| [ X ] | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2008 |
|-------|---------------------------------------------------------------------------------------------------------------------------------|

| [     ] | Transition report under Section 13 or 15(d) of the Exchange Act for the transition period from __________ to __________. |
|-----------------------------|--------------------------------------------------------------------------------------------------------------------------|

| NEVADA                                                        |   | 95-4756822                          |
|---------------------------------------------------------------|--------|-------------------------------------|
| (State or other jurisdiction ofincorporation or organization) |   | (I.R.S. EmployerIdentification No.) |

| Large Accelerated Filer  [     ] | Accelerated Filer  [     ] | Non-Accelerated Filer  [     ] | Smaller Reporting Company  [ X ] |
|-----------------------------------------------------------|-----------------------------------------------------|---------------------------------------------------------|---------------------------------------|

----

| ITEM 1.                     | FINANCIAL STATEMENTS                                                                                                         | 3      |
|-----------------------------|------------------------------------------------------------------------------------------------------------------------------|--------|
|                        |                                                                                                                         |   |
|                        | Consolidated Unaudited Balance Sheets as of March 31, 2008 and March 31, 2007                                                | 3      |
|                        |                                                                                                                         |   |
|                        | Consolidated Unaudited Statements of Operations for the nine months and three months ended March 31, 2008 and March 31, 2007 | 4      |
|                        |                                                                                                                         |   |
|                        | Consolidated Unaudited Statements of Cash Flows for the nine months and three months ended March 31, 2008 and March 31, 2007 | 5      |
|                        |                                                                                                                         |   |
|                        | Notes to Consolidated Financial Statements                                                                                   | 6      |
|                        |                                                                                                                         |   |
| ITEM 2.                     | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                        | 10     |
|                        |                                                                                                                         |   |
| ITEM 3.                     | CONTROLS AND PROCEDURES                                                                                                      | 13     |
|                        |                                                                                                                         |   |
| PART II - OTHER INFORMATION |
| ITEM 1                      | LEGAL PROCEEDINGS                                                                                                            | 13     |
|                        |                                                                                                                         |   |
| ITEM 2.                     | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                  | 13     |
|                        |                                                                                                                         |   |
| ITEM 5.                     | OTHER EVENTS                                                                                                                 | 14     |
|                        |                                                                                                                         |   |
| ITEM 6.                     | EXHIBITS                                                                                                                     | 14     |
|                        |                                                                                                                         |
| SIGNATURES                  | 15                                                                                                                           |

----

|                                                             |   |  March 31, |        |   |  June 30, |   |
|------------------------------------------------------------------|--------|-----------------|-------------|--------|----------------|--------|
|                                                             |   | 2008            |        |   | 2007           |   |
| Assets                                                           |   |            |        |   |           |   |
|                                                             |   |            |        |   |           |   |
| Current assets:                                                  |   |            |        |   |           |   |
| Cash                                                             |   | $               | 1,405       |   |           | $      | 91,299 |   |
| Prepaid expenses                                                 |   |            | -           |   |           |   | 131,380 |   |
| Other current assets                                             |   |            | -           |   |           |   | 5,793 |   |
| Net current assets of discontinued operations                    |   |            | 439,637     |   |           |   | 308,479 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Total current assets                                             |   |            | 441,042     |   |           |   | 536,951 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Equipment, net                                                   |   |            | 521,388     |   |           |   | 600,232 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Equipment of discontiued operations, net                         |   |            | 7,930,886   |   |           |   | 8,433,989 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Deposits & other assets                                      |   |            | 3,000       |   |           |   | 36,649 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Net other assets of discontinued operations                      |   |            | 351,997     |   |           |   | 349,246 |   |
|                                                             |   |            |        |   |           |   |   |   |
|                                                             |   | $               | 9,248,313   |   |           | $      | 9,957,067 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Liabilities and Net Capital Deficiency                           |   |            |        |   |           |   |   |   |
|                                                             |   |            |        |   |           |   |   |   |
| Current liabilities:                                             |   |            |        |   |           |   |   |   |
| Accounts payable                                                 |   | $               | 580,935     |   |           | $      | 724,044 |   |
| Accrued liabilites                                               |   |            | 1,274,526   |   |           |   | 1,131,322 |   |
| Other current liabilites                                         |   |            | 283,390     |   |           |   | 269,100 |   |
| Net current liabilities of discontiued operations                |   |            | 7,621,926   |   |           |   | 5,313,243 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Total current liabilties                                         |   |            | 9,760,777   |   |           |   | 7,437,709 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Long-term obligations                                            |   |            | 3,934,617   |   |           |   | 3,547,138 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Accrued interest                                                 |   |            | 558,204     |   |           |   | 176,404 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Long-term obligations of discontinued operations                 |   |            | -           |   |           |   | 64,870 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Minority interest                                                |   |            | 776,096     |   |           |   | 1,276,003 |   |
|                                                             |   |            |        |   |           |   |   |   |
| Net capital deficiency:                                          |   |            |        |   |           |   |   |   |
| Preferred stock; no par value; authorized 200,000 shares:        |   |            |        |   |           |   |   |   |
| Series A - 100,000 shares designated, issued & outstanding   |   |            | 100         |   |           |   | 100 |   |
| Series B - 100,000 shares designated, issued & outstanding   |   |            | 100         |   |           |   | 100 |   |
| Common stock; $.001 par value; authorized 500,000,000            |   |            |        |   |           |   |   |   |
|   shares; issued and outstanding 297,050,580 shares at |   |            |        |   |           |   |   |   |
|   March 31, 2008 (270,534,750 shares at June 30, 2007) |   |            | 297,051     |   |           |   | 270,535 |   |
| Convertible promissory note & accrued interest               |   |            | 124,296     |   |           |   | 118,279 |   |
| Additional paid in capital                                       |   |            | 38,697,901  |   |           |   | 38,705,209 |   |
| Retained deficit                                                 |   |            | (30,423,933 | )      |           |   | (30,423,933 | ) |
| Deficit accumulated during the development stage                 |   |            | (14,476,896 | )      |           |   | (11,215,347 | ) |
|                                                             |   |            |        |   |           |   |   |   |
| Net capital deficiency                                           |   |            | (5,781,381  | )      |           |   | (2,545,057 | ) |
|                                                             |   |            |        |   |           |   |   |   |
|                                                             |   | $               | 9,248,313   |   |           | $      | 9,957,067 |   |

----

|                                              |   | Nine months ended |       |   | Three months ended |   |       | Cumulativeactivity duringdevelopmentstageApril 1, 2006 |   |
|---------------------------------------------------|--------|-------------------|------------|--------|--------------------|--------|------------|--------------------------------------------------------|--------|
|                                              |   | March 31,         |       |   | March 31,          |   |       | through                                                |   |
|                                              |   | 2008              |       |   | 2007               |   |       | 2008                                                   |   |   | 2007 |   |   | March 31, 2008 |   |
| Operating expenses:                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |
| General & administrative                      |   | $                 | 1,024,831  |   |               | $      | 2,072,653  |                                                   |   | $ | 47,962 |   |   | $ | 723,960 |   |   | $ | 6,882,982 |   |
| Research & development                        |   |              | 276,171    |   |               |   | 203,412    |                                                   |   |   | 87,902 |   |   |   | 48,563 |   |   |   | 1,336,153 |   |
| Write-down of rotary engine                       |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   patterns, demonstration               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   engines not held for sale, &      |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   intellectual assets                   |   |              | -          |   |               |   | -          |                                                   |   |   | - |   |   |   | - |   |   |   | 7,717,000 |   |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                          |   |              | 1,301,002  |   |               |   | 2,276,065  |                                                   |   |   | 135,864 |   |   |   | (772,523 | ) |   |   | 15,936,135 |   |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss from operations                          |   |              | (1,301,002 | )      |               |   | (2,276,065 | )                                                      |   |   | (135,864 | ) |   |   | (772,523 | ) |   |   | (14,816,009 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expenses):                          |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Change in fair value of                           |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   derivative liabilities                |   |              | (2,289     | )      |               |   | 4,217      |                                                   |   |   | - |   |   |   | - |   |   |   | (6,229 | ) |
| Other income                                      |   |              | -          |   |               |   | 82,326     |                                                   |   |   | - |   |   |   | 2,326 |   |   |   | - |   |
| Interest expense, net                             |   |              | (263,937   | )      |               |   | (388,160   | )                                                      |   |   | (90,578 | ) |   |   | (141,027 | ) |   |   | (937,079 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total other income (expenses)                     |   |              | (266,226   | )      |               |   | (301,617   | )                                                      |   |   | (90,578 | ) |   |   | (138,701 | ) |   |   | (943,308 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss for continuing operations                |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   before minority interest in loss of   |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   subsidiary & provision for income |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   taxes                                 |   |              | (1,567,228 | )      |               |   | (2,577,682 | )                                                      |   |   | (226,442 | ) |   |   | (911,224 | ) |   |   | (15,759,317 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority interest in net loss of                  |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   subsidiary                            |   |              | -          |   |               |   | -          |                                                   |   |   | (67,740 | ) |   |   | - |   |   |   | 4,180,959 |   |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes -                      |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   State of California                   |   |              | (800       | )      |               |   | (3,141     | )                                                      |   |   | - |   |   |   | - |   |   |   | (800 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss from continuing operations               |   |              | (1,568,028 | )      |               |   | (2,580,823 | )                                                      |   |   | (294,182 | ) |   |   | (911,224 | ) |   |   | (11,579,158 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations - net loss                |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|   from discontinued operations          |   |              | (1,693,521 | )      |               |   | (1,617,006 | )                                                      |   |   | (764,830 | ) |   |   | (439,702 | ) |   |   | (2,897,738 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                          |   | $                 | (3,261,549 | )      |               | $      | (4,197,829 | )                                                      |   | $ | (1,059,012 | ) |   | $ | (1,350,926 | ) |   | $ | (14,476,896 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per common share:                        |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                             |   | $                 | (0.006     | )      |               | $      | (0.065     | )                                                      |   | $ | (0.001 | ) |   | $ | (0.018 | ) |   | $ | (0.080 | ) |
| Discontinued operations                           |   |              | (0.006     | )      |               |   | (0.040     | )                                                      |   |   | (0.003 | ) |   |   | (0.008 | ) |   |   | (0.020 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per common share                         |   | $                 | (0.012     | )      |               | $      | (0.105     | )                                                      |   | $ | (0.004 | ) |   | $ | (0.026 | ) |   | $ | (0.100 | ) |
|                                              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                               |   | Nine months ended |       |   | Three months ended |   |       | Cumulativeactivity duringdevelopmentstageApril 1, 2006 |   |
|----------------------------------------------------|--------|-------------------|------------|--------|--------------------|--------|------------|--------------------------------------------------------|--------|
|                                               |   | March 31,         |       |   | March 31,          |   |       | through                                                |   |
|                                               |   | 2008              |       |   | 2007               |   |       | 2008                                                   |   |   | 2007 |   |   | March 31, 2008 |   |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |
| Cash flows from operating activities:              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |
| Net loss                                           |   | $                 | (3,261,549 | )      |               | $      | (4,197,829 | )                                                      |   | $ | (1,059,012 | ) |   | $ | (1,350,926 | ) |   | $ | (14,476,896 | ) |
| Net loss from                                      |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| discontinued operations                            |   |              | 1,693,521  |   |               |   | 1,617,006  |                                                   |   |   | 764,830 |   |   |   | 439,702 |   |   |   | 2,897,738 |   |
| Adjustments to reconcile net loss to net cash |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| used in continuing operating activities:           |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority interest in                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| net loss ofsubsidiary                              |   |              | (499,907   | )      |               |   | -          |                                                   |   |   | (438,650 | ) |   |   | 17,854 |   |   |   | 776,096 |   |
| Impairment of long-lived assets                    |   |              | -          |   |               |   | -          |                                                   |   |   | - |   |   |   |   |   |   |   | 7,717,000 |   |
| Depreciation                                       |   |              | 78,844     |   |               |   | 113,742    |                                                   |   |   | 37,499 |   |   |   | 24,988 |   |   |   | 263,815 |   |
| Shares issued in exchange for services             |   |              | -          |   |               |   | 135,616    |                                                   |   |   | - |   |   |   | - |   |   |   | 135,616 |   |
| Change in fair value of derivative liabilities     |   |              | 2,289      |   |               |   | (4,217     | )                                                      |   |   | - |   |   |   | - |   |   |   | 6,229 |   |
| Changes in assets and liabilities, net             |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| of acquisition:                                    |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Prepaid expenses                                   |   |              | 165,029    |   |               |   | 67,108     |                                                   |   |   | 26,750 |   |   |   | 40,198 |   |   |   | 297,970 |   |
| Checks outstanding in excess of deposits           |   |              | -          |   |               |   | 27,031     |                                                   |   |   |   |   |   |   | 27,031 |   |   |   | - |   |
| Accounts payable                                   |   |              | (143,108   | )      |               |   | 82,395     |                                                   |   |   | (4,895 | ) |   |   | 142,540 |   |   |   | 270,973 |   |
| Accrued liabilities                                |   |              | 143,204    |   |               |   | 186,506    |                                                   |   |   | 36,350 |   |   |   | 6,351 |   |   |   | 743,130 |   |
| Accrued interest                                   |   |              | 394,504    |   |               |   | 308,766    |                                                   |   |   | 48,594 |   |   |   | 140,363 |   |   |   | 577,360 |   |
| Other                                              |   |              | 17,793     |   |               |   | 181,483    |                                                   |   |   | 42,795 |   |   |   | 9,145 |   |   |   | (114,462 | ) |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |              | (1,409,380 | )      |               |   | (1,482,393 | )                                                      |   |   | (545,739 | ) |   |   | (502,754 | ) |   |   | (905,431 | ) |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used in)                     |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| discontinued operating activities                  |   |              | 922,237    |   |               |   | (329,669   | )                                                      |   |   | 443,373 |   |   |   | (11,923 | ) |   |   | (1,758,064 | ) |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash flows from investing                      |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| activities-                                        |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash flows from discontinued investing         |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| activities                                         |   |              | (2,751     | )      |               |   | -          |                                                   |   |   | 63,712 |   |   |   | - |   |   |   | (473,419 | ) |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |              | (2,751     | )      |               |   | -          |                                                   |   |   | 63,712 |   |   |   | - |   |   |   | (473,419 | ) |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:              |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowings from long-term obligations              |   |              | 400,000    |   |               |   | 1,475,000  |                                                   |   |   | - |   |   |   | 425,000 |   |   |   | 2,460,000 |   |
| Principal repayments on long-term obligations      |   |              | -          |   |               |   | (45,000    | )                                                      |   |   | - |   |   |   | (32,500 | ) |   |   | (45,000 | ) |
| Proceeds from sale of common stock                 |   |              | -          |   |               |   | 340,000    |                                                   |   |   | - |   |   |   | 80,000 |   |   |   | 340,000 |   |
| Net cash flows from discontinued                   |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| financing activities                               |   |              | -          |   |               |   | -          |                                                   |   |   | - |   |   |   | - |   |   |   | (43,756 | ) |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |              | 400,000    |   |               |   | 1,770,000  |                                                   |   |   | - |   |   |   | 472,500 |   |   |   | 2,711,244 |   |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net decrease in cash                               |   |              | (89,894    | )      |               |   | (42,062    | )                                                      |   |   | (38,654 | ) |   |   | (42,177 | ) |   |   | (425,670 | ) |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash at beginning of period                        |   |              | 91,299     |   |               |   | 42,062     |                                                   |   |   | 40,059 |   |   |   | 42,177 |   |   |   | 427,075 |   |
|                                               |   |              |       |   |               |   |       |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash at end of period                              |   | $                 | 1,405      |   |               | $      | -          |                                                   |   | $ | 1,405 |   |   | $ | - |   |   | $ | 1,405 |   |

----

| 1. | Summary of significant accounting policies |
|----|--------------------------------------------|

----

| 2. | Operations |
|----|------------|

----

| 2. | Operations (continued) |
|----|------------------------|

| 3.  | Contingencies and litigation |
|----------|------------------------------|

| 4.  | Preferred stock |
|----------|-----------------|

----

| 4.  | Preferred stock (continued) |
|----------|-----------------------------|

| 5.  | Common stock |
|----------|--------------|

----

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

----

|                                            |   | Three months ended March 31: |   |
|-------------------------------------------------|--------|------------------------------|--------|
|                                            |   | 2008                         |   |   | 2007 |   |   | Decrease |   |   | % |   |
|                                            |   |                         |   |   |   |   |   |   |   |   |   |   |
| General & administrative operating expenses |   | $                            | 47,962 |   |   | $ | 723,960 |   |   | $ | (675,998 | ) |   |   | (0.934 | ) |

|                                            |   | Nine months ended March 31: |      |
|-------------------------------------------------|--------|-----------------------------|-----------|
|                                            |   |                        | 2008      |   |   |   | 2007 |   |   | Decrease |   |   | % |   |
|                                            |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| General & administrative operating expenses |   | $                           | 1,024,831 |   |   | $ | 2,072,653 |   |   | $ | (1,047,822 | ) |   |   | (0.506 | ) |

|                              |   | Three months ended March 31: |   |
|-----------------------------------|--------|------------------------------|--------|
|                              |   | 2008                         |   |   | 2007 |   |   | Increase |   |   | % |   |
|                              |   |                         |   |   |   |   |   |   |   |   |   |   |
| Research and development expenses |   | $                            | 87,902 |   |   | $ | 48,563 |   |   | $ | 39,339 |   |   |   | 0.810 |   |

|                              |   | Nine months ended March 31: |    |
|-----------------------------------|--------|-----------------------------|---------|
|                              |   | 2008                        |    |   | 2007 |   |   | Increase |   |   | % |   |
|                              |   |                        |    |   |   |   |   |   |   |   |   |   |
| Research and development expenses |   | $                           | 276,171 |   |   | $ | 203,412 |   |   | $ | 72,759 |   |   |   | 0.358 |   |

|                   |   | Three months ended March 31: |   |
|------------------------|--------|------------------------------|--------|
|                   |   | 2008                         |   |   | 2007 |   |   | Decrease |   |   | % |   |
|                   |   |                         |   |   |   |   |   |   |   |   |   |   |
| Interest expenses, net |   | $                            | 90,578 |   |   | $ | 141,027 |   |   | $ | (50,449 | ) |   |   | (0.358 | ) |

|                   |   | Nine months ended March 31: |    |
|------------------------|--------|-----------------------------|---------|
|                   |   | 2008                        |    |   | 2007 |   |   | Decrease |   |   | % |   |
|                   |   |                        |    |   |   |   |   |   |   |   |   |   |
| Interest expenses, net |   | $                           | 263,937 |   |   | $ | 388,160 |   |   | $ | (124,223 | ) |   |   | 0.320 |   |

----

|             |   | March 31, |   |   | June 30, |   |    |     |   |   |     |   |
|------------------|--------|-----------|--------|--------|----------|--------|---------|----------|--------|--------|----------|--------|
|             |   | 2008      |   |   | 2007     |   |    | Decrease |   |   | %        |   |
|             |   |      |   |   |     |   |    |     |   |   |     |   |
| Prepaid expenses |   | $         | 0      |   |     | $      | 131,380 |     |   | $      | (131,380 | )      |   |   | (1.000 | ) |

|             |   | March 31, |    |   | June 30, |   |    |     |   |   |     |   |
|------------------|--------|-----------|---------|--------|----------|--------|---------|----------|--------|--------|----------|--------|
|             |   | 2008      |    |   | 2007     |   |    | Decrease |   |   | %        |   |
|             |   |      |    |   |     |   |    |     |   |   |     |   |
| Accounts payable |   | $         | 580,935 |   |     | $      | 724,044 |     |   | $      | (143,109 | )      |   |   | 0.198 |   |

|               |   | March 31, |      |   | June 30, |   |      |     |   |   |    |   |
|--------------------|--------|-----------|-----------|--------|----------|--------|-----------|----------|--------|--------|---------|--------|
|               |   | 2008      |      |   | 2007     |   |      | Increase |   |   | %       |   |
|               |   |      |      |   |     |   |      |     |   |   |    |   |
| Accrued liabilties |   | $         | 1,274,526 |   |     | $      | 1,131,322 |     |   | $      | 143,204 |   |   |   | 0.127 |   |

----

| ITEM 3. | CONTROLS AND PROCEDURES |
|---------|-------------------------|

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

----

| ITEM 5.  | OTHER EVENTS |
|---------------|--------------|

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

| ExhibitNumber |             | Description of Document                |
|---------------|------------------|----------------------------------------|
|          |             |                                   |
| 3.1           |             | Articles of Incorporation as Amended * |
| 3.2           |             | By laws *                              |
| 31            |             | Rule 13a-14(a)/15d-14(a) Certification |
| 32            |             | Section 1350 Certification             |
|          |             |                                   |
| *             | Previously filed |

----

|             | ENCOMPASS HOLDINGS, INC. |                    |
|------------------|--------------------------|-------------------------|
|             |                     |                    |   |
| January 28, 2010 | By:                      | /s/ J. SCOTT WEBBER     |   |
|             |                     | J. Scott Webber         |   |
|             |                     | Chief Executive Officer |   |