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| x      | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|-----------------------------------------------------------------------------------------|
|   | For the quarterly period ended June 30, 2009.                                           |

| o      | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|------------------------------------------------------------------------------------------|
|   | For the transition period from _________to _________.                                    |

| Delaware                                                       |   | 26-3128407                           |
|----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification No.) |

|                                           |   |       |
|------------------------------------------------|--------|------------|
| 4600 Post Oak Place, Suite 352, Houston, Texas |   | 77027      |
| (Address of principal executive offices)       |   | (Zip Code) |

| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x |
|------------------------------------------|--------------------------|------------------------------|---------------------------------------|

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Table of Contents

TABLE OF CONTENTS

|     |                                                                                                      | Page   |
|----------|-----------------------------------------------------------------------------------------------------------|--------|
|     |                                                                                                      |   |
|     | PART I - FINANCIAL INFORMATION                                                                            |   |
|     |                                                                                                      |   |
| Item 1.  | Financial Statements                                                                                      | 4      |
|     | Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008                                     | 4      |
|     | Consolidated Statements of Operations for the three and six months ended June 30, 2009 and March 31, 2008 | 5      |
|     | Consolidated Statement of Stockholders’ Deficiency as of  June 30, 2009                   | 6      |
|     | Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and June 30, 2008            | 18     |
|     | Notes to Consolidated Financial Statements                                                                | 20     |
| Item 2.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations               | 34     |
| Item 3.  | Quantitative and Qualitative Disclosures About Market Risk                                                | 38     |
| Item 4.  | Controls and Procedures                                                                                   | 38     |
|     |                                                                                                      |   |
|     | PART II - OTHER INFORMATION                                                                               |   |
|     |                                                                                                      |   |
| Item 1.  | Legal Proceedings                                                                                         | 39     |
| Item 1A. | Risk Factors                                                                                              | 39     |
| Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                                               | 40     |
| Item 3.  | Defaults Upon Senior Securities                                                                           | 40     |
| Item 4.  | Submission of Matters to a Vote of Security Holders                                                       | 40     |
| Item 5.  | Other Information                                                                                         | 40     |
| Item 6.  | Exhibits                                                                                                  | 40     |

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Table of Contents

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Table of Contents

| ITEM 1. | FINANCIAL STATEMENTS |
|--------------|----------------------|

CONSOLIDATED BALANCE SHEETS

|                                                                              |   | June 30,    | December 31, |   |
|-----------------------------------------------------------------------------------|--------|-------------|--------------|--------|
|                                                                              |   | 2009        |         |   | 2008 |   |
| Assets                                                                            |   | (Unaudited) |         |   | (Audited) |   |
| Current assets                                                                    |   |        |         |   |   |   |
| Cash and cash equivalents                                                         |   | $           | 2,341        |   |   | $ | 52,615 |   |
| Prepaid insurance                                                                 |   |        | 1,039        |   |   |   | - |   |
|                                                                              |   |        |         |   |   |   |   |   |
|    Total current assets                                            |   |        | 3,380        |   |   |   | 52,615 |   |
|                                                                              |   |        |         |   |   |   |   |   |
| Liabilities and stockholders' deficiency                                          |   |        |         |   |   |   |   |   |
| Current liabilities                                                               |   |        |         |   |   |   |   |   |
| Accounts payable and accrued liabilities                                          |   |        | 738,287      |   |   |   | 471,775 |   |
| Line of credit                                                                    |   |        | 254,072      |   |   |   | 259,157 |   |
| Accrued interest                                                                  |   |        | 233,279      |   |   |   | 192,380 |   |
| Cash advance                                                                      |   |        | 200,000      |   |   |   | 100,000 |   |
| Notes payable - current portion , net                                             |   |        | 987,046      |   |   |   | -  |   |
| Accounts payable and accrued liabilities-related party                            |   |        | 652,165      |   |   |   | 351,748 |   |
| Accrued interest- related party                                                   |   |        | 479,674      |   |   |   | 424,210 |   |
| Notes payable due to related parties, net                                         |   |        | -            |   |   |   | 287,768 |   |
|                                                                              |   |        |         |   |   |   |   |   |
| Total current liabilities                                                         |   |        | 3,544,523    |   |   |   | 2,087,038 |   |
|                                                                              |   |        |         |   |   |   |   |   |
| Long term portion of notes payable - net                                          |   |        | 16,757       |   |   |   | 709,035 |   |
| Long term portion of notes payable, due to related parties, net                   |   |        | 1,001,898    |   |   |   | 1,000,864 |   |
|                                                                              |   |        |         |   |   |   |   |   |
|  Total liabilities                                                           |   |        | 4,563,178    |   |   |   | 3,796,937 |   |
|                                                                              |   |        |         |   |   |   |   |   |
| Commitments and contingencies                                                     |   |        | -            |   |   |   | - |   |
|                                                                              |   |        |         |   |   |   |   |   |
| Stockholders' deficiency                                                          |   |        |         |   |   |   |   |   |
|   Common stock, $0.0001 par value; 50,000,000 shares authorized;        |   |        |         |   |   |   |   |   |
|        8,814,921 shares issued and outstanding |   |        |         |   |   |   |   |   |
|        for both periods                        |   |        | 880          |   |   |   | 880 |   |
|   Additional paid-in capital                                            |   |        | 15,613,597   |   |   |   | 15,592,797 |   |
|   Common stock subscribed                                               |   |        | 1,137        |   |   |   | - |   |
|   Deficit Accumulated during the Development Stage                      |   |        | (20,175,412  | )      |   |   | (19,337,999 | ) |
|    Total stockholder's deficit                                     |   |        | (4,559,798   | )      |   |   | (3,744,322 | ) |
|                                                                              |   |        |         |   |   |   |   |   |
|                                                                              |   | $           | 3,380        |   |   | $ | 52,615 |   |

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Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS

|   |   |          |   |   |          |   |   |         |   |   |         |   |   | Cumulative from    |   |
|--------|--------|---------------|--------|--------|---------------|--------|--------|--------------|--------|--------|--------------|--------|--------|--------------------|--------|
|   |   | For the Three |   |   | For the Three |   |   | For the Six  |   |   | For the Six  |   |   | Inception          |   |
|   |   | Months Ended  |   |   | Months Ended  |   |   | Months Ended |   |   | Months Ended |   |   | (January 15, 1997) |   |
|   |   | June 30,      |   |   | June 30,      |   |   | June 30,     |   |   | June 30,     |   |   | to June 30,        |   |
|   |   | 2009          |   |   | 2008          |   |   | 2009         |   |   | 2008         |   |   | 2009               |   |

|    Revenue                                            |   | $      | -         |   |   | $      | -          |   |   | $      | -         |   |   | $      | -          |   |   | $      | -           |   |
|----------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|------------|--------|--------|--------|-----------|--------|--------|--------|------------|--------|--------|--------|-------------|--------|
|                                                                 |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |
| Operating expenses:                                                  |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |
|  Sales, general and administrative expenses                     |   |   | 400,166   |   |   |   | 3,725,892  |   |   |   | 721,907   |   |   |   | 4,156,018  |   |   |   | 13,238,916  |   |
|    Impairment of license agreement                    |   |   |      |   |   |   | -          |   |   |   | -         |   |   |   | -          |   |   |   | 1,701,936   |   |
|       Total operating expenses         |   |   | 400,166   |   |   |   | 3,725,892  |   |   |   | 721,907   |   |   |   | 4,156,018  |   |   |   | 14,940,852  |   |
|                                                                 |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |        |   |
| Operating loss                                                       |   |   | (400,166  |   |   |   | (3,725,892 |   |   |   | (721,907  |   |   |   | (4,156,018 | )      |   |   | (14,940,852 | )      |
|                                                                 |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |        |   |
| Other expense:                                                       |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |        |   |
|    Interest (income) expense, net                     |   |   | 58,818    |   |   |   | 161,484    |   |   |   | 115,506   |   |   |   | 6,869,337  |   |   |   | 11,651,709  |   |
|  Cancellation of shares previously issued for license agreement |   |   |      |   |   |   | (842,514   |   |   |   | -         |   |   |   | (842,514   | )      |   |   | (842,514    |   |
|    Gain on restructuring of debt                      |   |   | -         |   |   |   | (22,561    |   |   |   | -         |   |   |   | (5,700,287 | )      |   |   | (5,574,635  | )      |
| Total other (income) expense                                         |   |   | (58,818   | )      |   |   | 703,591    |   |   |   | (115,506  |   |   |   | (326,536   | )      |   |   | (5,234,560  | )      |
|                                                                 |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |        |   |
|   Loss before income taxes                            |   |   | (458,984  | )      |   |   | (3,022,301 |   |   |   | (837,413  |   |   |   | (4,482,554 | )      |   |   | (20,175,412 | )      |
|                                                                 |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |        |   |
|    Provision for income taxes                         |   |   | -         |   |   |   | -          |   |   |   | -         |   |   |   | -          |   |   |   | -           |   |
|                                                                 |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |        |   |
| Net loss                                                             |   |   | (458,984  | )      |   |   | (3,022,301 |   |   |   | (837,413  |   |   | $      | (4,482,554 | )      |   | $      | (20,175,412 | )      |
|                                                                 |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |        |   |
| Net loss per share - basic                                           |   | $      | (0.05     | )      |   | $      | (0.61      | )      |   | $      | (0.09     | )      |   | $      | (1.13      | )      |   | $      | -           |   |
|                                                                 |   |   |      |   |   |   |       |   |   |   |      |   |   |   |       |   |   |   |        |   |
|   Weighted average shares outstanding - basic              |   |   | 8,814,926 |   |   |   | 4,976,630  |   |   |   | 8,814,926 |   |   |   | 3,964,784  |   |   |   |        |   |

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Table of Contents

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

|                                                                               |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |   |   |   |   |      |
|------------------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|-----------|
|                                                                               |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares |   |   | Value  |      |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | TotalStockholdersEquity |   |
| Balance at January 15, 1997 (date of inception)                                    |   |            | -      |   |         | $      | -      |                       |   | $      | -      |   |   |   | -         |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                                                               |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contribution of assets and liabilities by founder                                  |   |            | 11,229 |   |         |   | 112    |                       |   |   | 49,888 |   |   |   | 1,055,507 |   |   |   | 106 |   |   |   | 43,466 |   |   |   | - |   |   |   | - |   |   |   | 43,572 |   |
|                                                                               |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended December 31, 1997 |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | 327,700 |   |   |   | - |   |   |   | - |   |   |   | 327,700 |   |
|                                                                               |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 1997                                          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,366,300 | ) |   |   | (1,366,300 | ) |
|                                                                               |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 1997                                                    |   |            | 11,229 |   |         | $      | 112    |                       |   | $      | 49,888 |   |   |   | 1,055,507 |   |   | $ | 106 |   |   | $ | 371,166 |   |   | $ | - |   |   | $ | (1,366,300 | ) |   | $ | (945,028 | ) |
|                                                                               |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended December 31, 1998 |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | 43,000 |   |   |   | - |   |   |   | - |   |   |   | 43,000 |   |
|                                                                               |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 1998                                          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (328,534 | ) |   |   | (328,534 | ) |
|                                                                               |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 1998                                                    |   |            | 11,229 |   |         | $      | 112    |                       |   | $      | 49,888 |   |   |   | 1,055,507 |   |   | $ | 106 |   |   | $ | 414,166 |   |   | $ | - |   |   | $ | (1,694,834 | ) |   | $ | (1,230,562 | ) |

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Table of Contents

|                                                                                    |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                    |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares |   |   | Value  |   |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | TotalStockholdersEquity |   |
| Issuance of 55,553 shares of common stock for technology license at $1.10 per share     |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 55,553 |   |   |   | 5 |   |   |   | 61,837 |   |   |   | - |   |   |   | - |   |   |   | 61,842 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 5,614 shares of convertible preferred stock at $4.45 per share to investors |   |            | 5,614  |   |         |   | 56     |                       |   |   | 24,944 |   |   |   | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 5,614 shares of convertible preferred stock at $4.45 per share to investors |   |            | 5,614  |   |         |   | 56     |                       |   |   | 24,944 |   |   |   | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 5,614 shares of convertible preferred stock at $4.45 per share to investors |   |            | 5,614  |   |         |   | 56     |                       |   |   | 24,944 |   |   |   | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 5,614 shares of convertible preferred stock at $4.45 per share to investors |   |            | 5,614  |   |         |   | 56     |                       |   |   | 24,944 |   |   |   | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended December 31, 1999      |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | 12,000 |   |   |   | - |   |   |   | - |   |   |   | 12,000 |   |

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Table of Contents

|                                                                                             |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |    |   |   |   |      |
|--------------------------------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|---------|--------|--------|--------|-----------|
|                                                                                             |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares  |   |   | Value  |      |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | TotalStockholdersEquity |   |
| Loss for the year ended December 31, 1999                                                        |   | -               |   |   | -            |   |   | -                          |   |   |    | -      |   |   |      | - |   |   |   | - |   |   |   | - |   |   |   | (429,692 | ) |   |   | (429,692 | ) |
|                                                                                             |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 1999                                                                  |   |            | 33,685 |   |         | $      | 336    |                       |   | $      | 149,664 |   |   |   | 1,111,060 |   |   | $ | 111 |   |   | $ | 488,003 |   |   | $ | - |   |   | $ | (2,124,526 | ) |   | $ | (1,486,412 | ) |
|                                                                                             |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 5,614 shares of convertible preferred stock at $4.45 per share to investors          |   |            | 5,614  |   |         |   | 56     |                       |   |   | 24,944  |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                             |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 11,229 shares of convertible preferred stock at $4.45 per share to investors         |   |            | 11,229 |   |         |   | 112    |                       |   |   | 49,888  |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 50,000 |   |
|                                                                                             |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 5,614 shares of convertible preferred stock at $4.45 per share to investors          |   |            | 5,614  |   |         |   | 56     |                       |   |   | 24,944  |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                             |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant forservices rendered |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                             |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended December 31, 2000               |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | -         |   |   |   | - |   |   |   | 30,302 |   |   |   | - |   |   |   | - |   |   |   | 30,302 |   |
|                                                                                             |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 2000                                                        |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (422,306 | ) |   |   | (422,306 | ) |
|                                                                                             |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2000                                                                  |   |            | 56,142 |   |         | $      | 560    |                       |   | $      | 249,440 |   |   |   | 1,113,867 |   |   | $ | 111 |   |   | $ | 524,555 |   |   | $ | - |   |   | $ | (2,546,832 | ) |   | $ | (1,772,166 | ) |

----

Table of Contents

|                                                                                                                        |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |   |   |   |   |      |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|-----------|
|                                                                                                                        |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares |   |   | Value  |      |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | TotalStockholdersEquity |   |
| Issuance of 1,055,507 shares of common stock at $2.24 per share in exchange for 2,500,000 shares in InVitro technology |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 1,055,507 |   |   |   | 107 |   |   |   | 59,894 |   |   |   | - |   |   |   | - |   |   |   | 60,001 |   |
|                                                                                                                        |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered                           |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                                                        |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered                           |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                                                        |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered                           |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                                                        |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered                           |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                                                        |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered                           |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                                                        |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered                           |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                                                        |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered                           |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                                                        |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered                           |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |

----

Table of Contents

|                                                                                              |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |    |   |   |   |      |
|---------------------------------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|---------|--------|--------|--------|-----------|
|                                                                                              |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares  |   |   | Value  |      |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | TotalStockholdersEquity |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 2,807 shares of common stock at $2.24 per share to a consultant for services rendered |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | 2,807     |   |   |   | - |   |   |   | 6,250 |   |   |   | - |   |   |   | - |   |   |   | 6,250 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 60,665 shares of common stock at $2.24 per share for a technology license             |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | 60,665    |   |   |   | 7 |   |   |   | 135,060 |   |   |   | - |   |   |   | - |   |   |   | 135,067 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 5,614 shares of convertible preferred stock at $4.45 per share to investors           |   |            | 5,614  |   |         |   | 56     |                       |   |   | 24,944  |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 5,614 shares of convertible preferred stock at $4.45 per share to investors      |   |            | 5,614  |   |         |   | 56     |                       |   |   | 24,944  |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 7,018 shares of common stock at $2.24 per share to a consultant for services rendered |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | 7,018     |   |   |   | 2 |   |   |   | 15,624 |   |   |   | - |   |   |   | - |   |   |   | 15,626 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Value of 14,036 warrants issued to consultants                                                    |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | -         |   |   |   | - |   |   |   | 15,500 |   |   |   | - |   |   |   | - |   |   |   | 15,500 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended December 31, 2001                |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | -         |   |   |   | - |   |   |   | 25,000 |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 2001                                                         |   |            | -      |   |         |   | -      |                       |   |   | -       |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (959,531 | ) |   |   | (959,531 | ) |
|                                                                                              |   |            |   |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2001                                                                   |   |            | 67,370 |   |         | $      | 672    |                       |   | $      | 299,328 |   |   |   | 2,270,741 |   |   | $ | 227 |   |   | $ | 850,633 |   |   | $ | - |   |   | $ | (3,506,363 | ) |   | $ | (2,355,503 | ) |

----

Table of Contents

|                                                                                                          |   | Preferred Stock |    |   | Common Stock |   |   |                       |   |   |    |   |   |   |   |   |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|--------|----------------------------|--------|--------|---------|--------|--------|--------|--------|--------|
|                                                                                                          |   | Shares          |    |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares  |   |   | Value  |   |   | Additional Paid-in Capital |   | CommonStockSubscribed |   | AccumulatedDeficit |   |   | TotalStockholdersEquity |   |
| Issuance of 1,123 shares of convertible preferred stock at $4.45 per share to investors                       |   |            | 1,123   |   |         |   | 11     |                       |   |   | 4,989   |   |   |   | -      |   |   |   | - |   |   |   | - |   | - |   |   | - |   |   |   | 5,000 |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of 11,229 shares convertible preferred stock into 44,915 shares of common stock at $2.24 per share |   |            | (11,229 | )      |         |   | (112   | )                          |   |   | (49,888 | )      |   |   | 44,915 |   |   |   | 4 |   |   |   | 49,996 |   | - |   |   | - |   |   |   | - |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of 5,614 shares convertible preferred stock into 11,229 shares of common stock at $2.22 per share  |   |            | (5,614  | )      |         |   | (56    | )                          |   |   | (24,944 | )      |   |   | 11,229 |   |   |   | 2 |   |   |   | 24,998 |   | - |   |   | - |   |   |   | - |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of 5,614 shares convertible preferred stock into 11,229 shares of common stock at $2.22 per share  |   |            | (5,614  | )      |         |   | (56    | )                          |   |   | (24,944 | )      |   |   | 11,229 |   |   |   | 2 |   |   |   | 24,998 |   | - |   |   | - |   |   |   | - |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of 5,614 shares convertible preferred stock into 11,229 shares of common stock at $2.22 per share  |   |            | (5,614  | )      |         |   | (56    | )                          |   |   | (24,944 | )      |   |   | 11,229 |   |   |   | 1 |   |   |   | 24,999 |   | - |   |   | - |   |   |   | - |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of 16,843 shares convertible preferred stock into 33,686 shares of common stock at $2.24 per share |   |            | (16,843 | )      |         |   | (56    | )                          |   |   | (74,832 | )      |   |   | 33,686 |   |   |   | 3 |   |   |   | 74,997 |   | - |   |   | - |   |   |   | - |   |

----

Table of Contents

|                                                                                                          |   | Preferred Stock |    |   | Common Stock |   |   |                       |   |   |    |   |   |   |      |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|--------|----------------------------|--------|--------|---------|--------|--------|--------|-----------|
|                                                                                                          |   | Shares          |    |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares  |   |   | Value  |      |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | TotalStockholdersEquity |   |
| Conversion of 16,843 shares convertible preferred stock into 33,686 shares of common stock at $2.24 per share |   |            | (16,843 | )      |         |   | (168   | )                          |   |   | (74,832 | )      |   |   | 33,686    |   |   |   | 3 |   |   |   | 74,997 |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of 5,614 shares convertible preferred stock into 11,229 shares of common stock at $2.22 per share  |   |            | (5,614  | )      |         |   | (168   | )                          |   |   | (24,944 | )      |   |   | 11,229    |   |   |   | 1 |   |   |   | 24,999 |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion of 1,123 shares convertible preferred stock into 2,246 shares of common stock at $2.24 per share   |   |            | (1,122  | )      |         |   | (11    | )                          |   |   | (4,989  | )      |   |   | 2,246     |   |   |   | - |   |   |   | 5,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended December 31, 2002                            |   |            | -       |   |         |   | -      |                       |   |   | -       |   |   |   | -         |   |   |   | - |   |   |   | 1,175,356 |   |   |   | - |   |   |   | - |   |   |   | 1,175,356 |   |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 2002                                                                     |   |            | -       |   |         |   | -      |                       |   |   | -       |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (3,061,599 | ) |   |   | (3,061,599 | )  |
|                                                                                                          |   |            |    |   |         |   |   |                       |   |   |    |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2002                                                                               |   |            | -       |   |         | $      | -      |                       |   | $      | -       |   |   |   | 2,430,190 |   |   | $ | 243 |   |   | $ | 2,330,973 |   |   | $ | - |   |   | $ | (6,567,962 | ) |   | $ | (4,236,746 | )  |

----

Table of Contents

|                                                                               |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |   |   |   |   |      |
|-----------------------------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|-----------|
|                                                                                    |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares |   |   | Value  |      |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | TotalStockholdersEquity |   |
| Beneficial conversion feature of note payable for the year ended December 31, 2003      |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | 29,401 |   |   |   | - |   |   |   | - |   |   |   | 29,401 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 2003                                               |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (540,986 | ) |   |   | (540,986 | ) |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2003                                                         |   |            | -      |   |         | $      | -      |                       |   | $      | -      |   |   |   | 2,430,190 |   |   | $ | 243 |   |   | $ | 2,360,374 |   |   | $ | - |   |   | $ | (7,108,948 | ) |   | $ | (4,748,331 | ) |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 1,404 shares of common stock at $2.24 to a consultant for services rendered |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 1,404     |   |   |   | - |   |   |   | 3,125 |   |   |   | - |   |   |   | - |   |   |   | 3,125 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 1,404 shares of common stock at $2.24 to a consultant for services rendered |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 1,404     |   |   |   | - |   |   |   | 3,125 |   |   |   | - |   |   |   | - |   |   |   | 3,125 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Value of 26,107 warrants issued to consultants                                          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | 93,000 |   |   |   | - |   |   |   | - |   |   |   | 93,000 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended December 31, 2004      |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | 17,149 |   |   |   | - |   |   |   | - |   |   |   | 17,149 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 2004                                               |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,252,796 | ) |   |   | (1,252,796 | ) |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2004                                                         |   |            | -      |   |         | $      | -      |                       |   | $      | -      |   |   |   | 2,432,998 |   |   | $ | 243 |   |   | $ | 2,476,773 |   |   | $ | - |   |   | $ | (8,361,744 | ) |   | $ | (5,884,728 | ) |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 134,746 shares of common stock at $2.24 for a technology license            |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 134,746   |   |   |   | 13 |   |   |   | 299,987 |   |   |   | - |   |   |   | - |   |   |   | 300,000 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 6,661 shares at $3.74 per share for cash                                    |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 6,661     |   |   |   | 1 |   |   |   | 24,999 |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended December 31, 2005      |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | 72,000 |   |   |   | - |   |   |   | - |   |   |   | 72,000 |   |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 2005                                               |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,141,448 | ) |   |   | (1,141,448 | ) |
|                                                                                    |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2005                                                         |   |            | -      |   |         | $      | -      |                       |   | $      | -      |   |   |   | 2,574,405 |   |   | $ | 257 |   |   | $ | 2,873,759 |   |   | $ | - |   |   | $ | (9,503,192 | ) |   | $ | (6,629,176 | ) |

----

Table of Contents

|                                                             |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |   |   |   |   |   |
|------------------------------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                             |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares |   |   | Value  |   |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | Total StockholdersEquity |   |
| Issuance of 4,913 pursuant to an antidilution agreement          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 4,913  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 1,235 pursuant to an antidilution agreement          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 1,235  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 1,235 pursuant to an antidilution agreement          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 1,235  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 1,235 pursuant to an antidilution agreement          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 1,235  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 3,706 pursuant to an antidilution agreement          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 3,705  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 3,706 pursuant to an antidilution agreement          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 3,705  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 1,235 pursuant to an antidilution agreement          |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 1,235  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 225 pursuant to an antidilution agreement            |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | 225    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beneficial conversion feature of note payable for the year ended |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | 4,000 |   |   |   | - |   |   |   | - |   |   |   | 4,000 |   |
|                                                             |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss for the year ended December 31, 2006                        |   |            | -      |   |         |   | -      |                       |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,076,266 | ) |   |   | (1,076,266 | ) |

----

Table of Contents

|   |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |   |   |   |   |   |
|--------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|
|   |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares |   |   | Value  |   |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | Total StockholdersEquity |   |
|   |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| Balance at December 31, 2006                                                       |   |   | -      |   |   | $      | -      |   |   | $      | -      |   |   |   | 2,591,893 |   |   | $      | 257    |   |   | $      | 2,877,759 |   |   | $      | -        |   |   | $      | (10,579,458 | )      |   | $      | (7,701,442 | )      |
|------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|----------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Issuance of 7,018 shares at $3.74 per share for services rendered                  |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 7,017     |   |   |   | 2      |   |   |   | 26,249    |   |   |   | -        |   |   |   | -           |   |   |   | 26,251     |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Issuance of 25,989 shares for $3.74 per share for licensing agreement              |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 25,988    |   |   |   | 2      |   |   |   | 97,204    |   |   |   | -        |   |   |   | -           |   |   |   | 97,206     |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Issuance of 25,989 shares for $3.74 per share for licensing agreement              |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 25,990    |   |   |   | 2      |   |   |   | 97,204    |   |   |   | -        |   |   |   | -           |   |   |   | 97,206     |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| 119,053 shares to be issued at $0.37 per share for license agreement               |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | -         |   |   |   | 445,305  |   |   |   | -           |   |   |   | 445,305    |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| 119,053 shares to be issued at $0.37 per share for license agreement               |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | -         |   |   |   | 445,305  |   |   |   | -           |   |   |   | 445,305    |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Beneficial conversion feature of note payable for the year ended December 31, 2007 |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | 6,604,430 |   |   |   | -        |   |   |   | -           |   |   |   | 6,604,430  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Loss for the year months ended December 31, 2007                                   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | -         |   |   |   | -        |   |   |   | (2,768,669  | )      |   |   | (2,768,669 | )      |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Balance at December 31, 2007                                                       |   |   | -      |   |   | $      | -      |   |   | $      | -      |   |   |   | 2,650,888 |   |   | $      | 263    |   |   | $      | 9,702,846 |   |   | $      | 890,610  |   |   | $      | (13,348,127 | )      |   | $      | (2,754,408 | )      |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Recapitalization upon reverse merger                                               |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 3,000,000 |   |   |   | 300    |   |   |   | (300      | )      |   |   | -        |   |   |   | -           |   |   |   | -          |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |
| Issuance of 119,053 shares of common stock at $0.37 per share, previously accrued  |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 119,053   |   |   |   | 12     |   |   |   | 445,293   |   |   |   | (445,305 | )      |   |   | -           |   |   |   | -          |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |      |   |   |   |     |   |   |   |        |   |   |   |       |   |

----

Table of Contents

|   |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |   |   |   |   |   |
|--------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|
|   |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares |   |   | Value  |   |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | Total StockholdersEquity |   |
|   |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| Issuance of 119,053 shares of common stock at $0.37 per share, previously accrued                                                                                         |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 119,053   |   |   |   | 12     |   |   |   | 445,293 |   |   |   | (445,305 | )      |   |   | -      |   |   |   | -       |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
|                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Issuance of 1,055,507 shares of common stock for cash at a price of $0.011 per share                                                                                      |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 1,055,508 |   |   |   | 106    |   |   |   | 44,690  |   |   |   | -        |   |   |   | -      |   |   |   | 44,796  |   |
|                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Issuance of 100,000 shares of common stock and 20,000 warrants to purchase additional shares of common stock at a price of $0.05 per share as a discount on notes payable |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 100,000   |   |   |   | 10     |   |   |   | 55,991  |   |   |   | -        |   |   |   | -      |   |   |   | 56,001  |   |
|                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Issuance of 1,055,508 shares of common stock at a price of $0.03 per share to a board member for services                                                                 |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 1,055,507 |   |   |   | 105    |   |   |   | 29,895  |   |   |   | -        |   |   |   | -      |   |   |   | 30,000  |   |
|                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Issuance of 150,000 shares of common stock at a price of $1.25 per share to officers for services                                                                         |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 150,000   |   |   |   | 15     |   |   |   | 187,485 |   |   |   | -        |   |   |   | -      |   |   |   | 187,500 |   |
|                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |    |   |
| Issuance of 137,500 shares of common stock at a price of $0.05 per share as a discount to notes payable                                                                   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | 137,500   |   |   |   | 14     |   |   |   | 6,861   |   |   |   | -        |   |   |   | -      |   |   |   | 6,875   |   |
|                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |     |   |   |   |   |   |   |   |    |   |

----

Table of Contents

|   |   | Preferred Stock |   |   | Common Stock |   |   |                       |   |   |   |   |   |   |   |
|--------|--------|-----------------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|
|   |   | Shares          |   |   | Value        |   |   | Additional Paid-in Capital |   |   | Shares |   |   | Value  |   |   | Additional Paid-in Capital |   |   | CommonStockSubscribed |   |   | AccumulatedDeficit |   |   | Total StockholdersEquity |   |
|   |   |            |   |   |         |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| Sale of 707,200 shares of common stock and 707,200 warrants to purchase additional shares of common stock at a price of $2.50 per share for cash, net of costs of $359,729 |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | 707,200   |   |   |     | 71     |   |   |    | 1,408,200  |   |   |    | -      |   |   |   | -            |   |   |    | 1,408,271  |          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|-----------|--------|--------|----------|--------|--------|--------|---------|------------|--------|--------|---------|--------|--------|--------|--------|--------------|--------|--------|---------|------------|---------------|
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Cancellation of shares issued for technology license                                                                                                                       |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | (279,788  | )      |   |     | (28    | )      |   |    | (842,486   | )      |   |    | -      |   |   |   | -            |   |   |    | (842,514   | )             |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Value of options to purchase 2,250,000 shares of common stock at a price of $2,50 per shares issued to board member for extension of payment terms                         |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | -         |   |   |     | -      |   |   |    | 2,811,962  |   |   |    | -      |   |   |   | -            |   |   |    | 2,811,962  |          |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Value of warrants to purchase 75,000 shares of common stock at $2,50 per share issued to a board member for services                                                       |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | -         |   |   |     | -      |   |   |    | 93,733     |   |   |    | -      |   |   |   | -            |   |   |    | 93,733     |          |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Value of warrants to 70,180 shares of common stock at $1,78 per share issued to a board member for extension of credit terms                                               |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | -         |   |   |     | -      |   |   |    | 129,278    |   |   |    | -      |   |   |   | -            |   |   |    | 129,278    |          |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Value of vested portion of options issued to officer                                                                                                                       |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | -         |   |   |     | -      |   |   |    | 54,848     |   |   |    | -      |   |   |   | -            |   |   |    | 54,848     |          |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Discount to notes payable due to beneficial conversion feature                                                                                                             |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | -         |   |   |     | -      |   |   |    | 1,019,208  |   |   |    | -      |   |   |   | -            |   |   |    | 1,019,208  |          |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Loss for the year ended December 31, 2008                                                                                                                                  |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | -         |   |   |     | -      |   |   |    | -          |   |   |    | -      |   |   |   | (5,989,872)  |   |   |    | (5,989,872 |  )  |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Balance as of December 31, 2008                                                                                                                                            |   |   | -      |   |   | $      | -      |   |   | $       | -      |   |   |   | 8,814,921 |   |   | $        | 880    |   |   | $       | 15,592,797 |   |   | $  | -      |   |   | $      | (19,337,999) |   |   | $       | (3,744,322 | )        |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Value of vested portion of 100,000 options issued to officer (unaudited)                                                                                                   |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | -         |   |   |     | -      |   |   |    | 10,401     |   |   |    | -      |   |   |   | -            |   |   |    | 10,401     |          |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Loss for the three months ended March 31, 2009 (unaudited)                                                                                                                 |   |   | -      |   |   |   | -      |   |   |    | -      |   |   |   | -         |   |   |     | -      |   |   |    | -          |   |   |    | -      |   |   |   | (378,429     | )      |   |    | (378,429   | )             |
|                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |    |   |   |   |   |      |   |   |     |   |   |   |    |       |   |   |    |   |   |   |   |         |   |   |    |       |          |
| Balance as of March 31, 2009 (unaudited)                                                                                                                                   |   |   | -      |   |   | $      | -      |   |   | $  | -      |   |   |   | 8,814,921 |   |   |   $ | 880    |   |   | $  | 15,603,198 |   |   | $  | -      |   |   | $      | (19,716,428  | )      |   | $  | (4,112,350 | )             |

|                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |        |   |   |   |       |   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
| Value of vested portion of 100,000 options issued to officer (unaudited)                                            |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | 10,399     |   |   |   | -      |   |   |   | -           |   |   |   | 10,399     |   |
|                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |        |   |   |   |       |   |
| 40,845 shares to be issued for the exercise of 42,108 warrants of an exercise price of $0.036 per share (unaudited) |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | -          |   |   |   | 1,137  |   |   |   | -           |   |   |   | 1,137      |   |
|                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Loss for the three months ended June 30, 2009 (unaudited)                                                           |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -         |   |   |   | -      |   |   |   | -          |   |   |   | -      |   |   |   | (458,984    | )      |   |   | (458,984   | )      |
|                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Balance as of June 30, 2009 (unaudited)                                                                             |   |   | -      |   |   | $      | -      |   |   | $      | -      |   |   |   | 8,814,921 |   |   | $      | 880    |   |   | $      | 15,613,597 |   |   | $      | 1,137  |   |   | $      | (20,175,412 | )      |   | $      | (4,559,798 | )      |

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CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                               |   | For the Six Months EndedJune 30,2009 |     |    | For the Six Months EndedJune 30,2008 |   |       | Cumulativefrom Inception(January 15, 1997) to June 30, 2009 |   |
|--------------------------------------------------------------------|--------|--------------------------------------|----------|---------|--------------------------------------|--------|------------|-------------------------------------------------------------|--------|
| Cash flows from operating activities:                              |   |                                 |     |    |                                 |   |       |                                                        |   |
|   Net loss                                               |   | $                                    | (837,413 | )       |                                 | $      | (4,482,554 | )                                                           |   | $ | (20,175,412 | ) |
|  Adjustments to reconcile net loss to net                     |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
|  cash used in operating activities:                           |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
|  Non-cash compensation                                        |   |                                 | 20,800   |    |                                 |   | 2,905,694  |                                                        |   |   | 4,027,310 |   |
|  Amortization of discount on notes payable                    |   |                                 | 8,034    |    |                                 |   | 6,500,295  |                                                        |   |   | 8,750,453 |   |
|  Impairment of technology licenses and equity securities      |   |                                 | -        |    |                                 |   | -          |                                                        |   |   | 1,701,936 |   |
|  Gain on restructuring of debt                                |   |                                 | -        |    |                                 |   | (5,512,787 | )                                                      |   |   | (5,577,000 | ) |
|  Redemption of shares previously issued for license agreement |   |                                 | -        |    |                                 |   | (842,513   | )                                                      |   |   | (842,513 | ) |
|  Net change in operating assets and liabilities:              |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
|     Advances to related party                  |   |                                 | -        |    |                                 |   | -          |                                                        |   |   | (10,000 | ) |
|     Prepaid insurance                          |   |                                 | (1,039   | )       |                                 |   | -          |                                                        |   |   | (1,039 | ) |
|     Receivable from escrow                     |   |                                 | -        |    |                                 |   | (125,000   | )                                                           |   |   | - |   |
|     Accounts payable and accrued liabilities   |   |                                 | 663,292  |    |                                 |   | 536,975    |                                                        |   |   | 8,243,142 |   |
|                                                               |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
|   Net cash used in operating activities                  |   |                                 | (146,326 | )       |                                 |   | (1,019,890 | )                                                           |   |   | (3,883,123 | ) |
|                                                               |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
| Cash flows from investing activities:                              |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
| Cash portion of investment in technology license                   |   |                                 | -        |    |                                 |   | -          |                                                        |   |   | (6,000 | ) |
|                                                               |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
|   Net cash used in investing activities                  |   |                                 | -        |    |                                 |   | -          |                                                        |   |   | (6,000 | ) |
|                                                               |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
| Cash flows from financing activities:                              |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
| Proceeds from cash advances                                        |   |                                 | 100,000  |    |                                 |   | 172,000    |                                                        |   |   | 896,000 |   |
| Principal payments on cash advances                                |   |                                 | -        |    |                                 |   | -          |                                                        |   |   | (130,000 | ) |
| Stock sold for cash, net of costs                                  |   |                                 | -        |    |                                 |   | -          |                                                        |   |   | 1,738,271 |   |
| Proceeds from the exercise of warrants                             |   |                                 | 1,137    |    |                                 |   | -          |                                                        |   |   | 1,137 |   |
| Proceeds from (repayments) to line of credit                       |   |                                 | (5,085   | )       |                                 |   | 3,390      |                                                        |   |   | 254,075 |   |
| Principal payments on debt                                         |   |                                 | -        |    |                                 |   | -          |                                                        |   |   | (512,993 | ) |
| Proceeds from notes payable                                        |   |                                 | -        |    |                                 |   | 950,000    |                                                        |   |   | 1,644,974 |   |
|                                                               |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
| Net cash provided by financing activities                          |   |                                 | 96,052   |    |                                 |   | 1,125,390  |                                                        |   |   | 3,891,464 |   |
|                                                               |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
| Net increase/ (decrease) in cash and cash equivalents              |   |                                 | (50,274  | )  |                                 |   | 105,500    |                                                        |   |   | 2,341 |   |
|                                                               |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
| Cash and cash equivalents at beginning of period                   |   |                                 | 52,615   |    |                                 |   | 209        |                                                        |   |   | - |   |
|                                                               |   |                                 |     |    |                                 |   |       |                                                        |   |   |   |   |
| Cash and cash equivalents at end of period                         |   | $                                    | 2,341    |    |                                 | $      | 105,709    |                                                        |   | $ | 2,341 |   |

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|                                                      |   | For the Six Months EndedJune 30,2009 |   |   | For the Six Months EndedJune 30,2008 |   |       | Cumulativefrom Inception(January 15, 1997) to June 30, 2009 |   |
|-----------------------------------------------------------|--------|--------------------------------------|--------|--------|--------------------------------------|--------|------------|-------------------------------------------------------------|--------|
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |
| Supplemental disclosures of cash flow information:        |   |                                 |   |   |                                 |   |       |                                                        |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |
| Cash paid during the period for: Interest                 |   | $                                    | 4,975  |   |                                 | $      | 4,862      |                                                        |   | $ | 69,298 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Income Taxes                                              |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | - |   |
| Items not affecting cash flows:                           |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Beneficial conversion feature of notes payable            |   | $                                    | 8,034  |   |                                 | $      | 6,487,548  |                                                        |   | $ | 14,899,274 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Common stock issued for services                          |   | $                                    | -      |   |                                 | $      | 187,500    |                                                        |   | $ | 317,875 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Notes payable issued under restructure of debt            |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | 7,284,998 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Value of warrant issued as discount on debt               |   | $                                    | -      |   |                                 | $      | 129,278    |                                                        |   | $ | 331,510 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Notes payable issued for accounts payable                 |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | 287,768 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Common stock issued for technology license                |   | $                                    | -      |   |                                 | $      | 920,610    |                                                        |   | $ | 920,610 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Common stock issued for the conversion of preferred stock |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | 355,000 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Notes payable issued for services                         |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | 3,746,971 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Impairment of technology licenses                         |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | 616,908 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Value of warrants issued for debt                         |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | 12,747 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Issuance of common stock for cash                         |   | $                                    | -      |   |                                 | $      | 44,800     |                                                        |   | $ | 1,408,271 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Gain from the restructuring of debt                       |   | $                                    | -      |   |                                 | $      | (5,512,787 | )                                                           |   | $ | (5,576,993 | ) |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Value of options issued for services                      |   | $                                    | 20,800 |   |                                 | $      | 1,874,641  |                                                        |   | $ | 2,887,611 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Common stock exchanged for accounts payable               |   | $                                    | -      |   |                                 | $      | 30,000     |                                                        |   | $ | 30,000 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Cash advance converted to notes payable                   |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | 521,200 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Capitalization of interest on debt                        |   | $                                    | -      |   |                                 | $      | -          |                                                        |   | $ | 33,751 |   |
|                                                      |   |                                 |   |   |                                 |   |       |                                                        |   |   |   |   |
| Cancellation of shares previously issued for license      |   | $                                    | -      |   |                                 | $      | (842,513   | )                                                           |   | $ | (842,513 | ) |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Table of Contents

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Table of Contents

|                             |   | Options |      |   | Weighted AverageExercise Price |   |
|----------------------------------|--------|---------|-----------|--------|--------------------------------|--------|
| Outstanding at December 31, 2008 |   |    | 2,350,000 |   |                           | $      | 2.50 |   |
| Issued                           |   |    | -         |   |                           |   | - |   |
| Exercised                        |   |    | -         |   |                           |   | - |   |
| Forfeited or expired             |   |    | -         |   |                           |   | - |   |
| Outstanding at June 30, 2009     |   |    | 2,350,000 |   |                           | $      | 2.50 |   |
| Vested at June 30, 2009          |   |    | 2,310,910 |   |                           | $      | 2.50 |   |
| Non-vested at June 30, 2009      |   |    | 39,090    |   |                           | $      | 2.50 |   |

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|         |   | June 30,2009 |    |   | December 31,2008 |   |
|--------------|--------|--------------|---------|--------|------------------|--------|
| Bank loan    |   | $            | 149,976 |   |             | $      | 149,976 |   |
| Credit cards |   |         | 104,096 |   |             |   | 109,181 |   |
| Total        |   | $            | 254,072 |   |             | $      | 259,157 |   |

|                                                              |   | June 30, |      |   | December 31, |   |
|-------------------------------------------------------------------|--------|----------|-----------|--------|--------------|--------|
|                                                              |   | 2009     |      |   | 2008         |   |
| Number of notes payable                                           |   |     | 16        |   |         |   | 16 |   |
| Number of notes payable - related party                           |   |     | 4         |   |         |   | 5 |   |
|                                                              |   |     |      |   |         |   |   |   |
| Principal amount - notes payable, net of discount                 |   | $        | 1,003,803 |   |         | $      | 709,035 |   |
| Principal amount - notes payable - related party, net of discount |   | $        | 1,001,898 |   |         | $      | 1,288,632 |   |
|                                                              |   |     |      |   |         |   |   |   |
| Accrued interest                                                  |   | $        | 233279    |   |         | $      | 192,380 |   |
| Accrued interest - related party                                  |   | $        | 479,674   |   |         | $      | 424,210 |   |

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Table of Contents

|                                                   |   | For the Three Months Ended June 30, |   |   | For the Six Months Ended June 30, |   |
|--------------------------------------------------------|--------|-------------------------------------|--------|--------|-----------------------------------|--------|
|                                                   |   | 2009                                |   |   | 2008                              |   |   | 2009 |   |   | 2008 |   |
| Accrued interest - notes payable                       |   |                                | 1,230  |   |                              |   | 1,230 |   |   |   | 2,446 |   |   |   | 78,772 |   |
| Accrued interest - notes payable – related party |   |                                | 47,218 |   |                              |   | 39,487 |   |   |   | 93,917 |   |   |   | 57,972 |   |
| Bank credit line                                       |   |                                | 3,085  |   |                              |   | 3,085 |   |   |   | 6,136 |   |   |   | 6,438 |   |
| Amortization of discount on notes payable              |   |                                | 2,489  |   |                              |   | 336 |   |   |   | 4,976 |   |   |   | 2,849 |   |
| Amortization of discount on accounts payable           |   |                                | -      |   |                              |   | 93,733 |   |   |   | - |   |   |   | 223,011 |   |
| Credit Cards                                           |   |                                | 4,796  |   |                              |   | 23,613 |   |   |   | 8,034 |   |   |   | 6,500,295 |   |
| Interest (income)                                      |   |                                | -      |   |                              |   | - |   |   |   | (3 | ) |   |   | - |   |
| Total interest                                         |   |                                | 58,818 |   |                              |   | 161,484 |   |   |   | 115,506 |   |   |   | 6,869,337 |   |

|                                                                                          |   | Principal balance: |      |
|----------------------------------------------------------------------------------------------------|--------|--------------------|-----------|
|                                                                                               |   | June 30, 2009      |      |   | December 31, 2008 |   |
| Total outstanding                                                                                  |   | $                  | 2,943,252 |   |   | $ | 2,943,252 |   |
| Less discount on notes payable                                                                     |   |               | (937,551  | ) |   |   | (945,585 | ) |
| Net Total                                                                                          |   |               | 2,005,701 |   |   |   | 1,997,667 |   |
| Less current portion                                                                               |   |               | (987,046  | ) |   |   | (287,768 | ) |
| Long term portion, including related party notes of $1,001,898 in 2009 and 1,000,864 in 2008  |   | $                  | 1,018,655 |   |   | $ | 1,709,899 |   |

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Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | Principal balance:, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | June 30, 2009       |   | December 31, 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |                |   |   |   |
| 2 Convertible note payable to a related party in the amount of $2,000,000 dated June 14, 1994. On March 3, 2007, this note was replaced with a new note in the amount of $3,170,188, which included accrued interest in the amount of $959,089, a salary payable of $106,575, and a lossof $104,524.  On March 1, 2008, this note was replaced with a new note in the amount of $500,000, the amount of $2,670,188 was forgiven by the note holder. The note signed on March 1, 2008 is a non interest bearing note, and is payable contingent upon (a) the Company’s receipt of revenues, as defined, in which case the Company will pay 2% of such revenues, as received, in satisfaction of this note; and/or (b) the sale of substantially all of the Company’s assets.  Interest in theamount of $0 was accrued on these  notes during the three  months ended June 30, 2009 and 2008, respectively.  Interest in the amount of $0 and $37,087 was accrued on these  notes during the six  months ended June 30, 2009 and 2008, respectively. Total accrued interest at June 30, 2009 and 2008 amounted to $222,521. |   |   |  500,000       |   |  500,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |                |   |   |   |
| 17 Convertible note payable to a related party in the amount of $1,170,356 dated May 15, 2002.  On March 3, 2007, this note was replaced with a new note in the amount of $1,342,127, which included accrued interest of $379,324, and a gain of $207,553. On March 1, 2008,this note was replaced with a new note in the amount of $500,000, the amount of $842,127 was forgiven by the debt holder. The note dated March 1, 2008 is a non interest bearing note, and is payable contingent upon (a) the Company’s receipt of revenues, as defined, in which case the Company will pay 2% of such revenues, as received, in satisfaction of this note; and/or (b) the sale of substantially all of the Company’s assets. Interest in the amount of $0 was accrued on these notes during the three  monthsended June 30, 2009 and 2008, respectively.  Interest in the amount of $0 and $15,701 was accrued on these notes during the six months ended June 30, 2009 and 2008, respectively.  Total accrued interest at June 30, 2009 and 2008 amounted to $94,206.                                                                                     |   |   |  500,000       |   |  500,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |                |   |   |   |
| 20 Convertible note payable to a related party in the amount of $25,000 dated March 10, 2005.  On March 3, 2007, this note was replaced with a new note in the amount of $30,211, which includes accrued interest of $4,938 and a loss of $272.  On March 31, 2008,this note was replaced with a new note in the amount of $33,232, which includes accrued interest of $3,021. The note bears interest at the rate of 10% per annum, and was due in full on February 28, 2013.  This note is convertible into common stock of the Company at a conversion price of $0.1781 per share. A beneficial conversion feature in the amount of $33,232 was recorded as a discount to the note and is being amortized over the term of the note via the effective interest rate method at a rate of8.3%. Interest in the amount of $829 was accrued on this note during the three months ended June 30, 2009 and 2008. Interest in the amount of $1,648 and $1,607 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively. Total accrued interest at June 30, 2009 and 2008 amounted to $4,434 and $1,111, respectively.                            |   |   |  33,232        |   |  33,232 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | Principal balance: |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | June 30, 2009      |   | December 31, 2008 |   |
| 9 Convertible note payable to a related party in the amount of $37,000 dated February 26, 2005.  On March 3, 2007, this note was replaced with a new note in the amount of $44,848, which included accrued interest of $6,418, and loss of $1,430. On March 1, 2008, this note was replaced with a new note in the amount of $49,333, whichincludes accrued interest of $4,485.  The note bears interest at the rate of 10% per annum, and is due in full on February 1, 2013. This note is convertible into common stock of the Company at a conversion price of $1.78 per share. A beneficial conversion feature in the amount of $49,333 was recorded as a discount to the note, and is being amortized over the term of the note via the effective interest rate method at a rate of 8% Interest in the amount of $1,230 and $1,230 was accrued on this note duringthe three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $2,446 and $2,386 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively.   Total accrued interest at June 30, 2009 and 2008 amounted to $6,582 and $1,649, respectively.                                               |   |   |  49,333       |   |  49,333 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |               |   |   |   |
| 4 Note payable in the amount of $8,110 dated December 31, 1997.  On March 3, 2007, this note was replaced with a new note in the amount of $19,442, which included accrued interest of $7,437, and loss of $3,895. The note bears interest at the rate of 10% per annum, and is due in full on February 28, 2010.  Interest inthe amount of $485 was accrued on this note during the three months ended June 30, 2009 and 2008.  Interest in the amount of $964 and $969 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively Total accrued interest at June 30, 2009 and 2008  amounted to $4,538 and $2,594, respectively. During the period ended December 31, 2008, the Company exercised its right to extend the maturity date until February 28, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |  19,442       |   |  19,442 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |               |   |   |   |
| 7 Note payable in the amount of $11,932 dated December 31, 1999.  On March 3, 2007, this note was replaced with a new note in the amount of $23,641, which included accrued interest of $8,168, and a loss of $3,540. The note bears interest at the rate of 10% per annum, and is due in full on February 28, 2010.  Interestin the amount of $589 and $589 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively.  Interest in the amount of $1,172 and $1,179 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively.  Total accrued interest at June 30, 2009 and 2008  amounted to $5,518 and $3,154, respectively. During the period ended December 31, 2008, the Company exercised its right to extend the maturity date until February 28, 2010.                                                                                                                                                                                                                                                                                                                                                                              |   |   |  23,641       |   |  23,641 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |               |   |   |   |
| 8 Note payable in the amount of $33,860 dated December 31, 2000.  On March 3, 2007, this note was replaced with a new note in the amount of $60,971, which included accrued interest of $20,882, and a loss of $6,228. The note bears interest at the rate of 10% per annum, and is due in full on February 28, 2010.  Interestin the amount of $1,520 and $1,520 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $3,023 and $3,040 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively.  Total accrued interest at June 30, 2009 and 2008  amounted to $14,232 and $8,135, respectively.  During the period ended December 31, 2008, the Company exercised its right to extend the maturity date until February 28, 2010.                                                                                                                                                                                                                                                                                                                                                                        |   |   |  60,971       |   |  60,971 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |               |   |   |   |
| 10 Note payable in the amount of $25,000 dated February 28, 2001. On March 3, 2007, this note was replaced with a new not in the amount of $44,355, which included accrued interest in the amount of $15,014, and a loss of $4,341. On March 1, 2008, this note was replaced with a new note in the amount of $127,305, which consolidated twoother notes payable to this note holder in the amounts of $41,774, and $28,603, and accrued interest of $11,573.The note bears interest at the rate of 10% per annum, and is due in full on February 28, 2013. This note is convertible into shares  of common stock at a rate of $1.78 per share.  A beneficial conversion in the amount of $127,305 was recorded for this note and is being amortized over the term of the note via the effective interest rate method at a rate of 8.2%. Interest in theamount of $3,174 and $3,174 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $6,313 and $4,984 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively.  Total accrued interest at June 30, 2009 and 2008 amounted to $16,986 and $4,255, respectively. |   |   |  127,305      |   |  127,305 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |               |   |   |   |
| 13 Note payable in the amount of $16,750 dated June 1, 2002.  On March 3, 2007, this note was replaced with a new note in the amount of $45,224, which included accrued interest in the amount of $14,275, and a loss of $3,322. The note bears interest at the rate of 10% per annum, and is due in full on February 28, 2010.  Interestin the amount of $1,128 and $1,128 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $2,243 and $2,255 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively. Total accrued interest at June 30, 2009 and 2008  amounted to $10,556 and $6,034, respectively. During the period ended December 31, 2008, the Company exercised its right to extend the maturity date until February 28, 2010.                                                                                                                                                                                                                                                                                                                                                                          |   |   |  45,224       |   |  45,224 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |               |   |   |   |
| 15 Note payable in the amount of $18,000 dated June 1, 2002.  On March 3, 2007, this note was replaced wit ha new note in the amount of $28,350, which included accrued interest in the amount of $8,551, and a loss of $1,798. On March 1, 2008, this  note was replaced with a new note in the amount of $31,185, which includesaccrued interest in the amount of $2,835. The note bears interest at the rate of 10% per annum, and is due in full on February 28, 2013. This note is convertible into shares  of common stock at a rate of $1.78 per shares.  A beneficial conversion feature in the amount of $31,285 was recorded for this note and is being amortized over the term of the note via the effective interest rate method at a rate of 8.3%. Interest in the amount of $777 and $777 was accrued on this note during thethree months ended June 30, 2009 and 2008, respectively. Interest in the amount of $1,546 and $1,508 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively.  Total accrued interest at June 30, 2009 and 2008 amounted to $4,161 and $1,042, respectively.                                                       |   |   |  31,185       |   |  31,185 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | Principal balance: |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | June 30, 2009      |   | December 31, 2008 |   |
| 18 Note payable in the amount of $62,019 dated July 1, 2005. On January 1, 2007, this note was replaced with a new note in the amount of $94,334, which included accrued interest of $9,328, and a loss of 422,987. On March 1, 2008, this note was replaced with a new note in the amount of $88,132, which includes accrued interest in the amountof $2,221. The note bears interest at the rate of 10% per annum, and is due in full on February 28, 2013.  This note is convertible into shares  of common stock at a price of $1.78 per share.  A beneficial conversion feature was recorded in the amount of $91,149 on the note. Interest in the amount of $2,197 and $2,197 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $4,370 and $4,380 was accrued on this note duringthe six months ended June 30, 2009 and 2008, respectively. Total accrued interest at June 30, 2009 and 2008 amounted to $11,009 and $2,196, respectively. |   |   |  88,132       |   |  88,139 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |               |   |   |   |
| 14 Note payable in the amount of $25,000 dated October 6, 2005.  On March 3, 2007, this note was replaced with a new note in the amount of $28,603, which included interest in the amount of $3,500, and a loss of $103. On March 1, 2008, this note was consolidated into a new note in the amount of $29,025. Interest in the amount of$723and $723 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $1,439 and $1,404 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively. Total accrued interest at June 30, 2009 and 2008 amounted to $3,872and $970, respectively.                                                                                                                                                                                                                                                                                                                                                      |   |   |  29,025       |   |  29,025 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |               |   |   |   |
| 21 Note payable in the amount of $69,806 dated March 3, 2007. On March 1, 2008, this note was replaced with a new note in the amount of $76,787, which included accrued interest in the amount of $6,981. The note bears interest at a rate of 10% per annum, and is due in full on February 28, 2013.  This note is convertible into shares(post shares) of common stock at a rate of $1.78 per share.  A beneficial conversion feature in the amount of $76,787 was recorded on the note and is being amortized over the term of the note via the effective interest rate method at a rate of 8.3%. Interest in the amount of $1,914 and $1,914 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $3,808 and $3,655 was accrued on this note during the six months ended June 30, 2009 and2008, respectively.   Total accrued interest at June 30, 2009 and 2008 amounted to $10,186 and $2,507, respectively.                       |   |   |  76,787       |   |  76,787 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |               |   |   |   |
| 25 Note payable  in the amount of $550,000 dated June 24, 2008.  The note bears interest at a rate of 10% per annum, and is due in full on June 24, 2010.  This note becomes convertible into shares  of common stock upon the closing of a qualified financing.  Interest in the amount of $13,712and $904 was accrued during the three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $27,274 and $904 was accrued during the six months ended June 30, 2009 and 2008, respectively.   Total accrued interest at June 30, 2009 and 2008 amounted to $55,904 and $904, respectively.                                                                                                                                                                                                                                                                                                                                                                |   |   |  550,000      |   |  550,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |               |   |   |   |
| 23 Note payable in the amount of $521,200 dated March 1, 2008. The note bears interest at a rate of 10% per annum, and is due in full on February 28, 2013. This note is convertible into common stock at a rate of $1.78 per share.  A beneficial conversion feature in the amount of $521,200 was recorded and is being amortized overthe term of the note via the effective interest rate method at a rate of 8.3%.  Interest in the amount of $12,994 and $14,490 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively. Interest in the amount of $25,846 and $19,267 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively.   Total accrued interest at June 30, 2009 and 2008 amounted to $72,719 and $19,267, respectively.                                                                                                                                                                                               |   |   |  521,200      |   |  521,200 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |               |   |   |   |
| 26 Note payable in the amount of $287,768 dated October 31, 2008. The note bears interest at a rate of 10% per annum, and is due in full on June 30, 2009.  Interest in the amount of $7,174 and $0 was accrued on this note during the three months ended June 30, 2009 and 2008, respectively.  Interest in the amountof $14,270 and $0 was accrued on this note during the six months ended June 30, 2009 and 2008, respectively.  Total accrued interest at June 30, 2009 and 2008 amounted to $19,079 and $0, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |  287,768      |   |  287,768 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |               |   |   |   |

| Total outstanding                                   |   | $       | 2,943,245 |    | $      | 2,943,252 |    |
|-----------------------------------------------------|--------|---------|-----------|---------|--------|-----------|---------|
| Less discount on notes payable                      |   |    | (937,551  | )  |   | (945,585  | )  |
| Total – net of discounts                      |   |    | 2,005,694 |    |   | 1,997,667 |    |
|  Less current portion – net of discounts |   |    | (987,046  | )  |   | (287,768  | )  |
|  Long-term portion – net of discounts    |   | $       | 1,018,648 |    | $      | 1,709,899 |    |
|                                                |   |    |      |    |   |      |    |
| Related Party                                       |   |    | 1,001,898 |    |   | 1,288,632 |    |
| Related Party – current portion               |   |    | -         |    |   | 287,768   |    |
| Related Party – long term portion             |   | $       | 1,001,898 |    | $      | 1,000,864 |    |
|                                                |   |    |      |    |   |      |    |
| Non-related party                                   |   | $       | 1,003,803 |    | $      | 709,035   |    |
| Non-related party – current portion           |   |    | 987,046   |    |   | -         |    |
| Non-related party – long term portion         |   | $  | 16,757    |    | $      | 709,035   |    |

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| Warrants Outstanding |   | Warrants Exercisable |
|----------------------|--------|----------------------|
| Exercise Prices      |   | Number Outstanding   |   | Weighted Average RemainingContractual Life (years) |   | Weighted AverageExercise Price |   |  Number Exercisable |   | Weighted AverageRemaining ContractualLife (years) |
| $                    |   |                 | 0.10 |   | 84,215 |   | 0.21 |   | $ | 0.10 |   | 84,215 |   | 0.21 |
|                 |   |                 | 1.78-2.50 |   | 145,180 |   | 6.92 |   |   | 1.78-2.50 |   | 145,180 |   | 6.92 |
|   5.00          |   | 727,200              |   | 4.61 |   |   | 5.00 |   | 727,200 |   | 4.61 |
| Total                |   | 956,595              |   | 4.57 |   |   |   |   | 956,595 |   | 4.57 |

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|                             |   | Number of Shares |    |    | Weighted AveragePrice Per Share |   |
|----------------------------------|--------|------------------|---------|---------|---------------------------------|--------|
| Outstanding at December 31, 2008 |   |             | 956,596 |    |                            | $      | 4.14 |   |
| Granted                          |   |             | -       |    |                            |   | - |   |
| Exercised                        |   |             | (42,108 | )  |                            |   | (0.10 | )  |
| Cancelled or expired             |   |             | (33,686 | )       |                            |   | (0.10 | )  |
| Outstanding at June 30, 2009     |   |             | 880,802 |    |                            | $      | 4.50 |   |

| Options Outstanding |   | Options Exercisable |
|---------------------|--------|---------------------|
| Exercise Prices     |   |                | Number Outstanding |   | Weighted Average Remaining Contractual Life (years) |   | Weighted Average Exercise Price |   |  Number Exercisable |   | Weighted AverageRemaining ContractualLife (years) |
| $                   | 2.50   |                |   |   | 2,350,000 |   | 8.77 |   | $ | 2.50 |   | 2,310,910 |   | 9.02 |
| Total               |   |                |   | 2,350,000 |   | 8.77 |   |   |   |   | 2,310,910 |   | 9.02 |

| Options Outstanding |   | Options Exercisable |
|---------------------|--------|---------------------|
| Exercise Prices     |   |                | Number Outstanding |   | Weighted Average Remaining Contractual Life (years) |   | Weighted Average Exercise Price |   |  Number Exercisable |   | Weighted AverageRemaining ContractualLife (years) |
| $                   | 2.50   |                |   |   | 2,350,000 |   | 9.27 |   | $ | 2.50 |   | 2,285,791 |   | 9.27 |
| Total               |   |                |   | 2,350,000 |   | 9.27 |   |   |   |   | 2,285,791 |   | 9.27 |

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|                             |   | Number of Shares |      |   | Weighted AveragePrice Per Share |   |
|----------------------------------|--------|------------------|-----------|--------|---------------------------------|--------|
| Outstanding at December 31, 2008 |   |             | 2,350,000 |   |                            | $      | 2.50 |   |
| Granted                          |   |             | -         |   |                            |   | - |   |
| Exercised                        |   |             | -         |   |                            |   | - |   |
| Cancelled or expired             |   |             |  -   |   |                            |   |  - |   |
| Outstanding at June 30, 2009     |   |             | 2,350,000 |   |                            | $      | 2.50 |   |
| Exercisable at June 30, 2009     |   |             | 2,310,910 |   |                            | $      | 2.50 |   |
| Not exercisable at June 30, 2009 |   |             | 39,090    |   |                            | $      | 2.50 |   |

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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|--------------|---------------------------------------------------------------------------------------------|

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|                             |   | Options |      |   | Weighted AverageExercise Price |   |
|----------------------------------|--------|---------|-----------|--------|--------------------------------|--------|
| Outstanding at December 31, 2008 |   |    | 2,350,000 |   |                           | $      | 2.50 |   |
| Issued                           |   |    | -         |   |                           |   | - |   |
| Exercised                        |   |    | -         |   |                           |   | - |   |
| Forfeited or expired             |   |    | -         |   |                           |   | - |   |
| Outstanding at June 30, 2009     |   |    | 2,350,000 |   |                           | $      | 2.50 |   |
| Vested at June 30, 2009          |   |    | 2,310,910 |   |                           | $      | 2.50 |   |
| Non-vested at June 30, 2009      |   |    | 39,090    |   |                           | $      | 2.50 |   |

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| •  |       future financial and operating results, including projections of revenues, income, expenditures, cash balances and other financial items; |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •  |       capital requirements and the need for additional financing; |
|---------------|-------------------------------------------------------------------------------------------------|

| •  |        our ability to develop commercially viable products; |
|---------------|------------------------------------------------------------------------------------------------|

| •  |        our intellectual property rights and similar rights of others, including actual or potential competitors; |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| •  |        the outcome of regulatory submissions and approvals and clinical trials; |
|---------------|--------------------------------------------------------------------------------------------------------------------|

| •  |        the performance of our future products and their potential to generate revenues; |
|---------------|----------------------------------------------------------------------------------------------------------------------------|

| •  |        our beliefs and opinions about the safety and efficacy of any of our future products and the results of our studies; |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •  |        development of new products; |
|---------------|------------------------------------------------------------------------|

| •  |        growth, expansion and acquisition strategies; |
|---------------|-----------------------------------------------------------------------------------------|

| •  |        current and future economic and political conditions; |
|---------------|-------------------------------------------------------------------------------------------------|

| •  |        overall industry and market performance; |
|---------------|------------------------------------------------------------------------------------|

| •  |        competition; |
|---------------|--------------------------------------------------------|

| •  |        management’s goals and plans for future operations; and |
|---------------|---------------------------------------------------------------------------------------------------------|

| •  |        other assumptions described in this report underlying or relating to any forward-looking statements. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------|

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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|--------------|------------------------------------------------------------|

| ITEM 4. | CONTROLS AND PROCEDURES |
|--------------|-------------------------|

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| ITEM 1. | LEGAL PROCEEDINGS |
|--------------|-------------------|

| ITEM 1A. | RISK FACTORS |
|---------------|--------------|

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

| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
|--------------|---------------------------------|

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

| ITEM 5. | OTHER INFORMATION |
|--------------|-------------------|

| ITEM 6. | EXHIBITS |
|--------------|----------|

| EXHIBIT NO. |   | NAME OF EXHIBIT                                                                                                                                                                                                                                                                                                          |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1         |   | Agreement of Merger, dated as of August 6, 2008, by and between Roughneck Supplies, Inc. and Omnimmune Holdings, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on August 12, 2008).                                                                                             |
| 2.2         |   | Agreement of Merger and Plan of Reorganization, dated as of August 7, 2008, by and among the Omnimmune Holdings, Inc., Omnimmune Acquisition Corp., a wholly owned subsidiary of the Company, and Omnimmune Corp. (incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed on August 12, 2008). |
| 2.3         |   | Certificate of Merger, effective August 6, 2008, merging Roughneck Supplies, Inc. with and into Omnimmune Holdings, Inc. (incorporated by reference to Exhibit 2.3 to our Current Report on Form 8-K filed on August 12, 2008).                                                                                          |
| 2.4         |   | Articles of Merger, effective August 7, 2008, merging Omnimmune Corp. with and into Omnimmune Acquisition Corp. (incorporated by reference to Exhibit 2.4 to our Current Report on Form 8-K filed on August 12, 2008).                                                                                                   |
| 4.1         |   | Second Amended and Restated Convertible Demand Promissory Note                                                                                                                                                                                                                                                           |
| 10.1        |   | Registration Rights Agreement, dated as of August 7, 2008, by and among Omnimmune Holdings, Inc. and the stockholders of Omnimmune Holdings, Inc. parties thereto (incorporated by reference to Exhibit 10.15 to our Current Report on Form 8-K filed on August 12, 2008).                                          |
| 10.2        |   | Form of Lock-Up Agreement between the Company and executive officers and certain stockholders (incorporated by reference to Exhibit 10.18 to our Current Report on Form 8-K filed on August 12, 2008).                                                                                                                   |
| 10.3        |   | Amendment and Pledge dated July 31, 2008, to Gift Agreement entered into as of April 18, 2008, by and among The Ohio State University Medical Center, The Ohio State University Foundation and Omnimmune Corp. (incorporated by reference to Exhibit 10.23 to our Current Report on Form 8-K filed on August 12, 2008).  |
| 31.1        |   | Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                    |
| 32.1        |   | Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                    |

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|                   |   |                                                                                                                                               |
|------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |   | OMNIMMUNE HOLDINGS, INC.                                                                                                                           |
|                   |   |
| Dated: August 19, 2009 |   | /s/ HARRIS A. LICHTENSTEIN                     |
|                   |   | Harris A. Lichtenstein                                                                                                                        |
|                   |   | Chief Executive Officer                                                                                                                            |

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