----

----

----

----

| New Mexico               | 85-0392345                        |
|--------------------------|-----------------------------------|
| (State of incorporation) | (IRS Employer Identification No.) |

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

----

Table of Contents 

| PART I. Financial Information                                                                      | Page   |
|----------------------------------------------------------------------------------------------------|--------|
|                                                                                               |   |
| Item 1. Financial Statements (Unaudited)                                                           | 3      |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 22     |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk                                 | 29     |
| Item 4. Controls and Procedures                                                                    | 29     |
|                                                                                               |   |
| PART II. Other Information                                                                         |   |
|                                                                                               |   |
| Item 1. Legal Proceedings                                                                          | 31     |
| Item 2. Changes In Securities                                                                      | 31     |
| Item 3. Defaults Upon Senior Securities                                                            | 31     |
| Item 4. Submission of Matters to a Vote of Security Holders                                        | 31     |
| Item 5. Other Information                                                                     | 31     |
| Item 6. Exhibits                                                                              | 31     |
|                                                                                               |   |
| Signatures                                                                                         | 32     |

----

Table of Contents 

----

Table of Contents 

|                                                                               |   | September 30, |       |   | December 31, |    |
|------------------------------------------------------------------------------------|--------|---------------|------------|--------|--------------|---------|
|                                                                               |   | 2010          |       |   | 2009         |    |
| ASSETS                                                                             |   |          |       |   |         |    |
| CURRENT ASSETS                                                                     |   |          |       |   |         |    |
|           Cash                        |   | $             | 379,924    |   |         | $  | 20,041 |   |
| Prepaid expenses                                                                   |   |          | 7,658      |   |         |    | - |   |
| Deferred charges                                                                   |   |          | 28,740     |   |         |    | 9,573 |   |
| Total current assets                                                               |   |          | 416,322    |   |         |    | 29,614 |   |
|                                                                               |   |          |       |   |         |    |   |   |
| Deferred charges                                                                   |   |          | 19,145     |   |         |    | 26,325 |   |
| Patents and trademarks, net of accumulated amortization                            |   |          | 136,583    |   |         |    | 113,645 |   |
| of $327,776 and $315,495                                                           |   |          |       |   |         |    |   |   |
| Total assets                                                                       |   | $             | 572,050    |   |         | $       | 169,584 |   |
| LIABILITIES & STOCKHOLDERS' DEFICIT                                            |   |          |       |   |         |    |   |   |
| CURRENT LIABILITIES                                                                |   |          |       |   |         |    |   |   |
| Accounts payable and accrued liabilities                                           |   | $             | 234,170    |   |         | $       | 506,068 |   |
| Advances from stockholders                                                         |   |          | 225,267    |   |         |    | 215,142 |   |
| Short-term debt                                                                    |   |          | 111,309    |   |         |    | 114,978 |   |
| Convertible note (net of discount of $536,667 and $0)                              |   |          | 23,333     |   |         |    | - |   |
| Deferred liability                                                                 |   |          | -          |   |         |    | 25,415 |   |
| Total current liabilities                                                          |   |          | 594,079    |   |         |    | 861,603 |   |
| NON-CURRENT LIABILITIES                                                            |   |          |       |   |         |    |   |   |
| Derivative liabilities - warrant instruments                                       |   |          | 1,734,067  |   |         |    | - |   |
| Derivative liabilities - stock options                                             |   |          | 16,226     |   |         |    | - |   |
| Derivative liabilities - debt conversion feature                                   |   |          | 497,760    |   |         |    | - |   |
| Note payable                                                                       |   |          | 80,753     |   |         |    | 120,477 |   |
| Total liabilities                                                                  |   |          | 2,922,885  |   |         |    | 982,080 |   |
|     Commitments and contingencies                                   |   |          | -          |   |         |    | - |   |
| STOCKHOLDERS' DEFICIT                                                              |   |          |       |   |         |    |   |   |
| Class A redeemable preferred stock; no par value; 2,000,000                        |   |          |       |   |         |    |   |   |
| shares authorized; cumulative and convertible;                                     |   |          |       |   |         |    |   |   |
|      liquidation and redemption values of $1.50 and $1.80 |   |          |       |   |         |    |   |   |
|  per share, respectively; no shares issued or outstanding                     |   |          | -          |   |         |    | - |   |
|                                                                               |   |          |       |   |         |    |   |   |
| Undesignated preferred stock; 2,000,000 shares authorized; no                      |   |          |       |   |         |    |   |   |
|  shares issued and outstanding                                                |   |          | -          |   |         |    | - |   |
|                                                                               |   |          |       |   |         |    |   |   |
| Common stock, no par value, 150,000,000 share authorized;                          |   |          |       |   |         |    |   |   |
| 92,436,886 and 79,514,589 issued and 92,045,311 and                                |   |          |       |   |         |    |   |   |
| 78,923,014 outstanding, respectively                                               |   |          | 7,124,527  |   |         |    | 7,626,166 |   |
|                                                                               |   |          |       |   |         |    |   |   |
| Treasury stock, at cost, 391,575 and 591,575 shares, respectively                  |   |          | (1,233     | )      |         |    | (2,502 | ) |
|                                                                               |   |          |       |   |         |    |   |   |
|  Deficit accumulated during development stage                                 |   |          | (9,474,129 | )      |         |    | (8,436,160 | ) |
|                                                                               |   |          |       |   |         |    |   |   |
| Total stockholders' deficit                                                        |   |          | (2,350,835 | )      |         |    | (812,496 | ) |
|                                                                               |   |          |       |   |         |    |   |   |
| Total liabilities and stockholders' deficit                                        |   | $             | 572,050    |   |         | $       | 169,584 |   |

----

Table of Contents 

|                                                                                     |          | Three Months Ended |       |          | Nine Months Ended |   |           | January 3, 1990 |   |
|------------------------------------------------------------------------------------------|---------------|-------------------------|------------|---------------|------------------------|--------|----------------|-----------------|--------|
|                                                                                     | September 30, |                    |       | September 30, |                   |   | (Inception) to |            |
|                                                                                     | 2010          |                    |       | 2009          |                   |   | 2010           |            |   | 2009 |   |   | September 30, 2010 |   |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |
| Revenue                                                                                  |          | $                       | -          |          |                   | $      | -              |            |   | $ | - |   |   | $ | - |   |   | $ | 23 |   |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                                                                       |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
|   Professional fees                                                            |          |                    | 46,936     |          |                   |   | 26,899         |            |   |   | 222,881 |   |   |   | 95,279 |   |   |   | 1,454,831 |   |
|   General and administrative                                                   |          |                    | 531,701    |          |                   |   | 346,213        |            |   |   | 1,054,820 |   |   |   | 441,219 |   |   |   | 6,025,330 |   |
|   Research and development, net of grants received                             |          |                    | 118,122    |          |                   |   | 44,489         |            |   |   | 277,694 |   |   |   | 55,819 |   |   |   | 2,998,697 |   |
|   Depreciation and amortization                                                |          |                    | 3,348      |          |                   |   | 6,085          |            |   |   | 12,281 |   |   |   | 29,367 |   |   |   | 347,827 |   |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
|           Total operating expenses     |          |                    | 700,107    |          |                   |   | 423,686        |            |   |   | 1,567,676 |   |   |   | 621,684 |   |   |   | 10,826,685 |   |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
|           Loss from operations         |          |                    | (700,107   | )             |                   |   | (423,686       | )               |   |   | (1,567,676 | ) |   |   | (621,684 | ) |   |   | (10,826,662 | ) |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Income (Expense)                                                                   |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
|   Gain on extinguishment of debt                                               |          |                    | -          |          |                   |   | -              |            |   |   | - |   |   |   | - |   |   |   | 1,326,028 |   |
|   Gain on sale of assets                                                       |          |                    | -          |          |                   |   | -              |            |   |   | 2,068 |   |   |   | - |   |   |   | 1,710 |   |
|   Unrealized gain on derivative liabilities-                                   |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
|     warrant instruments                                              |          |                    | 593,285    |          |                   |   | -              |            |   |   | 1,046,806 |   |   |   | - |   |   |   | 1,046,806 |   |
|   Unrealized gain on derivative liabilities-                                   |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
|     options                                                          |          |                    | 3,089      |          |                   |   | -              |            |   |   | 8,342 |   |   |   | - |   |   |   | 8,342 |   |
|   Unrealized gain on derivative liabilities-                                   |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
|     debt conversion feature                                          |          |                    | 153,608    |          |                   |   | -              |            |   |   | 153,608 |   |   |   | - |   |   |   | 153,608 |   |
|   Other income                                                                 |          |                    | -          |          |                   |   | -              |            |   |   | - |   |   |   | - |   |   |   | 34,037 |   |
|   Interest income                                                              |          |                    | 51         |          |                   |   | -              |            |   |   | 252 |   |   |   | - |   |   |   | 4,122 |   |
|   Interest expense                                                             |          |                    | (673,477   | )             |                   |   | (3,967         | )               |   |   | (681,369 | ) |   |   | (11,333 | ) |   |   | (1,222,120 | ) |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
|           Total other income (expense) |          |                    | 76,556     |          |                   |   | (3,967         | )               |   |   | 529,707 |   |   |   | (11,333 | ) |   |   | 1,352,533 |   |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss before provision for income taxes                                                   |          |                    | (623,551   | )             |                   |   | (427,653       | )               |   |   | (1,037,969 | ) |   |   | (633,017 | ) |   |   | (9,474,129 | ) |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes                                                               |          |                    | -          |          |                   |   | -              |            |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                 |          | $                       | (623,551   | )             |                   | $      | (427,653       | )               |   | $ | (1,037,969 | ) |   | $ | (633,017 | ) |   | $ | (9,474,129 | ) |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted loss per common share                                                  |          | $                       | (0.01      | )             |                   | $      | (0.01          | )               |   | $ | (0.01 | ) |   | $ | (0.01 | ) |   |   |   |   |
|                                                                                     |          |                    |       |          |                   |   |           |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted weighted average number of common shares outstanding                   |          |                    | 91,331,420 |          |                   |   | 75,917,329     |            |   |   | 86,886,379 |   |   |   | 77,037,116 |   |   |   |   |   |

----

Table of Contents 

|                                                                                                           |   |         |         |   |     |   |         |        |   |   | Accumulated    |    |   | Total         |       |
|----------------------------------------------------------------------------------------------------------------|--------|--------------|--------------|--------|----------|--------|--------------|-------------|--------|--------|----------------|---------|--------|---------------|------------|
|                                                                                                           |   |         |         |   |     |   |         |        |   |   | Deficit During |    |   | Stockholders' |       |
|                                                                                                           |   | Common Stock |         |   | Treasury |   |         | Development |   |   | Equity         |    |
|                                                                                                           |   | Shares       |         |   | Amount   |   |         | Stock       |   |   | Stage          |    |   | (Deficit)     |       |
| Inception                                                                                                      |   |         | -            |   |     | $      | -            |        |   | $      | -              |    |   | $             | -          |   |   | $ | - |   |
| Issuance of Common Stock, June 26, 1991                                                                        |   |         | 2,997,000    |   |     |   | 18,433       |        |   |   |           |    |   |          |       |   |   |   | 18,433 |   |
| Cumulative Net Loss for the period from January 3, 1990  (date of inception) to December 31,1996          |   |         |         |   |     |   |         |        |   |   |           | (60,010 | )      |          |       | (60,010 | ) |
| Balance, December 31, 1996                                                                                     |   |         | 2,997,000    |   |     |   | 18,433       |        |   |   | -         |    |   |          | (60,010    | ) |   |   | (41,577 | ) |
| Issuance of Common Stock Warrants on December 31, 1997  (100,952 warrants at exercise price of $.20) |   |         | -            |   |     |   | -            |        |   |   |           |    |   |          |       |   |   |   | - |   |
| Net loss                                                                                                       |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (32,914    | ) |   |   | (32,914 | ) |
| Balance, December 31, 1997                                                                                     |   |         | 2,997,000    |   |     |   | 18,433       |        |   |   | -         |    |   |          | (92,924    | ) |   |   | (74,491 | ) |
| Issuance of Common Stock, January 20, 1998                                                                     |   |         | 59,940       |   |     |   | 10,000       |        |   |   |           |    |   |          |       |   |   |   | 10,000 |   |
| Exercise of Common Stock Warrants on March 17, 1998                                                            |   |         | 100,952      |   |     |   | 20,190       |        |   |   |           |    |   |          |       |   |   |   | 20,190 |   |
| Issuance of Common Stock, April 15, 1998, net of stockissuance costs                                           |   |         | 631,578      |   |     |   | 276,350      |        |   |   |           |    |   |          |       |   |   |   | 276,350 |   |
| Issuance of Common Stock Options, April 15, 1998                                                               |   |         |         |   |     |   | 23,650       |        |   |   |           |    |   |          |       |   |   |   | 23,650 |   |
| Exercise of Common Stock Options, November 2, 1998                                                             |   |         | 62,237       |   |     |   | 23,670       |        |   |   |           |    |   |          |       |   |   |   | 23,670 |   |
| Net loss                                                                                                       |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (295,948   | ) |   |   | (295,948 | ) |
| Balance, December 31, 1998                                                                                     |   |         | 3,851,707    |   |     |   | 372,293      |        |   |   | -         |    |   |          | (388,872   | ) |   |   | (16,579 | ) |
| Issuance of Common Stock, January 30, 1999                                                                     |   |         | 180,000      |   |     |   | 87,300       |        |   |   |           |    |   |          |       |   |   |   | 87,300 |   |
| Issuance of Common Stock, for the month of March, 1999                                                         |   |         | 310,000      |   |     |   | 150,300      |        |   |   |           |    |   |          |       |   |   |   | 150,300 |   |
| Issuance of Common Stock, May 29, 1999                                                                         |   |         | 51,546       |   |     |   | 25,000       |        |   |   |           |    |   |          |       |   |   |   | 25,000 |   |
| Issuance of Common Stock, June 2, 1999                                                                         |   |         | 95,092       |   |     |   | 50,000       |        |   |   |           |    |   |          |       |   |   |   | 50,000 |   |
| Issuance of Common Stock, September 30, 1999                                                                   |   |         | 51,546       |   |     |   | 25,000       |        |   |   |           |    |   |          |       |   |   |   | 25,000 |   |
| Issuance of Common Stock, December 29, 1999                                                                    |   |         | 92,005       |   |     |   | 50,143       |        |   |   |           |    |   |          |       |   |   |   | 50,143 |   |
| Net loss                                                                                                       |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (303,956   | ) |   |   | (303,956 | ) |
| Balance, December 31, 1999                                                                                     |   |         | 4,631,896    |   |     |   | 760,036      |        |   |   | -         |    |   |          | (692,828   | ) |   |   | 67,208 |   |
| Exercise of Common Stock Options, February 24, 2000                                                            |   |         | 166,535      |   |     |   | 80,770       |        |   |   |           |    |   |          |       |   |   |   | 80,770 |   |
| Issuance of Common Stock, May 12, 2000                                                                         |   |         | 253,609      |   |     |   | 56,000       |        |   |   |           |    |   |          |       |   |   |   | 56,000 |   |
| Exercise of Common Stock Options, June 8, 2000                                                                 |   |         | 62,497       |   |     |   | 30,312       |        |   |   |           |    |   |          |       |   |   |   | 30,312 |   |
| Issuance of Common Stock, for the month of September, 2000                                                     |   |         | 96,745       |   |     |   | 21,086       |        |   |   |           |    |   |          |       |   |   |   | 21,086 |   |
| Exercise of Common Stock Options, November 3, 2000                                                             |   |         | 66,000       |   |     |   | 7,491        |        |   |   |           |    |   |          |       |   |   |   | 7,491 |   |
| Issuance of Common Stock for Services, December 8, 2000                                                        |   |         | 40,000       |   |     |   | 19,400       |        |   |   |           |    |   |          |       |   |   |   | 19,400 |   |
| Net loss                                                                                                       |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (257,139   | ) |   |   | (257,139 | ) |
| Balance, December 31, 2000                                                                                     |   |         | 5,317,282    |   |     |   | 975,095      |        |   |   |  -        |    |   |          | (949,967   | ) |   |   | 25,128 |   |
| Issuance of Common Stock for Services, January 25, 2001                                                        |   |         | 5,000        |   |     |   | 2,425        |        |   |   |           |    |   |          |       |   |   |   | 2,425 |   |
| Issuance of Common Stock, January 31, 2001                                                                     |   |         | 160,000      |   |     |   | 24,000       |        |   |   |           |    |   |          |       |   |   |   | 24,000 |   |
| Issuance of Common Stock for Services, April 6, 2001                                                           |   |         | 15,000       |   |     |   | 7,276        |        |   |   |           |    |   |          |       |   |   |   | 7,276 |   |
| Issuance of Common Stock, for the month of April, 2001                                                         |   |         | 120,000      |   |     |   | 58,200       |        |   |   |           |    |   |          |       |   |   |   | 58,200 |   |
| Issuance of Common Stock, June 28, 2001                                                                        |   |         | 20,000       |   |     |   | 9,700        |        |   |   |           |    |   |          |       |   |   |   | 9,700 |   |
| Issuance of Common Stock, for the month of August, 2001                                                        |   |         | 110,000      |   |     |   | 53,500       |        |   |   |           |    |   |          |       |   |   |   | 53,500 |   |
| Issuance of Common Stock, November 7, 2001                                                                     |   |         | 10,000       |   |     |   | 5,000        |        |   |   |           |    |   |          |       |   |   |   | 5,000 |   |
| Net loss                                                                                                       |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (372,655   | ) |   |   | (372,655 | ) |
| Balance, December 31, 2001                                                                                     |   |         | 5,757,282    |   |     |   | 1,135,196    |        |   |   |  -        |    |   |          | (1,322,622 | ) |   |   | (187,426 | ) |
| Net loss                                                                                                       |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (83,689    | ) |   |   | (83,689 | ) |
| Balance, December 31, 2002                                                                                     |   |         | 5,757,282    |   |     |   | 1,135,196    |        |   |   |  -        |    |   |          | (1,406,311 | ) |   |   | (271,115 | ) |
| Exercise of stock options, July 11, 2003                                                                       |   |         | 980,000      |   |     |   | 147,000      |        |   |   |           |    |   |          |       |   |   |   | 147,000 |   |
| Net loss                                                                                                       |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (311,233   | ) |   |   | (311,233 | ) |
| Balance, December 31, 2003                                                                                     |   |         | 6,737,282    |   |     |   | 1,282,196    |        |   |   |  -        |    |   |          | (1,717,544 | ) |   |   | (435,348 | ) |
| Issuance of Common Stock for Services, February 9, 2004                                                        |   |         | 35,000       |   |     |   | 5,250        |        |   |   |           |    |   |          |       |   |   |   | 5,250 |   |
| Exercise of Common Stock Options, February 9, 2004                                                             |   |         | 60,000       |   |     |   | 30,000       |        |   |   |           |    |   |          |       |   |   |   | 30,000 |   |
| Issuance of Common Stock for Services, August 5, 2004                                                          |   |         | 85,000       |   |     |   | 12,750       |        |   |   |           |    |   |          |       |   |   |   | 12,750 |   |
| Exercise of Common Stock Options, September 27, 2004                                                           |   |         | 200,000      |   |     |   | 29,999       |        |   |   |           |    |   |          |       |   |   |   | 30,000 |   |
| Net loss, December 31, 2004                                                                                    |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (758,945   | ) |   |   | (758,945 | ) |
| Balance, December 31, 2004                                                                                     |   |         | 7,117,282    |   |     |   | 1,360,195    |        |   |   |  -        |    |   |          | (2,476,489 | ) |   |   | (1,116,293 | ) |
| Issuance of Common Stock for Services, May 27, 2005                                                            |   |         | 30,000       |   |     |   | 4,500        |        |   |   |           |    |   |          |       |   |   |   | 4,500 |   |
| Issuance of Common Stock for Services, October 12, 2005                                                        |   |         | 40,000       |   |     |   | 6,000        |        |   |   |           |    |   |          |       |   |   |   | 6,000 |   |
| Net loss, December 31, 2005                                                                                    |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (624,756   | ) |   |   | (624,756 | ) |
| Balance, December 31, 2005                                                                                     |   |         | 7,187,282    |   |     |   | 1,370,695.90 |        |   |   |  -        |    |   |          | (3,101,245 | ) |   |   | (1,730,549 | ) |
| Issuance of Common Stock for Services, October 23, 2006                                                        |   |         | 690,000      |   |     |   | 544,500      |        |   |   |           |    |   |          |       |   |   |   | 544,500 |   |
| Issuance of Common Stock in exchange for Debt, October 23, 2006                                                |   |         | 1,176,471    |   |     |   | 1,000,000    |        |   |   |           |    |   |          |       |   |   |   | 1,000,000 |   |
| Issuance of Common Stock for Services, November 30, 2006                                                       |   |         | 7,500        |   |     |   | 28,125       |        |   |   |           |    |   |          |       |   |   |   | 28,125 |   |
| Issuance of Common Stock for Services, December 15, 2006                                                       |   |         | 10,000       |   |     |   | 29,000       |        |   |   |           |    |   |          |       |   |   |   | 29,000 |   |
| Issuance of Common Stock for Services, December 26, 2006                                                       |   |         | 15,000       |   |     |   | 44,850       |        |   |   |           |    |   |          |       |   |   |   | 44,850 |   |
| Acquisition of Treasury Stock, June 30, 2006                                                                   |   |         |         |   |     |   |         |        |   |   | (9,000         | )       |   |          |       |   |   |   | (9,000 | ) |
| Stock-Based Compensation                                                                                       |   |         |         |   |     |   | 35,042       |        |   |   |           |    |   |          |       |   |   |   | 35,042 |   |
| Net loss, December 31, 2006                                                                                    |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (1,807,312 | ) |   |   | (1,807,312 | ) |
| Balance, December 31, 2006                                                                                     |   |         | 9,086,253    |   |     |   | 3,052,213    |        |   |   | (9,000         | )       |   |          | (4,908,557 | ) |   |   | (1,865,344 | ) |
| Issuance of Common Stock for Services, January 2007                                                            |   |         | 131,000.0    |   |     |   | 259,500      |        |   |   |           |    |   |          |       |   |   |   | 259,500 |   |
| Issuance of Common Stock, January 2007                                                                         |   |         | 30,000.0     |   |     |   | 30,000       |        |   |   |           |    |   |          |       |   |   |   | 30,000 |   |
| Issuance of Common Stock for Services, February 2007                                                           |   |         | 150,000.0    |   |     |   | 157,500      |        |   |   |           |    |   |          |       |   |   |   | 157,500 |   |
| Issuance of Common Stock for Services, March 2007                                                              |   |         | 445,000.0    |   |     |   | 375,500      |        |   |   |           |    |   |          |       |   |   |   | 375,500 |   |
| Issuance of Common Stock in exchange for Debt, March 2007                                                      |   |         | 86,786.0     |   |     |   | 73,768       |        |   |   |           |    |   |          |       |   |   |   | 73,768 |   |
| Exercise of Options, March 2007                                                                                |   |         | 2,000.0      |   |     |   | 1,000        |        |   |   |           |    |   |          |       |   |   |   | 1,000 |   |
| Issuance of Common Stock for Services, April 2007                                                              |   |         | 724,062.0    |   |     |   | 455,559      |        |   |   |           |    |   |          |       |   |   |   | 455,559 |   |
| Issuance of Common Stock in exchange for Debt, April 2007                                                      |   |         | 500,000.0    |   |     |   | 315,000      |        |   |   |           |    |   |          |       |   |   |   | 315,000 |   |
| Issuance of Common Stock for Services, June 2007                                                               |   |         | 920,000.0    |   |     |   | 154,600      |        |   |   |           |    |   |          |       |   |   |   | 154,600 |   |
| Issuance of Common Stock, June 2007                                                                            |   |         | 343,000.0    |   |     |   | 41,667       |        |   |   |           |    |   |          |       |   |   |   | 41,667 |   |
| Issuance of Common Stock for Services, July 2007                                                               |   |         | 141,000.0    |   |     |   | 15,700       |        |   |   |           |    |   |          |       |   |   |   | 15,700 |   |
| Issuance of Common Stock, July 2007                                                                            |   |         | 1,466,635.0  |   |     |   | 84,985       |        |   |   |           |    |   |          |       |   |   |   | 84,985 |   |
| Issuance of Common Stock, August 2007                                                                          |   |         | 1,636,166.0  |   |     |   | 53,943       |        |   |   |           |    |   |          |       |   |   |   | 53,943 |   |
| Issuance of Common Stock for Services, September 2007                                                          |   |         | 160,000.0    |   |     |   | 12,800       |        |   |   |           |    |   |          |       |   |   |   | 12,800 |   |
| Issuance of Common Stock, September 2007                                                                       |   |         | 2,416,248.0  |   |     |   | 54,819       |        |   |   |           |    |   |          |       |   |   |   | 54,819 |   |
| Issuance of Common Stock, October 2007                                                                         |   |         | 1,557,730.0  |   |     |   | 36,457       |        |   |   |           |    |   |          |       |   |   |   | 36,457 |   |
| Issuance of Common Stock in exchange for Debt, October 2007                                                    |   |         | 165,000.0    |   |     |   | 16,500       |        |   |   |           |    |   |          |       |   |   |   | 16,500 |   |
| Issuance of Common Stock for Services, November 2007                                                           |   |         | 770,000.0    |   |     |   | 100,100      |        |   |   |           |    |   |          |       |   |   |   | 100,100 |   |
| Issuance of Common Stock, November 2007                                                                        |   |         | 16,190,967.0 |   |     |   | 445,674      |        |   |   |           |    |   |          |       |   |   |   | 445,674 |   |
| Issuance of Common Stock for Services, December 2007                                                           |   |         | 90,140.0     |   |     |   | 21,634       |        |   |   |           |    |   |          |       |   |   |   | 21,634 |   |
| Issuance of Common Stock, December 2007                                                                        |   |         | 11,303,996.0 |   |     |   | 385,250      |        |   |   |           |    |   |          |       |   |   |   | 385,250 |   |
| Stock-Based Compensation                                                                                       |   |         |         |   |     |   | 55,416       |        |   |   |           |    |   |          |       |   |   |   | 55,416 |   |
| Net loss, December 31, 2007                                                                                    |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (2,307,051 | ) |   |   | (2,307,051 | ) |
| Balance, December 31, 2007                                                                                     |   |         | 48,315,983   |   |     |   | 6,199,584    |        |   | $      | (9,000         | )       |   | $             | (7,215,608 | ) |   | $ | (1,025,023 | ) |
| Issuance of Common Stock, January 2008                                                                         |   |         | 3,887,100    |   |     |   | 155,077      |        |   |   |           |    |   |          |       |   |   |   | 155,077 |   |
| Issuance of Common Stock for Services, February 2008                                                           |   |         | 11,128,967   |   |     |   | 312,244      |        |   |   |           |    |   |          |       |   |   |   | 312,244 |   |
| Issuance of Common Stock for Services, February 2008                                                           |   |         | 1,500,000    |   |     |   | 180,000      |        |   |   |           |    |   |          |       |   |   |   | 180,000 |   |
| Issuance of Common Stock for Services, March 2008                                                              |   |         | 1,725,860    |   |     |   | 86,293       |        |   |   |           |    |   |          |       |   |   |   | 86,293 |   |
| Issuance of Common Stock, March 2008                                                                           |   |         | 8,410,112    |   |     |   | 209,897      |        |   |   |           |    |   |          |       |   |   |   | 209,897 |   |
| Issuance of Common Stock, April 2008                                                                           |   |         | 1,328,142    |   |     |   | 33,268       |        |   |   |           |    |   |          |       |   |   |   | 33,268 |   |
| Issuance of Common Stock for Services, April 2008                                                              |   |         | 25,000       |   |     |   | 1,250        |        |   |   |           |    |   |          |       |   |   |   | 1,250 |   |
| Issuance of Common Stock for Services, June 2008                                                               |   |         | 237,237      |   |     |   | 17,779       |        |   |   |           |    |   |          |       |   |   |   | 17,779 |   |
| Issuance of Common Stock for Services, July 2008                                                               |   |         | 244,000      |   |     |   | 12,200       |        |   |   |           |    |   |          |       |   |   |   | 12,200 |   |
| Issuance of Common Stock for Services, September 2008                                                          |   |         | 125,000      |   |     |   | 5,000        |        |   |   |           |    |   |          |       |   |   |   | 5,000 |   |
| Issuance of Common Stock for Services, October 2008                                                            |   |         | 47,188       |   |     |   | 1,888        |        |   |   |           |    |   |          |       |   |   |   | 1,888 |   |
| Issuance of Common Stock for Services, December 2008                                                           |   |         | 30,000       |   |     |   | 900          |        |   |   |           |    |   |          |       |   |   |   | 900 |   |
| Net loss, December 31, 2008                                                                                    |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (315,263   | ) |   |   | (315,263 | ) |
| Balance, December 31, 2008                                                                                     |   |         | 77,004,589   |   |     |   | 7,215,381    |        |   | $      | (9,000         | )       |   | $             | (7,530,871 | ) |   | $ | (324,490 | ) |
| Issuance of Common Stock for Services, January 2009                                                            |   |         | 30,000       |   |     |   | 1,200        |        |   |   |           |    |   |          |       |   |   |   | 1,200 |   |
| Issuance of Common Stock for Services, June 2009                                                               |   |         | 30,000       |   |     |   | 1,200        |        |   |   |           |    |   |          |       |   |   |   | 1,200 |   |
| Adjustment to Treasury Shares on June 30, 2009                                                                 |   |         |         |   |     |   | (9,000       | )           |   | $      | 9,000          |    |   |          |       |   |   |   | - |   |
| Addition to Treasury Shares September 30, 2009                                                                 |   |         |         |   |     |   |         |        |   | $      | (4,617         | )       |   |          |       |   |   |   | (4,617 | ) |
| Issuance of Common Stock for Services, July 2009                                                               |   |         | 250,000      |   |     |   | 12,500       |        |   |   |           |    |   |          |       |   |   |   | 12,500 |   |
| Issuance of Common Stock for Cash, August 2009                                                                 |   |         | 100,000      |   |     |   | 5,000        |        |   |   |           |    |   |          |       |   |   |   | 5,000 |   |
| Issuance of Common Stock for Services, August 2009                                                             |   |         | 100,000      |   |     |   | 7,000        |        |   |   |           |    |   |          |       |   |   |   | 7,000 |   |
| Issuance of Treasury Shares for Services August 2009                                                           |   |         |         |   |     |   | 220,000      |        |   |   |           |    |   |          |       |   |   |   | 220,000 |   |
| Issuance of Common Stock for Cash, December 2009                                                               |   |         | 2,000,000    |   |     |   | 100,000      |        |   |   |           |    |   |          |       |   |   |   | 100,000 |   |
| Issuance of Treasury Shares for Services October 2009                                                          |   |         |         |   |     |   | 72,885       |        |   | $      | 2,115          |    |   |          |       |   |   |   | 75,000 |   |
| Net loss, December 31, 2009                                                                                    |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (905,289   | ) |   |   | (905,289 | ) |
| Balance, December 31, 2009                                                                                     |   |         | 79,514,589   |   |     |   | 7,626,166    |        |   | $      | (2,502         | )       |   | $             | (8,436,160 | ) |   | $ | (812,496 | ) |
| Issuance of Common Stock for cash January 2010                                                                 |   |         | 400,000      |   |     |   | 20,000       |        |   |   |           |    |   |          |       |   |   |   | 20,000 |   |
| Issuance of Common Stock for cash February 2010                                                                |   |         | 800,000      |   |     |   | 40,000       |        |   |   |           |    |   |          |       |   |   |   | 40,000 |   |
| Issuance of Common Stock for Services February 2010                                                            |   |         | 480,000      |   |     |   | 105,600      |        |   |   |           |    |   |          |       |   |   |   | 105,600 |   |
| Issuance of Treasury Shares for Services February 2010                                                         |   |         |         |   |     |   | 58,731       |        |   | $      | 1,269          |    |   |          |       |   |   |   | 60,000 |   |
| Issuance of Common Stock and Warrants for Cash March 2010                                                      |   |         | 6,250,001    |   |     |   | 820,000      |        |   |   |           |    |   |          |       |   |   |   | 820,000 |   |
| Derivative liabilities on warrants and non-employee options                                                    |   |         |         |   |     |   | (3,351,307   | )           |   |   |           |    |   |          |       |   |   |   | (3,351,307 | ) |
| Issuance of Common Stock for cash June 2010                                                                    |   |         | 335,000      |   |     |   | 53,600       |        |   |   |           |    |   |          |       |   |   |   | 53,600 |   |
| Issuance of Common Stock for services June 2010                                                                |   |         | 625,000      |   |     |   | 100,000      |        |   |   |           |    |   |          |       |   |   |   | 100,000 |   |
| Issuance of Common Stock for services to Directors June 2010                                                   |   |         | 200,000      |   |     |   | 50,000       |        |   |   |           |    |   |          |       |   |   |   | 50,000 |   |
| Derivative liabilities on Warrants and non-employee options settled                                            |   |         |         |   |     |   | 1,057,699    |        |   |   |           |    |   |          |       |   |   |   | 1,057,699 |   |
| Issuance of Common Stock for cash July 2010                                                                    |   |         | 471,184      |   |     |   | 66,956       |        |   |   |           |    |   |          |       |   |   |   | 66,956 |   |
| Issuance of Common Stock for Series II Warrants July 2010                                                      |   |         | 589,712      |   |     |   | -            |        |   |   |           |    |   |          |       |   |   |   | - |   |
| Issuance of Common Stock for services July 2010                                                           |   |         | 1,630,000    |   |     |   | 309,700      |        |   |   |           |    |   |          |       |   |   |   | 309,700 |   |
| Issuance of Common Stock for cash August 2010                                                                  |   |         | 666,400      |   |     |   | 94,696       |        |   |   |           |    |   |          |       |   |   |   | 94,696 |   |
| Issuance of Common Stock for services to Directors August 2010                                            |   |         | 100,000      |   |     |   | 17,000       |        |   |   |           |    |   |          |       |   |   |   | 17,000 |   |
| Issuance of Common Stock for services September 2010                                                      |   |         | 375,000      |   |     |   | 75,000       |        |   |   |           |    |   |          |       |   |   |   | 75,000 |   |
| Derivative liabilities on Warrants, non-employee options, and debt                                             |   |         |         |   |     |   | (19,314      | )           |   |   |           |    |   |          |       |   |   |   | (19,314 | )  |
| Net Loss September 30, 2010                                                                                    |   |         |         |   |     |   |         |        |   |   |           |    |   |          | (1,037,969 | ) |   |   | (1,037,969 | ) |
| Balance, September 30, 2010                                                                                    |   |         | 92,436,886   |   |     | $      | 7,124,527    |        |   | $      | (1,233         | )       |   | $             | (9,474,129 | ) |   | $ | (2,350,835 | ) |

----

Table of Contents 

|                                                                                                | For the Nine Months |   |       | January 3, 1990 |   |
|-----------------------------------------------------------------------------------------------------|---------------------|--------|------------|-----------------|--------|
|                                                                                                | Ended September 30, |   |       | (inception) to  |   |
|                                                                                                | 2010                |   |       | 2009            |   |   | September 30, 2010 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                |                |   |       |            |   |   |   |   |   |
|   Net loss                                                                                |                | $      | (1,037,969 | )               |   | $ | (633,017 | ) |   | $ | (9,474,129 | ) |
| Adjustments to reconcile net earnings to net                                                        |                |   |       |            |   |   |   |   |   |   | - |   |
|     Cash used in operating activities                                           |                |   |       |            |   |   |   |   |   |   | - |   |
|     Stock-based compensation                                                    |                |   | 667,300    |            |   |   | 244,900 |   |   |   | 9,968,076 |   |
|     Depreciation and amortization                                               |                |   | 11,448     |            |   |   | 29,367 |   |   |   | 346,994 |   |
|     Unrealized loss on derivative liabilities - warrant instruments             |                |   | (1,046,806 | )               |   |   | - |   |   |   | (1,046,806 | ) |
|     Unrealized loss on derivative liabilities - options                         |                |   | (8,342     | )               |   |   | - |   |   |   | (8,342 | ) |
|     Unrealized loss on derivative liabilities - debt conversion feature         |                |   | (153,608   | )               |   |   | - |   |   |   | (153,608 | ) |
|     Amortization of debt discount                                               |                |   | 23,333     |            |   |   | - |   |   |   | 23,333 |   |
|     Amortization of deferred financing cost                                     |                |   | 833        |            |   |   | - |   |   |   | 833 |   |
|     Write off of license fee                                                    |                |   | -          |            |   |   | - |   |   |   | 1,250 |   |
|     Gain/loss on sale of assets                                                 |                |   | (2,068     | )               |   |   | - |   |   |   | (1,710 | ) |
|     Foreign currency translation adjustments                                    |                |   | -          |            |   |   | - |   |   |   | 3,247 |   |
|     Gain on extinguishment of debt                                              |                |   | -          |            |   |   | - |   |   |   | (1,283,964 | ) |
|     Interest expense incurred on issuance of convertible debt                   |                |   | 643,886    |            |   |   | - |   |   |   | 643,886 |   |
| Changes in operating assets and liabilities                                                         |                |   |       |            |   |   |   |   |   |   |   |   |
|     Accounts receivable                                                         |                |   | -          |            |   |   | 207,841 |   |   |   | 174,222 |   |
|     Other assets                                                                |                |   | (478       | )               |   |   | 4,786 |   |   |   | 14,321 |   |
|     Advances on research grants                                                 |                |   | (25,415    | )               |   |   | 141,994 |   |   |   | - |   |
|     Accounts payable and accrued liabilities                                    |                |   | (221,898   | )               |   |   | 82,321 |   |   |   | 828,110 |   |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
|         Net cash provided by (used in) operating activities |                |   | (1,149,784 | )               |   |   | 78,192 |   |   |   | (6,024,287 | ) |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
|      Proceeds from sale of equipment                                       |                |   | 2,068      |            |   |   | - |   |   |   | 3,207 |   |
|      Purchase of equipment                                                 |                |   | -          |            |   |   | - |   |   |   | (25,571 | ) |
|      Organizational costs                                                  |                |   | -          |            |   |   | - |   |   |   | (560 | ) |
|      Purchases of patents, trademarks and licenses                         |                |   | (34,388    | )               |   |   | (31,837 | ) |   |   | (480,526 | ) |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
|         Net cash used in investing activities               |                |   | (32,320    | )               |   |   | (31,837 | ) |   |   | (503,450 | ) |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
|     Issuance of common stock for cash, net of offering costs                    |                |   | 1,095,253  |            |   |   | - |   |   |   | 4,098,136 |   |
|     Proceeds from stockholders' advances                                        |                |   | 10,125     |            |   |   | 10,125 |   |   |   | 185,857 |   |
|     Repayment of line of credit from affiliated entity                          |                |   | -          |            |   |   | - |   |   |   | (341,107 | ) |
|     Proceeds/repayments of short-term debt, net                                 |                |   | 1,777      |            |   |   | 1,184 |   |   |   | (105,546 | ) |
|     Proceeds/repayments of convertible short-term debt, net                     |                |   | 480,000    |            |   |   |   |   |   |   | 480,000 |   |
|     Proceeds from line of credit from affiliated company                        |                |   | -          |            |   |   | - |   |   |   | 2,680,882 |   |
|     Proceeds/repayments of long-term debt, net                                  |                |   | (45,168    | )               |   |   | (19,897 | ) |   |   | (76,944 | ) |
|     Acquisition of treasury stock                                               |                |   | -          |            |   |   | (4,617 | ) |   |   | (13,617 | ) |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
|         Net cash provided by (used in) financing activities |                |   | 1,541,987  |            |   |   | (13,205 | ) |   |   | 6,907,661 |   |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
| NET INCREASE IN CASH                                                                                |                |   | 359,883    |            |   |   | 33,150 |   |   |   | 379,924 |   |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
| Cash at beginning of period                                                                         |                |   | 20,041     |            |   |   | 36,854 |   |   |   | - |   |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
| Cash at end of period                                                                               |                | $      | 379,924    |            |   | $ | 70,004 |   |   | $ | 379,924 |   |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
| Supplemental cash flow information:                                                                 |                |   |       |            |   |   |   |   |   |   |   |   |
|     Interest expense paid in cash                                               |                | $      | -          |            |   | $ | - |   |   | $ | - |   |
|     Income taxes paid in cash                                                   |                | $      | -          |            |   | $ | - |   |   | $ | - |   |
|                                                                                                |                |   |       |            |   |   |   |   |   |   |   |   |
| Non-cash investing and financing activities:                                                        |                |   |       |            |   |   |   |   |   |   |   |   |
|     Accrued salaries converted to notes payable                                 |                | $      |       |            |   | $ | - |   |   | $ | 479,484 |   |
|     Derivative liability incurred through issuance of warrants                  |                | $      | 3,370,622  |            |   | $ | - |   |   | $ | 3,863,140 |   |
|     Settlement of derivative liabilities                                        |                | $      | 1,057,699  |            |   | $ | - |   |   | $ | 1,057,699 |   |
|     Interest converted to note payable                                          |                | $      | -          |            |   | $ | - |   |   | $ | 159,462 |   |
|     Common stock issued to extinguish related party debt                        |                | $      | 50,000     |            |   | $ | - |   |   | $ | 1,468,768 |   |
|     Discount on note payable related to deferred financing costs                |                | $      | 60,000     |            |   | $ | - |   |   | $ | 60,000 |   |
|     Discount on note payable related to derivative conversion feature           |                | $      | 500,000    |            |   | $ | - |   |   | $ | 500,000 |   |

----

Table of Contents 

----

Table of Contents 

----

Table of Contents 

| Principal amount                                                            |   | $      | 560,000  |   |
|-----------------------------------------------------------------------------|--------|--------|----------|--------|
| Less:  original issue discount                                    |   |   | (60,000  | )      |
| Less:  discount for conversion feature and fair value of warrants |   |   | (500,000 | )      |
| Carrying amount at September 15, 2010                                       |   | $      | -        |   |

----

Table of Contents 

----

Table of Contents 

|                              | Number of Shares          |   | Weighted Average Exercise Price |                               |
|-----------------------------------|---------------------------|--------|---------------------------------|------------------------------------|
| Outstanding at December 31, 2009  | 1,138,768                 |   | $                               |      0.36 |   |
| Issued                            | -                         |   |                            |   -                           |   |
| Exercised                         | -                         |   |                            |   -                           |   |
| Cancelled/expired                 | 1,030,000                 |   | $                               |      0.15 |   |
| Outstanding at September 30, 2010 |    108,768 |   | $                               |      2.34 |   |

----

Table of Contents 

|                              |   | Number of Shares |       |   | Weighted Average Exercise Price |   |
|-----------------------------------|--------|------------------|------------|--------|-------------------------------------------|--------|
| Outstanding at December 31, 2009  |   |             | -          |   |                                      | $      | - |   |
| Issued                            |   |             | 20,500,003 |   |                                      |   | 0.24 |   |
| Exercised                         |   |             | 2,062,296  |   |                                      |   | 0.11 |   |
| Cancelled/expired                 |   |             | 8,937,705  |   |                                      |   | 0.10 |   |
| Outstanding at September 30, 2010 |   |             | 9,500,002  |   |                                      |   | 0.24 |   |

----

Table of Contents 

| Common stock issuable upon exercise of warrants            |   |   | 6,875,000 |   |
|------------------------------------------------------------|--------|--------|-----------|--------|
| Estimated market value of common stock on measurement date |   | $      | 0.17      |   |
| Exercise price                                             |   | $      | 0.25      |   |
| Risk-free interest rate (1)                      |   |   | 3.00      | %      |
| Warrant lives in years                                     |   |   | 5.0       |   |
| Expected volatility (2 )                         |   |   | 194.57    | %      |
| Expected dividend yield (3)                      |   |   | None      |   |
| Probability of reset to conversion price (4)               |   |   | 12.5      | %      |

| (1) | The risk-free interest rate was determined by reference to the yield of U.S. Treasury securities with a term of five years.                                |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The volatility factor is based upon the historical volatility of the Company’s common stock.                                                         |
| (3) | Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.                              |
| (4) | This represents management’s estimate of the probability that the Company will issue stock at a price lower than the warrants’ exercise price. |

----

Table of Contents 

|                                                       |   | Assumptions at September 15, 2010 |      |   | Assumptions at September 30, 2010 |   |
|------------------------------------------------------------|--------|-----------------------------------|-----------|--------|-----------------------------------|--------|
| Common stock issuable upon exercise of warrants            |   |                              | 2,000,000 |   |                              |   | 2,000,000 |   |
| Estimated market value of common stock on measurement date |   | $                                 | 0.17      |   |                              | $      | 0.20 |   |
| Exercise price                                             |   | $                                 | 0.25      |   |                              | $      | 0.25 |   |
| Risk-free interest rate (1)                      |   |                              | 3.00      | %      |                              |   | 3.00 | % |
| Warrant lives in years                                     |   |                              | 1.0       |   |                              |   | 1.0 |   |
| Expected volatility (2 )                         |   |                              | 195.11    | %      |                              |   | 194.57 | % |
| Expected dividend yield (3)                      |   | None                              |      |   | None                              |   |
| Probability of reset to conversion price (4)               |   |                              | 12.5      | %      |                              |   | 12.5 | % |

| (1) | The risk-free interest rate was determined by reference to the yield of U.S. Treasury securities with a term of one year.                                  |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The volatility factor is based upon the historical volatility of the Company’s common stock.                                                         |
| (3) | Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.                              |
| (4) | This represents management’s estimate of the probability that the Company will issue stock at a price lower than the warrants’ exercise price. |

----

Table of Contents 

----

Table of Contents 

|                                                                               |   | Balance atDecember 31, 2009 |    |   | Initial Valuation of Derivative Liabilities during the Period |    |      | Increase (Decrease) in Fair Value of Derivative Liability |   |    | Decrease Credited to Stockholders’ Equity Upon Increase in Authorized Shares |    |   | Balance atSeptember 30, 2010 |       |
|------------------------------------------------------------------------------------|--------|----------------------------------|---------|--------|---------------------------------------------------------------|---------|-----------|--------------------------------------------------------------------------|--------|---------|------------------------------------------------------------------------------------|---------|--------|------------------------------|------------|
| Derivative warrant instruments – Series I                                    |   | $                           | — |   |                                                          | $  | 1,780,583 |                                                                     |   | $  | (462,896                                                                           | )       |   | $                       | —    |   |   | $  | 1,317,687 |   |
| Derivative warrant instruments –5-year Warrants  issued with Notes |   |                             | — |   |                                                          |    | 492,518   |                                                                     |   |    | (76,138                                                                            | )       |   |                         | —    |   |   |   | 416,380 |   |
| Derivative instrument – convertible debt                                     |   |                             | — |   |                                                          |    | 651,368   |                                                                     |   |    | (153,608                                                                           |  ) |   |                         | —    |   |   |   | 497,760 |   |
| Derivative warrant instruments – all others                                  |   |                             | — |   |                                                          |    | 1,549,690 |                                                                     |   |    | (507,772                                                                           | )       |   |                         | (1,041,918 | ) |   |   | - |   |
| Derivative option instruments                                                      |   |                             | — |   |                                                          |    | 40,349    |                                                                     |   |    | (8,342                                                                             | )       |   |                         | (15,781    | ) |   |   | 16,226 |   |
| Total                                                                              |   | $                                | — |   |                                                          | $       | 4,514,508 |                                                                     |   | $       | (1,208,756                                                                         | )       |   | $                            | (1,057,699 | ) |   | $ | 2,248,053 |   |

|                                                        |   | Balance atMarch 31, 2009 |      |   | Initial Valuation of Derivative Liabilities during the period |    |      | Increase(Decrease)  inFair Value ofDerivativeLiability |   |    | Decrease Credited to Stockholders Equity Upon Increase in Authorized Shares |    |   | Balance atSeptember 30, 2010 |    |
|-------------------------------------------------------------|--------|-------------------------------|-----------|--------|---------------------------------------------------------------|---------|-----------|-----------------------------------------------------------------------|--------|---------|-----------------------------------------------------------------------------|---------|--------|------------------------------|---------|
| Derivative warrant instruments – Series I             |   | $                        | 1,834,834 |   |                                                          | $  | --        |                                                                  |   | $  | 17,147                                                                      |    |   | $                       | — |   |   | $ | 1,317,687 |   |
| Derivative warrant instruments-issued with convertible debt |   |                          | --        |   |                                                          |    | 492,518   |                                                                  |   |    | (76,138                                                                     | )  |   |                         | --      |   |   |   | 416,380 |   |
| Derivative instruments-convertible debt                     |   |                          | --        |   |                                                          |    | 651,368   |                                                                  |   |    | (153,608                                                                    |  ) |   |                         | --      |   |   |   | 497,760 |   |
| Derivative warrant instruments – all others           |   |                          | --        |   |                                                          |    | --        |                                                                  |   |    | --                                                                          |    |   |                         | --      |   |   |   | - |   |
| Derivative option instruments                               |   |                          | --        |   |                                                          |    | 19,315    |                                                                  |   |    | (3,089                                                                      | )       |   |                         | --      |   |   |   | 16,226 |   |
|   Total                                                |   | $                             | 1,834,834 |   |                                                          | $       | 1,163,201 |                                                                  |   | $       | (749,982                                                                    | )       |   | $                            | --      |   |   | $ | 2,248,053 |   |

----

Table of Contents 

|                                                    |   | September 15, 2010 |   |   | September 30, 2010 |   |   | May 29, 2010 |   |   | March 31, 2010 |   |   | March 17, 2010 |          |
|---------------------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|--------|--------------|--------|--------|----------------|--------|--------|----------------|---------------|
|                                                    |   |               |   |   |               |   |   |         |   |   |           |   |   |           |          |
| Market value of stock on grant date or measurement date |   |               | 0.20   |   |               |   | 0.17   |         |   | $      | 0.17           |   |   | $              | 0.29          | (1) |   | $ | 0.22 |   |
| Risk-free interest rate (1)                             |   |               | 3.00   | %      |               |   | 3.00   | %            |   |   | 3.00           | %      |   |           | 3.00          | % |   |   | 3.00 | % |
| Dividend yield                                          |   |               | 0      | %      |               |   | 0      | %            |   |   | 0.00           | %      |   |           | 0.00          | % |   |   | 0.00 | % |
| Volatility factor                                       |   |               | 195.11 | %      |               |   | 194.57 | %            |   |   | 124.07-201.62  | %      |   |           | 115.89-201.62 | % |   |   | 115.89-201.62 | % |
| Weighted average expected life (2)                      |   | 5.0 yrs            |   |   | 4.96 yrs           |   |   | 4.0 years    |   |   | 4.22 yrs       |   |   | 4.22 yrs       |          |
| Expected forfeiture rate                                |   |               | 0      | %      |               |   | 0      | %            |   |   | 0              | %      |   |           | 0             | % |   |   | 0 | % |

| (1) | The risk-free interest rate was determined by management using the U.S. Treasury zero-coupon yield over the contractual term of the warrant on date of grant. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Due to a lack of stock option exercise history, the Company uses the simplified method under SAB 107 to estimate expected term. |
|-----|---------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents 

| Level 1: |         | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.                                                                                                                                                                                          |
|----------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Level 2: |         | Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace. |
|     |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Level 3: |    | Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). The Company’s valuation models are primarily industry standard models.  Level 3 instruments include derivative warrant instruments.  The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.           |

----

Table of Contents 

|                                          |   | Fair Value Measurements at September 30, 2010            |   |
|-----------------------------------------------|--------|------------------------------------------------------------------------------|--------|
| Description                                   |   | Quoted Prices In Active Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Total Carrying Value as ofSeptember 30, 2010 |   |
| Derivative warrant instruments                |   | $                                                                            | --     |   |   | $ | -- |   |   | $ | 1,734,067 |   |   | $ | 1,734,067 |   |
| Derivative option instruments                 |   |                                                                         |   |   |   |   |   |   |   | $ | 16,226 |   |   |   | 16,226 |   |
| Derivative conversion Note  feature |   |                                                                         |   |   |   |   |   |   |   | $ | 497,760 |   |   | $ | 497,760 |   |
| Total                                         |   | $                                                                            | --     |   |   | $ | -- |   |   | $ | 2,248,053 |   |   | $ | 2,248,053 |   |

|                                                                                                                                     |   | Significant Unobservable Inputs(Level 3)Three Months EndedSeptember 30, |                            |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|---------------------------------|
|                                                                                                                                     |   | 2010                                                                              |                            |   | 2009 |   |
| Beginning balance                                                                                                                        |   | $                                                                                 | (1,834,834                      | ) |   | $ |            - |   |
| Total gains (losses)                                                                                                                     |   |                                                                              |     749,982 |   |   |   |            - |   |
| Settlements                                                                                                                              |   |                                                                              | -                               |   |   |   |            - |   |
| Additions                                                                                                                                |   |                                                                              | (1,163,201                      | )  |   |   |            - |   |
| Transfers                                                                                                                                |   |                                                                              | -                               |   |   |   |            - |   |
| Ending balance                                                                                                                           |   | $                                                                                 | (2,248,053                      | ) |   | $ |            - |   |
|                                                                                                                                     |   |                                                                              |                            |   |   |   |   |   |
| Change in unrealized gains (losses) included in earnings  relating to derivatives still held as of September 30, 2010 and 2009 |   | $                                                                                 |     749,982 |   |   | $ |           - |   |

----

Table of Contents 

|                                                                                                                               |   | Significant Unobservable Inputs (Level 3)Nine Months EndedSeptember 30, |            |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|-----------------|
|                                                                                                                               |   | 2010                                                                              |            |   | 2009 |   |
| Beginning balance                                                                                                                  |   | $                                                                                 | -               |   |   | $ | - |   |
| Total gains (losses)                                                                                                               |   |                                                                              |  1,208,756 |   |   |   | - |   |
| Settlements                                                                                                                        |   |                                                                              |  1,507,699 |   |   |   | - |   |
| Additions                                                                                                                          |   |                                                                              | (4,964,508      | ) |   |   | - |   |
| Transfers                                                                                                                          |   |                                                                              | -               |   |   |   | - |   |
| Ending balance                                                                                                                     |   | $                                                                                 | (2,248,053      | ) |   | $ | - |   |
|                                                                                                                               |   |                                                                              |            |   |   |   |   |   |
| Change in unrealized gains (losses) included in earnings relating to derivatives still held as of September 30, 2010 and 2009 |   | $                                                                                 | 1,208,750       |   |   | $ | - |   |

----

Table of Contents 

----

Table of Contents 

----

Table of Contents 

----

Table of Contents 

----

Table of Contents 

----

Table of Contents 

----

Table of Contents 

| 1.   | Completion of the pilot study.   |
|----------------|--------------------------------------------|
| 2.   | Design of the pivotal study.               |

| 3.   | Investigation of CyPath’s suitability as a diagnostic for additional cancers. |
|----------------|-------------------------------------------------------------------------------------|

| 4.   | Development of strategies to enter the European market, including filing for approval of a CE mark.   |
|-----------|-----------------------------------------------------------------------------------------------------------------|

----

Table of Contents 

| • | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents 

| 1.   | All expenses are properly accrued and reported in the proper period; |
|----------------|----------------------------------------------------------------------|

| 2.   | Deferred charges are properly amortized to expense in the proper accounting period; and |
|----------------|-----------------------------------------------------------------------------------------|

| 3.   | All required GAAP and SEC disclosures are made in its annual filings. |
|----------------|-----------------------------------------------------------------------|

----

Table of Contents 

31  CERTIFICATION OF CEO PURSUANT TO 15 U.S.C. SECTION 10A, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

32  CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

----

Table of Contents 

|                    | BIOMODA, INC. |                                                                                                                                                                                                                                                                                                                                                           |
|-------------------------|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |          |                                                                                                                                                                                                                                                                                                                                                           |   |
| Date: November 17, 2010 | By:           | /s/ John J. Cousins                                                         |   |
|                    |          | John J. Cousins                                                                                                                                                                                                                                                                                                                                                |   |
|                    |          | President                                                                                                                                                                                                                                                                                                                                                      |   |
|                    |          | (Principal Executive and Accounting Officer)                                                                                                                                                                                                                                                                                                                   |   |

----

Table of Contents