   |                  |   |  |     |  |   |                         |  
|General and administrative                                                |   | 94,124           |   |   | -                |   |  |     |  |   | 94,124                  |  
|Total Expense                                                             |   | 94,124           |   |   | -                |   |  |     |  |   | 94,124                  |  
|Loss before other expenses                                                |   | (94,124          | ) |   | -                |   |  |     |  |   | (94,124                 | )
|Other expenses (income)                                                   |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Interest expense                                                          |   | 11,698           |   |   | -                |   |  |     |  |   | 11,698                  |  
|Loss (gain) on change in derivative liability                             |   | -                |   |   | (21,005,687      | ) |  | (c) |  |   | (21,005,687             | )
|Total Other expenses (income)                                             |   | 11,698           |   |   | (21,005,687      | ) |  |     |  |   | (20,993,989             | )
|Provision for income taxes                                                |   | -                |   |   | -                |   |  |     |  |   | -                       |  
|Net income (loss)                                                         |   | (105,822         | ) |   | 21,005,687       |   |  |     |  |   | 20,899,865              |  
|Other comprehensive income (loss)                                         |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Loss (gain) on foreign exchange                                           |   | -                |   |   | -                |   |  |     |  |   | -                       |  
|Net income (loss) and comprehensive income (loss)                         | $ | (105,822         | ) | $ | 21,005,687       |   |  |     |  | $ | 20,899,865              |  
|Net income (loss) and comprehensive income
      (loss) per share - basic | $ | (0.00            | ) |   |                  |   |  |     |  | $ | 0.08                    |  
|                                                                          |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Net income (loss) and comprehensive income
      (loss) per share - basic |   |                  |   |   |                  |   |  |     |  | $ | 0.00                    |  
|                                                                          |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Weighted average number of shares - basic                                 |   | 249,895,892      |   |   |                  |   |  |     |  |   | 249,895,892             |  
|                                                                          |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Weighted average number of shares - diluted                               |   |                  |   |   |                  |   |  |     |  |   | 9,128,133,475           |  

F-84

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED JUNE 30, 2007

|                                                                   |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------ | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ----------------- | -
|                                                                   |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**  |  
|                                                                   |   | June 30,         |   |   | June 30, 2007    |   |  |     |  |   | **June 30,**      |  
|                                                                   |   | 2007             |   |   | Net Change       |   |  |     |  |   | 2007              |  
|                                                                   |   | Original         |   |   |                  |   |  |     |  |   | Restated          |  
|                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash flows from operating activities:                              |   |                  |   |   |                  |   |  |     |  |   |                   |  
|                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net income (loss)                                                  | $ | (105,822         | ) | $ | 21,005,687       |   |  |     |  | $ | 20,899,865        |  
|                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Adjustments to
      reconcile net income to net cash              |   |                  |   |   |                  |   |  |     |  |   |                   |  
|used in operating activities:                                      |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Change in derivative
      liability                               |   | -                |   |   | (21,005,687      | ) |  | (c) |  |   | (21,005,687       | )
|Changes in assets and liabilities:                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|(Increase) decrease in:                                            |   |                  |   |   |                  |   |  |     |  |   |                   |  
|(Decrease) increase in :                                           |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Accounts payable and
      accrued liabilities                     |   | 144,093          |   |   | -                |   |  |     |  |   | 144,093           |  
|Accrued liabilities - related parties                              |   | 112,500          |   |   | -                |   |  |     |  |   | 112,500           |  
|                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net cash used in operating activities                              |   | 150,771          |   |   | -                |   |  |     |  |   | 150,771           |  
|                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and cash
      equivalents |   | (150,771         | ) |   | -                |   |  |     |  |   | (150,771          | )
|                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash equivalents               |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of period                    |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                          | $ | -                |   | $ | -                |   |  |     |  | $ | -                 |  

F-85

---

CONSOLIDATED BALANCE SHEETMARCH 31,
2007

|                                                                                                                        |   | March 31,   |   |  |             |   |  |                 |  |   | March 31,   |  
|----------------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ----------- | - |  | --------------- |  | - | ----------- | -
|                                                                                                                        |   | 2007        |   |  | Net Change  |   |  |                 |  |   | 2007        |  
|                                                                                                                        |   | Original    |   |  |             |   |  |                 |  |   | Restated    |  
|ASSETS                                                                                                                  |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Assets                                                                                                            | $ | 233,297     |   |  | -           |   |  |                 |  | $ | 233,297     |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                          |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Current Liabilities                                                                                                     |   |             |   |  |             |   |  |                 |  |   |             |  
|Accounts payable and accrued liabilties                                                                                 | $ | 2,704,580   |   |  | (958,182    | ) |  | (g)             |  | $ | 1,746,398   |  
|Accrued liabilties - related parties                                                                                    |   |             |   |  | 2,203,179   |   |  | (g)             |  |   | 2,203,179   |  
|Current portion of long-term debt                                                                                       |   | 78,091      |   |  | -           |   |  | (g)             |  |   | 78,091      |  
|Notes payable - related party                                                                                           |   |             |   |  | 162,500     |   |  | (g)             |  |   | 162,500     |  
|Convertible notes - non-related parties                                                                                 |   |             |   |  | 757,145     |   |  | (g),(b),(d)     |  |   | 757,145     |  
|Derivative liability                                                                                                    |   |             |   |  | 27,237,325  |   |  | (a),(c)         |  |   | 27,237,325  |  
|Total Current Liabilities                                                                                               |   | 2,782,671   |   |  | 29,401,967  |   |  |                 |  |   | 32,184,638  |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Other liabilities                                                                                                       |   |             |   |  |             |   |  |                 |  |   |             |  
|Long-term deposits and convertible notes                                                                                |   | 217,500     |   |  | (217,500    | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                       |   | 399,389     |   |  | (399,389    | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                       |   | 195,556     |   |  | (195,556    | ) |  | (g)             |  |   | -           |  
|Convertible loans                                                                                                       |   | 2,110,385   |   |  | (2,110,385  | ) |  | (g)             |  |   | -           |  
|Total Other Liabilities                                                                                                 |   | 2,922,830   |   |  | (2,922,830  | ) |  |                 |  |   | -           |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Liabilities                                                                                                       |   | 5,705,501   |   |  | 26,479,137  |   |  |                 |  |   | 32,184,638  |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                          |   |             |   |  |             |   |  |                 |  |   |             |  
|Common stock, $.001 par value, authorized
        250,000,000 shares, issued and outstanding   249,895,892
      shares |   | 249,896     |   |  | -           |   |  |                 |  |   | 249,896     |  
|Additional paid-in capital                                                                                              |   | 25,222,219  |   |  | 5,402       |   |  | (e)             |  |   | 25,227,621  |  
|Deficit accumulated prior to entering
      development stage                                                           |   | -           |   |  | (1,057,356  | ) |  | (r)             |  |   | (1,057,356  | )
|Deficit accumulated during the development stage                                                                        |   | (30,312,763 | ) |  | (25,427,183 | ) |  | (c),(d),(e),(j) |  |   | (55,739,946 | )
|Unrealized loss on foreign exchange                                                                                     |   | (631,556    | ) |  | -           |   |  |                 |  |   | (631,556    | )
|                                                                                                                        |   | (5,472,204  | ) |  | (26,479,137 | ) |  |                 |  |   | (31,951,341 | )
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Liabilities and Stockholders' Equity (Deficit)                                                                    | $ | 233,297     |   |  | -           |   |  |                 |  | $ | 233,297     |  

F-86

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED MARCH 31, 2007

|                                                                    |   | For the Three       |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ------------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months****Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | March 31,           |   |   | March 31, 2007   |   |  |     |  |   | **March
    31,**     |  
|                                                                    |   | 2007                |   |   | Net Change       |   |  |     |  |   | 2007                  |  
|                                                                    |   | Original            |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Revenues                                                            | $ | -                   |   |   | -                |   |  |     |  | $ | -                     |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | -                   |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Gross profit                                                        |   | -                   |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Operations                                                          |   |                     |   |   |                  |   |  |     |  |   |                       |  
|General and administrative                                          |   | 93,724              |   |   | -                |   |  |     |  |   | 93,724                |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 93,724              |   |   | -                |   |  |     |  |   | 93,724                |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (93,724             | ) |   | -                |   |  |     |  |   | (93,724               | )
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 11,699              |   |   | -                |   |  |     |  |   | 11,699                |  
|Loss (gain) on change in derivative liability                       |   | -                   |   |   | 1,068,758        |   |  | (c) |  |   | 1,068,758             |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 11,699              |   |   | 1,068,758        |   |  |     |  |   | 1,080,457             |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                   |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Net loss                                                            |   | (105,423            | ) |   | (1,068,758       | ) |  |     |  |   | (1,174,181            | )
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | -                   |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (105,423            | ) | $ | (1,068,758       | ) |  |     |  | $ | (1,174,181            | )
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00               | ) |   |                  |   |  |     |  | $ | (0.00                 | )
|                                                                    |   |                     |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892         |   |   |                  |   |  |     |  |   | 249,895,892           |  

F-87

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED MARCH 31, 2007

|                                                                                                       |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the Three**   |  
|------------------------------------------------------------------------------------------------------ | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ------------------- | -
|                                                                                                       |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months****Ended** |  
|                                                                                                       |   | March 31,        |   |   | March 31, 2007   |   |  |     |  |   | **March
    31,**   |  
|                                                                                                       |   | 2007             |   |   | Net Change       |   |  |     |  |   | 2007                |  
|                                                                                                       |   | Original         |   |   |                  |   |  |     |  |   | Restated            |  
|                                                                                                       |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Cash flows from operating activities:                                                                  |   |                  |   |   |                  |   |  |     |  |   |                     |  
|                                                                                                       |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Net income (loss)                                                                                      | $ | (105,423         | ) | $ | (1,068,758       | ) |  |     |  | $ | (1,174,181          | )
|                                                                                                       |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Adjustments
      to reconcile net income to net
      cash        used in operating
      activities: |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Change in derivative liability                                                                         |   | -                |   |   | 1,068,758        |   |  | (c) |  |   | 1,068,758           |  
|Changes in assets and liabilities:                                                                     |   |                  |   |   |                  |   |  |     |  |   |                     |  
|(Increase) decrease in:                                                                                |   |                  |   |   |                  |   |  |     |  |   |                     |  
|(Decrease) increase in
      :                                                                         |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Accounts payable and accrued
      liabilities                                                         |   | 9,621            |   |   | -                |   |  |     |  |   | 9,621               |  
|Accrued liabilities -
      related parties                                                            |   | 112,500          |   |   | -                |   |  |     |  |   | 112,500             |  
|                                                                                                       |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Net cash used in operating activities                                                                  |   | 16,698           |   |   | -                |   |  |     |  |   | 16,698              |  
|                                                                                                       |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                     |   | (16,698          | ) |   | -                |   |  |     |  |   | (16,698             | )
|                                                                                                       |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Net (decrease) increase in cash and cash
      equivalents                                             |   | -                |   |   | -                |   |  |     |  |   | -                   |  
|                                                                                                       |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Cash and cash equivalents - beginning of
      period                                                  |   | -                |   |   | -                |   |  |     |  |   | -                   |  
|                                                                                                       |   |                  |   |   |                  |   |  |     |  |   |                     |  
|Cash and cash equivalents - end of period                                                              | $ | -                |   | $ | -                |   |  |     |  | $ | -                   |  

F-88

---

CONSOLIDATED BALANCE SHEETDECEMBER 31,
2006

|                                                                                                                       |   | December 31, |   |  |             |   |  |             |  |   | December 31, |  
|---------------------------------------------------------------------------------------------------------------------- | - | ------------ | - |  | ----------- | - |  | ----------- |  | - | ------------ | -
|                                                                                                                       |   | 2006         |   |  | Net Change  |   |  |             |  |   | 2006         |  
|                                                                                                                       |   | Original     |   |  |             |   |  |             |  |   | Restated     |  
|ASSETS                                                                                                                 |  
|                                                                                                                       |   |              |   |  |             |   |  |             |  |   |              |  
|Total Assets                                                                                                           | $ | 233,297      |   |  | -           |   |  |             |  | $ | 233,297      |  
|                                                                                                                       |   |              |   |  |             |   |  |             |  |   |              |  
|                                                                                                                       |   |              |   |  |             |   |  |             |  |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                         |  
|                                                                                                                       |   |              |   |  |             |   |  |             |  |   |              |  
|Current Liabilities                                                                                                    |   |              |   |  |             |   |  |             |  |   |              |  
|Accounts payable and accrued liabilties                                                                                | $ | 2,663,708    |   |  | (947,682    | ) |  | (g)         |  | $ | 1,716,026    |  
|Accrued liabilties - related parties                                                                                   |   | -            |   |  | 2,121,929   |   |  | (g)         |  |   | 2,121,929    |  
|Current portion of long-term debt                                                                                      |   | 78,091       |   |  | -           |   |  | (g)         |  |   | 78,091       |  
|Notes payable - related party                                                                                          |   | -            |   |  | 162,500     |   |  | (g)         |  |   | 162,500      |  
|Convertible notes - non-related parties                                                                                |   | -            |   |  | 746,645     |   |  | (g),(b),(d) |  |   | 746,645      |  
|Derivative liability                                                                                                   |   | -            |   |  | 26,168,567  |   |  | (a),(c)     |  |   | 26,168,567   |  
|Total Current Liabilities                                                                                              |   | 2,741,799    |   |  | 28,251,959  |   |  |             |  |   | 30,993,758   |  
|                                                                                                                       |   |              |   |  |             |   |  |             |  |   |              |  
|Other liabilities                                                                                                      |   |              |   |  |             |   |  |             |  |   |              |  
|Long-term deposits and convertible notes                                                                               |   | 217,500      |   |  | (217,500    | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                      |   | 399,389      |   |  | (399,389    | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                      |   | 195,556      |   |  | (195,556    | ) |  | (g)         |  |   | -            |  
|Convertible loans                                                                                                      |   | 2,029,135    |   |  | (2,029,135  | ) |  | (g)         |  |   | -            |  
|Total Other Liabilities                                                                                                |   | 2,841,580    |   |  | (2,841,580  | ) |  |             |  |   | -            |  
|                                                                                                                       |   |              |   |  |             |   |  |             |  |   |              |  
|Total Liabilities                                                                                                      |   | 5,583,379    |   |  | 25,410,379  |   |  |             |  |   | 30,993,758   |  
|                                                                                                                       |   |              |   |  |             |   |  |             |  |   |              |  
|Stockholders' Equity (Deficit)                                                                                         |   |              |   |  |             |   |  |             |  |   |              |  
|Common stock, $.001 par value, authorized
        250,000,000 shares, issued and outstanding  249,895,892
      shares |   | 249,896      |   |  | -           |   |  |             |  |   | 249,896      |  
|Additional paid-in capital                                                                                             |   | 25,222,219   |   |  | 5,402       |   |  | (e)         |  |   | 25,227,621   |  
|Deficit accumulated prior to entering
      development stage                                                          |   | -            |   |  | (1,057,356  | ) |  | (r)         |  |   | (1,057,356   | )
|Deficit accumulated during the development stage                                                                       |   | (30,207,340  | ) |  | (24,358,425 | ) |  | (c),(d),(e) |  |   | (54,565,765  | )
|Unrealized loss on foreign exchange                                                                                    |   | (614,857     | ) |  | -           |   |  |             |  |   | (614,857     | )
|                                                                                                                       |   | (5,350,082   | ) |  | (25,410,379 | ) |  |             |  |   | (30,760,461  | )
|                                                                                                                       |   |              |   |  |             |   |  |             |  |   |              |  
|Total Liabilities and Stockholders' Equity (Deficit)                                                                   | $ | 233,297      |   |  | -           |   |  |             |  | $ | 233,297      |  

F-89

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED DECEMBER 31, 2006

|                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**  |  
|                                                                    |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December 31,**  |  
|                                                                    |   | 2006             |   |   | 2006 - Net Change |   |  |     |  |   | 2006              |  
|                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated          |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Revenues                                                            | $ | -                |   |   | -                 |   |  |     |  | $ | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cost of Sales                                                       |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Gross profit                                                        |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Operations                                                          |   |                  |   |   |                   |   |  |     |  |   |                   |  
|General and administrative                                          |   | 127,215          |   |   | -                 |   |  |     |  |   | 127,215           |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Total Expense                                                       |   | 127,215          |   |   | -                 |   |  |     |  |   | 127,215           |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Loss before other expenses                                          |   | (127,215         | ) |   | -                 |   |  |     |  |   | (127,215          | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Other expenses (income)                                             |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Interest expense                                                    |   | 11,699           |   |   | -                 |   |  |     |  |   | 11,699            |  
|Loss (gain) on change in derivative liability                       |   | -                |   |   | 25,796,778        |   |  | (c) |  |   | 25,796,778        |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Total Other expenses (income)                                       |   | 11,699           |   |   | 25,796,778        |   |  |     |  |   | 25,808,477        |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Provision for income taxes                                          |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net loss                                                            |   | (138,914         | ) |   | (25,796,778       | ) |  |     |  |   | (25,935,692       | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Loss (gain) on foreign exchange                                     |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net loss and comprehensive loss                                     | $ | (138,914         | ) | $ | (25,796,778       | ) |  |     |  | $ | (25,935,692       | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                   |   |  |     |  | $ | (0.10             | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892      |   |   |                   |   |  |     |  |   | 249,895,892       |  

F-90

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED DECEMBER 31, 2006

|                                                                                                 |   | For the Three          |   |   | For the Three     |   |  |     |  |   | **For the
    Three**  |  
|------------------------------------------------------------------------------------------------ | - | ---------------------- | - | - | ----------------- | - |  | --- |  | - | ---------------------- | -
|                                                                                                 |   | **Months
      Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months
      Ended** |  
|                                                                                                 |   | December 31,           |   |   | December 31,      |   |  |     |  |   | **December
31,**       |  
|                                                                                                 |   | 2006                   |   |   | 2006 - Net Change |   |  |     |  |   | 2006                   |  
|                                                                                                 |   | Original               |   |   |                   |   |  |     |  |   | Restated               |  
|                                                                                                 |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Cash flows from operating activities:                                                            |   |                        |   |   |                   |   |  |     |  |   |                        |  
|                                                                                                 |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Net income (loss)                                                                                | $ | (138,914               | ) | $ | (25,796,778       | ) |  |     |  | $ | (25,935,692            | )
|                                                                                                 |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Adjustments to reconcile
      net income to net cash        used in
      operating activities: |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Change in derivative liability                                                                   |   | -                      |   |   | 25,796,778        |   |  | (c) |  |   | 25,796,778             |  
|Other non-cash items                                                                             |   | 83,500                 |   |   |                   |   |  |     |  |   | 83,500                 |  
|Changes in assets and liabilities:                                                               |   |                        |   |   |                   |   |  |     |  |   |                        |  
|(Increase) decrease in:                                                                          |   |                        |   |   |                   |   |  |     |  |   |                        |  
|(Decrease) increase in :                                                                         |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Accounts payable and
      accrued liabilities                                                   |   | (51,324                | ) |   | -                 |   |  |     |  |   | (51,324                | )
|Accrued liabilities - related parties                                                            |   | 31,250                 |   |   | -                 |   |  |     |  |   | 31,250                 |  
|                                                                                                 |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Net cash used in operating activities                                                            |   | (75,488                | ) |   | -                 |   |  |     |  |   | (75,488                | )
|                                                                                                 |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Effect of Exchange rate changes on cash and cash
      equivalents                               |   | 75,488                 |   |   | -                 |   |  |     |  |   | 75,488                 |  
|                                                                                                 |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Net (decrease) increase in cash and cash equivalents                                             |   | -                      |   |   | -                 |   |  |     |  |   | -                      |  
|                                                                                                 |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Cash and cash equivalents - beginning of period                                                  |   | -                      |   |   | -                 |   |  |     |  |   | -                      |  
|                                                                                                 |   |                        |   |   |                   |   |  |     |  |   |                        |  
|Cash and cash equivalents - end of period                                                        | $ | -                      |   | $ | -                 |   |  |     |  | $ | -                      |  

F-91

---

CONSOLIDATED BALANCE SHEETSEPTEMBER 30, 2006

|                                                                                                                        |   | September 30, |   |  |            |   |  |             |  |   | September 30, |  
|----------------------------------------------------------------------------------------------------------------------- | - | ------------- | - |  | ---------- | - |  | ----------- |  | - | ------------- | -
|                                                                                                                        |   | 2006          |   |  | Net Change |   |  |             |  |   | 2006          |  
|                                                                                                                        |   | Original      |   |  |            |   |  |             |  |   | Restated      |  
|ASSETS                                                                                                                  |  
|                                                                                                                        |   |               |   |  |            |   |  |             |  |   |               |  
|Total Assets                                                                                                            | $ | 233,297       |   |  | -          |   |  |             |  | $ | 233,297       |  
|                                                                                                                        |   |               |   |  |            |   |  |             |  |   |               |  
|                                                                                                                        |   |               |   |  |            |   |  |             |  |   |               |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                          |  
|                                                                                                                        |   |               |   |  |            |   |  |             |  |   |               |  
|Current Liabilities                                                                                                     |   |               |   |  |            |   |  |             |  |   |               |  
|Accounts payable and accrued liabilties                                                                                 | $ | 2,715,032     |   |  | (948,682   | ) |  | (g)         |  | $ | 1,766,350     |  
|Accrued liabilties - related parties                                                                                    |   | -             |   |  | 2,040,679  |   |  | (g)         |  |   | 2,040,679     |  
|Current portion of long-term debt                                                                                       |   | 78,091        |   |  | -          |   |  | (g)         |  |   | 78,091        |  
|Notes payable - related party                                                                                           |   | -             |   |  | 162,500    |   |  | (g)         |  |   | 162,500       |  
|Convertible notes - non-related parties                                                                                 |   | -             |   |  | 714,145    |   |  | (g),(b),(d) |  |   | 714,145       |  
|Derivative liability                                                                                                    |   | -             |   |  | 371,789    |   |  | (a),(c)     |  |   | 371,789       |  
|Total Current Liabilities                                                                                               |   | 2,793,123     |   |  | 2,340,431  |   |  |             |  |   | 5,133,554     |  
|                                                                                                                        |   |               |   |  |            |   |  |             |  |   |               |  
|Other liabilities                                                                                                       |   |               |   |  |            |   |  |             |  |   |               |  
|Long-term deposits and convertible notes                                                                                |   | 217,500       |   |  | (217,500   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                       |   | 399,389       |   |  | (399,389   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                       |   | 195,556       |   |  | (195,556   | ) |  | (g)         |  |   | -             |  
|Convertible loans                                                                                                       |   | 1,914,385     |   |  | (1,914,385 | ) |  | (g)         |  |   | -             |  
|Total Other Liabilities                                                                                                 |   | 2,726,830     |   |  | (2,726,830 | ) |  |             |  |   | -             |  
|                                                                                                                        |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities                                                                                                       |   | 5,519,953     |   |  | (386,399   | ) |  |             |  |   | 5,133,554     |  
|                                                                                                                        |   |               |   |  |            |   |  |             |  |   |               |  
|Stockholders' Equity (Deficit)                                                                                          |   |               |   |  |            |   |  |             |  |   |               |  
|Common stock, $.001 par value, authorized
        250,000,000 shares, issued and outstanding   249,895,892
      shares |   | 249,896       |   |  | -          |   |  |             |  |   | 249,896       |  
|Additional paid-in capital                                                                                              |   | 25,222,219    |   |  | 5,402      |   |  | (e)         |  |   | 25,227,621    |  
|Deficit accumulated prior to entering
      development stage                                                           |   | -             |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356    | )
|Deficit accumulated during the development stage                                                                        |   | (30,068,426   | ) |  | 1,438,353  |   |  | (c),(d)     |  |   | (28,630,073   | )
|Unrealized loss on foreign exchange                                                                                     |   | (690,345      | ) |  | -          |   |  |             |  |   | (690,345      | )
|                                                                                                                        |   | (5,286,656    | ) |  | 386,399    |   |  |             |  |   | (4,900,257    | )
|                                                                                                                        |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities and Stockholders' Equity (Deficit)                                                                    | $ | 233,297       |   |  | -          |   |  |             |  | $ | 233,297       |  

F-92

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2006

|                                                                            |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
      Three** |  
|--------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------------- | -
|                                                                            |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**        |  
|                                                                            |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September 30,**       |  
|                                                                            |   | 2006             |   |   | 2006 - Net Change |   |  |     |  |   | 2006                    |  
|                                                                            |   | Original         |   |   |                   |   |  |     |  |   | Restated                |  
|Revenues                                                                    | $ | -                |   |   | -                 |   |  |     |  | $ | -                       |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cost of Sales                                                               |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Gross profit                                                                |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Operations                                                                  |   |                  |   |   |                   |   |  |     |  |   |                         |  
|General and administrative                                                  |   | 93,991           |   |   | -                 |   |  |     |  |   | 93,991                  |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Total Expense                                                               |   | 93,991           |   |   | -                 |   |  |     |  |   | 93,991                  |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Loss before other expenses                                                  |   | (93,991          | ) |   | -                 |   |  |     |  |   | (93,991                 | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Other expenses (income)                                                     |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Interest expense                                                            |   | 11,699           |   |   | -                 |   |  |     |  |   | 11,699                  |  
|Loss (gain) on change in derivative liability                               |   | -                |   |   | (6,199,735        | ) |  | (c) |  |   | (6,199,735              | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Total Other expenses (income)                                               |   | 11,699           |   |   | (6,199,735        | ) |  |     |  |   | (6,188,036              | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Provision for income taxes                                                  |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net income (loss)                                                           |   | (105,690         | ) |   | 6,199,735         |   |  |     |  |   | 6,094,045               |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Other comprehensive income (loss)                                           |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Loss on foreign exchange                                                    |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net income (loss) and comprehensive income
      (loss)                     | $ | (105,690         | ) | $ | 6,199,735         |   |  |     |  | $ | 6,094,045               |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net income (loss) and comprehensive income
      (loss) per share - basic   | $ | (0.00            | ) |   |                   |   |  |     |  | $ | 0.02                    |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net income (loss) and comprehensive income
      (loss) per share - diluted |   |                  |   |   |                   |   |  |     |  | $ | 0.01                    |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Weighted average number of shares - basic                                   |   | 249,895,892      |   |   |                   |   |  |     |  |   | 249,895,892             |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Weighted average number of shares - diluted                                 |   |                  |   |   |                   |   |  |     |  |   | 623,623,021             |  

F-93

---

CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006

|                                                                                                        |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**  |  
|                                                                                                        |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September 30,** |  
|                                                                                                        |   | 2006             |   |   | 2006 - Net Change |   |  |     |  |   | 2006              |  
|                                                                                                        |   | Original         |   |   |                   |   |  |     |  |   | Restated          |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                   |   |  |     |  |   |                   |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net income (loss)                                                                                       | $ | (105,690         | ) | $ | 6,199,735         |   |  |     |  | $ | 6,094,045         |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Adjustments
      to reconcile net income to net
      cash         used in operating
      activities: |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Change in derivative liability                                                                          |   | -                |   |   | (6,199,735        | ) |  | (c) |  |   | (6,199,735        | )
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                   |   |  |     |  |   |                   |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|(Decrease) increase in
      :                                                                          |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Accounts payable and accrued
      liabilities                                                          |   | 21,990           |   |   | -                 |   |  |     |  |   | 21,990            |  
|Accrued liabilities -
      related parties                                                             |   | 81,250           |   |   | -                 |   |  |     |  |   | 81,250            |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net cash used in operating activities                                                                   |   | (2,450           | ) |   | -                 |   |  |     |  |   | (2,450            | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | 2,450            |   |   | -                 |   |  |     |  |   | 2,450             |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                                                               | $ | -                |   | $ | -                 |   |  |     |  | $ | -                 |  

F-94

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED JUNE 30, 2006

|                                                              |   | For the Three    |   |   | For the Three        |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------- | - | ---------------- | - | - | -------------------- | - |  | --- |  | - | --------------------- | -
|                                                              |   | **Months
Ended** |   |   | **Months
    Ended** |   |  |     |  |   | **Months
Ended**      |  
|                                                              |   | June 30,         |   |   | June 30, 2006        |   |  |     |  |   | June 30,              |  
|                                                              |   | 2006             |   |   | Net Change           |   |  |     |  |   | 2006                  |  
|                                                              |   | Original         |   |   |                      |   |  |     |  |   | Restated              |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Revenues                                                      | $ | -                |   |   | -                    |   |  |     |  | $ | -                     |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Cost of Sales                                                 |   | -                |   |   | -                    |   |  |     |  |   | -                     |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Gross profit                                                  |   | -                |   |   | -                    |   |  |     |  |   | -                     |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Operations                                                    |   |                  |   |   |                      |   |  |     |  |   |                       |  
|General and administrative                                    |   | (209,562         | ) |   | -                    |   |  |     |  |   | (209,562              | )
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Total Expense                                                 |   | (209,562         | ) |   | -                    |   |  |     |  |   | (209,562              | )
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Income before other expenses                                  |   | 209,562          |   |   | -                    |   |  |     |  |   | 209,562               |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Other expenses (income)                                       |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Interest expense                                              |   | 11,698           |   |   | -                    |   |  |     |  |   | 11,698                |  
|Loss (gain) on change in derivative
      liability           |   | -                |   |   | (25,519,178          | ) |  | (c) |  |   | (25,519,178           | )
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Total Other expenses (income)                                 |   | 11,698           |   |   | (25,519,178          | ) |  |     |  |   | (25,507,480           | )
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Provision for income taxes                                    |   | -                |   |   | -                    |   |  |     |  |   | -                     |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Net income                                                    |   | 197,864          |   |   | 25,519,178           |   |  |     |  |   | 25,717,042            |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                             |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Loss (gain) on foreign
      exchange                         |   | -                |   |   | -                    |   |  |     |  |   | -                     |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Net income and comprehensive
      income                     | $ | 197,864          |   | $ | 25,519,178           |   |  |     |  | $ | 25,717,042            |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Net income and comprehensive
      income per share - basic   | $ | 0.00             |   |   |                      |   |  |     |  | $ | 0.10                  |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Net income and comprehensive
      income per share - diluted | $ | 0.00             |   |   |                      |   |  |     |  | $ | 0.04                  |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Weighted average number of
      shares - basic               |   | 249,895,892      |   |   |                      |   |  |     |  |   | 249,895,892           |  
|                                                              |   |                  |   |   |                      |   |  |     |  |   |                       |  
|Weighted average number of
      shares - diluted             |   | 664,391,517      |   |   |                      |   |  |     |  |   | 664,391,517           |  

F-95

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED JUNE 30, 2006

|                                                                                                        |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
      Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ----------------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**        |  
|                                                                                                        |   | June 30,         |   |   | June 30, 2006    |   |  |     |  |   | **June
    30,**        |  
|                                                                                                        |   | 2006             |   |   | Net Change       |   |  |     |  |   | 2006                    |  
|                                                                                                        |   | Original         |   |   |                  |   |  |     |  |   | Restated                |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                  |   |  |     |  |   |                         |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Net income (loss)                                                                                       | $ | 197,864          |   | $ | 25,519,178       |   |  |     |  | $ | 25,717,042              |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Change in derivative liability                                                                          |   | -                |   |   | (25,519,178      | ) |  | (c) |  |   | (25,519,178             | )
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                  |   |  |     |  |   |                         |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                         |  
|(Decrease) increase in
      :                                                                          |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Accounts payable and accrued
      liabilities                                                          |   | 171,061          |   |   | -                |   |  |     |  |   | 171,061                 |  
|Accrued liabilities -
      related parties                                                             |   | (287,500         | ) |   | -                |   |  |     |  |   | (287,500                | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Net cash used in operating activities                                                                   |   | 81,425           |   |   | -                |   |  |     |  |   | 81,425                  |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | (81,425          | ) |   | -                |   |  |     |  |   | (81,425                 | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                |   |   | -                |   |  |     |  |   | -                       |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                |   |   | -                |   |  |     |  |   | -                       |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                         |  
|Cash and cash equivalents - end of period                                                               | $ | -                |   | $ | -                |   |  |     |  | $ | -                       |  

F-96

---

CONSOLIDATED BALANCE SHEETMARCH 31,
2006

|                                                                                                                        |   | March 31,   |   |  |             |   |  |                 |  |   | March 31,   |  
|----------------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ----------- | - |  | --------------- |  | - | ----------- | -
|                                                                                                                        |   | 2006        |   |  | Net Change  |   |  |                 |  |   | 2006        |  
|                                                                                                                        |   | Original    |   |  |             |   |  |                 |  |   | Restated    |  
|ASSETS                                                                                                                  |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Assets                                                                                                            | $ | 233,297     |   |  | -           |   |  |                 |  | $ | 233,297     |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                          |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Current Liabilities                                                                                                     |   |             |   |  |             |   |  |                 |  |   |             |  
|Accounts payable and accrued liabilties                                                                                 | $ | 2,526,981   |   |  | (921,982    | ) |  | (g)             |  | $ | 1,604,999   |  
|Accrued liabilties - related parties                                                                                    |   |             |   |  | 2,241,929   |   |  | (g)             |  |   | 2,241,929   |  
|Current portion of long-term debt                                                                                       |   | 78,091      |   |  | -           |   |  | (g)             |  |   | 78,091      |  
|Notes payable - related party                                                                                           |   |             |   |  | 162,500     |   |  | (g)             |  |   | 162,500     |  
|Convertible notes - non-related parties                                                                                 |   |             |   |  | 687,445     |   |  | (g),(b),(d)     |  |   | 687,445     |  
|Derivative liability                                                                                                    |   |             |   |  | 32,090,702  |   |  | (a),(c)         |  |   | 32,090,702  |  
|Total Current Liabilities                                                                                               |   | 2,605,072   |   |  | 34,260,594  |   |  |                 |  |   | 36,865,666  |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Other liabilities                                                                                                       |   |             |   |  |             |   |  |                 |  |   |             |  
|Long-term deposits and convertible notes                                                                                |   | 217,500     |   |  | (217,500    | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                       |   | 399,389     |   |  | (399,389    | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                       |   | 195,556     |   |  | (195,556    | ) |  | (g)             |  |   | -           |  
|Convertible loans                                                                                                       |   | 2,115,635   |   |  | (2,115,635  | ) |  | (g)             |  |   | -           |  
|Total Other Liabilities                                                                                                 |   | 2,928,080   |   |  | (2,928,080  | ) |  |                 |  |   | -           |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Liabilities                                                                                                       |   | 5,533,152   |   |  | 31,332,514  |   |  |                 |  |   | 36,865,666  |  
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                          |   |             |   |  |             |   |  |                 |  |   |             |  
|Common stock, $.001 par value, authorized
        250,000,000 shares, issued and outstanding   249,895,892
      shares |   | 249,896     |   |  | -           |   |  |                 |  |   | 249,896     |  
|Additional paid-in capital                                                                                              |   | 25,222,219  |   |  | 5,402       |   |  | (e)             |  |   | 25,227,621  |  
|Deficit accumulated prior to entering
      development stage                                                           |   | -           |   |  | (1,057,356  | ) |  | (r)             |  |   | (1,057,356  | )
|Deficit accumulated during the development stage                                                                        |   | (30,160,600 | ) |  | (30,280,560 | ) |  | (c),(d),(e),(j) |  |   | (60,441,160 | )
|Unrealized loss on foreign exchange                                                                                     |   | (611,370    | ) |  | -           |   |  |                 |  |   | (611,370    | )
|                                                                                                                        |   | (5,299,855  | ) |  | (31,332,514 | ) |  |                 |  |   | (36,632,369 | )
|                                                                                                                        |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Liabilities and Stockholders' Equity (Deficit)                                                                    | $ | 233,297     |   |  | -           |   |  |                 |  | $ | 233,297     |  

F-97

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED MARCH 31, 2006

|                                                                    |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ----------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**  |  
|                                                                    |   | March 31,        |   |   | March 31, 2006   |   |  |     |  |   | **March 31,**     |  
|                                                                    |   | 2006             |   |   | Net Change       |   |  |     |  |   | 2006              |  
|                                                                    |   | Original         |   |   |                  |   |  |     |  |   | Restated          |  
|Revenues                                                            | $ | -                |   |   | -                |   |  |     |  | $ | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cost of Sales                                                       |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Gross profit                                                        |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Operations                                                          |   |                  |   |   |                  |   |  |     |  |   |                   |  
|General and administrative                                          |   | 117,564          |   |   | -                |   |  |     |  |   | 117,564           |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Total Expense                                                       |   | 117,564          |   |   | -                |   |  |     |  |   | 117,564           |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Loss before other expenses                                          |   | (117,564         | ) |   | -                |   |  |     |  |   | (117,564          | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Other expenses (income)                                             |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Interest expense                                                    |   | 11,699           |   |   | -                |   |  |     |  |   | 11,699            |  
|Loss (gain) on change in derivative liability                       |   | -                |   |   | 31,063,252       |   |  | (c) |  |   | 31,063,252        |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Total Other expenses (income)                                       |   | 11,699           |   |   | 31,063,252       |   |  |     |  |   | 31,074,951        |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Provision for income taxes                                          |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net loss                                                            |   | (129,263         | ) |   | (31,063,252      | ) |  |     |  |   | (31,192,515       | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Loss (gain) on foreign exchange                                     |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net loss and comprehensive loss                                     | $ | (129,263         | ) | $ | (31,063,252      | ) |  |     |  | $ | (31,192,515       | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                  |   |  |     |  | $ | (0.12             | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892      |   |   |                  |   |  |     |  |   | 249,895,892       |  

F-98

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED MARCH 31, 2006

|                                                                                                        |   | For the Three          |   |   | For the Three          |   |  |     |  |   | **For the
    Three**  |  
|------------------------------------------------------------------------------------------------------- | - | ---------------------- | - | - | ---------------------- | - |  | --- |  | - | ---------------------- | -
|                                                                                                        |   | **Months
      Ended** |   |   | **Months
      Ended** |   |  |     |  |   | **Months
      Ended** |  
|                                                                                                        |   | March 31,              |   |   | March 31, 2006         |   |  |     |  |   | **March
      31,**    |  
|                                                                                                        |   | 2006                   |   |   | Net Change             |   |  |     |  |   | 2006                   |  
|                                                                                                        |   | Original               |   |   |                        |   |  |     |  |   | Restated               |  
|                                                                                                        |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Cash flows from operating activities:                                                                   |   |                        |   |   |                        |   |  |     |  |   |                        |  
|                                                                                                        |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Net income (loss)                                                                                       | $ | (129,263               | ) | $ | (31,063,252            | ) |  |     |  | $ | (31,192,515            | )
|                                                                                                        |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Change in derivative liability                                                                          |   | -                      |   |   | 31,063,252             |   |  | (c) |  |   | 31,063,252             |  
|Changes in assets and liabilities:                                                                      |   |                        |   |   |                        |   |  |     |  |   |                        |  
|(Increase) decrease in:                                                                                 |   |                        |   |   |                        |   |  |     |  |   |                        |  
|(Decrease) increase in
      :                                                                          |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Accounts payable and accrued
      liabilities                                                          |   | 16,677                 |   |   | -                      |   |  |     |  |   | 16,677                 |  
|Accrued liabilities -
      related parties                                                             |   | 105,000                |   |   | -                      |   |  |     |  |   | 105,000                |  
|                                                                                                        |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Net cash used in operating activities                                                                   |   | (7,586                 | ) |   | -                      |   |  |     |  |   | (7,586                 | )
|                                                                                                        |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | 7,586                  |   |   | -                      |   |  |     |  |   | 7,586                  |  
|                                                                                                        |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                      |   |   | -                      |   |  |     |  |   | -                      |  
|                                                                                                        |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                      |   |   | -                      |   |  |     |  |   | -                      |  
|                                                                                                        |   |                        |   |   |                        |   |  |     |  |   |                        |  
|Cash and cash equivalents - end of period                                                               | $ | -                      |   | $ | -                      |   |  |     |  | $ | -                      |  

F-99

---

CONSOLIDATED BALANCE SHEETDECEMBER 31,
2005

|                                                                                                                  |   | December 31, |   |  |            |   |  |             |  |   | December 31, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------ | - |  | ---------- | - |  | ----------- |  | - | ------------ | -
|                                                                                                                  |   | 2005         |   |  | Net Change |   |  |             |  |   | 2005         |  
|                                                                                                                  |   | Original     |   |  |            |   |  |             |  |   | Restated     |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Assets                                                                                                      | $ | 233,297      |   |  | -          |   |  |             |  | $ | 233,297      |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|LIABILITIES AND STOCKHOLDERS'
      EQUITY (DEFICIT)                                                              |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Current Liabilities                                                                                               |   |              |   |  |            |   |  |             |  |   |              |  
|Accounts payable and accrued liabilties                                                                           | $ | 2,510,304    |   |  | (904,482   | ) |  | (g)         |  | $ | 1,605,822    |  
|Accrued liabilties - related parties                                                                              |   | -            |   |  | 2,136,929  |   |  | (g)         |  |   | 2,136,929    |  
|Current portion of long-term debt                                                                                 |   | 78,091       |   |  | -          |   |  | (g)         |  |   | 78,091       |  
|Notes payable - related party                                                                                     |   | -            |   |  | 162,500    |   |  | (g)         |  |   | 162,500      |  
|Convertible notes - non-related parties                                                                           |   | -            |   |  | 669,945    |   |  | (g),(b),(d) |  |   | 669,945      |  
|Derivative liability                                                                                              |   | -            |   |  | 1,027,450  |   |  | (a),(c)     |  |   | 1,027,450    |  
|Total Current Liabilities                                                                                         |   | 2,588,395    |   |  | 3,092,342  |   |  |             |  |   | 5,680,737    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Other liabilities                                                                                                 |   |              |   |  |            |   |  |             |  |   |              |  
|Long-term deposits and convertible notes                                                                          |   | 217,500      |   |  | (217,500   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 399,389      |   |  | (399,389   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 195,556      |   |  | (195,556   | ) |  | (g)         |  |   | -            |  
|Convertible loans                                                                                                 |   | 2,010,635    |   |  | (2,010,635 | ) |  | (g)         |  |   | -            |  
|Total Other Liabilities                                                                                           |   | 2,823,080    |   |  | (2,823,080 | ) |  |             |  |   | -            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities                                                                                                 |   | 5,411,475    |   |  | 269,262    |   |  |             |  |   | 5,680,737    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Stockholders' Equity (Deficit)                                                                                    |   |              |   |  |            |   |  |             |  |   |              |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896      |   |  | -          |   |  |             |  |   | 249,896      |  
|Additional paid-in capital                                                                                        |   | 25,222,219   |   |  | 5,402      |   |  | (e)         |  |   | 25,227,621   |  
|Deficit accumulated prior to entering development stage                                                           |   | -            |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356   | )
|Deficit accumulated during the development
      stage                                                            |   | (30,031,337  | ) |  | 782,692    |   |  | (c),(d),(e) |  |   | (29,248,645  | )
|Unrealized loss on foreign exchange                                                                               |   | (618,956     | ) |  | -          |   |  |             |  |   | (618,956     | )
|                                                                                                                  |   | (5,178,178   | ) |  | (269,262   | ) |  |             |  |   | (5,447,440   | )
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 233,297      |   |  | -          |   |  |             |  | $ | 233,297      |  

F-100

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED DECEMBER 31,
2005

|                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
      Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**        |  
|                                                                    |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December
      31,**  |  
|                                                                    |   | 2005             |   |   | 2005 - Net Change |   |  |     |  |   | 2005                    |  
|                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated                |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Revenues                                                            | $ | -                |   |   | -                 |   |  |     |  | $ | -                       |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cost of Sales                                                       |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Gross profit                                                        |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Operations                                                          |   |                  |   |   |                   |   |  |     |  |   |                         |  
|General and administrative                                          |   | 138,950          |   |   | -                 |   |  |     |  |   | 138,950                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Total Expense                                                       |   | 138,950          |   |   | -                 |   |  |     |  |   | 138,950                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Loss before other expenses                                          |   | (138,950         | ) |   | -                 |   |  |     |  |   | (138,950                | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Other expenses (income)                                             |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Interest expense                                                    |   | 11,699           |   |   | -                 |   |  |     |  |   | 11,699                  |  
|Loss (gain) on change in derivative liability                       |   | -                |   |   | 43,118            |   |  | (c) |  |   | 43,118                  |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Total Other expenses (income)                                       |   | 11,699           |   |   | 43,118            |   |  |     |  |   | 54,817                  |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Provision for income taxes                                          |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net loss                                                            |   | (150,649         | ) |   | (43,118           | ) |  |     |  |   | (193,767                | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Loss (gain) on foreign exchange                                     |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net loss and comprehensive loss                                     | $ | (150,649         | ) | $ | (43,118           | ) |  |     |  | $ | (193,767                | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                   |   |  |     |  | $ | (0.00                   | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892      |   |   |                   |   |  |     |  |   | 249,895,892             |  

F-101

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED DECEMBER 31, 2005

|                                                                                                        |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                                                        |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December
    31,**  |  
|                                                                                                        |   | 2005             |   |   | 2005 - Net Change |   |  |     |  |   | 2005                  |  
|                                                                                                        |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                   |   |  |     |  |   |                       |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss)                                                                                       | $ | (150,649         | ) | $ | (43,118           | ) |  |     |  | $ | (193,767              | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Adjustments
      to reconcile net income to net
      cash         used in operating
      activities: |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Change in derivative liability                                                                          |   | -                |   |   | 43,118            |   |  | (c) |  |   | 43,118                |  
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                   |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                       |  
|(Decrease) increase in
      :                                                                          |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Accounts payable and accrued
      liabilities                                                          |   | 45,447           |   |   | -                 |   |  |     |  |   | 45,447                |  
|Accrued liabilities -
      related parties                                                             |   | 105,000          |   |   | -                 |   |  |     |  |   | 105,000               |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                                   |   | (202             | ) |   | -                 |   |  |     |  |   | (202                  | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | 202              |   |   | -                 |   |  |     |  |   | 202                   |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                               | $ | -                |   | $ | -                 |   |  |     |  | $ | -                     |  

F-102

---

CONSOLIDATED BALANCE SHEETSEPTEMBER 30,
2005

|                                                                                                                  |   | September 30, |   |  |            |   |  |             |  |   | September 30, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------- | - |  | ---------- | - |  | ----------- |  | - | ------------- | -
|                                                                                                                  |   | 2005          |   |  | Net Change |   |  |             |  |   | 2005          |  
|                                                                                                                  |   | Original      |   |  |            |   |  |             |  |   | Restated      |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Assets                                                                                                      | $ | 233,297       |   |  | -          |   |  |             |  | $ | 233,297       |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|LIABILITIES AND STOCKHOLDERS'
      EQUITY (DEFICIT)                                                              |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Current Liabilities                                                                                               |   |               |   |  |            |   |  |             |  |   |               |  
|Accounts payable and accrued liabilties                                                                           | $ | 2,464,858     |   |  | (884,482   | ) |  | (g)         |  | $ | 1,580,376     |  
|Accrued liabilties - related parties                                                                              |   | -             |   |  | 2,031,929  |   |  | (g)         |  |   | 2,031,929     |  
|Current portion of long-term debt                                                                                 |   | 78,091        |   |  | -          |   |  | (g)         |  |   | 78,091        |  
|Notes payable - related party                                                                                     |   | -             |   |  | 162,500    |   |  | (g)         |  |   | 162,500       |  
|Convertible notes - non-related parties                                                                           |   | -             |   |  | 649,945    |   |  | (g),(b),(d) |  |   | 649,945       |  
|Derivative liability                                                                                              |   | -             |   |  | 984,332    |   |  | (a),(c)     |  |   | 984,332       |  
|Total Current Liabilities                                                                                         |   | 2,542,949     |   |  | 2,944,224  |   |  |             |  |   | 5,487,173     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Other liabilities                                                                                                 |   |               |   |  |            |   |  |             |  |   |               |  
|Long-term deposits and convertible notes                                                                          |   | 217,500       |   |  | (217,500   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 399,389       |   |  | (399,389   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 195,556       |   |  | (195,556   | ) |  | (g)         |  |   | -             |  
|Convertible loans                                                                                                 |   | 1,905,635     |   |  | (1,905,635 | ) |  | (g)         |  |   | -             |  
|Total Other Liabilities                                                                                           |   | 2,718,080     |   |  | (2,718,080 | ) |  |             |  |   | -             |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities                                                                                                 |   | 5,261,029     |   |  | 226,144    |   |  |             |  |   | 5,487,173     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Stockholders' Equity (Deficit)                                                                                    |   |               |   |  |            |   |  |             |  |   |               |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896       |   |  | -          |   |  |             |  |   | 249,896       |  
|Additional paid-in capital                                                                                        |   | 25,222,219    |   |  | 5,402      |   |  | (e)         |  |   | 25,227,621    |  
|Deficit accumulated prior to entering development stage                                                           |   | -             |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356    | )
|Deficit accumulated during the development
      stage                                                            |   | (29,880,688   | ) |  | 825,810    |   |  | (c),(d)     |  |   | (29,054,878   | )
|Unrealized loss on foreign exchange                                                                               |   | (619,159      | ) |  | -          |   |  |             |  |   | (619,159      | )
|                                                                                                                  |   | (5,027,732    | ) |  | (226,144   | ) |  |             |  |   | (5,253,876    | )
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 233,297       |   |  | -          |   |  |             |  | $ | 233,297       |  

F-103

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2005

|                                                                            |   | For the Three       |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|--------------------------------------------------------------------------- | - | ------------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                            |   | **Months****Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                            |   | September 30,       |   |   | September 30,     |   |  |     |  |   | **September 30,**     |  
|                                                                            |   | 2005                |   |   | 2005 - Net Change |   |  |     |  |   | 2005                  |  
|                                                                            |   | Original            |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Revenues                                                                    | $ | -                   |   |   | -                 |   |  |     |  | $ | -                     |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Cost of Sales                                                               |   | -                   |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Gross profit                                                                |   | -                   |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Operations                                                                  |   |                     |   |   |                   |   |  |     |  |   |                       |  
|General and administrative                                                  |   | 126,825             |   |   | -                 |   |  |     |  |   | 126,825               |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Total Expense                                                               |   | 126,825             |   |   | -                 |   |  |     |  |   | 126,825               |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Loss before other expenses                                                  |   | (126,825            | ) |   | -                 |   |  |     |  |   | (126,825              | )
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Other expenses (income)                                                     |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Interest expense                                                            |   | 11,699              |   |   | -                 |   |  |     |  |   | 11,699                |  
|Loss (gain) on change in derivative liability                               |   | -                   |   |   | (8,431,805        | ) |  | (c) |  |   | (8,431,805            | )
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Total Other expenses (income)                                               |   | 11,699              |   |   | (8,431,805        | ) |  |     |  |   | (8,420,106            | )
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Provision for income taxes                                                  |   | -                   |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss)                                                           |   | (138,524            | ) |   | 8,431,805         |   |  |     |  |   | 8,293,281             |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                           |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Loss on foreign exchange                                                    |   | -                   |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss)                     | $ | (138,524            | ) | $ | 8,431,805         |   |  |     |  | $ | 8,293,281             |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - basic   | $ | (0.00               | ) |   |                   |   |  |     |  | $ | 0.03                  |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - diluted |   |                     |   |   |                   |   |  |     |  | $ | 0.00                  |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - basic                                   |   | 249,895,892         |   |   |                   |   |  |     |  |   | 249,895,892           |  
|                                                                            |   |                     |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - diluted                                 |   |                     |   |   |                   |   |  |     |  |   | 10,095,154,240        |  

F-104

---

CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR THE THREE MONTHS ENDED SEPTEMBER 30,
2005

|                                                                   |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three**   |  
|------------------------------------------------------------------ | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------------- | -
|                                                                   |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**        |  
|                                                                   |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September
      30,** |  
|                                                                   |   | 2005             |   |   | 2005 - Net Change |   |  |     |  |   | 2005                    |  
|                                                                   |   | Original         |   |   |                   |   |  |     |  |   | Restated                |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash flows from operating activities:                              |   |                  |   |   |                   |   |  |     |  |   |                         |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net income (loss)                                                  | $ | (138,524         | ) | $ | 8,431,805         |   |  |     |  | $ | 8,293,281               |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Adjustments to
      reconcile net income to net cash              |   |                  |   |   |                   |   |  |     |  |   |                         |  
|used in operating activities:                                      |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Change in derivative
      liability                               |   | -                |   |   | (8,431,805        | ) |  | (c) |  |   | (8,431,805              | )
|Changes in assets and liabilities:                                 |   |                  |   |   |                   |   |  |     |  |   |                         |  
|(Increase) decrease in:                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|(Decrease) increase in :                                           |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Accounts payable and
      accrued liabilities                     |   | 61,833           |   |   | -                 |   |  |     |  |   | 61,833                  |  
|Accrued liabilities - related parties                              |   | 155,000          |   |   | -                 |   |  |     |  |   | 155,000                 |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net cash used in operating activities                              |   | 78,309           |   |   | -                 |   |  |     |  |   | 78,309                  |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash flow from financing activities:                               |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Proceeds from notes
      payable                                  |   | 10,000           |   |   | -                 |   |  |     |  |   | 10,000                  |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net cash provided by financing activities                          |   | 10,000           |   |   | -                 |   |  |     |  |   | 10,000                  |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Effect of Exchange rate changes on cash and
      cash equivalents |   | (88,309          | ) |   | -                 |   |  |     |  |   | (88,309                 | )
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net (decrease) increase in cash and cash
      equivalents         |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash and cash equivalents - beginning of
      period              |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash and cash equivalents - end of period                          | $ | -                |   | $ | -                 |   |  |     |  | $ | -                       |  

F-105

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED JUNE 30, 2005

|                                                                            |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|--------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                            |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                            |   | June 30,         |   |   | June 30, 2005    |   |  |     |  |   | **June 30,**          |  
|                                                                            |   | 2005             |   |   | Net Change       |   |  |     |  |   | 2005                  |  
|                                                                            |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Revenues                                                                    | $ | -                |   |   | -                |   |  |     |  | $ | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cost of Sales                                                               |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Gross profit                                                                |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Operations                                                                  |   |                  |   |   |                  |   |  |     |  |   |                       |  
|General and administrative                                                  |   | 136,551          |   |   | -                |   |  |     |  |   | 136,551               |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Expense                                                               |   | 136,551          |   |   | -                |   |  |     |  |   | 136,551               |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss before other expenses                                                  |   | (136,551         | ) |   | -                |   |  |     |  |   | (136,551              | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other expenses (income)                                                     |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Interest expense                                                            |   | 26,487           |   |   | -                |   |  |     |  |   | 26,487                |  
|Loss (gain) on change in derivative liability                               |   | -                |   |   | (58,272,817      | ) |  | (c) |  |   | (58,272,817           | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Other expenses (income)                                               |   | 26,487           |   |   | (58,272,817      | ) |  |     |  |   | (58,246,330           | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Provision for income taxes                                                  |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                           |   | (163,038         | ) |   | 58,272,817       |   |  |     |  |   | 58,109,779            |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                             |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss)                     | $ | (163,038         | ) | $ | 58,272,817       |   |  |     |  | $ | 58,109,779            |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - basic   | $ | (0.00            | ) |   |                  |   |  |     |  | $ | 0.23                  |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - diluted |   |                  |   |   |                  |   |  |     |  | $ | 0.01                  |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - basic                                   |   | 249,895,892      |   |   |                  |   |  |     |  |   | 249,895,892           |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - diluted                                 |   |                  |   |   |                  |   |  |     |  |   | 9,667,970,892         |  

F-106

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED JUNE 30, 2005

|                                                                                                 |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------------------------------------ | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ----------------- | -
|                                                                                                 |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**  |  
|                                                                                                 |   | June 30,         |   |   | June 30, 2005    |   |  |     |  |   | **June 30,**      |  
|                                                                                                 |   | 2005             |   |   | Net Change       |   |  |     |  |   | 2005              |  
|                                                                                                 |   | Original         |   |   |                  |   |  |     |  |   | Restated          |  
|                                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash flows from operating activities:                                                            |   |                  |   |   |                  |   |  |     |  |   |                   |  
|                                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net income (loss)                                                                                | $ | (163,038         | ) | $ | 58,272,817       |   |  |     |  | $ | 58,109,779        |  
|                                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Adjustments to
      reconcile net income to net cash       
      used in operating activities: |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Change in derivative liability                                                                   |   | -                |   |   | (58,272,817      | ) |  | (c) |  |   | (58,272,817       | )
|Changes in assets and liabilities:                                                               |   |                  |   |   |                  |   |  |     |  |   |                   |  
|(Increase) decrease in:                                                                          |   |                  |   |   |                  |   |  |     |  |   |                   |  
|(Decrease) increase in
      :                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Accounts payable and accrued
      liabilities                                                   |   | (12,581          | ) |   | -                |   |  |     |  |   | (12,581           | )
|Accrued liabilities -
      related parties                                                      |   | 155,000          |   |   | -                |   |  |     |  |   | 155,000           |  
|                                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net cash used in operating activities                                                            |   | (20,619          | ) |   | -                |   |  |     |  |   | (20,619           | )
|                                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                               |   | 20,619           |   |   | -                |   |  |     |  |   | 20,619            |  
|                                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                                       |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of
      period                                            |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                                                        | $ | -                |   | $ | -                |   |  |     |  | $ | -                 |  

F-107

---

CONSOLIDATED BALANCE SHEETMARCH 31,
2005

|                                                                                                                  |   | March 31,   |   |  |             |   |  |                 |  |   | March 31,   |  
|----------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ----------- | - |  | --------------- |  | - | ----------- | -
|                                                                                                                  |   | 2005        |   |  | Net Change  |   |  |                 |  |   | 2005        |  
|                                                                                                                  |   | Original    |   |  |             |   |  |                 |  |   | Restated    |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Assets                                                                                                      | $ | 233,298     |   |  | -           |   |  |                 |  | $ | 233,298     |  
|                                                                                                                  |   |             |   |  |             |   |  |                 |  |   |             |  
|LIABILITIES AND STOCKHOLDERS'
      EQUITY (DEFICIT)                                                              |  
|                                                                                                                  |   |             |   |  |             |   |  |                 |  |   |             |  
|Current Liabilities                                                                                               |   |             |   |  |             |   |  |                 |  |   |             |  
|Accounts payable and accrued liabilties                                                                           | $ | 2,315,605   |   |  | (884,482    | ) |  | (g)             |  | $ | 1,431,123   |  
|Accrued liabilties - related parties                                                                              |   |             |   |  | 1,634,962   |   |  | (g)             |  |   | 1,634,962   |  
|Current portion of long-term debt                                                                                 |   | 78,091      |   |  | -           |   |  | (g)             |  |   | 78,091      |  
|Notes payable - related party                                                                                     |   |             |   |  | 162,500     |   |  | (g)             |  |   | 162,500     |  
|Convertible notes - non-related parties                                                                           |   |             |   |  | 826,912     |   |  | (g),(b),(d)     |  |   | 826,912     |  
|Derivative liability                                                                                              |   |             |   |  | 67,688,954  |   |  | (a),(c)         |  |   | 67,688,954  |  
|Total Current Liabilities                                                                                         |   | 2,393,696   |   |  | 69,428,846  |   |  |                 |  |   | 71,822,542  |  
|                                                                                                                  |   |             |   |  |             |   |  |                 |  |   |             |  
|Other liabilities                                                                                                 |   |             |   |  |             |   |  |                 |  |   |             |  
|Long-term deposits and convertible notes                                                                          |   | 217,500     |   |  | (217,500    | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                 |   | 586,356     |   |  | (586,356    | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                 |   | 185,556     |   |  | (185,556    | ) |  | (g)             |  |   | -           |  
|Convertible loans                                                                                                 |   | 1,508,668   |   |  | (1,508,668  | ) |  | (g)             |  |   | -           |  
|Total Other Liabilities                                                                                           |   | 2,498,080   |   |  | (2,498,080  | ) |  |                 |  |   | -           |  
|                                                                                                                  |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Liabilities                                                                                                 |   | 4,891,776   |   |  | 66,930,766  |   |  |                 |  |   | 71,822,542  |  
|                                                                                                                  |   |             |   |  |             |   |  |                 |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                    |   |             |   |  |             |   |  |                 |  |   |             |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896     |   |  | -           |   |  |                 |  |   | 249,896     |  
|Additional paid-in capital                                                                                        |   | 25,222,219  |   |  | 5,402       |   |  | (e)             |  |   | 25,227,621  |  
|Deficit accumulated prior to entering development stage                                                           |   | -           |   |  | (1,057,356  | ) |  | (r)             |  |   | (1,057,356  | )
|Deficit accumulated during the development
      stage                                                            |   | (29,579,126 | ) |  | (65,878,812 | ) |  | (c),(d),(e),(j) |  |   | (95,457,938 | )
|Unrealized loss on foreign exchange                                                                               |   | (551,467    | ) |  | -           |   |  |                 |  |   | (551,467    | )
|                                                                                                                  |   | (4,658,478  | ) |  | (66,930,766 | ) |  |                 |  |   | (71,589,244 | )
|                                                                                                                  |   |             |   |  |             |   |  |                 |  |   |             |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 233,298     |   |  | -           |   |  |                 |  | $ | 233,298     |  

F-108

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED MARCH 31, 2005

|                                                                    |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | March 31,        |   |   | March 31, 2005   |   |  |     |  |   | **March
      31,**   |  
|                                                                    |   | 2005             |   |   | Net Change       |   |  |     |  |   | 2005                  |  
|                                                                    |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Revenues                                                            | $ | -                |   |   | -                |   |  |     |  | $ | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Gross profit                                                        |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |   |                  |   |  |     |  |   |                       |  
|General and administrative                                          |   | 116,705          |   |   | -                |   |  |     |  |   | 116,705               |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 116,705          |   |   | -                |   |  |     |  |   | 116,705               |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (116,705         | ) |   | -                |   |  |     |  |   | (116,705              | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 8,711            |   |   | -                |   |  |     |  |   | 8,711                 |  
|Loss (gain) on change in derivative liability                       |   | -                |   |   | 66,759,770       |   |  | (c) |  |   | 66,759,770            |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 8,711            |   |   | 66,759,770       |   |  |     |  |   | 66,768,481            |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net loss                                                            |   | (125,416         | ) |   | (66,759,770      | ) |  |     |  |   | (66,885,186           | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (125,416         | ) | $ | (66,759,770      | ) |  |     |  | $ | (66,885,186           | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                  |   |  |     |  | $ | (0.27                 | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892      |   |   |                  |   |  |     |  |   | 249,895,892           |  

F-109

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED MARCH 31, 2005

|                                                                                                        |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ----------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**  |  
|                                                                                                        |   | March 31,        |   |   | March 31, 2005   |   |  |     |  |   | **March 31,**     |  
|                                                                                                        |   | 2005             |   |   | Net Change       |   |  |     |  |   | 2005              |  
|                                                                                                        |   | Original         |   |   |                  |   |  |     |  |   | Restated          |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net income (loss)                                                                                       | $ | (125,416         | ) | $ | (66,759,770      | ) |  |     |  | $ | (66,885,186       | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Change in derivative liability                                                                          |   | -                |   |   | 66,759,770       |   |  | (c) |  |   | 66,759,770        |  
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                  |   |  |     |  |   |                   |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|(Decrease) increase in
      :                                                                          |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Accounts payable and accrued
      liabilities                                                          |   | (39,766          | ) |   | -                |   |  |     |  |   | (39,766           | )
|Accrued liabilities -
      related parties                                                             |   | 155,000          |   |   | -                |   |  |     |  |   | 155,000           |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net cash used in operating activities                                                                   |   | (10,182          | ) |   | -                |   |  |     |  |   | (10,182           | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | 10,182           |   |   | -                |   |  |     |  |   | 10,182            |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                                                               | $ | -                |   | $ | -                |   |  |     |  | $ | -                 |  

F-110

---

CONSOLIDATED BALANCE SHEETDECEMBER 31,
2004

|                                                                                                                  |   | December 31, |   |  |            |   |  |             |  |   | December 31, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------ | - |  | ---------- | - |  | ----------- |  | - | ------------ | -
|                                                                                                                  |   | 2004         |   |  | Net Change |   |  |             |  |   | 2004         |  
|                                                                                                                  |   | Original     |   |  |            |   |  |             |  |   | Restated     |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Assets                                                                                                      | $ | 233,297      |   |  | -          |   |  |             |  | $ | 233,297      |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|LIABILITIES AND STOCKHOLDERS'
      EQUITY (DEFICIT)                                                              |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Current Liabilities                                                                                               |   |              |   |  |            |   |  |             |  |   |              |  
|Accounts payable and accrued liabilties                                                                           | $ | 2,305,370    |   |  | (884,482   | ) |  | (g)         |  | $ | 1,420,888    |  
|Accrued liabilties - related parties                                                                              |   | -            |   |  | 1,529,962  |   |  | (g)         |  |   | 1,529,962    |  
|Current portion of long-term debt                                                                                 |   | 78,091       |   |  | -          |   |  | (g)         |  |   | 78,091       |  
|Notes payable - related party                                                                                     |   | -            |   |  | 162,500    |   |  | (g)         |  |   | 162,500      |  
|Convertible notes - non-related parties                                                                           |   | -            |   |  | 826,912    |   |  | (g),(b),(d) |  |   | 826,912      |  
|Derivative liability                                                                                              |   | -            |   |  | 929,184    |   |  | (a),(c)     |  |   | 929,184      |  
|Total Current Liabilities                                                                                         |   | 2,383,461    |   |  | 2,564,076  |   |  |             |  |   | 4,947,537    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Other liabilities                                                                                                 |   |              |   |  |            |   |  |             |  |   |              |  
|Long-term deposits and convertible notes                                                                          |   | 217,500      |   |  | (217,500   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 586,356      |   |  | (586,356   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 185,556      |   |  | (185,556   | ) |  | (g)         |  |   | -            |  
|Convertible loans                                                                                                 |   | 1,403,668    |   |  | (1,403,668 | ) |  | (g)         |  |   | -            |  
|Total Other Liabilities                                                                                           |   | 2,393,080    |   |  | (2,393,080 | ) |  |             |  |   | -            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities                                                                                                 |   | 4,776,541    |   |  | 170,996    |   |  |             |  |   | 4,947,537    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Stockholders' Equity (Deficit)                                                                                    |   |              |   |  |            |   |  |             |  |   |              |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896      |   |  | -          |   |  |             |  |   | 249,896      |  
|Additional paid-in capital                                                                                        |   | 25,222,219   |   |  | 5,402      |   |  | (e)         |  |   | 25,227,621   |  
|Deficit accumulated prior to entering development stage                                                           |   | -            |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356   | )
|Deficit accumulated during the development
      stage                                                            |   | (29,453,710  | ) |  | 880,958    |   |  | (c),(d),(e) |  |   | (28,572,752  | )
|Unrealized loss on foreign exchange                                                                               |   | (561,649     | ) |  | -          |   |  |             |  |   | (561,649     | )
|                                                                                                                  |   | (4,543,244   | ) |  | (170,996   | ) |  |             |  |   | (4,714,240   | )
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 233,297      |   |  | -          |   |  |             |  | $ | 233,297      |  

F-111

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED DECEMBER 31,
2004

|                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December 31,**      |  
|                                                                    |   | 2004             |   |   | 2004 - Net Change |   |  |     |  |   | 2004                  |  
|                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Revenues                                                            | $ | -                |   |   | -                 |   |  |     |  | $ | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Gross profit                                                        |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |   |                   |   |  |     |  |   |                       |  
|General and administrative                                          |   | 150,485          |   |   | -                 |   |  |     |  |   | 150,485               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 150,485          |   |   | -                 |   |  |     |  |   | 150,485               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (150,485         | ) |   | -                 |   |  |     |  |   | (150,485              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 8,711            |   |   | -                 |   |  |     |  |   | 8,711                 |  
|Loss (gain) on change in derivative liability                       |   | -                |   |   | 38,641            |   |  | (c) |  |   | 38,641                |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 8,711            |   |   | 38,641            |   |  |     |  |   | 47,352                |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss                                                            |   | (159,196         | ) |   | (38,641           | ) |  |     |  |   | (197,837              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (159,196         | ) | $ | (38,641           | ) |  |     |  | $ | (197,837              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                   |   |  |     |  | $ | (0.00                 | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892      |   |   |                   |   |  |     |  |   | 249,895,892           |  

F-112

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED DECEMBER 31, 2004

|                                                                                                        |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**  |  
|                                                                                                        |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December 31,**  |  
|                                                                                                        |   | 2004             |   |   | 2004 - Net Change |   |  |     |  |   | 2004              |  
|                                                                                                        |   | Original         |   |   |                   |   |  |     |  |   | Restated          |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                   |   |  |     |  |   |                   |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net income (loss)                                                                                       | $ | (159,196         | ) | $ | (38,641           | ) |  |     |  | $ | (197,837          | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Change in derivative liability                                                                          |   | -                |   |   | 38,641            |   |  | (c) |  |   | 38,641            |  
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                   |   |  |     |  |   |                   |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|(Decrease) increase in
      :                                                                          |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Accounts payable and accrued
      liabilities                                                          |   | 28,680           |   |   | -                 |   |  |     |  |   | 28,680            |  
|Accrued liabilities -
      related parties                                                             |   | 207,500          |   |   | -                 |   |  |     |  |   | 207,500           |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net cash used in operating activities                                                                   |   | 76,984           |   |   | -                 |   |  |     |  |   | 76,984            |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | (76,984          | ) |   | -                 |   |  |     |  |   | (76,984           | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                                                               | $ | -                |   | $ | -                 |   |  |     |  | $ | -                 |  

F-113

---

CONSOLIDATED BALANCE SHEETSEPTEMBER 30,
2004

|                                                                                                                  |   | September 30, |   |  |            |   |  |             |  |   | September 30, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------- | - |  | ---------- | - |  | ----------- |  | - | ------------- | -
|                                                                                                                  |   | 2004          |   |  | Net Change |   |  |             |  |   | 2004          |  
|                                                                                                                  |   | Original      |   |  |            |   |  |             |  |   | Restated      |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Assets                                                                                                      | $ | 233,297       |   |  | -          |   |  |             |  | $ | 233,297       |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|LIABILITIES AND STOCKHOLDERS'
      EQUITY (DEFICIT)                                                              |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Current Liabilities                                                                                               |   |               |   |  |            |   |  |             |  |   |               |  
|Accounts payable and accrued liabilties                                                                           | $ | 2,207,940     |   |  | (884,482   | ) |  | (g)         |  | $ | 1,323,458     |  
|Accrued liabilties - related parties                                                                              |   | -             |   |  | 1,391,212  |   |  | (g)         |  |   | 1,391,212     |  
|Current portion of long-term debt                                                                                 |   | 78,091        |   |  | -          |   |  | (g)         |  |   | 78,091        |  
|Notes payable - related party                                                                                     |   | -             |   |  | 162,500    |   |  | (g)         |  |   | 162,500       |  
|Convertible notes - non-related parties                                                                           |   | -             |   |  | 826,912    |   |  | (g),(b),(d) |  |   | 826,912       |  
|Derivative liability                                                                                              |   | -             |   |  | 890,543    |   |  | (a),(c)     |  |   | 890,543       |  
|Total Current Liabilities                                                                                         |   | 2,286,031     |   |  | 2,386,685  |   |  |             |  |   | 4,672,716     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Other liabilities                                                                                                 |   |               |   |  |            |   |  |             |  |   |               |  
|Long-term deposits and convertible notes                                                                          |   | 217,500       |   |  | (217,500   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 586,356       |   |  | (586,356   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 185,556       |   |  | (185,556   | ) |  | (g)         |  |   | -             |  
|Convertible loans                                                                                                 |   | 1,264,918     |   |  | (1,264,918 | ) |  | (g)         |  |   | -             |  
|Total Other Liabilities                                                                                           |   | 2,254,330     |   |  | (2,254,330 | ) |  |             |  |   | -             |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities                                                                                                 |   | 4,540,361     |   |  | 132,355    |   |  |             |  |   | 4,672,716     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Stockholders' Equity (Deficit)                                                                                    |   |               |   |  |            |   |  |             |  |   |               |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896       |   |  | -          |   |  |             |  |   | 249,896       |  
|Additional paid-in capital                                                                                        |   | 25,222,219    |   |  | 5,402      |   |  | (e)         |  |   | 25,227,621    |  
|Deficit accumulated prior to entering development stage                                                           |   | -             |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356    | )
|Deficit accumulated during the development
      stage                                                            |   | (29,294,514   | ) |  | 919,599    |   |  | (c),(d)     |  |   | (28,374,915   | )
|Unrealized loss on foreign exchange                                                                               |   | (484,665      | ) |  | -          |   |  |             |  |   | (484,665      | )
|                                                                                                                  |   | (4,307,064    | ) |  | (132,355   | ) |  |             |  |   | (4,439,419    | )
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 233,297       |   |  | -          |   |  |             |  | $ | 233,297       |  

F-114

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2004

|                                                                            |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|--------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                            |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                            |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September 30,**     |  
|                                                                            |   | 2004             |   |   | 2004 - Net Change |   |  |     |  |   | 2004                  |  
|                                                                            |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Revenues                                                                    | $ | -                |   |   | -                 |   |  |     |  | $ | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cost of Sales                                                               |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Gross profit                                                                |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Operations                                                                  |   |                  |   |   |                   |   |  |     |  |   |                       |  
|General and administrative                                                  |   | 120,405          |   |   | -                 |   |  |     |  |   | 120,405               |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Expense                                                               |   | 120,405          |   |   | -                 |   |  |     |  |   | 120,405               |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss before other expenses                                                  |   | (120,405         | ) |   | -                 |   |  |     |  |   | (120,405              | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other expenses (income)                                                     |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Interest expense                                                            |   | 8,711            |   |   | -                 |   |  |     |  |   | 8,711                 |  
|Loss (gain) on change in derivative liability                               |   | -                |   |   | (1,384,768        | ) |  | (c) |  |   | (1,384,768            | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Other expenses (income)                                               |   | 8,711            |   |   | (1,384,768        | ) |  |     |  |   | (1,376,057            | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Provision for income taxes                                                  |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss)                                                           |   | (129,116         | ) |   | 1,384,768         |   |  |     |  |   | 1,255,652             |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                           |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss on foreign exchange                                                    |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss)                     | $ | (129,116         | ) | $ | 1,384,768         |   |  |     |  | $ | 1,255,652             |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - basic   | $ | (0.00            | ) |   |                   |   |  |     |  | $ | 0.01                  |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - diluted |   |                  |   |   |                   |   |  |     |  | $ | 0.00                  |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - basic                                   |   | 249,895,892      |   |   |                   |   |  |     |  |   | 249,895,892           |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - diluted                                 |   |                  |   |   |                   |   |  |     |  |   | 9,155,758,747         |  

F-115

---

CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR THE THREE MONTHS ENDED SEPTEMBER 30,
2004

|                                                                                                        |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**  |  
|                                                                                                        |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September 30,** |  
|                                                                                                        |   | 2004             |   |   | 2004 - Net Change |   |  |     |  |   | 2004              |  
|                                                                                                        |   | Original         |   |   |                   |   |  |     |  |   | Restated          |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                   |   |  |     |  |   |                   |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net income (loss)                                                                                       | $ | (129,116         | ) | $ | 1,384,768         |   |  |     |  | $ | 1,255,652         |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Change in derivative liability                                                                          |   | -                |   |   | (1,384,768        | ) |  | (c) |  |   | (1,384,768        | )
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                   |   |  |     |  |   |                   |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|(Decrease) increase in
      :                                                                          |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Accounts payable and accrued
      liabilities                                                          |   | 168,900          |   |   | -                 |   |  |     |  |   | 168,900           |  
|Accrued liabilities -
      related parties                                                             |   | 43,750           |   |   | -                 |   |  |     |  |   | 43,750            |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net cash used in operating activities                                                                   |   | 83,534           |   |   | -                 |   |  |     |  |   | 83,534            |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | (83,534          | ) |   | -                 |   |  |     |  |   | (83,534           | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                                                               | $ | -                |   | $ | -                 |   |  |     |  | $ | -                 |  

F-116

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED JUNE 30, 2004

|                                                                            |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|--------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                            |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                            |   | June 30,         |   |   | June 30, 2004    |   |  |     |  |   | June 30,              |  
|                                                                            |   | 2004             |   |   | Net Change       |   |  |     |  |   | 2004                  |  
|                                                                            |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Revenues                                                                    | $ | -                |   |   | -                |   |  |     |  | $ | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cost of Sales                                                               |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Gross profit                                                                |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Operations                                                                  |   |                  |   |   |                  |   |  |     |  |   |                       |  
|General and administrative                                                  |   | 272,589          |   |   | -                |   |  |     |  |   | 272,589               |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Expense                                                               |   | 272,589          |   |   | -                |   |  |     |  |   | 272,589               |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss before other expenses                                                  |   | (272,589         | ) |   | -                |   |  |     |  |   | (272,589              | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other expenses (income)                                                     |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Interest expense                                                            |   | 30,970           |   |   | 250              |   |  | (e) |  |   | 31,220                |  
|Loss (gain) on change in derivative liability                               |   | -                |   |   | 78,249           |   |  | (c) |  |   | 78,249                |  
|Loss (gain) from extinguishment of
      debt                               |   | (1,047,921       | ) |   | -                |   |  |     |  |   | (1,047,921            | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Other expenses (income)                                               |   | (1,016,951       | ) |   | 78,499           |   |  |     |  |   | (938,452              | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Provision for income taxes                                                  |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                           |   | 744,362          |   |   | (78,499          | ) |  |     |  |   | 665,863               |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                             |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income (loss)                           | $ | 744,362          |   | $ | (78,499          | ) |  |     |  | $ | 665,863               |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income (loss) per share
      - basic   | $ | 0.00             |   |   |                  |   |  |     |  | $ | 0.00                  |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income (loss) per share
      - diluted | $ | 0.00             |   |   |                  |   |  |     |  | $ | 0.00                  |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - basic                                   |   | 249,895,892      |   |   |                  |   |  |     |  |   | 249,895,892           |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - diluted                                 |   | 1,101,590,892    |   |   |                  |   |  |     |  |   | 1,101,590,892         |  

F-117

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED JUNE 30, 2004

|                                                                                                   |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|-------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                   |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                                                   |   | June 30,         |   |   | June 30, 2004    |   |  |     |  |   | **June
    30,**      |  
|                                                                                                   |   | 2004             |   |   | Net Change       |   |  |     |  |   | 2004                  |  
|                                                                                                   |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                              |   |                  |   |   |                  |   |  |     |  |   |                       |  
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income
      (loss)                                                                            | $ | 744,362          |   | $ | (78,499          | ) |  |     |  | $ | 665,863               |  
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Adjustments to reconcile net income to net cash
               used in operating
      activities: |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Imputed interest                                                                                   |   | -                |   |   | 250              |   |  | (e) |  |   | 250                   |  
|Impairment of
      fixed assets                                                                   |   | 25,000           |   |   | -                |   |  |     |  |   | 25,000                |  
|(Gain) from extinguishment of
      debt                                                           |   | (1,047,921       | ) |   | -                |   |  |     |  |   | (1,047,921            | )
|Change in
      derivative liability                                                               |   | -                |   |   | 78,249           |   |  | (c) |  |   | 78,249                |  
|Changes in assets and liabilities:                                                                 |   |                  |   |   |                  |   |  |     |  |   |                       |  
|(Increase)
      decrease in:                                                                      |   |                  |   |   |                  |   |  |     |  |   |                       |  
|(Decrease) increase in :                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Accounts payable
      and accrued liabilities                                                     |   | 183,723          |   |   | -                |   |  |     |  |   | 183,723               |  
|Accrued liabilities - related
      parties                                                        |   | 87,500           |   |   | -                |   |  |     |  |   | 87,500                |  
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                              |   | (7,336           | ) |   | -                |   |  |     |  |   | (7,336                | )
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and cash
      equivalents                                 |   | 7,336            |   |   | -                |   |  |     |  |   | 7,336                 |  
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash
      equivalents                                         |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of
      period                                              |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                          | $ | -                |   | $ | -                |   |  |     |  | $ | -                     |  

F-118

---

CONSOLIDATED BALANCE SHEETMARCH 31,
2004

|                                                                                                                  |   | March 31,   |   |  |            |   |  |                 |  |   | March 31,   |  
|----------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | --------------- |  | - | ----------- | -
|                                                                                                                  |   | 2004        |   |  | Net Change |   |  |                 |  |   | 2004        |  
|                                                                                                                  |   | Original    |   |  |            |   |  |                 |  |   | Restated    |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Assets                                                                                                      | $ | 233,297     |   |  | -          |   |  |                 |  | $ | 233,297     |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                    |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Current Liabilities                                                                                               |   |             |   |  |            |   |  |                 |  |   |             |  
|Accounts payable and accrued liabilties                                                                           | $ | 2,005,897   |   |  | (24,277    | ) |  | (g)             |  | $ | 1,981,620   |  
|Accrued liabilties - related parties                                                                              |   |             |   |  | 1,200,712  |   |  | (g)             |  |   | 1,200,712   |  
|Current portion of long-term debt                                                                                 |   | 126,625     |   |  | 34,580     |   |  | (g)             |  |   | 161,205     |  
|Notes payable - related party                                                                                     |   |             |   |  | 162,500    |   |  | (g)             |  |   | 162,500     |  
|Convertible notes - non-related parties                                                                           |   |             |   |  | 826,912    |   |  | (g),(b),(d)     |  |   | 826,912     |  
|Derivative liability                                                                                              |   |             |   |  | 2,197,062  |   |  | (a),(c)         |  |   | 2,197,062   |  
|Total Current Liabilities                                                                                         |   | 2,132,522   |   |  | 4,397,489  |   |  |                 |  |   | 6,530,011   |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Other liabilities                                                                                                 |   |             |   |  |            |   |  |                 |  |   |             |  
|Long-term deposits and convertible notes                                                                          |   | 217,500     |   |  | (217,500   | ) |  | (g)             |  |   | -           |  
|Long term debt (net of current)                                                                                   |   | 34,580      |   |  | (34,580    | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                 |   | 586,356     |   |  | (586,356   | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                 |   | 185,556     |   |  | (185,556   | ) |  | (g)             |  |   | -           |  
|Convertible loans                                                                                                 |   | 1,076,173   |   |  | (1,076,173 | ) |  | (g)             |  |   | -           |  
|Total Other Liabilities                                                                                           |   | 2,100,165   |   |  | (2,100,165 | ) |  |                 |  |   | -           |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Liabilities                                                                                                 |   | 4,232,687   |   |  | 2,297,324  |   |  |                 |  |   | 6,530,011   |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                    |   |             |   |  |            |   |  |                 |  |   |             |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896     |   |  | -          |   |  |                 |  |   | 249,896     |  
|Additional paid-in capital                                                                                        |   | 25,222,219  |   |  | 5,152      |   |  | (e)             |  |   | 25,227,371  |  
|Deficit accumulated prior to entering development stage                                                           |   | -           |   |  | (1,057,356 | ) |  | (r)             |  |   | (1,057,356  | )
|Deficit accumulated during the development
      stage                                                            |   | (29,051,310 | ) |  | (1,245,120 | ) |  | (c),(d),(e),(j) |  |   | (30,296,430 | )
|Unrealized loss on foreign exchange                                                                               |   | (420,195    | ) |  | -          |   |  |                 |  |   | (420,195    | )
|                                                                                                                  |   | (3,999,390  | ) |  | (2,297,324 | ) |  |                 |  |   | (6,296,714  | )
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 233,297     |   |  | -          |   |  |                 |  | $ | 233,297     |  

F-119

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED MARCH 31, 2004

|                                                                            |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|--------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                            |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                            |   | March 31,        |   |   | March 31, 2004   |   |  |     |  |   | March 31,             |  
|                                                                            |   | 2004             |   |   | Net Change       |   |  |     |  |   | 2004                  |  
|                                                                            |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Revenues                                                                    | $ | -                |   |   | -                |   |  |     |  | $ | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cost of Sales                                                               |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Gross profit                                                                |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Operations                                                                  |   |                  |   |   |                  |   |  |     |  |   |                       |  
|General and administrative                                                  |   | 124,033          |   |   | -                |   |  |     |  |   | 124,033               |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Expense                                                               |   | 124,033          |   |   | -                |   |  |     |  |   | 124,033               |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss before other expenses                                                  |   | (124,033         | ) |   | -                |   |  |     |  |   | (124,033              | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other expenses (income)                                                     |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Interest expense                                                            |   | 14,845           |   |   | 250              |   |  | (e) |  |   | 15,095                |  
|Loss (gain) on change in derivative liability                               |   | -                |   |   | (1,759,984       | ) |  | (c) |  |   | (1,759,984            | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Other expenses (income)                                               |   | 14,845           |   |   | (1,759,734       | ) |  |     |  |   | (1,744,889            | )
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Provision for income taxes                                                  |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                           |   | (138,878         | ) |   | 1,759,734        |   |  |     |  |   | 1,620,856             |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                             |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss)                     | $ | (138,878         | ) | $ | 1,759,734        |   |  |     |  | $ | 1,620,856             |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - basic   | $ | (0.00            | ) |   |                  |   |  |     |  | $ | 0.01                  |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - diluted |   |                  |   |   |                  |   |  |     |  | $ | 0.00                  |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - basic                                   |   | 249,895,892      |   |   |                  |   |  |     |  |   | 249,895,892           |  
|                                                                            |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - diluted                                 |   |                  |   |   |                  |   |  |     |  |   | 1,349,364,848         |  

F-120

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED MARCH 31, 2004

|                                                                                                    |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|--------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                    |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                                                    |   | March 31,        |   |   | March 31, 2004   |   |  |     |  |   | **March
      31,**   |  
|                                                                                                    |   | 2004             |   |   | Net Change       |   |  |     |  |   | 2004                  |  
|                                                                                                    |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                               |   |                  |   |   |                  |   |  |     |  |   |                       |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income
      (loss)                                                                             | $ | (138,878         | ) | $ | 1,759,734        |   |  |     |  | $ | 1,620,856             |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Adjustments to reconcile net income to net cash
                used in
      operating activities: |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Imputed interest                                                                                    |   | -                |   |   | 250              |   |  | (e) |  |   | 250                   |  
|Change in
      derivative liability                                                                |   | -                |   |   | (1,759,984       | ) |  | (c) |  |   | (1,759,984            | )
|Changes in assets and liabilities:                                                                  |   |                  |   |   |                  |   |  |     |  |   |                       |  
|(Increase)
      decrease in:                                                                       |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Sales tax receivable                                                                                |   | 36               |   |   | -                |   |  |     |  |   | 36                    |  
|(Decrease)
      increase in :                                                                      |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Accounts payable and accrued
      liabilities                                                      |   | 33,176           |   |   | -                |   |  |     |  |   | 33,176                |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                               |   | (105,666         | ) |   | -                |   |  |     |  |   | (105,666              | )
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from financing activities:                                                                |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loans from
      related parties                                                                    |   | 90,006           |   |   | -                |   |  |     |  |   | 90,006                |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash provided by financing activities                                                           |   | 90,006           |   |   | -                |   |  |     |  |   | 90,006                |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                  |   | 15,660           |   |   | -                |   |  |     |  |   | 15,660                |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash
      equivalents                                          |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of
      period                                               |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                           | $ | -                |   | $ | -                |   |  |     |  | $ | -                     |  

F-121

---

CONSOLIDATED BALANCE SHEETDECEMBER 31,
2003

|                                                                                                                  |   | December 31, |   |  |            |   |  |             |  |   | December 31, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------ | - |  | ---------- | - |  | ----------- |  | - | ------------ | -
|                                                                                                                  |   | 2003         |   |  | Net Change |   |  |             |  |   | 2003         |  
|                                                                                                                  |   | Original     |   |  |            |   |  |             |  |   | Restated     |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Assets                                                                                                      | $ | 233,333      |   |  | -          |   |  |             |  | $ | 233,333      |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Current Liabilities                                                                                               |   |              |   |  |            |   |  |             |  |   |              |  
|Accounts payable and accrued liabilties                                                                           | $ | 1,972,721    |   |  | (24,277    | ) |  | (g)         |  | $ | 1,948,444    |  
|Accrued liabilties - related parties                                                                              |   | -            |   |  | 1,106,962  |   |  | (g)         |  |   | 1,106,962    |  
|Current portion of long-term debt                                                                                 |   | 77,869       |   |  | 87,080     |   |  | (g)         |  |   | 164,949      |  
|Notes payable - related party                                                                                     |   | -            |   |  | 162,500    |   |  | (g)         |  |   | 162,500      |  
|Convertible notes - non-related parties                                                                           |   | -            |   |  | 826,912    |   |  | (g),(b),(d) |  |   | 826,912      |  
|Derivative liability                                                                                              |   | -            |   |  | 3,957,046  |   |  | (a),(c)     |  |   | 3,957,046    |  
|Total Current Liabilities                                                                                         |   | 2,050,590    |   |  | 6,116,223  |   |  |             |  |   | 8,166,813    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Other liabilities                                                                                                 |   |              |   |  |            |   |  |             |  |   |              |  
|Long-term deposits and convertible notes                                                                          |   | 217,500      |   |  | (217,500   | ) |  | (g)         |  |   | -            |  
|Long term debt (net of current)                                                                                   |   | 87,080       |   |  | (87,080    | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 586,356      |   |  | (586,356   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 185,556      |   |  | (185,556   | ) |  | (g)         |  |   | -            |  
|Convertible loans                                                                                                 |   | 982,423      |   |  | (982,423   | ) |  | (g)         |  |   | -            |  
|Total Other Liabilities                                                                                           |   | 2,058,915    |   |  | (2,058,915 | ) |  |             |  |   | -            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities                                                                                                 |   | 4,109,505    |   |  | 4,057,308  |   |  |             |  |   | 8,166,813    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Stockholders' Equity (Deficit)                                                                                    |   |              |   |  |            |   |  |             |  |   |              |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896      |   |  | -          |   |  |             |  |   | 249,896      |  
|Additional paid-in capital                                                                                        |   | 25,222,219   |   |  | 4,902      |   |  | (e)         |  |   | 25,227,121   |  
|Deficit accumulated prior to entering development stage                                                           |   | -            |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356   | )
|Deficit accumulated during the development
      stage                                                            |   | (28,912,432  | ) |  | (3,004,854 | ) |  | (c),(d),(e) |  |   | (31,917,286  | )
|Unrealized loss on foreign exchange                                                                               |   | (435,855     | ) |  | -          |   |  |             |  |   | (435,855     | )
|                                                                                                                  |   | (3,876,172   | ) |  | (4,057,308 | ) |  |             |  |   | (7,933,480   | )
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 233,333      |   |  | -          |   |  |             |  | $ | 233,333      |  

F-122

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED DECEMBER 31,
2003

|                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December 31,**      |  
|                                                                    |   | 2003             |   |   | 2003 - Net Change |   |  |     |  |   | 2003                  |  
|                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Revenues                                                            | $ | -                |   |   | -                 |   |  |     |  | $ | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Gross profit                                                        |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |   |                   |   |  |     |  |   |                       |  
|General and administrative                                          |   | 123,574          |   |   | -                 |   |  |     |  |   | 123,574               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 123,574          |   |   | -                 |   |  |     |  |   | 123,574               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (123,574         | ) |   | -                 |   |  |     |  |   | (123,574              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 14,942           |   |   | 250               |   |  | (e) |  |   | 15,192                |  
|Loss (gain) on change in derivative liability                       |   | -                |   |   | 2,740,476         |   |  | (c) |  |   | 2,740,476             |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 14,942           |   |   | 2,740,726         |   |  |     |  |   | 2,755,668             |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss                                                            |   | (138,516         | ) |   | (2,740,726        | ) |  |     |  |   | (2,879,242            | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (138,516         | ) | $ | (2,740,726        | ) |  |     |  | $ | (2,879,242            | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                   |   |  |     |  | $ | (0.01                 | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 249,895,892      |   |   |                   |   |  |     |  |   | 249,895,892           |  

F-123

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED DECEMBER 31, 2003

|                                                                                                 |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------------------------------------ | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------- | -
|                                                                                                 |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**  |  
|                                                                                                 |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December 31,**  |  
|                                                                                                 |   | 2003             |   |   | 2003 - Net Change |   |  |     |  |   | 2003              |  
|                                                                                                 |   | Original         |   |   |                   |   |  |     |  |   | Restated          |  
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash flows from operating activities:                                                            |   |                  |   |   |                   |   |  |     |  |   |                   |  
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net income (loss)                                                                                | $ | (138,516         | ) | $ | (2,740,726        | ) |  |     |  | $ | (2,879,242        | )
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Adjustments to
      reconcile net income to net cash       
      used in operating activities: |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Imputed interest                                                                                 |   | -                |   |   | 250               |   |  | (e) |  |   | 250               |  
|Change in derivative
      liability                                                             |   | -                |   |   | 2,740,476         |   |  | (c) |  |   | 2,740,476         |  
|Changes in assets and liabilities:                                                               |   |                  |   |   |                   |   |  |     |  |   |                   |  
|(Increase) decrease in:                                                                          |   |                  |   |   |                   |   |  |     |  |   |                   |  
|(Decrease) increase in :                                                                         |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Accounts payable and
      accrued liabilities                                                   |   | 59,355           |   |   | -                 |   |  |     |  |   | 59,355            |  
|Accrued liabilities - related parties                                                            |   | 43,750           |   |   | -                 |   |  |     |  |   | 43,750            |  
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net cash used in operating activities                                                            |   | (35,411          | ) |   | -                 |   |  |     |  |   | (35,411           | )
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash flow from financing activities:                                                             |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Loans from related
      parties                                                                 |   | 90,102           |   |   | -                 |   |  |     |  |   | 90,102            |  
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net cash provided by financing activities                                                        |   | 90,102           |   |   | -                 |   |  |     |  |   | 90,102            |  
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                               |   | (54,691          | ) |   | -                 |   |  |     |  |   | (54,691           | )
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                                       |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of
      period                                            |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                                                        | $ | -                |   | $ | -                 |   |  |     |  | $ | -                 |  

F-124

---

CONSOLIDATED BALANCE SHEETSEPTEMBER 30,
2003

|                                                                                                                  |   | September 30, |   |  |            |   |  |             |  |   | September 30, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------- | - |  | ---------- | - |  | ----------- |  | - | ------------- | -
|                                                                                                                  |   | 2003          |   |  | Net Change |   |  |             |  |   | 2003          |  
|                                                                                                                  |   | Original      |   |  |            |   |  |             |  |   | Restated      |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Assets                                                                                                      | $ | 233,333       |   |  | -          |   |  |             |  | $ | 233,333       |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                    |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Current Liabilities                                                                                               |   |               |   |  |            |   |  |             |  |   |               |  
|Accounts payable and accrued liabilties                                                                           | $ | 1,869,619     |   |  | (24,277    | ) |  | (g)         |  | $ | 1,845,342     |  
|Accrued liabilties - related parties                                                                              |   | -             |   |  | 1,013,212  |   |  | (g)         |  |   | 1,013,212     |  
|Current portion of long-term debt                                                                                 |   | 81,516        |   |  | 87,080     |   |  | (g)         |  |   | 168,596       |  
|Notes payable - related party                                                                                     |   | -             |   |  | 162,500    |   |  | (g)         |  |   | 162,500       |  
|Convertible notes - non-related parties                                                                           |   | -             |   |  | 826,912    |   |  | (g),(b),(d) |  |   | 826,912       |  
|Derivative liability                                                                                              |   | -             |   |  | 1,216,570  |   |  | (a),(c)     |  |   | 1,216,570     |  
|Total Current Liabilities                                                                                         |   | 1,951,135     |   |  | 3,281,997  |   |  |             |  |   | 5,233,132     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Other liabilities                                                                                                 |   |               |   |  |            |   |  |             |  |   |               |  
|Long-term deposits and convertible notes                                                                          |   | 217,500       |   |  | (217,500   | ) |  | (g)         |  |   | -             |  
|Long term debt (net of current)                                                                                   |   | 87,080        |   |  | (87,080    | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 586,356       |   |  | (586,356   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 185,556       |   |  | (185,556   | ) |  | (g)         |  |   | -             |  
|Convertible loans                                                                                                 |   | 888,673       |   |  | (888,673   | ) |  | (g)         |  |   | -             |  
|Total Other Liabilities                                                                                           |   | 1,965,165     |   |  | (1,965,165 | ) |  |             |  |   | -             |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities                                                                                                 |   | 3,916,300     |   |  | 1,316,832  |   |  |             |  |   | 5,233,132     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Stockholders' Equity (Deficit)                                                                                    |   |               |   |  |            |   |  |             |  |   |               |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896       |   |  | -          |   |  |             |  |   | 249,896       |  
|Additional paid-in capital                                                                                        |   | 25,222,219    |   |  | 4,652      |   |  | (e)         |  |   | 25,226,871    |  
|Deficit accumulated prior to entering development stage                                                           |   | -             |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356    | )
|Deficit accumulated during the development
      stage                                                            |   | (28,773,916   | ) |  | (264,128   | ) |  | (c),(d)     |  |   | (29,038,044   | )
|Unrealized loss on foreign exchange                                                                               |   | (381,164      | ) |  | -          |   |  |             |  |   | (381,164      | )
|                                                                                                                  |   | (3,682,965    | ) |  | (1,316,832 | ) |  |             |  |   | (4,999,797    | )
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 233,335       |   |  | -          |   |  |             |  | $ | 233,335       |  

F-125

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2003

|                                                                            |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|--------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                            |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                            |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September 30,**     |  
|                                                                            |   | 2003             |   |   | 2003 - Net Change |   |  |     |  |   | 2003                  |  
|                                                                            |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Revenues                                                                    | $ | -                |   |   | -                 |   |  |     |  | $ | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cost of Sales                                                               |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Gross profit                                                                |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Operations                                                                  |   |                  |   |   |                   |   |  |     |  |   |                       |  
|General and administrative                                                  |   | 146,071          |   |   | -                 |   |  |     |  |   | 146,071               |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Expense                                                               |   | 146,071          |   |   | -                 |   |  |     |  |   | 146,071               |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss before other expenses                                                  |   | (146,071         | ) |   | -                 |   |  |     |  |   | (146,071              | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other expenses (income)                                                     |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Interest expense                                                            |   | 22,681           |   |   | 250               |   |  | (e) |  |   | 22,931                |  
|Loss (gain) on change in derivative liability                               |   | -                |   |   | (333,559          | ) |  | (c) |  |   | (333,559              | )
|Loss (gain) from extinguishment of
      debt                               |   | -                |   |   | (345,884          | ) |  |     |  |   | (345,884              | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Other expenses (income)                                               |   | 22,681           |   |   | (679,193          | ) |  |     |  |   | (656,512              | )
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Provision for income taxes                                                  |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss)                                                           |   | (168,752         | ) |   | 679,193           |   |  |     |  |   | 510,441               |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                           |   |                  |   |   |                   |   |  |     |  |   |                       |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss on foreign exchange                                                    |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss)                     | $ | (168,752         | ) | $ | 679,193           |   |  |     |  | $ | 510,441               |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - basic   | $ | (0.00            | ) |   |                   |   |  |     |  | $ | 0.00                  |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss) per share - diluted |   |                  |   |   |                   |   |  |     |  | $ | 0.00                  |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - basic                                   |   | 249,895,892      |   |   |                   |   |  |     |  |   | 249,895,892           |  
|                                                                            |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - diluted                                 |   |                  |   |   |                   |   |  |     |  |   | 856,035,313           |  

F-126

---

CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR THE THREE MONTHS ENDED SEPTEMBER 30,
2003

|                                                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|--------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                                                    |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September
    30,** |  
|                                                                                                    |   | 2003             |   |   | 2003 - Net Change |   |  |     |  |   | 2003                  |  
|                                                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                               |   |                  |   |   |                   |   |  |     |  |   |                       |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income
      (loss)                                                                             | $ | (168,752         | ) | $ | 679,193           |   |  |     |  | $ | 510,441               |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Adjustments to reconcile net income to net cash
                used in
      operating activities: |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Imputed interest                                                                                    |   | -                |   |   | 250               |   |  | (e) |  |   | 250                   |  
|(Gain) from
      extinguishment of debt                                                            |   | -                |   |   | (345,884          | ) |  |     |  |   | (345,884              | )
|Change in derivative liability                                                                      |   | -                |   |   | (333,559          | ) |  | (c) |  |   | (333,559              | )
|Changes in assets and liabilities:                                                                  |   |                  |   |   |                   |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                             |   |                  |   |   |                   |   |  |     |  |   |                       |  
|(Decrease)
      increase in :                                                                      |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Accounts payable and accrued
      liabilities                                                      |   | 33,435           |   |   | -                 |   |  |     |  |   | 33,435                |  
|Accrued
      liabilities - related parties                                                         |   | 43,750           |   |   | -                 |   |  |     |  |   | 43,750                |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                               |   | (91,567          | ) |   | -                 |   |  |     |  |   | (91,567               | )
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flow from financing activities:                                                                |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loans from related parties                                                                          |   | 90,197           |   |   | -                 |   |  |     |  |   | 90,197                |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash provided by financing activities                                                           |   | 90,197           |   |   | -                 |   |  |     |  |   | 90,197                |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and cash
      equivalents                                  |   | 1,370            |   |   | -                 |   |  |     |  |   | 1,370                 |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash equivalents                                                |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of period                                                     |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                           | $ | -                |   | $ | -                 |   |  |     |  | $ | -                     |  

F-127

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED JUNE 30, 2003

|                                                                    |   | For the Three    |   |   | For the Three    |   |  |         |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | ------- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended** |   |  |         |  |   | **Months Ended**      |  
|                                                                    |   | June 30,         |   |   | June 30, 2003    |   |  |         |  |   | **June 30,**          |  
|                                                                    |   | 2003             |   |   | Net Change       |   |  |         |  |   | 2003                  |  
|                                                                    |   | Original         |   |   |                  |   |  |         |  |   | Restated              |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Revenues                                                            | $ | -                |   |   | -                |   |  |         |  | $ | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Cost of Sales                                                       |   | -                |   |   | -                |   |  |         |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Gross profit                                                        |   | -                |   |   | -                |   |  |         |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Operations                                                          |   |                  |   |   |                  |   |  |         |  |   |                       |  
|General and administrative                                          |   | 359,911          |   |   | -                |   |  |         |  |   | 359,911               |  
|Depreciation and amortization                                       |   | 19,046           |   |   | -                |   |  |         |  |   | 19,046                |  
|Research and development                                            |   | -                |   |   | -                |   |  |         |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Total Expense                                                       |   | 378,957          |   |   | -                |   |  |         |  |   | 378,957               |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Loss before other expenses                                          |   | (378,957         | ) |   | -                |   |  |         |  |   | (378,957              | )
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Interest expense                                                    |   | 22,773           |   |   | 249              |   |  | (e)     |  |   | 23,022                |  
|Accretion expense                                                   |   | -                |   |   | 122,724          |   |  | (d)     |  |   | 122,724               |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |   | 58,828           |   |  | (c)     |  |   | 58,828                |  
|Loss (gain) from extinguishment of debt                             |   | -                |   |   | 100,262          |   |  | (j),(q) |  |   | 100,262               |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Total Other expenses (income)                                       |   | 22,773           |   |   | 282,063          |   |  |         |  |   | 304,836               |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                |   |  |         |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Net income (loss)                                                   |   | (401,730         | ) |   | (282,063         | ) |  |         |  |   | (683,793              | )
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | -                |   |   | -                |   |  |         |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Net income (loss) and comprehensive income
      (loss)             | $ | (401,730         | ) | $ | (282,063         | ) |  |         |  | $ | (683,793              | )
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                  |   |  |         |  | $ | (0.00                 | )
|                                                                    |   |                  |   |   |                  |   |  |         |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 237,326,726      |   |   |                  |   |  |         |  |   | 237,326,726           |  

F-128

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED JUNE 30, 2003

|                                                                                                         |   | For the Three    |   |   | For the Three    |   |  |         |  |   | **For the Three** |  
|-------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | ------- |  | - | ----------------- | -
|                                                                                                         |   | **Months Ended** |   |   | **Months Ended** |   |  |         |  |   | **Months Ended**  |  
|                                                                                                         |   | June 30,         |   |   | June 30, 2003    |   |  |         |  |   | **June 30,**      |  
|                                                                                                         |   | 2003             |   |   | Net Change       |   |  |         |  |   | 2003              |  
|                                                                                                         |   | Original         |   |   |                  |   |  |         |  |   | Restated          |  
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Cash flows from operating activities:                                                                    |   |                  |   |   |                  |   |  |         |  |   |                   |  
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Net income (loss)                                                                                        | $ | (401,730         | ) | $ | (282,063         | ) |  |         |  | $ | (683,793          | )
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Adjustments to
      reconcile net income to net cash
               used in operating
      activities: |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Depreciation and amortization                                                                            |   | 19,046           |   |   | -                |   |  |         |  |   | 19,046            |  
|Imputed interest                                                                                         |   | -                |   |   | 249              |   |  | (e)     |  |   | 249               |  
|Accretion expense                                                                                        |   | -                |   |   | 122,724          |   |  | (d)     |  |   | 122,724           |  
|Loss (gain) on
      settlement of debt                                                                  |   | -                |   |   | 100,262          |   |  | (j),(q) |  |   | 100,262           |  
|Change in derivative liability                                                                           |   | -                |   |   | 58,828           |   |  | (c)     |  |   | 58,828            |  
|Changes in assets and liabilities:                                                                       |   |                  |   |   |                  |   |  |         |  |   | -                 |  
|(Increase) decrease in:                                                                                  |   |                  |   |   |                  |   |  |         |  |   | -                 |  
|Account receivable                                                                                       |   | 30,902           |   |   | -                |   |  |         |  |   | 30,902            |  
|Inventory                                                                                                |   | (6,009           | ) |   | -                |   |  |         |  |   | (6,009            | )
|Sales tax receivable                                                                                     |   | 39,840           |   |   | -                |   |  |         |  |   | 39,840            |  
|Other assets                                                                                             |   | 242,956          |   |   | -                |   |  |         |  |   | 242,956           |  
|(Decrease) increase in
      :                                                                           |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Accounts payable and accrued
      liabilities                                                           |   | (68,692          | ) |   | -                |   |  |         |  |   | (68,692           | )
|Accrued liabilities -
      related parties                                                              |   | 21,482           |   |   | -                |   |  |         |  |   | 21,482            |  
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Net cash used in operating activities                                                                    |   | (122,205         | ) |   | -                |   |  |         |  |   | (122,205          | )
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Cash flow from investing activities:                                                                     |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Increase in notes receivable                                                                             |   | (548             | ) |   | -                |   |  |         |  |   | (548              | )
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Net cash used in investing activities                                                                    |   | (548             | ) |   | -                |   |  |         |  |   | (548              | )
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Cash flow from financing activities:                                                                     |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Loans from related
      parties                                                                         |   | 226,460          |   |   | -                |   |  |         |  |   | 226,460           |  
|Payments on loan payable                                                                                 |   | (11,874          | ) |   | -                |   |  |         |  |   | (11,874           | )
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Net cash provided by financing activities                                                                |   | 214,586          |   |   | -                |   |  |         |  |   | 214,586           |  
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Effect of Exchange rate changes on cash and cash
      equivalents                                       |   | (91,833          | ) |   | -                |   |  |         |  |   | (91,833           | )
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Net (decrease) increase in cash and cash equivalents                                                     |   | -                |   |   | -                |   |  |         |  |   | -                 |  
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Cash and cash equivalents - beginning of period                                                          |   | -                |   |   | -                |   |  |         |  |   | -                 |  
|                                                                                                         |   |                  |   |   |                  |   |  |         |  |   |                   |  
|Cash and cash equivalents - end of period                                                                | $ | -                |   | $ | -                |   |  |         |  | $ | -                 |  

F-129

---

CONSOLIDATED BALANCE SHEETMARCH 31,
2003

|                                                                                                                  |   | March 31,   |   |  |            |   |  |                 |  |   | March 31,   |  
|----------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | --------------- |  | - | ----------- | -
|                                                                                                                  |   | 2003        |   |  | Net Change |   |  |                 |  |   | 2003        |  
|                                                                                                                  |   | Original    |   |  |            |   |  |                 |  |   | Restated    |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Assets                                                                                                      | $ | 542,914     |   |  | -          |   |  |                 |  | $ | 542,914     |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                    |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Current Liabilities                                                                                               |   |             |   |  |            |   |  |                 |  |   |             |  
|Accounts payable and accrued liabilties                                                                           | $ | 1,839,642   |   |  | 49,113     |   |  | (g)             |  | $ | 1,888,755   |  
|Accrued liabilties - related parties                                                                              |   |             |   |  | 509,310    |   |  | (g)             |  |   | 509,310     |  
|Current portion of long-term debt                                                                                 |   | 43,685      |   |  | 133,772    |   |  | (g)             |  |   | 177,457     |  
|Notes payable - related party                                                                                     |   |             |   |  | 162,500    |   |  | (g)             |  |   | 162,500     |  
|Convertible notes - non-related parties                                                                           |   |             |   |  | 1,050,072  |   |  | (g),(b),(d)     |  |   | 1,050,072   |  
|Derivative liability                                                                                              |   |             |   |  | 1,491,301  |   |  | (a),(c)         |  |   | 1,491,301   |  
|Total Current Liabilities                                                                                         |   | 1,883,327   |   |  | 3,396,068  |   |  |                 |  |   | 5,279,395   |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Other liabilities                                                                                                 |   |             |   |  |            |   |  |                 |  |   |             |  
|Long-term deposits and convertible notes                                                                          |   | 217,500     |   |  | (217,500   | ) |  | (g)             |  |   | -           |  
|Long term debt (net of current)                                                                                   |   | 133,772     |   |  | (133,772   | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                 |   | 932,240     |   |  | (932,240   | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                 |   | 185,556     |   |  | (185,556   | ) |  | (g)             |  |   | -           |  
|Convertible loans                                                                                                 |   | 558,423     |   |  | (558,423   | ) |  | (g)             |  |   | -           |  
|Total Other Liabilities                                                                                           |   | 2,027,491   |   |  | (2,027,491 | ) |  |                 |  |   | -           |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Liabilities                                                                                                 |   | 3,910,818   |   |  | 1,368,577  |   |  |                 |  |   | 5,279,395   |  
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                    |   |             |   |  |            |   |  |                 |  |   |             |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   249,895,892 shares |   | 249,896     |   |  | -          |   |  |                 |  |   | 249,896     |  
|Additional paid-in capital                                                                                        |   | 25,222,219  |   |  | 4,153      |   |  | (e)             |  |   | 25,226,372  |  
|Deficit accumulated prior to entering development stage                                                           |   | -           |   |  | (1,057,356 | ) |  | (r)             |  |   | (1,057,356  | )
|Deficit accumulated during the development
      stage                                                            |   | (28,549,318 | ) |  | (315,374   | ) |  | (c),(d),(e),(j) |  |   | (28,864,692 | )
|Unrealized loss on foreign exchange                                                                               |   | (290,701    | ) |  | -          |   |  |                 |  |   | (290,701    | )
|                                                                                                                  |   | (3,367,904  | ) |  | (1,368,577 | ) |  |                 |  |   | (4,736,481  | )
|                                                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 542,914     |   |  | -          |   |  |                 |  | $ | 542,914     |  

F-130

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED MARCH 31, 2003

|                                                                            |   | For the Three    |   |  | For the Three    |   |  |     |  |   | **For the Three** |  
|--------------------------------------------------------------------------- | - | ---------------- | - |  | ---------------- | - |  | --- |  | - | ----------------- | -
|                                                                            |   | **Months Ended** |   |  | **Months Ended** |   |  |     |  |   | **Months Ended**  |  
|                                                                            |   | March 31,        |   |  | March 31, 2003   |   |  |     |  |   | March 31,         |  
|                                                                            |   | 2003             |   |  | Net Change       |   |  |     |  |   | 2003              |  
|                                                                            |   | Original         |   |  |                  |   |  |     |  |   | Restated          |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Revenues                                                                    | $ | -                |   |  | -                |   |  |     |  | $ | -                 |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Cost of Sales                                                               |   | -                |   |  | -                |   |  |     |  |   | -                 |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Gross profit                                                                |   | -                |   |  | -                |   |  |     |  |   | -                 |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Operations                                                                  |   |                  |   |  |                  |   |  |     |  |   |                   |  
|General and administrative                                                  |   | 106,578          |   |  | -                |   |  |     |  |   | 106,578           |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Total Expense                                                               |   | 106,578          |   |  | -                |   |  |     |  |   | 106,578           |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Loss before other expenses                                                  |   | (106,578         | ) |  | -                |   |  |     |  |   | (106,578          | )
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Other expenses (income)                                                     |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Interest expense                                                            |   | 22,838           |   |  | 250              |   |  | (e) |  |   | 23,088            |  
|Accretion expense                                                           |   | -                |   |  | 122,723          |   |  | (d) |  |   | 122,723           |  
|Loss (gain) on change in derivative
      liability                         |   | -                |   |  | (6,508,036       | ) |  | (c) |  |   | (6,508,036        | )
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Total Other expenses (income)                                               |   | 22,838           |   |  | (6,385,063       | ) |  |     |  |   | (6,362,225        | )
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Provision for income taxes                                                  |   | -                |   |  | -                |   |  |     |  |   | -                 |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Net income (loss)                                                           |   | (129,416         | ) |  | 6,385,063        |   |  |     |  |   | 6,255,647         |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Other comprehensive income (loss)                                           |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Loss (gain) on foreign exchange                                             |   | -                |   |  | -                |   |  |     |  |   | -                 |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Net income (loss) and comprehensive income (loss)                           | $ | (129,416         | ) |  | 6,385,063        |   |  |     |  | $ | 6,255,647         |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Net income (loss) and comprehensive income (loss) per share
      - basic   | $ | (0.00            | ) |  |                  |   |  |     |  | $ | 0.03              |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Net income (loss) and comprehensive income (loss) per share
      - diluted |   |                  |   |  |                  |   |  |     |  | $ | 0.01              |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Weighted average number of shares - basic                                   |   | 231,042,142      |   |  |                  |   |  |     |  |   | 231,042,142       |  
|                                                                            |   |                  |   |  |                  |   |  |     |  |   |                   |  
|Weighted average number of shares - diluted                                 |   |                  |   |  |                  |   |  |     |  |   | 978,733,933       |  

F-131

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED MARCH 31, 2003

|                                                                                                     |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the Three** |  
|---------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ----------------- | -
|                                                                                                     |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**  |  
|                                                                                                     |   | March 31,        |   |   | March 31, 2003   |   |  |     |  |   | **March 31,**     |  
|                                                                                                     |   | 2003             |   |   | Net Change       |   |  |     |  |   | 2003              |  
|                                                                                                     |   | Original         |   |   |                  |   |  |     |  |   | Restated          |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash flows from operating activities:                                                                |   |                  |   |   |                  |   |  |     |  |   |                   |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net income
      (loss)                                                                              | $ | (129,416         | ) | $ | 6,385,063        |   |  |     |  | $ | 6,255,647         |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Adjustments to reconcile net income to net cash
                 used in
      operating activities: |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Imputed interest                                                                                     |   | -                |   |   | 250              |   |  | (e) |  |   | 250               |  
|Accretion
      expense                                                                              |   | -                |   |   | 122,723          |   |  | (d) |  |   | 122,723           |  
|Change in derivative liability                                                                       |   | -                |   |   | (6,508,036       | ) |  | (c) |  |   | (6,508,036        | )
|Changes in assets and liabilities:                                                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|(Increase) decrease in:                                                                              |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Account
      receivable                                                                             |   | (2,151           | ) |   | -                |   |  |     |  |   | (2,151            | )
|Inventory                                                                                            |   | (4,685           | ) |   | -                |   |  |     |  |   | (4,685            | )
|Sales tax
      receivable                                                                           |   | (2,773           | ) |   | -                |   |  |     |  |   | (2,773            | )
|Research and experimental
      development tax credits receivable                                   |   | 126,428          |   |   | -                |   |  |     |  |   | 126,428           |  
|Other assets                                                                                         |   | (5,317           | ) |   | -                |   |  |     |  |   | (5,317            | )
|(Decrease) increase in :                                                                             |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Accounts payable
      and accrued liabilities                                                       |   | 89,620           |   |   | -                |   |  |     |  |   | 89,620            |  
|Accrued liabilities - related
      parties                                                          |   | 11,598           |   |   | -                |   |  |     |  |   | 11,598            |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net cash used in operating activities                                                                |   | 83,304           |   |   | -                |   |  |     |  |   | 83,304            |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash flow from investing activities:                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Increase in
      notes receivable                                                                   |   | (1,387           | ) |   | -                |   |  |     |  |   | (1,387            | )
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net cash used in investing activities                                                                |   | (1,387           | ) |   | -                |   |  |     |  |   | (1,387            | )
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash flow from financing activities:                                                                 |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Loans from related parties                                                                           |   | (74,897          | ) |   | -                |   |  |     |  |   | (74,897           | )
|Proceeds from
      grants                                                                           |   | 75,350           |   |   | -                |   |  |     |  |   | 75,350            |  
|Proceeds from issuance of common
      stock                                                         |   | 4,283            |   |   | -                |   |  |     |  |   | 4,283             |  
|Proceeds from
      additional paid-in capital                                                       |   | 31,217           |   |   | -                |   |  |     |  |   | 31,217            |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net cash provided by financing activities                                                            |   | 35,953           |   |   | -                |   |  |     |  |   | 35,953            |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                   |   | (117,870         | ) |   | -                |   |  |     |  |   | (117,870          | )
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net (decrease) increase in cash and cash
      equivalents                                           |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash and cash equivalents - beginning of
      period                                                |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                                                     |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cash and cash equivalents - end of period                                                            | $ | -                |   | $ | -                |   |  |     |  | $ | -                 |  

F-132

---

CONSOLIDATED BALANCE SHEETDECEMBER 31,
2002

|                                                                                                                  |   | December 31, |   |  |            |   |  |             |  |   | December 31, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------ | - |  | ---------- | - |  | ----------- |  | - | ------------ | -
|                                                                                                                  |   | 2002         |   |  | Net Change |   |  |             |  |   | 2002         |  
|                                                                                                                  |   | Original     |   |  |            |   |  |             |  |   | Restated     |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Assets                                                                                                      | $ | 653,029      |   |  | -          |   |  |             |  | $ | 653,029      |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Current Liabilities                                                                                               |   |              |   |  |            |   |  |             |  |   |              |  
|Accounts payable and accrued liabilties                                                                           | $ | 1,740,397    |   |  | 219,394    |   |  | (g)         |  | $ | 1,959,791    |  
|Accrued liabilties - related parties                                                                              |   | -            |   |  | 924,948    |   |  | (g)         |  |   | 924,948      |  
|Current portion of long-term debt                                                                                 |   | 41,299       |   |  | 137,516    |   |  | (g)         |  |   | 178,815      |  
|Notes payable - related party                                                                                     |   | -            |   |  | 162,500    |   |  | (g)         |  |   | 162,500      |  
|Convertible notes - non-related parties                                                                           |   | -            |   |  | 927,349    |   |  | (g),(b),(d) |  |   | 927,349      |  
|Derivative liability                                                                                              |   | -            |   |  | 7,999,337  |   |  | (a),(c)     |  |   | 7,999,337    |  
|Total Current Liabilities                                                                                         |   | 1,781,696    |   |  | 10,371,044 |   |  |             |  |   | 12,152,740   |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Other liabilities                                                                                                 |   |              |   |  |            |   |  |             |  |   |              |  
|Long-term deposits and convertible notes                                                                          |   | 217,500      |   |  | (217,500   | ) |  | (g)         |  |   | -            |  
|Long term debt (net of current)                                                                                   |   | 137,516      |   |  | (137,516   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 932,240      |   |  | (932,240   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 185,556      |   |  | (185,556   | ) |  | (g)         |  |   | -            |  
|Convertible loans                                                                                                 |   | 1,144,342    |   |  | (1,144,342 | ) |  | (g)         |  |   | -            |  
|Total Other Liabilities                                                                                           |   | 2,617,154    |   |  | (2,617,154 | ) |  |             |  |   | -            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities                                                                                                 |   | 4,398,850    |   |  | 7,753,890  |   |  |             |  |   | 12,152,740   |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Stockholders' Equity (Deficit)                                                                                    |   |              |   |  |            |   |  |             |  |   |              |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   224,757,559 shares |   | 224,758      |   |  | -          |   |  |             |  |   | 224,758      |  
|Additional paid-in capital                                                                                        |   | 24,618,899   |   |  | 3,903      |   |  | (e)         |  |   | 24,622,802   |  
|Deficit accumulated prior to entering development stage                                                           |   | -            |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356   | )
|Deficit accumulated during the development
      stage                                                            |   | (28,419,902  | ) |  | (6,700,437 | ) |  | (c),(d),(e) |  |   | (35,120,339  | )
|Unrealized loss on foreign exchange                                                                               |   | (169,576     | ) |  | -          |   |  |             |  |   | (169,576     | )
|                                                                                                                  |   | (3,745,821   | ) |  | (7,753,890 | ) |  |             |  |   | (11,499,711  | )
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 653,029      |   |  | -          |   |  |             |  | $ | 653,029      |  

F-133

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED DECEMBER 31,
2002

|                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December
31,**      |  
|                                                                    |   | 2002             |   |   | 2002 - Net Change |   |  |     |  |   | 2002                  |  
|                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Revenues                                                            | $ | -                |   |   | -                 |   |  |     |  | $ | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Gross profit                                                        |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |   |                   |   |  |     |  |   |                       |  
|General and administrative                                          |   | 269,322          |   |   | -                 |   |  |     |  |   | 269,322               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 269,322          |   |   | -                 |   |  |     |  |   | 269,322               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (269,322         | ) |   | -                 |   |  |     |  |   | (269,322              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 35,769           |   |   | 250               |   |  | (e) |  |   | 36,019                |  
|Accretion expense                                                   |   | -                |   |   | 122,723           |   |  | (d) |  |   | 122,723               |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |   | 6,504,334         |   |  | (c) |  |   | 6,504,334             |  
|Loss (gain) from extinguishment of debt                             |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 35,769           |   |   | 6,627,307         |   |  |     |  |   | 6,663,076             |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss                                                            |   | (305,091         | ) |   | (6,627,307        | ) |  |     |  |   | (6,932,398            | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (305,091         | ) | $ | (6,627,307        | ) |  |     |  | $ | (6,932,398            | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                   |   |  |     |  | $ | (0.03                 | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 224,757,559      |   |   |                   |   |  |     |  |   | 224,757,559           |  

F-134

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED DECEMBER 31, 2002

|                                                                                                        |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                                                        |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December 31,**      |  
|                                                                                                        |   | 2002             |   |   | 2002 - Net Change |   |  |     |  |   | 2002                  |  
|                                                                                                        |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                   |   |  |     |  |   |                       |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss)                                                                                       | $ | (305,091         | ) | $ | (6,627,307        | ) |  |     |  | $ | (6,932,398            | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Imputed interest                                                                                        |   | -                |   |   | 250               |   |  | (e) |  |   | 250                   |  
|Accretion expense                                                                                       |   | -                |   |   | 122,723           |   |  | (d) |  |   | 122,723               |  
|Change in derivative liability                                                                          |   | -                |   |   | 6,504,334         |   |  | (c) |  |   | 6,504,334             |  
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                   |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Account receivable                                                                                      |   | (174             | ) |   | -                 |   |  |     |  |   | (174                  | )
|Inventory                                                                                               |   | (379             | ) |   | -                 |   |  |     |  |   | (379                  | )
|Sales tax receivable                                                                                    |   | (7,706           | ) |   | -                 |   |  |     |  |   | (7,706                | )
|Research and experimental development
      tax credits receivable                                      |   | 43,448           |   |   | -                 |   |  |     |  |   | 43,448                |  
|Other assets                                                                                            |   | (429             | ) |   | -                 |   |  |     |  |   | (429                  | )
|(Decrease) increase in :                                                                                |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Accounts payable and
      accrued liabilities                                                          |   | 186,206          |   |   | -                 |   |  |     |  |   | 186,206               |  
|Accrued liabilities - related parties                                                                   |   | 9,997            |   |   | -                 |   |  |     |  |   | 9,997                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                                   |   | (74,128          | ) |   | -                 |   |  |     |  |   | (74,128               | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flow from investing activities:                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Increase in notes
      receivable                                                                      |   | (112             | ) |   | -                 |   |  |     |  |   | (112                  | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash used in investing activities                                                                   |   | (112             | ) |   | -                 |   |  |     |  |   | (112                  | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flow from financing activities:                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Proceeds from loan payable                                                                              |   | 33,116           |   |   | -                 |   |  |     |  |   | 33,116                |  
|Proceeds from grants                                                                                    |   | 44,711           |   |   | -                 |   |  |     |  |   | 44,711                |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash provided by financing activities                                                               |   | 77,827           |   |   | -                 |   |  |     |  |   | 77,827                |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | (3,587           | ) |   | -                 |   |  |     |  |   | (3,587                | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of
      period                                                   |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                               | $ | -                |   | $ | -                 |   |  |     |  | $ | -                     |  

F-135

---

CONSOLIDATED BALANCE SHEETSEPTEMBER 30,
2002

|                                                                                                                  |   | September 30, |   |  |            |   |  |             |  |   | September 30, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------- | - |  | ---------- | - |  | ----------- |  | - | ------------- | -
|                                                                                                                  |   | 2002          |   |  | Net Change |   |  |             |  |   | 2002          |  
|                                                                                                                  |   | Original      |   |  |            |   |  |             |  |   | Restated      |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Assets                                                                                                      | $ | 687,676       |   |  | -          |   |  |             |  | $ | 687,676       |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                    |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Current Liabilities                                                                                               |   |               |   |  |            |   |  |             |  |   |               |  
|Accounts payable and accrued liabilties                                                                           | $ | 1,545,405     |   |  | 217,937    |   |  | (g)         |  | $ | 1,763,342     |  
|Accrued liabilties - related parties                                                                              |   | -             |   |  | 844,218    |   |  | (g)         |  |   | 844,218       |  
|Current portion of long-term debt                                                                                 |   | 37,246        |   |  | 144,717    |   |  | (g)         |  |   | 181,963       |  
|Notes payable - related party                                                                                     |   | -             |   |  | 162,500    |   |  | (g)         |  |   | 162,500       |  
|Convertible notes - non-related parties                                                                           |   | -             |   |  | 804,626    |   |  | (g),(b),(d) |  |   | 804,626       |  
|Derivative liability                                                                                              |   | -             |   |  | 1,495,003  |   |  | (a),(c)     |  |   | 1,495,003     |  
|Total Current Liabilities                                                                                         |   | 1,582,651     |   |  | 3,669,001  |   |  |             |  |   | 5,251,652     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Other liabilities                                                                                                 |   |               |   |  |            |   |  |             |  |   |               |  
|Long-term deposits and convertible notes                                                                          |   | 217,500       |   |  | (217,500   | ) |  | (g)         |  |   | -             |  
|Long term debt (net of current)                                                                                   |   | 144,717       |   |  | (144,717   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 932,240       |   |  | (932,240   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 185,556       |   |  | (185,556   | ) |  | (g)         |  |   | -             |  
|Convertible loans                                                                                                 |   | 1,062,155     |   |  | (1,062,155 | ) |  | (g)         |  |   | -             |  
|Total Other Liabilities                                                                                           |   | 2,542,168     |   |  | (2,542,168 | ) |  |             |  |   | -             |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities                                                                                                 |   | 4,124,819     |   |  | 1,126,833  |   |  |             |  |   | 5,251,652     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Stockholders' Equity (Deficit)                                                                                    |   |               |   |  |            |   |  |             |  |   |               |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   224,757,559 shares |   | 224,758       |   |  | -          |   |  |             |  |   | 224,758       |  
|Additional paid-in capital                                                                                        |   | 24,618,899    |   |  | 3,653      |   |  | (e)         |  |   | 24,622,552    |  
|Deficit accumulated prior to entering development stage                                                           |   | -             |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356    | )
|Deficit accumulated during the development
      stage                                                            |   | (28,114,811   | ) |  | (73,130    | ) |  | (c),(d)     |  |   | (28,187,941   | )
|Unrealized loss on foreign exchange                                                                               |   | (165,989      | ) |  | -          |   |  |             |  |   | (165,989      | )
|                                                                                                                  |   | (3,437,143    | ) |  | (1,126,833 | ) |  |             |  |   | (4,563,976    | )
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 687,676       |   |  | -          |   |  |             |  | $ | 687,676       |  

F-136

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2002

|                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September 30,**     |  
|                                                                    |   | 2002             |   |   | 2002 - Net Change |   |  |     |  |   | 2002                  |  
|                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Revenues                                                            | $ | -                |   |   | -                 |   |  |     |  | $ | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Gross profit                                                        |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |   |                   |   |  |     |  |   |                       |  
|General and administrative                                          |   | 245,359          |   |   | -                 |   |  |     |  |   | 245,359               |  
|Depreciation and amortization                                       |   | 5,914            |   |   | -                 |   |  |     |  |   | 5,914                 |  
|Research and development                                            |   | 450,000          |   |   | -                 |   |  |     |  |   | 450,000               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 701,273          |   |   | -                 |   |  |     |  |   | 701,273               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (701,273         | ) |   | -                 |   |  |     |  |   | (701,273              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 23,865           |   |   | 250               |   |  | (e) |  |   | 24,115                |  
|Accretion expense                                                   |   | -                |   |   | 122,723           |   |  | (d) |  |   | 122,723               |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |   | 554,490           |   |  | (c) |  |   | 554,490               |  
|Loss (gain) from extinguishment of debt                             |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 23,865           |   |   | 677,463           |   |  |     |  |   | 701,328               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss                                                            |   | (725,138         | ) |   | (677,463          | ) |  |     |  |   | (1,402,601            | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss on foreign exchange                                            |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (725,138         | ) | $ | (677,463          | ) |  |     |  | $ | (1,402,601            | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |   |                   |   |  |     |  | $ | (0.01                 | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 224,757,559      |   |   |                   |   |  |     |  |   | 224,757,559           |  

F-137

---

CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR THE THREE MONTHS ENDED SEPTEMBER 30,
2002

|                                                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three**   |  
|--------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------------- | -
|                                                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**        |  
|                                                                                                    |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September
      30,** |  
|                                                                                                    |   | 2002             |   |   | 2002 - Net Change |   |  |     |  |   | 2002                    |  
|                                                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated                |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash flows from operating activities:                                                               |   |                  |   |   |                   |   |  |     |  |   |                         |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net income
      (loss)                                                                             | $ | (725,138         | ) | $ | (677,463          | ) |  |     |  | $ | (1,402,601              | )
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Adjustments to reconcile net income to net cash
                used in
      operating activities: |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Depreciation and amortization                                                                       |   | 5,914            |   |   | -                 |   |  |     |  |   | 5,914                   |  
|Imputed interest                                                                                    |   | -                |   |   | 250               |   |  | (e) |  |   | 250                     |  
|Accretion expense                                                                                   |   | -                |   |   | 122,723           |   |  | (d) |  |   | 122,723                 |  
|Loss (gain) on
      disposal and abandonment of assets                                             |   | 530,651          |   |   | -                 |   |  |     |  |   | 530,651                 |  
|Change in derivative liability                                                                      |   | -                |   |   | 554,490           |   |  | (c) |  |   | 554,490                 |  
|Changes in assets and liabilities:                                                                  |   |                  |   |   |                   |   |  |     |  |   |                         |  
|(Increase) decrease in:                                                                             |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Account
      receivable                                                                            |   | 4,636            |   |   | -                 |   |  |     |  |   | 4,636                   |  
|Inventory                                                                                           |   | 2,915            |   |   | -                 |   |  |     |  |   | 2,915                   |  
|Sales tax
      receivable                                                                          |   | (7,308           | ) |   | -                 |   |  |     |  |   | (7,308                  | )
|Research and experimental
      development tax credits receivable                                  |   | 77,094           |   |   | -                 |   |  |     |  |   | 77,094                  |  
|Other assets                                                                                        |   | 3,308            |   |   | -                 |   |  |     |  |   | 3,308                   |  
|(Decrease) increase in :                                                                            |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Accounts payable
      and accrued liabilities                                                      |   | 48,613           |   |   | -                 |   |  |     |  |   | 48,613                  |  
|Accrued liabilities - related
      parties                                                         |   | 11,026           |   |   | -                 |   |  |     |  |   | 11,026                  |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net cash used in operating activities                                                               |   | (48,289          | ) |   | -                 |   |  |     |  |   | (48,289                 | )
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash flow from investing activities:                                                                |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Reduction in
      notes receivable                                                                 |   | 863              |   |   | -                 |   |  |     |  |   | 863                     |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net cash used in investing activities                                                               |   | 863              |   |   | -                 |   |  |     |  |   | 863                     |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash flow from financing activities:                                                                |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Payments on lease obligations                                                                       |   | (53,815          | ) |   | -                 |   |  |     |  |   | (53,815                 | )
|Proceeds from
      grants                                                                          |   | 67,061           |   |   | -                 |   |  |     |  |   | 67,061                  |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net cash provided by financing activities                                                           |   | 13,246           |   |   | -                 |   |  |     |  |   | 13,246                  |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                  |   | 34,180           |   |   | -                 |   |  |     |  |   | 34,180                  |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net (decrease) increase in cash and cash
      equivalents                                          |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash and cash equivalents - beginning of
      period                                               |   | -                |   |   | -                 |   |  |     |  |   | -                       |  
|                                                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash and cash equivalents - end of period                                                           | $ | -                |   | $ | -                 |   |  |     |  | $ | -                       |  

F-138

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED JUNE 30, 2002

|                                                                    |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | June 30,         |   |   | June 30, 2002    |   |  |     |  |   | **June 30,**          |  
|                                                                    |   | 2002             |   |   | Net Change       |   |  |     |  |   | 2002                  |  
|                                                                    |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Revenues                                                            | $ | 27,091           |   |   | -                |   |  |     |  | $ | 27,091                |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | 12,127           |   |   | -                |   |  |     |  |   | 12,127                |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Gross profit                                                        |   | 14,964           |   |   | -                |   |  |     |  |   | 14,964                |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |   |                  |   |  |     |  |   |                       |  
|General and administrative                                          |   | 412,693          |   |   | -                |   |  |     |  |   | 412,693               |  
|Depreciation and amortization                                       |   | 11,885           |   |   | -                |   |  |     |  |   | 11,885                |  
|Research and development                                            |   | 1,934,772        |   |   | -                |   |  |     |  |   | 1,934,772             |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 2,359,350        |   |   | -                |   |  |     |  |   | 2,359,350             |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (2,344,386       | ) |   | -                |   |  |     |  |   | (2,344,386            | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 142,525          |   |   | 850              |   |  | (e) |  |   | 143,375               |  
|Accretion expense                                                   |   | -                |   |   | 46,631           |   |  | (d) |  |   | 46,631                |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |   | (453,724         | ) |  | (c) |  |   | (453,724              | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 142,525          |   |   | (406,243         | ) |  |     |  |   | (263,718              | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                   |   | (2,486,911       | ) |   | 406,243          |   |  |     |  |   | (2,080,668            | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | (2,138           | ) |   | -                |   |  |     |  |   | (2,138                | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss) and comprehensive income (loss)                   | $ | (2,484,773       | ) | $ | 406,243          |   |  |     |  | $ | (2,078,530            | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share - basic and
      diluted | $ | (0.01            | ) |   |                  |   |  |     |  | $ | (0.01                 | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - basic and diluted               |   | 204,212,265      |   |   |                  |   |  |     |  |   | 204,212,265           |  

F-139

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED JUNE 30, 2002

|                                                                                                           |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|---------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                           |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                                                           |   | June 30,         |   |   | June 30, 2002    |   |  |     |  |   | **June 30,**          |  
|                                                                                                           |   | 2002             |   |   | Net Change       |   |  |     |  |   | 2002                  |  
|                                                                                                           |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                                      |   |                  |   |   |                  |   |  |     |  |   |                       |  
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                                                          | $ | (2,484,773       | ) | $ | 406,243          |   |  |     |  | $ | (2,078,530            | )
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Adjustments
      to reconcile net income to net cash
                 used in
      operating activities: |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Depreciation and amortization                                                                              |   | 11,885           |   |   | -                |   |  |     |  |   | 11,885                |  
|Imputed interest                                                                                           |   | -                |   |   | 850              |   |  | (e) |  |   | 850                   |  
|Accretion expense                                                                                          |   | -                |   |   | 46,631           |   |  | (d) |  |   | 46,631                |  
|Loss (gain) on disposal
      and abandonment of assets                                                    |   | 1,500,000        |   |   | -                |   |  |     |  |   | 1,500,000             |  
|Common stock issued in exchange for
      services and expenses                                            |   | (33,947          | ) |   | -                |   |  |     |  |   | (33,947               | )
|Change in derivative
      liability                                                                       |   | -                |   |   | (453,724         | ) |  | (c) |  |   | (453,724              | )
|Changes in assets and liabilities:                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Account receivable                                                                                         |   | (31,590          | ) |   | -                |   |  |     |  |   | (31,590               | )
|Inventory                                                                                                  |   | 7,148            |   |   | -                |   |  |     |  |   | 7,148                 |  
|Sales tax receivable                                                                                       |   | (22,089          | ) |   | -                |   |  |     |  |   | (22,089               | )
|Research and
      experimental development tax credits receivable                                         |   | (76,525          | ) |   | -                |   |  |     |  |   | (76,525               | )
|Other assets                                                                                               |   | 38,756           |   |   | -                |   |  |     |  |   | 38,756                |  
|(Decrease) increase in
      :                                                                             |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Accounts payable and accrued
      liabilities                                                             |   | 128,246          |   |   | -                |   |  |     |  |   | 128,246               |  
|Accrued liabilities -
      related parties                                                                |   | 103,248          |   |   | -                |   |  |     |  |   | 103,248               |  
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                                      |   | (859,641         | ) |   | -                |   |  |     |  |   | (859,641              | )
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from investing activities:                                                                       |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Increase in notes receivable                                                                               |   | (2,198           | ) |   | -                |   |  |     |  |   | (2,198                | )
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in investing activities                                                                      |   | (2,198           | ) |   | -                |   |  |     |  |   | (2,198                | )
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from financing activities:                                                                       |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loans from related
      parties                                                                           |   | 859,833          |   |   |                  |   |  |     |  |   | 859,833               |  
|Deferred financing costs                                                                                   |   | 34,375           |   |   | -                |   |  |     |  |   | 34,375                |  
|Payments on lease
      obligations                                                                        |   | (7,668           | ) |   | -                |   |  |     |  |   | (7,668                | )
|Payments on loan payable                                                                                   |   | (49,985          | ) |   | -                |   |  |     |  |   | (49,985               | )
|Proceeds from issuance
      of common stock                                                               |   | 5,850            |   |   | -                |   |  |     |  |   | 5,850                 |  
|Proceeds from additional paid-in
      capital                                                             |   | 61,897           |   |   | -                |   |  |     |  |   | 61,897                |  
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash provided by financing activities                                                                  |   | 904,302          |   |   | -                |   |  |     |  |   | 904,302               |  
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and cash
      equivalents                                         |   | (41,120          | ) |   | -                |   |  |     |  |   | (41,120               | )
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash equivalents                                                       |   | 1,343            |   |   | -                |   |  |     |  |   | 1,343                 |  
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of period                                                            |   | (1,343           | ) |   | -                |   |  |     |  |   | (1,343                | )
|                                                                                                           |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                                  | $ | -                |   | $ | -                |   |  |     |  | $ | -                     |  

F-140

---

CONSOLIDATED BALANCE SHEETMARCH 31,
2002

|                                                                                                                |   | March 31,   |   |  |            |   |  |                 |  |   | March 31,   |  
|--------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | --------------- |  | - | ----------- | -
|                                                                                                                |   | 2002        |   |  | Net Change |   |  |                 |  |   | 2002        |  
|                                                                                                                |   | Original    |   |  |            |   |  |                 |  |   | Restated    |  
|ASSETS                                                                                                          |  
|                                                                                                                |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Assets                                                                                                    | $ | 2,727,001   |   |  | -          |   |  |                 |  | $ | 2,727,001   |  
|                                                                                                                |   |             |   |  |            |   |  |                 |  |   |             |  
|                                                                                                                |   |             |   |  |            |   |  |                 |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                  |  
|                                                                                                                |   |             |   |  |            |   |  |                 |  |   |             |  
|Current Liabilities                                                                                             |   |             |   |  |            |   |  |                 |  |   |             |  
|Accounts payable and accrued liabilties                                                                         | $ | 1,254,272   |   |  | 136,103    |   |  | (g)             |  | $ | 1,390,375   |  
|Accrued liabilties - related parties                                                                            |   |             |   |  | 1,121,432  |   |  | (g)             |  |   | 1,121,432   |  
|Current portion of long-term debt                                                                               |   | 22,447      |   |  | 196,751    |   |  | (g)             |  |   | 219,198     |  
|Notes payable - related party                                                                                   |   |             |   |  | 162,500    |   |  | (g)             |  |   | 162,500     |  
|Convertible notes - non-related parties                                                                         |   |             |   |  | 453,032    |   |  | (g),(b),(d)     |  |   | 453,032     |  
|Derivative liability                                                                                            |   |             |   |  | 1,394,237  |   |  | (a),(c)         |  |   | 1,394,237   |  
|Total Current Liabilities                                                                                       |   | 1,276,719   |   |  | 3,464,055  |   |  |                 |  |   | 4,740,774   |  
|                                                                                                                |   |             |   |  |            |   |  |                 |  |   |             |  
|Other liabilities                                                                                               |   |             |   |  |            |   |  |                 |  |   |             |  
|Long-term deposits and convertible notes                                                                        |   | 217,500     |   |  | (217,500   | ) |  | (g)             |  |   | -           |  
|Long term debt (net of current)                                                                                 |   | 196,751     |   |  | (196,751   | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                               |   | 750,000     |   |  | (750,000   | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                               |   | 185,556     |   |  | (185,556   | ) |  | (g)             |  |   | -           |  
|Convertible loans                                                                                               |   | 1,257,535   |   |  | (1,257,535 | ) |  | (g)             |  |   | -           |  
|Total Other Liabilities                                                                                         |   | 2,607,342   |   |  | (2,607,342 | ) |  |                 |  |   | -           |  
|                                                                                                                |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Liabilities                                                                                               |   | 3,884,061   |   |  | 856,713    |   |  |                 |  |   | 4,740,774   |  
|                                                                                                                |   |             |   |  |            |   |  |                 |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                  |   |             |   |  |            |   |  |                 |  |   |             |  
|Common stock, $.001 par value, authorize  250,000,000
      shares, issued and outstanding   197,363,834 shares |   | 197,364     |   |  | -          |   |  |                 |  |   | 197,364     |  
|Additional paid-in capital                                                                                      |   | 23,709,525  |   |  | 2,553      |   |  | (e)             |  |   | 23,712,078  |  
|Deficit accumulated prior to entering development stage                                                         |   | -           |   |  | (1,057,356 | ) |  | (r)             |  |   | (1,057,356  | )
|Deficit accumulated during the development
      stage                                                          |   | (24,904,900 | ) |  | 198,090    |   |  | (c),(d),(e),(j) |  |   | (24,706,810 | )
|Unrealized loss on foreign exchange                                                                             |   | (159,049    | ) |  | -          |   |  |                 |  |   | (159,049    | )
|                                                                                                                |   | (1,157,060  | ) |  | (856,713   | ) |  |                 |  |   | (2,013,773  | )
|                                                                                                                |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                      | $ | 2,727,001   |   |  | -          |   |  |                 |  | $ | 2,727,001   |  

F-141

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED MARCH 31, 2002

|                                                                    |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | ----------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**  |  
|                                                                    |   | March 31,        |   |   | March 31, 2002   |   |  |     |  |   | **March 31,**     |  
|                                                                    |   | 2002             |   |   | Net Change       |   |  |     |  |   | 2002              |  
|                                                                    |   | Original         |   |   |                  |   |  |     |  |   | Restated          |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Revenues                                                            | $ | -                |   |   | -                |   |  |     |  | $ | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Cost of Sales                                                       |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Gross profit                                                        |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Operations                                                          |   |                  |   |   |                  |   |  |     |  |   |                   |  
|General and administrative                                          |   | 198,665          |   |   | -                |   |  |     |  |   | 198,665           |  
|Depreciation and amortization                                       |   | 13,627           |   |   | -                |   |  |     |  |   | 13,627            |  
|Research and development                                            |   | 120,791          |   |   | -                |   |  |     |  |   | 120,791           |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Total Expense                                                       |   | 333,083          |   |   | -                |   |  |     |  |   | 333,083           |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Loss before other expenses                                          |   | (333,083         | ) |   | -                |   |  |     |  |   | (333,083          | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Other expenses (income)                                             |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Interest expense                                                    |   | 25,401           |   |   | 851              |   |  | (e) |  |   | 26,252            |  
|Accretion expense                                                   |   | -                |   |   | 46,631           |   |  | (d) |  |   | 46,631            |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |   | 278,054          |   |  | (c) |  |   | 278,054           |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Total Other expenses (income)                                       |   | 25,401           |   |   | 325,536          |   |  |     |  |   | 350,937           |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Provision for income taxes                                          |   | -                |   |   | -                |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net loss                                                            |   | (358,484         | ) |   | (325,536         | ) |  |     |  |   | (684,020          | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Loss (gain) on foreign exchange                                     |   | 175              |   |   | -                |   |  |     |  |   | 175               |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net loss and comprehensive loss                                     | $ | (358,659         | ) | $ | (325,536         | ) |  |     |  | $ | (684,195          | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Net loss and comprehensive loss per share - basic and
      diluted | $ | (0.00            | ) |   |                  |   |  |     |  | $ | (0.00             | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                   |  
|Weighted average number of shares - basic and diluted               |   | 192,114,478      |   |   |                  |   |  |     |  |   | 192,114,478       |  

F-142

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED MARCH 31, 2002

|                                                                                                         |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|-------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                         |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                                                         |   | March 31,        |   |   | March 31, 2002   |   |  |     |  |   | **March 31,**         |  
|                                                                                                         |   | 2002             |   |   | Net Change       |   |  |     |  |   | 2002                  |  
|                                                                                                         |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                                                        | $ | (358,659         | ) | $ | (325,536         | ) |  |     |  | $ | (684,195              | )
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Adjustments
      to reconcile net income to net cash
               used in operating
      activities: |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Depreciation and amortization                                                                            |   | 13,627           |   |   | -                |   |  |     |  |   | 13,627                |  
|Imputed interest                                                                                         |   | -                |   |   | 851              |   |  | (e) |  |   | 851                   |  
|Accretion expense                                                                                        |   | -                |   |   | 46,631           |   |  | (d) |  |   | 46,631                |  
|Change in derivative
      liability                                                                     |   | -                |   |   | 278,054          |   |  | (c) |  |   | 278,054               |  
|Changes in assets and liabilities:                                                                       |   |                  |   |   |                  |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                                  |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Account receivable                                                                                       |   | 2                |   |   | -                |   |  |     |  |   | 2                     |  
|Inventory                                                                                                |   | 64               |   |   | -                |   |  |     |  |   | 64                    |  
|Research and experimental development
      tax credits receivable                                       |   | (27,447          | ) |   | -                |   |  |     |  |   | (27,447               | )
|Other assets                                                                                             |   | 24,365           |   |   | -                |   |  |     |  |   | 24,365                |  
|(Decrease) increase in :                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Accounts payable and
      accrued liabilities                                                           |   | 100,788          |   |   | -                |   |  |     |  |   | 100,788               |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                                    |   | (247,260         | ) |   | -                |   |  |     |  |   | (247,260              | )
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from investing activities:                                                                     |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Decrease in notes receivable                                                                             |   | 15               |   |   | -                |   |  |     |  |   | 15                    |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in investing activities                                                                    |   | 15               |   |   | -                |   |  |     |  |   | 15                    |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from financing activities:                                                                     |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loans from related
      parties                                                                         |   | 231,163          |   |   | -                |   |  |     |  |   | 231,163               |  
|Deferred financing costs                                                                                 |   | 12,303           |   |   | -                |   |  |     |  |   | 12,303                |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash provided by financing activities                                                                |   | 243,466          |   |   | -                |   |  |     |  |   | 243,466               |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and cash
      equivalents                                       |   | 1,953            |   |   | -                |   |  |     |  |   | 1,953                 |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash equivalents                                                     |   | (1,826           | ) |   | -                |   |  |     |  |   | (1,826                | )
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of period                                                          |   | 483              |   |   | -                |   |  |     |  |   | 483                   |  
|                                                                                                         |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                                | $ | (1,343           | ) | $ | -                |   |  |     |  | $ | (1,343                | )

F-143

---

CONSOLIDATED BALANCE SHEETDECEMBER 31,
2001

|                                                                                                                  |   | December 31, |   |  |            |   |  |             |  |   | December 31, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------ | - |  | ---------- | - |  | ----------- |  | - | ------------ | -
|                                                                                                                  |   | 2001         |   |  | Net Change |   |  |             |  |   | 2001         |  
|                                                                                                                  |   | Original     |   |  |            |   |  |             |  |   | Restated     |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Assets                                                                                                      | $ | 2,739,452    |   |  | -          |   |  |             |  | $ | 2,739,452    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Current Liabilities                                                                                               |   |              |   |  |            |   |  |             |  |   |              |  
|Accounts payable and accrued liabilties                                                                           | $ | 1,153,485    |   |  | 73,708     |   |  | (g)         |  | $ | 1,227,193    |  
|Accrued liabilties - related parties                                                                              |   | -            |   |  | 964,843    |   |  | (g)         |  |   | 964,843      |  
|Current portion of long-term debt                                                                                 |   | 25,538       |   |  | 196,751    |   |  | (g)         |  |   | 222,289      |  
|Notes payable - related party                                                                                     |   | -            |   |  | 162,500    |   |  | (g)         |  |   | 162,500      |  
|Convertible notes - non-related parties                                                                           |   | -            |   |  | 406,401    |   |  | (g),(b),(d) |  |   | 406,401      |  
|Derivative liability                                                                                              |   | -            |   |  | 1,116,183  |   |  | (a),(c)     |  |   | 1,116,183    |  
|Total Current Liabilities                                                                                         |   | 1,179,023    |   |  | 2,920,386  |   |  |             |  |   | 4,099,409    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Other liabilities                                                                                                 |   |              |   |  |            |   |  |             |  |   |              |  
|Long-term deposits and convertible notes                                                                          |   | 217,500      |   |  | (217,500   | ) |  | (g)         |  |   | -            |  
|Long term debt (net of current)                                                                                   |   | 196,751      |   |  | (196,751   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 750,000      |   |  | (750,000   | ) |  | (g)         |  |   | -            |  
|Convertible notes                                                                                                 |   | 185,556      |   |  | (185,556   | ) |  | (g)         |  |   | -            |  
|Convertible loans                                                                                                 |   | 1,038,551    |   |  | (1,038,551 | ) |  | (g)         |  |   | -            |  
|Total Other Liabilities                                                                                           |   | 2,388,358    |   |  | (2,388,358 | ) |  |             |  |   | -            |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities                                                                                                 |   | 3,567,381    |   |  | 532,028    |   |  |             |  |   | 4,099,409    |  
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Stockholders' Equity (Deficit)                                                                                    |   |              |   |  |            |   |  |             |  |   |              |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   197,363,834 shares |   | 197,364      |   |  | -          |   |  |             |  |   | 197,364      |  
|Additional paid-in capital                                                                                        |   | 23,681,950   |   |  | 1,702      |   |  | (e)         |  |   | 23,683,652   |  
|Deficit accumulated prior to entering development stage                                                           |   | -            |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356   | )
|Deficit accumulated during the development
      stage                                                            |   | (24,546,241  | ) |  | 523,626    |   |  | (c),(d),(e) |  |   | (24,022,615  | )
|Unrealized loss on foreign exchange                                                                               |   | (161,002     | ) |  | -          |   |  |             |  |   | (161,002     | )
|                                                                                                                  |   | (827,929     | ) |  | (532,028   | ) |  |             |  |   | (1,359,957   | )
|                                                                                                                  |   |              |   |  |            |   |  |             |  |   |              |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 2,739,452    |   |  | -          |   |  |             |  | $ | 2,739,452    |  

F-144

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED DECEMBER 31,
2001

|                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December
    31,**  |  
|                                                                    |   | 2001             |   |   | 2001 - Net Change |   |  |     |  |   | 2001                  |  
|                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Revenues                                                            | $ | 1,424            |   |   | -                 |   |  |     |  | $ | 1,424                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | 854              |   |   | -                 |   |  |     |  |   | 854                   |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Gross profit                                                        |   | 570              |   |   | -                 |   |  |     |  |   | 570                   |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |   |                   |   |  |     |  |   |                       |  
|General and administrative                                          |   | 308,601          |   |   | -                 |   |  |     |  |   | 308,601               |  
|Depreciation and amortization                                       |   | 13,718           |   |   | -                 |   |  |     |  |   | 13,718                |  
|Research and development                                            |   | 154,175          |   |   | -                 |   |  |     |  |   | 154,175               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 476,494          |   |   | -                 |   |  |     |  |   | 476,494               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (475,924         | ) |   | -                 |   |  |     |  |   | (475,924              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 28,185           |   |   | 851               |   |  | (e) |  |   | 29,036                |  
|Accretion expense                                                   |   | -                |   |   | 46,631            |   |  | (d) |  |   | 46,631                |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |   | 347,889           |   |  | (c) |  |   | 347,889               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 28,185           |   |   | 395,371           |   |  |     |  |   | 423,556               |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                 |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss                                                            |   | (504,109         | ) |   | (395,371          | ) |  |     |  |   | (899,480              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | 882              |   |   | -                 |   |  |     |  |   | 882                   |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (504,991         | ) | $ | (395,371          | ) |  |     |  | $ | (900,362              | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share - basic and
      diluted | $ | (0.00            | ) |   |                   |   |  |     |  | $ | (0.00                 | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Weighted average number of shares - basic and diluted               |   | 186,865,121      |   |   |                   |   |  |     |  |   | 186,865,121           |  

F-145

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED DECEMBER 31, 2001

|                                                                                                         |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three** |  
|-------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                         |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**      |  
|                                                                                                         |   | December 31,     |   |   | December 31,      |   |  |     |  |   | **December
31,**      |  
|                                                                                                         |   | 2001             |   |   | 2001 - Net Change |   |  |     |  |   | 2001                  |  
|                                                                                                         |   | Original         |   |   |                   |   |  |     |  |   | Restated              |  
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                                    |   |                  |   |   |                   |   |  |     |  |   |                       |  
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net income (loss)                                                                                        | $ | (504,991         | ) | $ | (395,371          | ) |  |     |  | $ | (900,362              | )
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Adjustments to
      reconcile net income to net cash
               used in operating
      activities: |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Depreciation and amortization                                                                            |   | 13,718           |   |   | -                 |   |  |     |  |   | 13,718                |  
|Imputed interest                                                                                         |   | -                |   |   | 851               |   |  | (e) |  |   | 851                   |  
|Accretion expense                                                                                        |   | -                |   |   | 46,631            |   |  | (d) |  |   | 46,631                |  
|Change in derivative
      liability                                                                     |   | -                |   |   | 347,889           |   |  | (c) |  |   | 347,889               |  
|Changes in assets and liabilities:                                                                       |   |                  |   |   |                   |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                                  |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Account receivable                                                                                       |   | (1,625           | ) |   | -                 |   |  |     |  |   | (1,625                | )
|Inventory                                                                                                |   | 654              |   |   | -                 |   |  |     |  |   | 654                   |  
|Sales tax receivable                                                                                     |   | 6,610            |   |   | -                 |   |  |     |  |   | 6,610                 |  
|Research and
      experimental development tax credits receivable                                       |   | 185,675          |   |   | -                 |   |  |     |  |   | 185,675               |  
|Other assets                                                                                             |   | 39,604           |   |   | -                 |   |  |     |  |   | 39,604                |  
|(Decrease) increase in
      :                                                                           |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Accounts payable and accrued
      liabilities                                                           |   | 265,875          |   |   | -                 |   |  |     |  |   | 265,875               |  
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                                    |   | 5,520            |   |   | -                 |   |  |     |  |   | 5,520                 |  
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flow from investing activities:                                                                     |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Increase in notes
      receivable                                                                       |   | (4,280           | ) |   | -                 |   |  |     |  |   | (4,280                | )
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash used in investing activities                                                                    |   | (4,280           | ) |   | -                 |   |  |     |  |   | (4,280                | )
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash flow from financing activities:                                                                     |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Deferred financing costs                                                                                 |   | 26,968           |   |   | -                 |   |  |     |  |   | 26,968                |  
|Payments on notes
      payable                                                                          |   | (256,940         | ) |   | -                 |   |  |     |  |   | (256,940              | )
|Proceeds from grants                                                                                     |   | 236,988          |   |   | -                 |   |  |     |  |   | 236,988               |  
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net cash provided by financing activities                                                                |   | 7,016            |   |   | -                 |   |  |     |  |   | 7,016                 |  
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and cash
      equivalents                                       |   | (4,931           | ) |   | -                 |   |  |     |  |   | (4,931                | )
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash equivalents                                                     |   | 3,325            |   |   | -                 |   |  |     |  |   | 3,325                 |  
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of period                                                          |   | (2,842           | ) |   | -                 |   |  |     |  |   | (2,842                | )
|                                                                                                         |   |                  |   |   |                   |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                                | $ | 483              |   | $ | -                 |   |  |     |  | $ | 483                   |  

F-146

---

CONSOLIDATED BALANCE SHEETSEPTEMBER 30,
2001

|                                                                                                                  |   | September 30, |   |  |            |   |  |             |  |   | September 30, |  
|----------------------------------------------------------------------------------------------------------------- | - | ------------- | - |  | ---------- | - |  | ----------- |  | - | ------------- | -
|                                                                                                                  |   | 2001          |   |  | Net Change |   |  |             |  |   | 2001          |  
|                                                                                                                  |   | Original      |   |  |            |   |  |             |  |   | Restated      |  
|ASSETS                                                                                                            |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Assets                                                                                                      | $ | 2,976,484     |   |  | -          |   |  |             |  | $ | 2,976,484     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                    |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Current Liabilities                                                                                               |   |               |   |  |            |   |  |             |  |   |               |  
|Accounts payable and accrued liabilties                                                                           | $ | 977,321       |   |  | 48,435     |   |  | (g)         |  | $ | 1,025,756     |  
|Accrued liabilties - related parties                                                                              |   | -             |   |  | 713,920    |   |  | (g)         |  |   | 713,920       |  
|Current portion of long-term debt                                                                                 |   | 363,963       |   |  | 107,460    |   |  | (g)         |  |   | 471,423       |  
|Notes payable - related party                                                                                     |   | -             |   |  | 162,500    |   |  | (g)         |  |   | 162,500       |  
|Convertible notes - non-related parties                                                                           |   | -             |   |  | 359,770    |   |  | (g),(b),(d) |  |   | 359,770       |  
|Derivative liability                                                                                              |   | -             |   |  | 768,294    |   |  | (a),(c)     |  |   | 768,294       |  
|Total Current Liabilities                                                                                         |   | 1,341,284     |   |  | 2,160,379  |   |  |             |  |   | 3,501,663     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Other liabilities                                                                                                 |   |               |   |  |            |   |  |             |  |   |               |  
|Long-term deposits and convertible notes                                                                          |   | 217,500       |   |  | (217,500   | ) |  | (g)         |  |   | -             |  
|Long term debt (net of current)                                                                                   |   | 107,460       |   |  | (107,460   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 750,000       |   |  | (750,000   | ) |  | (g)         |  |   | -             |  
|Convertible notes                                                                                                 |   | 185,556       |   |  | (185,556   | ) |  | (g)         |  |   | -             |  
|Convertible loans                                                                                                 |   | 762,355       |   |  | (762,355   | ) |  | (g)         |  |   | -             |  
|Total Other Liabilities                                                                                           |   | 2,022,871     |   |  | (2,022,871 | ) |  |             |  |   | -             |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities                                                                                                 |   | 3,364,155     |   |  | 137,508    |   |  |             |  |   | 3,501,663     |  
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Stockholders' Equity (Deficit)                                                                                    |   |               |   |  |            |   |  |             |  |   |               |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding   197,363,834 shares |   | 197,364       |   |  | -          |   |  |             |  |   | 197,364       |  
|Additional paid-in capital                                                                                        |   | 23,612,286    |   |  | 851        |   |  | (e)         |  |   | 23,613,137    |  
|Deficit accumulated prior to entering development stage                                                           |   | -             |   |  | (1,057,356 | ) |  | (r)         |  |   | (1,057,356    | )
|Deficit accumulated during the development
      stage                                                            |   | (24,041,250   | ) |  | 918,997    |   |  | (c),(d)     |  |   | (23,122,253   | )
|Unrealized loss on foreign exchange                                                                               |   | (156,071      | ) |  | -          |   |  |             |  |   | (156,071      | )
|                                                                                                                  |   | (387,671      | ) |  | (137,508   | ) |  |             |  |   | (525,179      | )
|                                                                                                                  |   |               |   |  |            |   |  |             |  |   |               |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                        | $ | 2,976,484     |   |  | -          |   |  |             |  | $ | 2,976,484     |  

F-147

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2001

|                                                                    |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**  |  
|                                                                    |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September 30,** |  
|                                                                    |   | 2001             |   |   | 2001 - Net Change |   |  |     |  |   | 2000              |  
|                                                                    |   | Original         |   |   |                   |   |  |     |  |   | Restated          |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Revenues                                                            | $ | -                |   |   | -                 |   |  |     |  | $ | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Cost of Sales                                                       |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Gross profit                                                        |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Operations                                                          |   |                  |   |   |                   |   |  |     |  |   |                   |  
|General and administrative                                          |   | 289,954          |   |   | -                 |   |  |     |  |   | 289,954           |  
|Depreciation and amortization                                       |   | 13,954           |   |   | -                 |   |  |     |  |   | 13,954            |  
|Research and development                                            |   | 87,839           |   |   | -                 |   |  |     |  |   | 87,839            |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Total Expense                                                       |   | 391,747          |   |   | -                 |   |  |     |  |   | 391,747           |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Loss before other expenses                                          |   | (391,747         | ) |   | -                 |   |  |     |  |   | (391,747          | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Other expenses (income)                                             |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Interest expense                                                    |   | 26,093           |   |   | 851               |   |  | (e) |  |   | 26,944            |  
|Accretion expense                                                   |   | -                |   |   | 46,631            |   |  | (d) |  |   | 46,631            |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |   | (39,557           | ) |  | (c) |  |   | (39,557           | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Total Other expenses (income)                                       |   | 26,093           |   |   | 7,925             |   |  |     |  |   | 34,018            |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Provision for income taxes                                          |   | -                |   |   | -                 |   |  |     |  |   | -                 |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net loss                                                            |   | (417,840         | ) |   | (7,925            | ) |  |     |  |   | (425,765          | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Loss on foreign exchange                                            |   | 1,081            |   |   | -                 |   |  |     |  |   | 1,081             |  
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net loss and comprehensive loss                                     | $ | (418,921         | ) | $ | (7,925            | ) |  |     |  | $ | (426,846          | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Net loss and comprehensive loss per share - basic and
      diluted | $ | (0.00            | ) |   |                   |   |  |     |  | $ | (0.00             | )
|                                                                    |   |                  |   |   |                   |   |  |     |  |   |                   |  
|Weighted average number of shares - basic and diluted               |   | 181,615,765      |   |   |                   |   |  |     |  |   | 181,615,765       |  

F-148

---

CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR THE THREE MONTHS ENDED SEPTEMBER 30,
2001

|                                                                                                        |   | For the Three    |   |   | For the Three     |   |  |     |  |   | **For the
    Three**   |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - |  | --- |  | - | ----------------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended**  |   |  |     |  |   | **Months Ended**        |  
|                                                                                                        |   | September 30,    |   |   | September 30,     |   |  |     |  |   | **September
      30,** |  
|                                                                                                        |   | 2001             |   |   | 2001 - Net Change |   |  |     |  |   | 2000                    |  
|                                                                                                        |   | Original         |   |   |                   |   |  |     |  |   | Restated                |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                   |   |  |     |  |   |                         |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net income (loss)                                                                                       | $ | (418,921         | ) | $ | (7,925            | ) |  |     |  | $ | (426,846                | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Depreciation and amortization                                                                           |   | 13,943           |   |   | -                 |   |  |     |  |   | 13,943                  |  
|Imputed interest                                                                                        |   | -                |   |   | 851               |   |  | (e) |  |   | 851                     |  
|Accretion expense                                                                                       |   | -                |   |   | 46,631            |   |  | (d) |  |   | 46,631                  |  
|Stock options issued in
      exchange for services                                                     |   | 367,273          |   |   | -                 |   |  |     |  |   | 367,273                 |  
|Change in derivative liability                                                                          |   | -                |   |   | (39,557           | ) |  | (c) |  |   | (39,557                 | )
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                   |   |  |     |  |   |                         |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Account receivable                                                                                      |   | 514              |   |   | -                 |   |  |     |  |   | 514                     |  
|Inventory                                                                                               |   | 2,928            |   |   | -                 |   |  |     |  |   | 2,928                   |  
|Sales tax receivable                                                                                    |   | 5,175            |   |   | -                 |   |  |     |  |   | 5,175                   |  
|Research and experimental development
      tax credits receivable                                      |   | 32,356           |   |   | -                 |   |  |     |  |   | 32,356                  |  
|Other assets                                                                                            |   | 90,572           |   |   | -                 |   |  |     |  |   | 90,572                  |  
|(Decrease) increase in :                                                                                |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Accounts payable and
      accrued liabilities                                                          |   | (269,751         | ) |   | -                 |   |  |     |  |   | (269,751                | )
|Accrued liabilities - related parties                                                                   |   | (12,374          | ) |   | -                 |   |  |     |  |   | (12,374                 | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net cash used in operating activities                                                                   |   | (188,285         | ) |   | -                 |   |  |     |  |   | (188,285                | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash flow from investing activities:                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Investment                                                                                              |   | (89,500          | ) |   | -                 |   |  |     |  |   | (89,500                 | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net cash used in investing activities                                                                   |   | (89,500          | ) |   | -                 |   |  |     |  |   | (89,500                 | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash flow from financing activities:                                                                    |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Deferred financing costs                                                                                |   | 26,968           |   |   | -                 |   |  |     |  |   | 26,968                  |  
|Payments on lease
      obligations                                                                     |   | (17,148          | ) |   | -                 |   |  |     |  |   | (17,148                 | )
|Proceeds from grants                                                                                    |   | 239,609          |   |   | -                 |   |  |     |  |   | 239,609                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net cash provided by financing activities                                                               |   | 249,429          |   |   | -                 |   |  |     |  |   | 249,429                 |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Effect of Exchange rate changes on cash and cash
      equivalents                                      |   | 24,158           |   |   | -                 |   |  |     |  |   | 24,158                  |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Net (decrease) increase in cash and cash equivalents                                                    |   | (4,198           | ) |   | -                 |   |  |     |  |   | (4,198                  | )
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash and cash equivalents - beginning of period                                                         |   | 1,356            |   |   | -                 |   |  |     |  |   | 1,356                   |  
|                                                                                                        |   |                  |   |   |                   |   |  |     |  |   |                         |  
|Cash and cash equivalents - end of period                                                               | $ | (2,842           | ) | $ | -                 |   |  |     |  | $ | (2,842                  | )

F-149

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED JUNE 30, 2001

|                                                                    |   | For the Three    |   |  | For the Three    |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - |  | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |  | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | June 30,         |   |  | June 30, 2001    |   |  |     |  |   | **June 30,**          |  
|                                                                    |   | 2001             |   |  | Net Change       |   |  |     |  |   | 2001                  |  
|                                                                    |   | Original         |   |  |                  |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Revenues                                                            | $ | -                |   |  | -                |   |  |     |  | $ | -                     |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | -                |   |  | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Gross profit                                                        |   | -                |   |  | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |  |                  |   |  |     |  |   |                       |  
|General and administrative                                          |   | 407,022          |   |  | -                |   |  |     |  |   | 407,022               |  
|Depreciation and amortization                                       |   | 47,182           |   |  | -                |   |  |     |  |   | 47,182                |  
|Research and development                                            |   | 14,785           |   |  | -                |   |  |     |  |   | 14,785                |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 468,989          |   |  | -                |   |  |     |  |   | 468,989               |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (468,989         | ) |  | -                |   |  |     |  |   | (468,989              | )
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 96,491           |   |  | -                |   |  |     |  |   | 96,491                |  
|Accretion expense                                                   |   | -                |   |  | 66,179           |   |  | (d) |  |   | 66,179                |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |  | (58,292          | ) |  | (c) |  |   | (58,292               | )
|Loss (gain) from extinguishment of debt                             |   | -                |   |  | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 96,491           |   |  | 7,887            |   |  |     |  |   | 104,378               |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |  | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Net loss                                                            |   | (565,480         | ) |  | (7,887           | ) |  |     |  |   | (573,367              | )
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | (7,130           | ) |  | -                |   |  |     |  |   | (7,130                | )
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (558,350         | ) |  | (7,887           | ) |  |     |  | $ | (566,237              | )
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.00            | ) |  |                  |   |  |     |  | $ | (0.00                 | )
|                                                                    |   |                  |   |  |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 170,139,483      |   |  |                  |   |  |     |  |   | 170,139,483           |  

F-150

---

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED JUNE 30, 2001

|                                                                                                        |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                                                        |   | June 30,         |   |   | June 30, 2001    |   |  |     |  |   | **June
    30,**      |  
|                                                                                                        |   | 2001             |   |   | Net Change       |   |  |     |  |   | 2001                  |  
|                                                                                                        |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                                                       | $ | (558,350         | ) | $ | (7,887           | ) |  |     |  | $ | (566,237              | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Depreciation and amortization                                                                           |   | 47,181           |   |   | -                |   |  |     |  |   | 47,181                |  
|Accretion expense                                                                                       |   | -                |   |   | 66,179           |   |  | (d) |  |   | 66,179                |  
|Loss (gain) on disposal and abandonment
      of assets                                                 |   | (49,801          | ) |   | -                |   |  |     |  |   | (49,801               | )
|Common stock issued in
      exchange for interest                                                      |   | 4,200            |   |   | -                |   |  |     |  |   | 4,200                 |  
|Common stock issued in exchange for
      services and expenses                                         |   | (1,009,142       | ) |   | -                |   |  |     |  |   | (1,009,142            | )
|Stock options issued in
      exchange for services                                                     |   | 496,411          |   |   | -                |   |  |     |  |   | 496,411               |  
|Change in derivative liability                                                                          |   | -                |   |   | (58,292          | ) |  | (c) |  |   | (58,292               | )
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                  |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Inventory                                                                                               |   | 24,695           |   |   | -                |   |  |     |  |   | 24,695                |  
|Sales tax receivable                                                                                    |   | (24,905          | ) |   | -                |   |  |     |  |   | (24,905               | )
|Research and
      experimental development tax credits receivable                                      |   | 279,213          |   |   | -                |   |  |     |  |   | 279,213               |  
|Other assets                                                                                            |   | 41,209           |   |   | -                |   |  |     |  |   | 41,209                |  
|(Decrease) increase in
      :                                                                          |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Accounts payable and accrued
      liabilities                                                          |   | 673,332          |   |   | -                |   |  |     |  |   | 673,332               |  
|Accrued liabilities -
      related parties                                                             |   | (213,778         | ) |   | -                |   |  |     |  |   | (213,778              | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                                   |   | (289,735         | ) |   | -                |   |  |     |  |   | (289,735              | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from investing activities:                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Increase in notes receivable                                                                            |   | (112,789         | ) |   | -                |   |  |     |  |   | (112,789              | )
|Reduction in notes
      receivable                                                                     |   | 116,089          |   |   | -                |   |  |     |  |   | 116,089               |  
|Equipment                                                                                               |   | (60,769          | ) |   | -                |   |  |     |  |   | (60,769               | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in investing activities                                                                   |   | (57,469          | ) |   | -                |   |  |     |  |   | (57,469               | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from financing activities:                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loans from related
      parties                                                                        |   | 880,417          |   |   |                  |   |  |     |  |   | 880,417               |  
|Deferred financing costs                                                                                |   | 26,968           |   |   | -                |   |  |     |  |   | 26,968                |  
|Proceeds from
      convertible notes                                                                   |   | 754,999          |   |   | -                |   |  |     |  |   | 754,999               |  
|Payments on lease obligations                                                                           |   | (39,217          | ) |   | -                |   |  |     |  |   | (39,217               | )
|Proceeds from issuance
      of convertible subordinated debentures                                     |   | (935,556         | ) |   | -                |   |  |     |  |   | (935,556              | )
|Payments on loan payable                                                                                |   | (75,147          | ) |   | -                |   |  |     |  |   | (75,147               | )
|Proceeds from grants                                                                                    |   | (41,958          | ) |   | -                |   |  |     |  |   | (41,958               | )
|Proceeds from issuance of common stock                                                                  |   | 733              |   |   | -                |   |  |     |  |   | 733                   |  
|Proceeds from
      additional paid-in capital                                                          |   | 39,427           |   |   | -                |   |  |     |  |   | 39,427                |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash provided by financing activities                                                               |   | 610,666          |   |   | -                |   |  |     |  |   | 610,666               |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | (275,028         | ) |   | -                |   |  |     |  |   | (275,028              | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | (11,566          | ) |   | -                |   |  |     |  |   | (11,566               | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of
      period                                                   |   | 12,922           |   |   | -                |   |  |     |  |   | 12,922                |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                               | $ | 1,356            |   | $ | -                |   |  |     |  | $ | 1,356                 |  

F-151

---

CONSOLIDATED BALANCE SHEETMARCH 31,
2001

|                                                                                                                       |   | March 31,   |   |  |            |   |  |                 |  |   | March 31,   |  
|---------------------------------------------------------------------------------------------------------------------- | - | ----------- | - |  | ---------- | - |  | --------------- |  | - | ----------- | -
|                                                                                                                       |   | 2001        |   |  | Net Change |   |  |                 |  |   | 2001        |  
|                                                                                                                       |   | Original    |   |  |            |   |  |                 |  |   | Restated    |  
|ASSETS                                                                                                                 |  
|                                                                                                                       |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Assets                                                                                                           | $ | 3,208,452   |   |  | -          |   |  |                 |  | $ | 3,208,452   |  
|                                                                                                                       |   |             |   |  |            |   |  |                 |  |   |             |  
|                                                                                                                       |   |             |   |  |            |   |  |                 |  |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                         |  
|                                                                                                                       |   |             |   |  |            |   |  |                 |  |   |             |  
|Current Liabilities                                                                                                    |   |             |   |  |            |   |  |                 |  |   |             |  
|Accounts payable and accrued liabilties                                                                                | $ | 799,893     |   |  | 35,762     |   |  | (g)             |  | $ | 835,655     |  
|Accrued liabilties - related parties                                                                                   |   | -           |   |  | 878,270    |   |  | (g)             |  |   | 878,270     |  
|Current portion of long-term debt                                                                                      |   | 137,653     |   |  | 403,002    |   |  | (g)             |  |   | 540,655     |  
|Notes payable - related party                                                                                          |   | -           |   |  | 143,500    |   |  | (g)             |  |   | 143,500     |  
|Convertible notes - non-related parties                                                                                |   | -           |   |  | 246,960    |   |  | (g),(b),(d)     |  |   | 246,960     |  
|Derivative liability                                                                                                   |   | -           |   |  | 866,143    |   |  | (a),(c)         |  |   | 866,143     |  
|Total Current Liabilities                                                                                              |   | 937,546     |   |  | 2,573,637  |   |  |                 |  |   | 3,511,183   |  
|                                                                                                                       |   |             |   |  |            |   |  |                 |  |   |             |  
|Other liabilities                                                                                                      |   |             |   |  |            |   |  |                 |  |   |             |  
|Long-term deposits and convertible notes                                                                               |   | 198,500     |   |  | (198,500   | ) |  | (g)             |  |   | -           |  
|Long term debt (net of current)                                                                                        |   | 403,002     |   |  | (403,002   | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                      |   | 750,000     |   |  | (750,000   | ) |  | (g)             |  |   | -           |  
|Convertible notes                                                                                                      |   | 185,556     |   |  | (185,556   | ) |  | (g)             |  |   | -           |  
|Convertible loans                                                                                                      |   | 914,032     |   |  | (914,032   | ) |  | (g)             |  |   | -           |  
|Total Other Liabilities                                                                                                |   | 2,451,090   |   |  | (2,451,090 | ) |  |                 |  |   | -           |  
|                                                                                                                       |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Liabilities                                                                                                      |   | 3,388,636   |   |  | 122,547    |   |  |                 |  |   | 3,511,183   |  
|                                                                                                                       |   |             |   |  |            |   |  |                 |  |   |             |  
|Stockholders' Equity (Deficit)                                                                                         |   |             |   |  |            |   |  |                 |  |   |             |  
|Common stock, $.001 par value, authorized   250,000,000
      shares, issued and outstanding 
      175,756,295 shares |   | 175,756     |   |  | -          |   |  |                 |  |   | 175,756     |  
|Additional paid-in capital                                                                                             |   | 22,613,260  |   |  | -          |   |  |                 |  |   | 22,613,260  |  
|Deficit accumulated prior to entering development stage                                                                |   | -           |   |  | (1,057,356 | ) |  | (r)             |  |   | (1,057,356  | )
|Deficit accumulated during the development
      stage                                                                 |   | (23,063,979 | ) |  | 934,809    |   |  | (c),(d),(e),(j) |  |   | (22,129,170 | )
|Unrealized loss on foreign exchange                                                                                    |   | 94,779      |   |  | -          |   |  |                 |  |   | 94,779      |  
|                                                                                                                       |   | (180,184    | ) |  | (122,547   | ) |  |                 |  |   | (302,731    | )
|                                                                                                                       |   |             |   |  |            |   |  |                 |  |   |             |  
|Total Liabilities and Stockholders' Equity
      (Deficit)                                                             | $ | 3,208,452   |   |  | -          |   |  |                 |  | $ | 3,208,452   |  

F-152

---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)FOR THE THREE MONTHS ENDED MARCH 31, 2001

|                                                                    |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                    |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                    |   | March 31,        |   |   | March 31, 2001   |   |  |     |  |   | **March 31,**         |  
|                                                                    |   | 2001             |   |   | Net Change       |   |  |     |  |   | 2001                  |  
|                                                                    |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Revenues                                                            | $ | -                |   |   | -                |   |  |     |  | $ | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cost of Sales                                                       |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Gross profit                                                        |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Operations                                                          |   |                  |   |   |                  |   |  |     |  |   |                       |  
|General and administrative                                          |   | 745,338          |   |   | -                |   |  |     |  |   | 745,338               |  
|Depreciation and amortization                                       |   | 68,071           |   |   | -                |   |  |     |  |   | 68,071                |  
|Research and development                                            |   | 359,282          |   |   | -                |   |  |     |  |   | 359,282               |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Expense                                                       |   | 1,172,691        |   |   | -                |   |  |     |  |   | 1,172,691             |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss before other expenses                                          |   | (1,172,691       | ) |   | -                |   |  |     |  |   | (1,172,691            | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other expenses (income)                                             |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Interest expense                                                    |   | 21,623           |   |   | -                |   |  |     |  |   | 21,623                |  
|Accretion expense                                                   |   | -                |   |   | 6,404            |   |  | (d) |  |   | 6,404                 |  
|Loss (gain) on change in derivative
      liability                 |   | -                |   |   | 116,143          |   |  | (c) |  |   | 116,143               |  
|Loss (gain) from extinguishment of debt                             |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Total Other expenses (income)                                       |   | 21,623           |   |   | 122,547          |   |  |     |  |   | 144,170               |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Provision for income taxes                                          |   | -                |   |   | -                |   |  |     |  |   | -                     |  
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                   |   | (1,194,314       | ) |   | (122,547         | ) |  |     |  |   | (1,316,861            | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Other comprehensive income (loss)                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Loss (gain) on foreign exchange                                     |   | (67,773          | ) |   | -                |   |  |     |  |   | (67,773               | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss                                     | $ | (1,126,541       | ) | $ | (122,547         | ) |  |     |  | $ | (1,249,088            | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net loss and comprehensive loss per share -
      basic and diluted | $ | (0.01            | ) |   |                  |   |  |     |  | $ | (0.01                 | )
|                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Weighted average number of shares - basic
      and diluted         |   | 168,063,841      |   |   |                  |   |  |     |  |   | 168,063,841           |  

F-153

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CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE
THREE MONTHS ENDED MARCH 31, 2001

|                                                                                                        |   | For the Three    |   |   | For the Three    |   |  |     |  |   | **For the
    Three** |  
|------------------------------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - |  | --- |  | - | --------------------- | -
|                                                                                                        |   | **Months Ended** |   |   | **Months Ended** |   |  |     |  |   | **Months Ended**      |  
|                                                                                                        |   | March 31,        |   |   | March 31, 2001   |   |  |     |  |   | **March 31,**         |  
|                                                                                                        |   | 2001             |   |   | Net Change       |   |  |     |  |   | 2001                  |  
|                                                                                                        |   | Original         |   |   |                  |   |  |     |  |   | Restated              |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flows from operating activities:                                                                   |   |                  |   |   |                  |   |  |     |  |   |                       |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net income (loss)                                                                                       | $ | (1,126,541       | ) | $ | (122,547         | ) |  |     |  | $ | (1,249,088            | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Adjustments to
      reconcile net income to net cash
              used in operating
      activities: |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Depreciation and amortization                                                                           |   | 68,071           |   |   | -                |   |  |     |  |   | 68,071                |  
|Accretion expense                                                                                       |   | -                |   |   | 6,404            |   |  | (d) |  |   | 6,404                 |  
|Stock options issued in exchange for
      services                                                     |   | 2,801            |   |   | -                |   |  |     |  |   | 2,801                 |  
|Change in derivative
      liability                                                                    |   | -                |   |   | 116,143          |   |  | (c) |  |   | 116,143               |  
|Changes in assets and liabilities:                                                                      |   |                  |   |   |                  |   |  |     |  |   |                       |  
|(Increase) decrease in:                                                                                 |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Account receivable                                                                                      |   | (5,144           | ) |   | -                |   |  |     |  |   | (5,144                | )
|Inventory                                                                                               |   | 4,455            |   |   | -                |   |  |     |  |   | 4,455                 |  
|Sales tax receivable                                                                                    |   | 5,175            |   |   | -                |   |  |     |  |   | 5,175                 |  
|Research and
      experimental development tax credits receivable                                      |   | 239,674          |   |   | -                |   |  |     |  |   | 239,674               |  
|Other assets                                                                                            |   | (27,015          | ) |   | -                |   |  |     |  |   | (27,015               | )
|(Decrease) increase in
      :                                                                          |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Accounts payable and accrued
      liabilities                                                          |   | (255,027         | ) |   | -                |   |  |     |  |   | (255,027              | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in operating activities                                                                   |   | (1,093,551       | ) |   | -                |   |  |     |  |   | (1,093,551            | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from investing activities:                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Equipment                                                                                               |   | (2,433           | ) |   | -                |   |  |     |  |   | (2,433                | )
|Equipment assembly costs                                                                                |   | (139,582         | ) |   | -                |   |  |     |  |   | (139,582              | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash used in investing activities                                                                   |   | (142,015         | ) |   | -                |   |  |     |  |   | (142,015              | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash flow from financing activities:                                                                    |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Proceeds from
      convertible notes                                                                   |   | 935,556          |   |   | -                |   |  |     |  |   | 935,556               |  
|Proceeds from notes payable                                                                             |   | (744,490         | ) |   | -                |   |  |     |  |   | (744,490              | )
|Proceeds from loan
      payable                                                                        |   | (35,520          | ) |   | -                |   |  |     |  |   | (35,520               | )
|Proceeds from issuance of common stock                                                                  |   | 10,764           |   |   | -                |   |  |     |  |   | 10,764                |  
|Proceeds from
      additional paid-in capital                                                          |   | 1,119,936        |   |   | -                |   |  |     |  |   | 1,119,936             |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net cash provided by financing activities                                                               |   | 1,286,246        |   |   | -                |   |  |     |  |   | 1,286,246             |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Effect of Exchange rate changes on cash and
      cash equivalents                                      |   | (49,213          | ) |   | -                |   |  |     |  |   | (49,213               | )
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Net (decrease) increase in cash and cash
      equivalents                                              |   | 1,467            |   |   | -                |   |  |     |  |   | 1,467                 |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - beginning of
      period                                                   |   | 11,455           |   |   | -                |   |  |     |  |   | 11,455                |  
|                                                                                                        |   |                  |   |   |                  |   |  |     |  |   |                       |  
|Cash and cash equivalents - end of period                                                               | $ | 12,922           |   | $ | -                |   |  |     |  | $ | 12,922                |  

F-154

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ANNOTATIONS TO NET CHANGES IN RESTATED FINANCIAL STATEMENTS
-

| | (a) | Recognition of Derivative Liability associated with
      Convertible Notes (Derivative Financial Instrument).                                        
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Recognition of Note Discount associated with Convertible
      Notes (Derivative Financial Instrument).                                               
| | (c) | Recognition of change in Derivative Liability associated
      with Convertible Notes (Derivative Financial Instrument).                              
| | (d) | Recognition of Note Discount amortization associated with
      Convertible Notes (Derivative Financial Instrument).                                  
| | (e) | Recognition of interest expense associated with
      Convertible Notes (Derivative Financial Instrument).                                            
| | (f) | Recognition of preferred stock issuances at fair
      value.                                                                                         
| | (g) | Reclassification of all liabilities which are due within
      one year or are in default.                                                            
| | (h) | Correction to properly record fixed assets impairment
      charge from 2009 to 2008.                                                                 
| | (i) | Correction to amount of interest expense recorded in
      2008.                                                                                      
| | (j) | Correction to transfer write-off and settlement of
      certain balances relating to Convertible Notes - non-related parties from
      2009 to 2003.
| | (k) | Correction to record loss on issuance of common stock at
      fair value to settle outstanding debts.                                                
| | (l) | Correction to the amount recorded for professional fees
      on issuance of common stock at fair value for services rendered.                        
| | (m) | Correction to record stock option expense.                                                                                                            
| | (n) | Correction to record imputed interest expense.                                                                                                        
| | (o) | Correction of the amount accrued for professional
      fees.                                                                                         
| | (p) | Correction of the amount accrued for legal
      liabilities.                                                                                         
| | (q) | Correction of amount of Convertible Notes outstanding at
      June 30, 2003.                                                                         
| | (r) | Presentation of portion of deficit accumulated prior to
      entering development stage.                                                             
| | (s) | Correction of original financial statement classification
      and presentation.                                                                     

F-155

---

Note 17      SUBSEQUENT EVENTS

On July 1, 2009, under executive employment agreements, the
Company granted 6,000,000 stock options to its three executive officers relating
to the 2010 Fiscal year. The nature and terms of these stock options are more
fully described in Note 13. The Company will record compensation expense of
$7,200 in Fiscal 2010 relating to the granting of the stock options.

On February 16, 2010, the Companys Board of Directors approved
an amended Certificate of Designation with respect to the authorization of up to
25,000,000 Series A Preferred shares, an increase from the 15,000,000 shares of
Series A Preferred stock that were authorized to be issued. On December 6, 2010,
the 10,000 additional authorized Series A Preferred shares were issued to two
Directors and Officers of the Company. As at March 1, 2011, the Company had
25,000,000 Series A preferred shares issued and outstanding.

On February 17, 2010, the Company's Board of Directors approved
an amendment to the Articles of Incorporation of the Company to increase the
number of authorized shares of Common stock, par value $0.001, from
1,500,000,000 shares to 2,000,000,000 shares.

On December 6, 2010, the Company's Board of Directors approved
an amendment to the Articles of Incorporation of the Company to increase the
number of authorized shares of Common stock, par value $0.001, from
2,000,000,000 shares to 2,500,000,000 shares.

Subsequent to June 30, 2009 and up to February 16, 2011, the
Company issued 1,114,007,540 common shares for services performed and in partial
payment of a Settlement Agreement under Securities Act Regulation 10(a)3. As at
March 1, 2011, the Company had 2,233,499,756 common shares issued and
outstanding, versus its authorization of 2,500,000,000 shares.

Additional funding from private investors, referred to in Note
  8, was received subsequent to June 30, 2009 and up to March 1, 2011 in the
  amount of $116,285 with conversion prices ranging from $.001 to $.005 and, when
  converted, would represent an additional issuance of 71,405,000 common shares.

F-156

---

Reports Filed on Form 8-K

- April 14, 2009.        Amend Articles
  of Incorporation
- May 12, 2009.         Amend
  Articles of Incorporation
- May 22, 2009          Notice
  of non-reliance on financial statements
- June 10, 2009.         Notice of
  non-reliance on financial statements
- August 11, 2009 (post-period) Change in certifying accountant
- September 15, 2009 (post-period amendment) Change in certifying accountant
- September 21, 2009 Change in certifying accountant

Financial Statement SchedulesNone. Financial
statements schedules have been omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.

ExhibitsThe exhibits filed as a part of this Annual
Report or incorporated herein by reference are as follows (Exhibits Incorporated
Herein By Reference, Exhibit No. As Filed With Document Indicated):

|(a) | Certificate of Incorporation
      filed August 19, 1987                                                                                 |  | 3(a)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|(b) | Certificate of Amendment filed June 20, 1989                                                                                             |  | 3(b)
|(c) | Certificate of Amendment filed
      March 10, 1993                                                                                      |  | 3   
|(d) | Certificate of Amendment filed December 5, 1995                                                                                          |  | 3(e)
|(e) | By-Laws                                                                                                                                  |  | 3(b)
|(f) | Certificate of Amendment filed August 11, 1997                                                                                           |  |     
|(g) | Certificate of Amendment filed
      February 3, 1998                                                                                    |  | 3   
|(h) | Certificate of Incorporation of Tirex
      Acquisition Corp., filed with the Secretary of State of Delaware on
      December 15, 1997  |  | 3(h)
|(k) | Certificate of Amendment to the
      Certificate of Incorporation, filed with the Secretary of State of
      Delaware on July 10, 1998 |  |     

F-157

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

|Date: March 1, 2011 | THE TIREX CORPORATION                 
|------------------- | --------------------------------------
|                    |                                       
|                    | /s/ John L. Threshie, Jr.             
|                    | John L. Threshie, Jr.                 
|                    | Chairman of the Board of Directors and
|                    | Chief Executive Officer               

Pursuant to the requirements of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.

|SIGNATURES                                  |  | TITLE                   | DATE         
|------------------------------------------- |  | ----------------------- | -------------
|                                            |  |                         |              
|Principal Executive Officer:                |  |                         |              
|                                            |  | Chairman of the Board   | March 1, 2011
|/s/ JOHN L. THRESHIE, JR.                   |  | of Directors and Chief  |              
|John L. Threshie, Jr.                       |  | Executive Officer       |              
|                                            |  |                         |              
|                                            |  |                         |              
|Principal Financial and Accounting Officer: |  |                         |              
|                                            |  | Secretary, Treasurer,   | March 1, 2011
|/s/ MICHAEL D.A. ASH                        |  | and Chief Financial and |              
|Michael D.A. Ash                            |  | Accounting Officer      |              
|                                            |  |                         |              
|                                            |  |                         |              
|A Majority of the Board of Directors:       |  |                         |              
|                                            |  | Chairman of the Board   | March 1, 2011
|/s/ JOHN L. THRESHIE, JR.                   |  | of Directors            |              
|John L. Threshie, Jr.                       |  |                         |              
|                                            |  |                         |              
|/s/
      HENRY MEIER                       |  | Director                | March 1, 2011
|Henry Meier                                 |  |                         |              
|                                            |  |                         |              
|/s/
      LOUIS V. MURO                     |  | Director                | March 1, 2011
|Louis V. Muro                               |  |                         |              

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS

No annual report or proxy materials have been sent to security
holders during the fiscal year ended June 30, 2009 or the subsequent interim
periods. As at the date hereof, the Company plans to furnish proxy materials
relating to its annual meeting, which is presently contemplated to be held
during the current fiscal year. All such materials will be furnished to the
Commission at the same time as they are sent to securities holders.

---