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<SEC-DOCUMENT>0000950134-07-012400.txt : 20070529
<SEC-HEADER>0000950134-07-012400.hdr.sgml : 20070528
<ACCEPTANCE-DATETIME>20070525203124
ACCESSION NUMBER:		0000950134-07-012400
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		16
CONFORMED PERIOD OF REPORT:	20061231
FILED AS OF DATE:		20070529
DATE AS OF CHANGE:		20070525

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SAVE THE WORLD AIR INC
		CENTRAL INDEX KEY:			0001103795
		STANDARD INDUSTRIAL CLASSIFICATION:	MOTOR VEHICLE PARTS & ACCESSORIES [3714]
		IRS NUMBER:				522088326
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-29185
		FILM NUMBER:		07881876

	BUSINESS ADDRESS:	
		STREET 1:		5125 LANKERSHIM BOULEVARD
		CITY:			NORTH HOLLYWOOD
		STATE:			CA
		ZIP:			91601
		BUSINESS PHONE:		818-487-8000

	MAIL ADDRESS:	
		STREET 1:		5125 LANKERSHIM BOULEVARD
		CITY:			NORTH HOLLYWOOD
		STATE:			CA
		ZIP:			91601
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>v28291e10ksb.htm
<DESCRIPTION>FORM 10KSB
<TEXT>
<HTML>
<HEAD>
<TITLE>e10ksb</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>Form&nbsp;10-KSB</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES<br> EXCHANGE
ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the fiscal year ended December&nbsp;31, 2006</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>or</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES<br>
EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission File Number 0-29185</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>Save the World Air, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><I>(Exact name of registrant as specified in its charter)</I></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Nevada</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>52-2088326</B></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>(State or other jurisdiction of</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><I>(I.R.S. Employer</I></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>incorporation or organization)</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><I>Identification No.)</I></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>5125
Lankershim Boulevard<br>
North Hollywood, California 91601</B><br>
<I>(Address, including zip code, of principal executive offices)</I><br>
<B>(818)&nbsp;487-8000</B><br>
<I>(Registrant&#146;s telephone number, including area code)</I></DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Securities registered pursuant to Section&nbsp;12(b) of the Exchange Act: None.<BR>
Securities registered pursuant to Section&nbsp;12(g) of the Exchange Act: Common Stock, $0.001 par value.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Check whether the Registrant (1)&nbsp;filed all reports required to be filed by Section&nbsp;13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for such shorter period
that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filing
requirements for the past 90&nbsp;days. Yes <FONT face="Wingdings">&#254;</FONT> No <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Check if disclosure of delinquent filers in response to Item&nbsp;405 of Regulation&nbsp;S-B is not
contained in this form, and no disclosure will be contained, to the best of Registrant&#146;s knowledge,
in definitive proxy or information statements incorporated by reference in Part&nbsp;III of this Form
10-KSB or any amendment to this Form 10-KSB. <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of
the Exchange Act). Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Registrant&#146;s revenues for its most recent fiscal year: $30,000
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate
market value of voting and non-voting common equity held by non-affiliates of
the Registrant was approximately $14,583,218 as of May&nbsp;9, 2007, based upon the average of the
high and low bid prices on the OTC Bulletin Board reported for such date. This calculation does not
reflect a determination that certain persons are affiliates of the
Registrant for any other purpose.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of shares of the Registrant&#146;s Common Stock outstanding as of May&nbsp;9, 2007 was
41,196,180 shares.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>DOCUMENTS INCORPORATED BY REFERENCE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Portions of the Registrant&#146;s Proxy Statement for its 2007 Annual Meeting of Stockholders (the
&#147;Proxy Statement&#148;), to be filed with the Securities and Exchange Commission, are incorporated by
reference into Part&nbsp;III of this Form 10-KSB.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Transitional Small Business Disclosure Format (Check one): Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SAVE THE WORLD AIR, INC.<BR>
FORM 10-KSB<BR>
INDEX</B>
</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#101"><B>PART I</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Item&nbsp;1 Business</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Item&nbsp;2 Properties</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Item&nbsp;3 Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Item&nbsp;4 Submission of Matters to a Vote of Security Holders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#106"><B>PART II</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;5 Market for Common Equity and Related Stockholder Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;6 Management&#146;s Discussion and Analysis or Plan of Operation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;7 Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Item&nbsp;8 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">Item&nbsp;8 A Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;8 B Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#112"><B>PART III</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Item&nbsp;9 Directors and Executive Officers of Registrant</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Item&nbsp;10 Executive Compensation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">Item&nbsp;11 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Item&nbsp;12 Certain Relationships and Related Transactions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Item&nbsp;13 Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Item&nbsp;14 Principal Accountant Fees and Services</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">SIGNATURES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv10w13.htm">EXHIBIT 10.13</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv10w23.htm">EXHIBIT 10.23</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv10w44.htm">EXHIBIT 10.44</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv10w45.htm">EXHIBIT 10.45</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv10w46.htm">EXHIBIT 10.46</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv10w47.htm">EXHIBIT 10.47</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv21.htm">EXHIBIT 21</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv23.htm">EXHIBIT 23</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv31w1.htm">EXHIBIT 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv31w2.htm">EXHIBIT 31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v28291exv32w1.htm">EXHIBIT 32.1</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&nbsp;i&nbsp;
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>Forward-Looking Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Annual Report on Form 10-KSB contains forward-looking statements. These forward-looking
statements include predictions regarding our future:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>revenues and profits;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>customers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>research and development expenses and efforts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>scientific and other third-party test results;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sales and marketing expenses and efforts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>liquidity and sufficiency of existing cash;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>technology and products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the outcome of pending or threatened litigation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the effect of recent accounting pronouncements on our financial
condition and results of operations.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You can identify these and other forward-looking statements by the use of words such as &#147;may,&#148;
&#147;will,&#148; &#147;expects,&#148; &#147;anticipates,&#148; &#147;believes,&#148; &#147;estimates,&#148; &#147;continues,&#148; or the negative of such
terms, or other comparable terminology. Forward-looking statements also include the assumptions
underlying or relating to any of the foregoing statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our actual results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth below under the heading &#147;Risk
Factors.&#148; All forward-looking statements included in this document are based on information
available to us on the date hereof. We assume no obligation to update any forward-looking
statements.
</DIV>
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1. </B><B><I>Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The discussion of our business is as of the date of filing this report, unless otherwise
indicated.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a green technology company that leverages a suite of patented, patent-pending and
licensed intellectual properties related to the treatment of fuels. Technologies patented by, or
licensed to, us utilize either magnetic or uniform electrical fields to alter physical
characteristics of fuels and are designed to create a cleaner combustion. Cleaner combustion has
been shown to improve performance, enhance fuel economy and/or reduce harmful emissions in
laboratory testing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ECO ChargR&#153; and MAG ChargR&#153; products use fixed magnetic fields to alter some physical
properties of fuel, by incorporating our patented and patent-pending ZEFS and MK IV technologies.
We differentiate ECO ChargR and MAG ChargR products based on their differing attributes and
marketing focus. ECO ChargR products are primarily designed to reduce harmful emissions and MAG
ChargR products are primarily designed to enhance performance and fuel economy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ECO ChargR product is intended to reduce exhaust emissions in vehicle and small
utility motors. ECO ChargR will be marketed primarily to original equipment manufacturers (&#147;OEMs&#148;)
as well as to pilot and government-mandated emissions programs. Our MAG ChargR product is intended
to
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">increase power and improve mileage. MAG ChargR will be marketed primarily to the specialty
consumer accessories market for many types of vehicles, including but not limited to cars, trucks,
motorcycles, scooters, all terrain vehicles (&#147;ATVs&#148;), snowmobiles, personal watercraft and small
utility motors. On the other hand, because our ECO ChargR and MAG ChargR products are customized
to specific brands, models and engine sizes, these products ultimately will require hundreds of
individually developed parts, which can be expensive and time-consuming to produce. See &#147;Our
Technologies and Products&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our first revenues have come from initial sales in Asia for our ECO ChargR product in the
motorcycle industry. We commenced initial sales of ECO ChargR to customers in the United States in
the motorcycle industry in first quarter of 2007. We also commenced initial sales of our MAG ChargR
product in Asia and the United States in the motorcycle industry in the first quarter of 2007. See
&#147;Recent Developments&#148; and &#147;Sales and Marketing&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have obtained a license from Temple University for their patent-pending uniform electric
field technology, tentatively called ELEKTRA&#153;. The ELEKTRA technology consists of passing fuel
through a specific strong electrical field. Although ELEKTRA has a similar effect on fuels as our
ZEFS and MK IV technologies, ELEKTRA incorporates a uniform electrical field principle. Based on
our early research and product development, we believe that ELEKTRA carries certain advantages over
our ZEFS and MK IV technologies, primarily not requiring as many variations for products
incorporating the ELEKTRA technology compared to products incorporating the ZEFS or MK IV
technologies. Preliminary testing conducted in Europe by an outside research and development
facility indicates that ELEKTRA causes a significant change in some of the physical characteristics
of the fuel, resulting in better atomization of the fuel and improved combustion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also entered into a research and development agreement with Temple University to
conduct further research on the ELEKTRA technology and magnetic technologies in general. Together
with Temple University, we have developed prototype products using the ELEKTRA technology and we
are continuing testing, and research and development. We are in the early stages of developing
ELEKTRA products that, based on the previously mentioned preliminary testing, is intended to
improve fuel economy and change fuel viscosity, and may improve performance and reduce emissions,
depending upon the specific application. When it is developed, we intend to market ELEKTRA
products primarily to the transportation industry, oil refineries and pipelines, and OEMs. See &#147;Our
Technologies and Products&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At this time, we do not intend to devote significant effort to the commercialization of
products incorporating our CAT-MATE technology. However, we are considering various possible ways
to take advantage of opportunities that may become available to us. See &#147;Our Technologies and
Products&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate in a highly competitive industry. Many of our activities may be subject to
governmental regulation. We have taken aggressive steps to protect our intellectual property. See
&#147;Competition&#148;, &#147;Government Regulation and Environmental Matters&#148; and &#147;Intellectual Property&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are significant risks associated with our business, our company and our stock. See
&#147;Risk Factors&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a development stage company that generated its first initial revenues in the fourth
quarter of 2006. Our expenses to date have been funded primarily through the sale of stock and
convertible debt, as well as proceeds from the exercise of stock purchase warrants. We raised
capital in 2006 and will need to raise substantial additional capital in 2007, and possibly beyond,
to fund our sales and marketing efforts, continuing research and development, and certain other
expenses, until our revenue base grows sufficiently. See &#147;Management&#146;s Discussion and Analysis&#148;
below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our company was incorporated on February&nbsp;18, 1998, as a Nevada corporation, under the name
Mandalay Capital Corporation. We changed our name to Save the World Air, Inc. on February&nbsp;11, 1999,
following the acquisition of marketing and manufacturing rights of the ZEFS technologies. Our
mailing address and executive offices are located at 5125 Lankershim Boulevard, North Hollywood,
California
91601. Our telephone number is (818)&nbsp;487-8000. Our corporate website is www.stwa.com. Information
contained on the website is not deemed part of this Annual Report.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since February&nbsp;2, 2006, our common stock has been quoted on the Over-the-Counter Bulletin
Board under the symbol &#147;ZERO&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recent Developments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2005 and 2006, we began to focus on the initial marketing of our products. We entered
into the first agreements for the distribution of our products in late 2005 and early 2006. Our
first two U.S. distributorship agreements were with Team Phantom of Alaska and Motorcycle Products
Consulting Incorporated (&#147;MPCI&#148;) of California. These agreements provide for the sale of our
product lines in the North American OEM and specialty consumer accessories market for motorcycles,
to certain named prospective purchasers. We began shipping products under the agreement with MPCI
in small quantities commencing in the second quarter of 2007. We currently do not believe that we
will be receiving any orders from Team Phantom for our products and we do not expect that
relationship to be viable for us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2006, we entered into our first international distributorship agreement, with
Golden Allied Enterprises (Group) Co., Ltd., (&#147;GAE&#148;). This distributorship agreement (the &#147;GAE
Agreement&#148;) provides that GAE will serve as our exclusive distributor for our ZEFS and CAT-MATE
products in the People&#146;s Republic of China. The agreement with GAE was conditioned upon our
ZEFS-based products achieving EURO2 standards in tests to be conducted in Shanghai. These tests
were successfully completed in April&nbsp;2006, during which tests of a device incorporating our ZEFS
technology achieved EURO2 standards and devices incorporating a combination of our ZEFS and
CAT-MATE technologies achieved EURO3 standards. See &#147;Independent Laboratory and Scientific
Testing&#148; and &#147;Sales and Marketing&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2006, we entered into a product development agreement with Kwong Kee (Qing Xin)
Environmental Exhaust Systems Company, Ltd. (&#147;Kwong Kee&#148;) in China. Under this agreement, Kwong
Kee, a manufacturer of mufflers and catalytic converters, collaborates with us on product
development for certain markets, primarily in Asia, and makes available to us its research and
development facilities, testing equipment and product design and development support team. See
&#147;Sales and Marketing&#148; and &#147;Manufacturing&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2006, we entered into an agreement with Quadrant Technology L.P. (&#147;Quadrant&#148;),
pursuant to which Quadrant provides product development services. Under this agreement, we also
granted Quadrant a right of first refusal to manufacture certain of our products. See &#147;Sales and
Marketing&#148; and &#147;Manufacturing&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also in July&nbsp;2006, we entered into an agreement with Marketing Matters, Inc. (&#147;Marketing
Matters&#148;) to provide exclusive agency services in the United States for advertising, marketing,
industry and trade show promotion, as well as packaging design services. We entered into a separate
agreement with SS Sales and Marketing Group (&#147;SS Sales&#148;), to provide marketing and promotional
services in the western United States and western Canada for our products. SS Sales will be paid a
commission equal to 5% of the gross amount actually collected on contracts we enter into during the
contract term for existing or future customers introduced by SS Sales in the territory covered by
the agreement. SS Sales is owned by Nathan Shelton, one of the directors of the Company. See
&#147;Sales and Marketing&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2006, we entered into a distributorship agreement with PT Citra Cahaya Indonesia
(&#147;PTCC&#148;), who will serve as the exclusive distributor for our products in Indonesia. We began
delivering some of our products under this agreement (the &#147;PTCC Agreement&#148;) in the first quarter of
2007. See &#147;Sales and Marketing&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also in October&nbsp;2006, we introduced our ECO ChargR and MAG ChargR products for use in
motorcycles at the INERMOT motorcycle trade show in Cologne, Germany. In November&nbsp;2006, we
introduced our ECO ChargR and MAG ChargR products for use in automobiles and trucks at the SEMA
convention in Las Vegas, Nevada.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2006, we entered into a distributorship agreement with T&#038;C Adtech Co., Ltd.
&#147;Adtech&#148;), who will serve as the exclusive distributor for our ECO ChargR, MAG ChargR and CAT-
MATE products in Vietnam. The agreement (the &#147;Adtech Agreement&#148;) is for one year and will be
renewed automatically for successive periods if certain minimum firm orders are placed by Adtech in
twelve-month periods ending on September&nbsp;30. See &#147;Sales and Marketing&#148; below.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, we entered into two license agreements with Temple University, one covering
Temple University&#146;s current patent application concerning certain electric field effects on
gasoline, kerosene and diesel fuel particle size distribution (in fuel injection engines), and the
other covering Temple University&#146;s current patent application concerning electric field effects on
crude oil. We also entered into a research and development agreement, to conduct further research
on the ELEKTRA technology and magnetic technologies in general. See &#147;Our Technology and Products&#148;
below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2007, we received the final report of RAND Corporation (&#147;RAND&#148;), whom we had retained
in December&nbsp;2002 to study the scientific validity and market potential of our original ZEFS
technology, help us develop a plan to assess the technical basis for our ZEFS technology and
understand the potential market for products incorporating the ZEFS technology if a technical basis
were established. See &#147;RAND Report&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Business Strategy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The Crisis of the Effect of Motor Emissions on Air Pollution</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The incomplete and inefficient burning of fossil fuel in internal combustion engines results
in unburned gases, such as hydrocarbons (&#147;THC&#148;), carbon monoxide (&#147;CO&#148;) and oxides of nitrogen
(&#147;NOx&#148;) being expelled as harmful emission as a by-product of the engine&#146;s exhaust. These emissions
have contributed to significant air pollution and depletion of the ozone layer that protects the
world&#146;s atmosphere from harmful ultraviolet radiation. As a result, the world has experienced
significant deterioration to its air quality since the beginning of the 20th century and the
problem has gotten progressively worse with each passing year. Forecasts published by the World
Resources Institute indicate that this trend will continue to accelerate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the Goddard Institute for Space Studies, in 2000, the world&#146;s roads were
supporting about 800&nbsp;million vehicles, almost 500&nbsp;million of which are cars and the remainder of
which are trucks, buses, motorcycles and scooters. The United States, Japan and Europe account for
the majority of motor vehicles, but future growth is expected to be most rapid in Asia and Latin
America. Vehicle population is projected to increase by 50-100% by 2030. As a result, vehicles
will continue to apply pressure to the environment and it is projected that emissions of all
pollutants will be significantly higher in 2030 than today, unless additional controls on emissions
are implemented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the United States, California, through the California Air Resources Board (&#147;CARB&#148;),
continues to set the lowest emission standards for the country and the United State Environmental
Protection Agency (&#147;EPA&#148;) has indicated it may adopt lower emission standards, which would be
applicable throughout the United States. California Governor Arnold Schwarzenegger has also
announced his intent to seek greenhouse gas (&#147;GHG&#148;) legislation and the United States Congress is
also considering GHG legislation. See &#147;Government Regulation and Environmental Matters&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Governments internationally recognize the serious effects caused by air pollution and many
nations have enacted legislation to mandate that engine manufacturers be required to reduce exhaust
emissions caused by their products. As evidenced by the overwhelming participation in the
establishment of the Kyoto Accord, many nations are moving towards tighter GHG emissions control as
well. The European Union (&#147;EU&#148;) currently requires all member nations to adopt EURO 3 emissions
standards for motorcycles and EURO 4 emissions standards for automobiles and trucks. Some Eastern
European countries contemplating EU admission, and certain Asian countries, have also announced
gradual phase-in of EURO standards, including China, Indonesia, Vietnam, Thailand and India. See
&#147;Government Regulation and Environmental Matters&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Among recent developments:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The EU has tightened standards on light duty vehicle emissions and fuel quality
for 2000 and 2005, broadened coverage (e.g., cold temperature), and imposed low
sulfur
requirements for diesel fuel and gasoline; Euro 3, 4 and 5 standards for heavy duty
trucks and buses, will require advanced NOx and particulate matter (&#147;PM&#148;) post-combustion
pollution control systems. The auto industry has agreed to a voluntary commitment
to reduce carbon dioxide (&#147;CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB>&#147;) emissions per kilometer driven by 25%
by 2008.</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>CARB tightened CO, HC, NOx and PM requirements and established principles of
fuel neutrality (diesel vehicles meet the same standards as gasoline vehicles) and
usage neutrality (light trucks and sport utility vehicles used primarily as
passenger cars must meet the same standards as cars); CARB decided that diesel PM
is a toxic air contaminant leading to an effort to further reduce PM emissions
from existing diesel vehicles.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>EPA, in conjunction with CARB, imposed the largest enforcement action in
history on the heavy engine industry; EPA adopted stringent national PM and NOx
standards for heavy duty trucks and buses and mandated low sulfur diesel fuel to
enable the advanced technologies necessary to achieve these requirements.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>China and India adopted the Euro 1 auto and truck emissions standards and are
phasing out the use of unleaded gasoline.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding initiatives such as these, much more needs to be done to reverse the harmful
effects of decades of pollutants contributed by motor emissions. Yet, the cost of adding emissions
control devices to engines or vehicles has always been a challenge, since manufacturers shift the
cost of such devices to the consumer. In developing nations, where incomes are extremely low,
economics and the lack of government resources have hampered progress. Nonetheless, we believe
that the social and political realities of protecting our environment may result in further
government mandates that manufacturers adopt solutions to reduce harmful motor emissions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Absent governmental mandates for emission controls, the primary appeal of our products is
likely to be related to fuel efficiency and performance enhancement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Technologies and Products</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ZEFS and MK IV.</U> Our principal business focus currently rests with development and
distribution of products designed to solve the complex problems caused by pollution from
motorcycles, automobiles and other equipment driven by internal combustion engines and to improve
the performance of those engines. We have introduced the ECO ChargR, which incorporated our MK IV
technology, and the MAG ChargR, which incorporates either our ZEFS or MK IV technologies, depending
upon the application. We have designed and tested various versions of our ECO ChargR and MAG
ChargR products for use on 2- and 4-stroke carbureted and fuel injection gasoline engines and are
in the process of designing versions of the ECO ChargR and MAG ChargR products for application on
various types of engines that use diesel fuels.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, manufacturers of vehicles, motorcycles, power sports equipment, boats and small
utility motors have had very few technological options to reduce emissions to the strictest levels
of current and future government standards. The approach used by engine manufacturers to address
this mandate has thus far generally taken the form of installing catalytic converters, which work
on the principle of super heating gases within the exhaust manifold after the damaging gases have
been created through internal combustion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These traditional devices are expensive, and sensitive to the poor quality and adulterated
fuel that is commonly found in developing nations. Bad fuel can permanently damage a catalytic
converter with the first tank full, whereas ECO ChargR and MAG ChargR are unaffected by the problem
of bad fuel. Catalytic converters also do not share the benefits of our ECO ChargR and MAG ChargR
of increased fuel efficiency and performance. In fact, in many cases catalytic converters are
detrimental to mileage and power.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ECO ChargR and MAG ChargR contain permanent rare-earth magnets, which produce a very strong
magnetic field. This field, when arranged in specific manner of shape and strength, causes a
molecular change in the fuel as it passes through the field. As fuel passes through the magnetic
field, a
molecular change in the fuel occurs facilitating a decline in both viscosity and surface tension.
This allows for finer atomization, resulting in a more optimized mixture and therefore more
efficient combustion, lower emissions, more horsepower and torque and improved fuel economy. The
scientific theory behind the
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ZEFS technology is described in certain scientific papers and
published articles. See &#147;RAND Report&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ECO ChargR and MAG ChargR have been developed for one-, two- and four- barrel carbureted
and fuel injection engines. These products are easily fitted to the base plates of carburetors and
fuel injection systems; the devices are compact, there are no moving parts. They are also
inexpensive to produce, extremely durable and unaffected by poor quality fuel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We differentiate our ECO ChargR and MAG ChargR products based on their differing attributes
and marketing focus. ECO ChargR products are primarily designed to reduce harmful emissions and MAG
ChargR products are primarily designed to enhance performance and fuel economy. The ECO ChargR is
intended to reduce exhaust emissions in vehicle and small utility motors. ECO ChargR products will
be marketed primarily to OEMs as well as to pilot and government-mandated emissions programs.
The MAG ChargR is intended to increase power and improve mileage. MAG ChargR products will be
marketed primarily to the specialty consumer accessories market for many types of vehicles,
including but not limited to cars, trucks, motorcycles, scooters, ATVs, snowmobiles, personal
watercraft and small utility motors. On the other hand, because our ECO ChargR and MAG ChargR
products are customized to specific brands, models and engine sizes, these products ultimately will
require hundreds of individually developed parts, which can be expensive and time-consuming.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Testing by the Company, as well as by independent third-party laboratories, has demonstrated
that both ECO ChargR and MAG ChargR generate significant reductions in THC and CO emissions and, in
the case of MAG ChargR, also improves fuel efficiency by lowering gas consumption and increases
engine performance. For RAND&#146;s conclusions about some of our testing regarding emissions
reductions, see &#147;RAND Report&#148; below. See also &#147;Independent Laboratory and Scientific Testing&#148;
below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ELEKTRA</U>. We have obtained a license from Temple University for their patent-pending
uniform electric field technology, tentatively called ELEKTRA&#153;. The ELEKTRA technology consists of
passing fuel through a specific strong electrical field. Although ELEKTRA has a similar effect on
fuels as our ZEFS and MK IV technologies, ELEKTRA incorporates a uniform electrical field
principle. Based on our early research and product development, we believe that ELEKTRA carries
certain advantages over our ZEFS and MK IV technologies, primarily not requiring as many variations
for products incorporating the ELEKTRA technology compared to products incorporating the ZEFS or MK
IV technologies. Preliminary testing conducted in Europe by an outside research and development
facility indicates that ELEKTRA causes a significant change in some of the physical characteristics
of the fuel, resulting in better atomization of the fuel and improved combustion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into two license agreements with Temple University, one covering Temple
University&#146;s current patent application concerning certain electric field effects on gasoline,
kerosene and diesel fuel particle size distribution, and the other covering Temple University&#146;s
current patent application concerning electric field effects on crude oil viscosity, and any and
all United States and foreign patents issuing in respect of the technologies described in such
applications (individually, a &#147;License Agreement&#148; and collectively, the &#147;License Agreements&#148;).
Initially, the License Agreements are exclusive and the territory licensed to the Company is
worldwide. Pursuant to the License Agreements, the Company will pay to Temple University (i)
license fees in the aggregate amount of $250,000, payable in three installments of $100,000, the
first installment of which was paid in March&nbsp;2007, and $75,000 on each of February&nbsp;2, 2008 and
February&nbsp;2, 2009, respectively; and (ii)&nbsp;annual maintenance fees of $125,000 annually commencing
January&nbsp;1, 2008. In addition, each License Agreement separately provides that the Company will pay
royalties to Temple University on net sales of products incorporating the technology licensed under
that License Agreement in an amount equal to 7% of the first $20&nbsp;million of net sales, 6% of the
next $20&nbsp;million of net sales and 5% of net sales in excess of $40&nbsp;million. Sales under the two
License Agreements are not aggregated for purposes of calculating the royalties payable to Temple
University. In addition, the Company has agreed to bear all costs of obtaining and maintaining
patents in any jurisdiction where the Company directs Temple University to pursue a patent for
either of the licensed technologies.
Should the Company not wish to pursue a patent in a particular jurisdiction, that jurisdiction
would not be included in the territory licensed to the Company.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also entered into a research and development agreement (&#147;R&#038;D Agreement&#148;) with Temple
University to conduct further research on the ELEKTRA technology. Under the R&#038;D Agreement Temple
University will conduct a 24-month research project towards expanding the scope of, and developing
products utilizing, the technologies covered under the License Agreements, including design and
manufacture of prototypes utilizing electric fields to improve diesel, gasoline and kerosene fuel
injection in engines using such fuels and a device utilizing a magnetic field to reduce crude oil
viscosity for crude oil (paraffin and mixed base) flow in pipelines. Pursuant to the R&#038;D Agreement,
we will make payments to Temple University in the aggregate amount of $500,000, payable in eight
non-refundable installments commencing with $123,750, which was paid in March&nbsp;2007, and $53,750
every three months thereafter until paid in full. If the research project yields results within the
scope of the technologies licensed pursuant to the License Agreements, those results will be deemed
included as rights licensed to the Company pursuant to the License Agreements. If the research
project yields results outside of the scope of the technologies covered by the License Agreements,
the Company has a six-month right of first negotiation to enter into a new worldwide, exclusive
license agreement with Temple University for the intellectual property covered by those results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Rongjia Tao, of Temple University, is the principal investigator of the ELEKTRA technology
and we intend that he will work with us in research and development and product development,
seeking to produce two commercial products: (i)&nbsp;a product utilizing an electric field to improve
the fuel injection in engines for diesel, kerosene, and gasoline; and (ii)&nbsp;a product utilizing
electric or magnetic fields to reduce crude oil viscosity and improve crude oil flow in pipelines.
We are in the early stages of developing ELEKTRA products that, based on preliminary testing, is
intended to improve fuel economy and change fuel viscosity, and may improve performance and reduce
emissions, depending upon the specific application. Dr.&nbsp;Tao&#146;s published articles in <I>The
International Journal of Physics </I>have reported how uniform electrical field technology affects
fuels. We believe that this effect is identical, or substantially similar, to that of our own
magnetic technology; therefore, we expect to achieve similar results with ELEKTRA as Dr.&nbsp;Tao
reported with respect to uniform electrical field technology generally. When it is developed, we
intend to market ELEKTRA products primarily to the transportation industry, oil refineries and
pipelines, and OEMs. Our ability to make progress with Temple University is dependent, in part, on
our ability to finance our obligations and devote adequate financial resources to the
commercialization of the ELEKTRA technology. See &#147;Management&#146;s Discussion and Analysis or Plan of
Operations &#150; Liquidity and Capital Resources&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unlike ECO ChargR and MAG ChargR, ELEKTRA is essentially universal, with only a handful of
versions required to cover most applications. The ELEKTRA technology is designed to be installed
in the fuel supply lines of vehicles and, because there are very few variations in the size and
type of those lines, we anticipate that a relatively small number of variable capacity devices and
a selection of installation adapters will cover most vehicle installations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the applications for products incorporating the ELEKTRA technology will
include gas, diesel and bio-fuel injected motor vehicles, as well as applications in aviation,
marine, oil pipeline and refining industries<B>. </B>Subject to our cash flow and liquidity limitations,
we are currently developing motor vehicle applications and our present intention, subject to
change, is to seek joint venture partners to commercialize the ELEKTRA technology in various
applications. Subject to adequate financing, we currently believe that we will commence sales of
ELEKTRA products in late 2007. See &#147;Management&#146;s Discussion and Analysis or Plan of Operations &#150;
Liquidity and Capital Resources&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>CAT-MATE.</U> Our CAT-MATE technology is designed to work in conjunction with, and
enhance the function of, common catalytic converters, when incorporated into their design. Our
CAT-MATE technology allows a converter to ignite more quickly and more easily on small displacement
motors. Our CAT-MATE technology also helps retain heat in the converter, allowing it to stay lit
under idling and low RPM operation. Small motors, especially 2-stroke versions, are subject to low
exhaust velocity and heat during idling, which causes most converters to extinguish and then become
fouled with oil and contaminants eventually rendering them difficult to relight or useless. We
believe that our CAT-MATE
technology can be used on 2- and 4-stroke motorcycles, off-road and
marine vehicles, generators, lawn
mowers, on stationary implements and on carbureted and fuel injection motor vehicles. At this
time, we do not intend to devote significant effort to the commercialization of products
incorporating our CAT-MATE
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">technology. However, we are considering various possible ways to take
advantage of opportunities that may become available to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Research and Development</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are actively continuing our development of products incorporating our ZEFS and MK IV
technologies for use on gasoline and diesel powered engines and have taken steps to finalize
devices to fit on carbureted, throttle body and multi-port fuel injection systems. We have used
prototype ECO ChargR and MAG ChargR products as demonstration units, during presentations before
manufacturers. It is our intention to continue to develop products incorporating these
technologies. Because of the complexity and enormity of the task of designing multiple variations
of our ECO CharG and MAG ChargR products to fit the numerous makes and models of engines, we intend
to seek the cooperation of manufacturers to assist us in engineering, marketing and installing our
ECO ChargR and MAG ChargR products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also engaged in early research and development of products incorporating our ELEKTRA
technology for use on diesel engines, such as those used on trucks, buses, heavy equipment and
generators. Because these types of vehicles use engines provided from a relatively few
manufacturers, the number of product variations utilizing our ELEKTRA technology needed to service
these fleets is considerably less than the number of variations required by our ECO ChargR and MAG
ChargR products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have tested products incorporating our ZEFS, MK IV and CAT-MATE technologies for multiple
makes and models of automobiles, motorcycles and ATVs, and the results of tests of devices
incorporating our ZEFS technology were provided to RAND for evaluation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RAND assisted us in establishing research and testing protocols at our Queensland, Australia
facililty. In late 2005, we established a state-of-the-art research and product development
facility in Morgan Hill, California. In connection with the establishment of our Morgan Hill
facility, we transitioned the primary site of our research and development from Queensland to
Morgan Hill. We no longer use our Queensland facility, which we are in the process of closing.
RAND also assisted us in setting up our testing protocols at Morgan Hill. In addition, we are
engaged in research and development of additional prototypes and products, including ELEKTRA and
other magnetic technologies and products, at our Morgan Hill facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2006, we entered into a product development agreement with Kwong Kee. Under this
agreement, Kwong Kee, a manufacturer of mufflers and catalytic converters, collaborates with us on
product development for certain markets, primarily in Asia, and makes available to us its research
and development facilities, testing equipment and product design and development support team in
China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;14, 2004, we filed a patent application in Australia with respect to certain technology
(Method and Apparatus for a Treatment of a Fluid). Following discussions with Temple University
about a number of matters, including intellectual property rights, in July&nbsp;2004, we entered into a
license agreement with Temple University (the &#147;2004 License Agreement&#148;), for a research project
with Dr.&nbsp;Rongjia Tao as principal investigator. That project and the related products involve the
development and commercialization of underwater and cold temperature applications for improving oil
flow under different temperature and pressure conditions. In connection with the 2004 License
Agreement, we assigned the original patent application for this technology to Temple University and
agreed to assign all subsequent patent applications for this technology to Temple University.
Under the 2004 License Agreement, we have the right to file additional patent applications, at our
sole expense but for the benefit of Temple University, in various countries. We have exclusive
world-wide rights to this technology; however, if we do not file a patent application or maintain
a patent in any country, then Temple University has the right to file the patent application
or maintain the patent in that country and, in such event, we would lose our license rights in
that country. In 2005, we filed several additional patent applications. To date, we
have spent approximately $56,856 on these patent
applications in various countries. As a result of Dr.&nbsp;Tao&#146;s recently announced progress in
reducing viscosity of crude oil with magnetic pulses, we believe that this technology may have
commercial viability. We are maintaining the patent applications in the countries in which we have
filed them, while we continue to explore the commercial benefits of pursuing this opportunity in
these and possibly other countries. See &#147;Intellectual Property&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We spent $401,872 in 2006 and $1,150,361 in 2005 on research and development. See
&#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operation &#151; Results of
Operations&#148; and Note 11 to Notes to Consolidated Financial Statements for a more complete
understanding of our research and development expenses.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Independent Laboratory and Scientific Testing</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The four internationally recognized emissions standards testing agencies for the certification
of motor vehicles, parts, systems and aftermarket devices are the EPA, CARB, United Kingdom Vehicle
Certification Agency (&#147;VCA&#148;) and Technischer &#220;berwachungs-Verein (Germany/EU).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Independent third-party laboratories have conducted tests of devices incorporating our ZEFS,
MK IV and CAT-MATE technologies, which tests we have sought in order to gain better market
acceptance by manufacturers and governmental regulatory officials. Research and testing using
government-standard testing equipment in the United States, Thailand, China and Hong Kong has
demonstrated that the tested devices incorporating our ZEFS technology reduce engine emissions,
such as THC and CO, and, for the most part, NOx, while also improving fuel consumption and
performance. Research and testing using government standard test equipment in Thailand has
demonstrated that the tested devices incorporating our ZEFS technology improves performance.
Research and testing using government standard test equipment in the United States and Hong Kong
has demonstrated that the tested devices incorporating our CAT-MATE technology reduce engine
emissions, such as THC, CO and NOx. For RAND&#146;s conclusions about some of our testing regarding
emissions reductions, see &#147;RAND Report&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to third-party test results reported for NOx, some tests have shown that NOx on
tested devices incorporating our technologies has increased. Based on informal discussions we have
had with manufacturers of the tested vehicles and/or engineers at the testing laboratories, and
other anecdotal evidence, we believe that such increases, when reported, are due to the vehicle,
such as problems with the vehicle&#146;s exhaust system, rather than problems with the tested device
incorporating our technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2002, we retained RAND to study the scientific validity and market potential of
our original ZEFS technology, help us develop a plan to assess the technical basis for our ZEFS
technology and understand the potential market for products incorporating the ZEFS technology if a
technical basis were established. RAND outlined a research and evaluation program for the Company
to examine the theoretical basis of the ZEFS device and to test the impact of the device when
installed on vehicles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In early 2003, RAND determined that a comprehensive product-testing program was warranted. As
a result, in May&nbsp;2003, we entered into an arrangement under which RAND coordinated and supervised
both a theoretical scientific study of the concepts underlying our ZEFS technology, as well as an
empirical study. In response to a
request for proposal (&#147;RFP&#148;) that RAND sent to 14 universities in the United States, Temple
University was chosen to research the ZEFS technology. Temple University&#146;s research of the ZEFS
technology concluded in early 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of RAND&#146;s work on our behalf concluded in December&nbsp;2005, while further
development of our technologies continued. In 2006, our MK IV technology was first developed and
enhancements have continued into early 2007. We submitted to RAND additional test results from the
MK technology conducted in January&nbsp;2007 at Olson Ecologic Labs (&#147;Olson Labs&#148;) in Fullerton,
California, on three separate motorcycles of differing displacements to demonstrate the
effectiveness of more current versions of our technology. The conclusions of RAND&#146;s final report,
which was published on April&nbsp;27, 2007, are summarized under &#147;RAND Report&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tests of our devices using our CAT-MATE technology on a Honda 2-stroke NSR 150 motorcycle and
a Warrior 2-stroke 63cc generator conducted by Hong Kong Exhaust Emissions Laboratory (&#147;HKEEL&#148;) in
July and August&nbsp;2004 showed that the tested devices incorporating our CAT-MATE technology
significantly reduce emissions of CO, THC and NOx. These results were certified by VCA in January
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Emissions and fuel economy tests conducted in 2004 and 2005 at Automotive Testing and
Development Services, Inc. in Ontario California, and in 2005 at Northern California Diagnostics
Laboratory in Napa, California, both EPA and CARB approved testing laboratories, on a devices
incorporating our CAT-MATE technology within the OEM exhaust system of a 1995 Mexican fuel injected
Volkswagen Beetle taxi, showed significant reductions of THC, CO and NOx emissions, compared to the
in-place original OEM exhaust system. In 2006, testing on a device incorporating our MK IV
technology
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">for Harley-Davidson style motors was conducted at the EPA and CARB certified testing
facility Olson Labs. These tests yielded results that would allow these motors to meet current and
future EPA and CARB emissions standards without expensive fuel injection and catalytic converters.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further testing on a used 4-stroke motorcycle incorporating our ZEFS technology was conducted
in December&nbsp;2005 in Bangkok, Thailand at Automotive Emission Laboratory, Pollution Control
Department, Ministry of Natural Resources and Environment of Thailand, and was performed jointly
with S.P. Suzuki of Thailand, the authorized distributor of Suzuki products in Thailand. These
certified mean test results surpassed &#147;hot start&#148; EURO 2 standards in all three of the harmful
exhaust emissions, THC, CO and NOx, by the following amounts:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>THC</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>NOx</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>CO</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">EURO2 Standard
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">1.20 g/km
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">0.30 g/km
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">5.50 g/km
</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">With ZEFS Device
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">0.52 g/km
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">0.10 g/km
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">1.42 g/km
</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">% Below EURO2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">56</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">65</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">74</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, during the testing horsepower increased at all ranges, peaking at 18.8% at 50km/h
and fuel economy increased 33% over the baseline tests.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional testing was conducted in early March&nbsp;2006 on a new Chinese-manufactured carbureted
4-stroke Suyijia SZK125 motorcycle incorporating our ZEFS technologies at HKEEL. These certified
best test results surpassed &#147;cold start&#148; EURO 3 standards for motorcycles of 150cc or less in all
three of the harmful exhaust emissions, THC, CO and NOx, by the following amounts:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>THC</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>NOx</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>CO</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">EURO3 Standard
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">0.80 g/km
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">0.15 g/km
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">2.0 g/km
</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">With ZEFS Device
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">0.33 g/km
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">0.108 g/km
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="center" valign="top">1.86 g/km
</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">% Below EURO3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">59</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">28</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">7</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, during the testing fuel economy increased 7% over the baseline tests.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of further note regarding the HKEEL testing is the fact that it is generally difficult for
anyone to meet EURO 3 guidelines because the testing includes a &#147;cold start&#148; phase. The &#147;cold
start&#148; phase includes exhaust emissions created when a motor is started after an eight-hour cold
soak. It is during this warm-up time that engines produce their highest level of emissions. This is
also where many catalytic converters fail because they must be heated to about 300 degrees
Fahrenheit to begin working effectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2006, Shanghai Motor Vehicle Test Center conducted tests of devices incorporating our
ZEFS and CAT-MATE technologies as required by our distribution agreement required with GAE. See
&#147;Sales and Marketing&#148; below. The results of these tests is summarized below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" colspan="5" style="border-bottom: 0px solid #000000"><B>Technical Targets</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>CO</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>HC</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>NOx</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>g/km</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>g/km</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>g/km</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">EURO3 Standard</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT style="font-family: Symbol">&#163;</FONT>2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT style="font-family: Symbol">&#163;</FONT>0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><FONT style="font-family: Symbol">&#163;</FONT>0.15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left" nowrap>Measured Values</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">ZEFS Device (&#147;hot start&#148;)(a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">ZEFS/CAT-MATE Device (&#147;cold start&#148;)(b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.12</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>A &#147;hot start&#148; test is run for EURO2 compliance, which standard was achieved.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>A &#147;cold start&#148; test is run for EURO3 compliance, which standard was achieved.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also in May&nbsp;2006, at the request of the office of the Minister of Energy for the Kingdom of
Thailand, we participated in a &#147;hot start&#148; test at the testing laboratories of the Thai petroleum
company, the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">PTT Public Company Limited, of products incorporating our MK IV technology for fuel
efficiency. In this test, the Thai distributor for Suzuki Motorcycles, SP Suzuki, supplied a new
125cc 4-stroke Best motor scooter to be tested without our preparing or participating in the
installation of a device incorporating our MK IV technology. The mean test results showed an
average 5.13% improvement in fuel efficiency, as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Run 1</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Run 2</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Run 3</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(l/km)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(l/km)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(l/km)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Average</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Baseline FC Test Runs without MK IV Device</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">FC Test Runs with MK IV Device</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0185</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Difference</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Improvement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.10</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.64</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.15</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.13</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, tests were performed at Olson Labs for the purpose of evaluating the
emissions reduction and fuel efficiency improvement benefits of our ECO ChargR product. The mean
test results were as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Total Hydrocarbon (THC)&nbsp;Emissions (gms/km)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Suzuki 110</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">RevTech 100</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Merch 125</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>AVERAGE BASELINE</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.372</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>AVERAGE ECO CHARGR</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.685</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.302</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>% Improvement</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.1</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Carbon Monoxide (CO)&nbsp;Emissions (gms/km)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Suzuki 110</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">RevTech 100</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Merch 125</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>AVERAGE BASELINE</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.086</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>AVERAGE ECO CHARGR</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.805</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>% Improvement</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">28.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">37.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">25.5</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Oxides of Nitrogen (NOx) Emissions (gms/km)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Suzuki 110</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">RevTech 100</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Merch 125</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>AVERAGE BASELINE</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.287</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>AVERAGE ECO CHARGR</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.268</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>% Improvement</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-44.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.4</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Fuel Economy (miles per gallon)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Suzuki 110</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">RevTech 100</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Merch 125</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>AVERAGE BASELINE</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">241.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>AVERAGE ECO CHARGR</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">253.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.82</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>% Improvement</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These results from Olson Labs were submitted to RAND (see &#147;RAND Report&#148; below) and to the EPA
for consideration for the &#147;EPA 511 Program&#148;. See &#147;Government Regulation and Environmental Matters&#148;
below.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>RAND Report</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2002, we retained the RAND to study the scientific validity and market potential
of our original ZEFS technology, help us develop a plan to assess the technical basis for our ZEFS
technology and understand the potential market for products incorporating the ZEFS technology if a
technical basis were established. RAND outlined a research and evaluation program for the Company
to examine the theoretical basis of the ZEFS device and to test the impact of the device when
installed on vehicles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In early 2003, RAND determined that a comprehensive product-testing program was warranted. As
a result, in May&nbsp;2003, we entered into an arrangement under which RAND coordinated and supervised
both a theoretical scientific study of the concepts underlying our ZEFS technology, as well as an
empirical study. In response to an RFP that RAND sent to 14 universities
in the United States, Temple University was chosen to research the ZEFS technology. Temple
University&#146;s research of the ZEFS technology concluded in early 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of RAND&#146;s work on our behalf concluded in December&nbsp;2005, while further development of
our technologies continued. In 2006, our MK IV technology was first developed and enhancements
have continued into early 2007. We submitted to RAND additional test results from the MK
technology conducted in January&nbsp;2007 at Olson Labs, on three separate motorcycles of differing
displacements to demonstrate the effectiveness of more current versions of our technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;27, 2007, RAND issued its final report, entitled &#147;An Approach to Assessing the
Technical Feasibility and Market Potential of a New Automotive Device.&#148; RAND opined that the
application of magnetic fields has not been shown in scientific literature to lower the viscosity
of automotive fuels. RAND concluded, among other things, that we would need to conduct further
laboratory studies and in-use testing to determine the effectiveness of the ZEFS technology in
reducing pollutants and increasing fuel efficiency in gasoline and diesel-powered vehicles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RAND&#146;s analysis of the laboratory testing data that we had previously had undertaken found at
best mixed results from these tests, and therefore RAND could not confirm the effectiveness of the
ZEFS technology in actual use. For purposes of its report, RAND did not review certain additional
tests that were conducted for us, including the tests by Olson Labs in early 2007, after RAND&#146;s
fieldwork was completed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The RAND report said the existing technical literature does not contain credible reports that
the application of magnetic fields to either gasoline or diesel fuel oil will reduce the
viscosities of these automotive fuels. Researchers at Temple University, who were funded by us as a
result of the competitive grants process administered by RAND, have reported findings indicating a
potential connection between magnetic fields and fuel viscosity. However, RAND reported that such
laboratory work has not yet been independently reviewed and published by the Temple University
research team, and it does not settle the issue of how magnetic fields might affect actual engine
performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RAND concluded that the market potential for products incorporating our ZEFS technology will
depend significantly on demonstrating positive results from our technology, competition posed by
other technologies, and regulatory policies and cost-effectiveness to other alternatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It should be noted that RAND tested our original ZEFS technology as to its effect on emissions
reduction only and not performance enhancement or fuel economy. Versions of the ZEFS technology
studied by RAND are not being marketed by us as emissions reduction products. We believe that a
reassessment and redesign of our products intended to improve the consistency of third-party test
results led to the development and evolution of products incorporating our MK IV technology
intended to reduce
emissions, which has taken place since the completion of RAND&#146;s fieldwork. We further believe
that these newer iterations of our Company&#146;s technologies have performed more consistently in
testing at independent third-party labs since the completion of RAND&#146;s fieldwork. The MK IV
technology has also undergone
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">independent third-party testing, which we believe shows significant
improvement when compared to our original ZEFS technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Sales and Marketing</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, we commenced initial marketing efforts for products incorporating our ZEFS
and CAT-MATE technologies, and these efforts are continuing with respect to ZEFS-based products.
Subsequently, we commenced initial marketing efforts for products incorporating our MK IV
technology, and these efforts are also continuing. We are focused on selling or licensing our
technologies and products domestically and internationally to motorcycle, automobile, carburetor,
fuel-injection and diesel engine manufacturers as well as exhaust and muffler OEMs and the consumer
specialty accessories market. We have made presentations of our ZEFS, MK IV and CAT-MATE
technologies and our products to OEMs in the United States, Asia and Europe.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>United States</U>. We entered into the first agreements for the distribution of our
products in late 2005 and early 2006. Our first two U.S. distributorship agreements were with Team
Phantom and MPCI. These agreements provide for the sale of our product lines in the North American
OEM and specialty consumer accessories market for motorcycles, to certain named prospective
purchasers. In April&nbsp;2007, we shipped 200 units of our ECO ChargR and MAG ChargR products for
motorcycles to MPCI. Our timing to ship additional installments under a purchase order from MPCI
depends upon our financing and ability to pay for the manufacture of products from our outsourced
manufacturer. See &#147;Management&#146;s Discussions and Analysis or Plan of Operations &#150; Liquidity and
Capital Resources&#148;. We currently do not believe that we will be receiving any orders from Team
Phantom for our products and we do not expect that relationship to be viable for us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>China</U>. In January&nbsp;2006, we entered into our first international distributorship
agreement, with GAE. The GAE Agreement provides that GAE will serve as our exclusive distributor
for our ZEFS and CAT-MATE products in the People&#146;s Republic of China. The GAE Agreement was
conditioned upon our ZEFS-based products achieving EURO2 standards in tests to be conducted in
Shanghai. These tests were successfully completed in May&nbsp;2006, during which tests of a device
incorporating our ZEFS technology achieved EURO2 standards and devices incorporating a combination
of our ZEFS and CAT-MATE technologies achieved EURO3 standards. See &#147;Independent Scientific and
Laboratory Testing&#148; above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The initial term of the GAE agreement is for sixteen months from March&nbsp;2006 and will be
renewed automatically for successive periods of 12&nbsp;months each if certain minimum firm orders are
placed, as follows:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt">500,000 units in the first year<BR>
1,000,000 units in the second year<BR>
2,000,000 units in the third year<BR>
3,000,000 units in the fourth year; and<BR>
5,000,000 units in the fifth year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If GAE purchases 11,500,000 or more units during the first five years, the term of the
GAE Agreement shall be extended for an additional period of five years. If GAE sells 15,000,000 or
more units during the second five years, the term of the GAE Agreement shall be extended for a
second additional period of five years. Upon each such renewal a mutually agreeable schedule of
prices and number of units to be purchased by GAE shall be determined. The agreement is terminable
by either party upon 10&nbsp;days&#146; written notice following a material breach which is not cured within
20&nbsp;days by the party receiving written notice of a breach. We have also given GAE rights of first
refusal to distribute in the People&#146;s Republic of China new products which we may create.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the GAE Agreement, in order to retain exclusivity as our distributor in China, GAE
was required to place its initial order on or before July&nbsp;31, 2006 for 100,000 units. Of this
amount, 10,000 units were scheduled for delivery by September&nbsp;30, 2006; 30,000 units were scheduled
for delivery in
March&nbsp;2007; 30,000 units were scheduled for delivery in June&nbsp;2007; and 30,000 units were
scheduled for delivery in July&nbsp;2007. GAE was also required to have issued in our favor an
irrevocable stand-by letter of credit in the sum of $60,000 equal to the purchase price of 10,000
units comprising the first shipment.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">After the first shipment and no later than January&nbsp;31, 2007,
GAE was required to have issued in our favor an additional letter of credit in an amount equal to
$540,000, which is the purchase price of the remaining 90,000 units comprising the initial order.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2006, GAE placed its initial order under the GAE Agreement, for 100,000 units, to be
shipped in installments through July&nbsp;2007. In November&nbsp;2006, we shipped the first installment of
5,000 units to GAE. However, GAE has not requested additional shipments against this initial
order, nor posted additional letters of credit as required by the GAE Agreement, and we do not
believe that GAE will meet their target of ordering 500,000 units on or before July&nbsp;31, 2007. We
are currently in discussions with GAE regarding a revised shipment schedule and changing GAE&#146;s
distributorship status to a non-exclusive arrangement, but we cannot give any assurances as to
what, if any, shipping schedule will result from such discussions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, under the GAE Agreement, we agreed to issue warrants to GAE to purchase up to
1,000,000 shares of our common stock at a purchase price of $1.00 per share to GAE. Warrants to
purchase 200,000 shares of our common stock are issuable upon delivery of the $60,000 and $540,000
letters of credit. Warrants to purchase an additional 300,000 shares of our common stock are
issuable upon full payment for 500,000 units. Warrants to purchase 500,000 shares of our common
stock are issuable upon full payment for 10,000,000 units. The Warrants shall be exercisable for
two years from their respective dates of issuance. Because GAE has not placed the orders required
under the GAE Agreement nor supplied the required letters of credit, we have not yet issued the
warrants provided for in the GAE Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the GAE Agreement, we are required to provide technical support to GAE at our cost and
expense, as GAE shall reasonably request. We are responsible for the costs of shipping and
insurance relating to shipment to the port of Shanghai, People&#146;s Republic of China. GAE is
responsible for the payment of all taxes, duties and imposts assessed on the products. We are
responsible for any CIF mandated charges relating to the shipment of the products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Indonesia</U>. In October&nbsp;2006, we entered into the PTCC Agreement with PTCC,
who will serve as the exclusive distributor for our ECO ChargR, MAG ChargR and CAT-MATE products in
Indonesia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The PTCC Agreement is for an initial term one year and will be renewed automatically for
successive periods if certain minimum firm orders as placed, for years ending September&nbsp;30, as
follows:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt">50,000 units in the first year<BR>
50,000 units in the second year<BR>
100,000 units in the third year<BR>
150,000 units in the fourth year; and<BR>
250,000 units in the fifth year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If PTCC sells 600,000 or more units during the first five years, the term of the PTCC
Agreement shall be extended for an additional period of five years. If PTCC sells 2,000,000 or more
units during the second five years, the term of the PTCC Agreement shall be extended for a second
additional period of five years. Upon each such renewal a mutually agreeable schedule of prices and
number of units to be purchased by PTCC shall be determined. The PTCC Agreement is terminable by
either party upon 10&nbsp;days&#146; written notice following a material breach which is not cured within 20
days by the party receiving written notice of a breach. We have also given PTCC rights of first
refusal to distribute in Indonesia new products which we may create.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the PTCC Agreement, in order to retain exclusivity as our distributor in
Indonesia, PTCC was required to place its initial order on or before October&nbsp;31, 2006 for 10,000
units. Of this amount, 2,000 units were originally scheduled for delivery in January&nbsp;2007, and
2000 units were scheduled for delivery in each of March, April, May and June&nbsp;2007. PTCC was also
required to have issued in our favor an irrevocable stand-by letter of credit in the sum of $95,000
equal to the purchase price of 10,000 units composing the first order. After the first shipment,
at the time of placement of an order PTCC is
required to have issued in our favor additional letters of credit in an amount equal to the
purchase price of the total number of units covered by such order.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We began delivering some of our products under this agreement in the first quarter of 2007,
with the first shipped installment of 2,000 units against an initial order of 10,000 units, and the
remainder of the order due to ship at various times under a revised schedule from June through
October&nbsp;2007. We have received partial payment for the first installment. We have not yet received
firm orders for the subsequent shipments covered by the initial order.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the PTCC Agreement, we are required to provide technical support to PTCC at our cost and
expense, as PTCC shall reasonably request. We are responsible for the costs of shipping and
insurance relating to shipment to the port of Medan, North Sumatra, Indonesia. PTCC is responsible
for the payment of all taxes, duties and imposts assessed on the products. We are responsible for
any CIF mandated charges relating to the shipment of the products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Vietnam.</U> In December&nbsp;2006, we entered into the Adtech Agreement with Adtech, who will
serve as the exclusive distributor for our ECO ChargR, MAG ChargR and CAT-MATE products in Vietnam.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The agreement is for an initial term of one year and will be renewed automatically for
successive periods if certain minimum firm orders as placed, for years ending September&nbsp;30, as
follows:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 6pt">50,000 units in the first year<BR>
50,000 units in the second year<BR>
100,000 units in the third year<BR>
150,000 units in the fourth year; and<BR>
250,000 units in the fifth year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Adtech sells 600,000 or more units during the first five years, the term of the Adtech
Agreement shall be extended for an additional period of five years. If Adtech sells 2,000,000 or
more units during the second five years, the term of the Adtech Agreement shall be extended for a
second additional period of five years. Upon each such renewal a mutually agreeable schedule of
prices and number of units to be purchased by Adtech shall be determined. The Adtech Agreement is
terminable by either party upon 10&nbsp;days&#146; written notice following a material breach which is not
cured within 20&nbsp;days by the party receiving written notice of a breach. We have also given Adtech
rights of first refusal to distribute in Vietnam new products which we may create.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Adtech Agreement, in order to retain exclusivity as our distributor in
Vietnam, Adtech was required to place its initial order on or before October&nbsp;31, 2006 for 10,000
units. 2,000 units of which were scheduled for delivery in January&nbsp;2007, 2000 units of which were
scheduled for delivery in March&nbsp;2007 and the remaining 6,000 units of which were scheduled for
delivery in May&nbsp;2007. Adtech was also required to have issued in our favor an irrevocable stand-by
letter of credit in the sum of $22,000 equal to the purchase price of the 2,000 units scheduled for
delivery in January&nbsp;2007. After the first shipment, at the time of placement of an order Adtech is
required to have issued in our favor additional letters of credit in an amount equal to the
purchase price of the total number of units covered by such order.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We began delivering some of our products under this agreement in the first quarter of 2007,
with the first shipped installment of 2,000 units against an initial order of 10,000 units,
originally due to ship at various times through May&nbsp;2007. We have received payment for the first
installment and intend to ship subsequent installments against payment, which we have not yet
received. We currently expect that additional shipments against the initial order will be
delivered, at the request of Adtech, in installments at various times through 2007, which is
subject to change. Based upon the anticipated modified order rate, we do not expect Adtech to
place orders totaling at least 50,000 units by September&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Adtech Agreement, we are required to provide technical support to Adtech at our cost
and expense, as Adtech shall reasonably request. We are responsible for the costs of shipping and
insurance relating to shipment to the port of Ho Chi Minh City, Vietnam. Adtech is responsible for
the payment of all taxes, duties and imposts assessed on the products. We are responsible for any
CIF mandated charges relating to the shipment of the products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Europe</U>. We also intend to seek distribution opportunities for products incorporating
our ZEFS, MK IV and ELEKTRA technologies in Europe, in addition to our marketing efforts in the
United States
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and Asia. See &#147;Independent Laboratory and Scientific Testing&#148; and &#147;RAND Report&#148;
above. At this time, no such distribution agreements are in place.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other Countries</U>. We also intend to pursue marketing of our products in developing
nations of the world. Harmful exhaust emissions from motorcycles and automobiles in developing
countries is at the highest levels because of the continued widespread use of older models with
either no or malfunctioning catalytic converters. We intend to continue to work with governments
worldwide at all levels, together with industry, to capitalize on our technology to achieve what we
know to be common global environmental objectives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other Efforts</U>. In April&nbsp;2006, we entered into a product development
agreement with Kwong Kee. Under this agreement, Kwong Kee, a manufacturer of mufflers and catalytic
converters, collaborates with us on product development for certain markets, primarily in Asia, and
makes available to us its research and development facilities, testing equipment and product design
and development support team in China
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2006, we entered into an agreement with Quadrant, pursuant to which Quadrant provides
product development services. Under this agreement, we also granted Quadrant a right of first
refusal to manufacture certain of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also in July&nbsp;2006, we entered into an agency agreement with Marketing Matters to provide
exclusive agency services in the United States for advertising, marketing, industry and trade show
promotion, as well as packaging design services. We agreed to pay a $5,000&nbsp;monthly retainer fee
during the term of the agreement, which is through July&nbsp;31, 2007. Certain additional services are
billed to us separately. Additionally, we agreed to pay a flat fee of $4,000 per print ad campaign
approved by us for development. This agreement is terminable on 90&nbsp;days&#146; prior written notice.
Marketing Matters also executed a non-disclosure Agreement and agreed to keep confidential our
products, business, customers and methods of operation. Marketing Matters agreed not to perform
its services for any products or services competing with our products or services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also in July&nbsp;2006, we entered into a separate agreement with SS Sales, to provide exclusive
marketing and promotional services in the western United States and western Canada (the
&#147;Territory&#148;) for our products. SS Sales will also provide advice, assistance and information on
marketing our products in the automotive after-market, and will seek to recruit and establish a
market with distributors, wholesalers and others. SS Sales will be paid a commission equal to 5%
of the gross amount actually collected on contracts we enter into during the contract term for
existing or future customers introduced by SS Sales in the Territory. The contact has a term of
five years unless sooner terminated by either party on 30&nbsp;days&#146; notice. In the event of termination
SS Sales will be entitled to receive all commissions payable through the date of termination. SS
Sales is owned by Nathan Shelton, one of the directors of the Company since February&nbsp;12, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2006, we introduced our ECO ChargR and MAG ChargR products for use in motorcycles
at the INERMOT motorcycle trade show in Cologne, Germany. In November&nbsp;2006, we introduced our ECO
ChargR and MAG ChargR products for use in automobiles and trucks at the SEMA convention in Las
Vegas, Nevada.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In recent months, we have also begun working with, and assisting, manufacturers of vehicles
and engines to obtain EPA and CARB certification in the United States for the sale of their
products. We assisted Shanghai Yide, a Chinese manufacturer of ATVs, in certification testing. At
the request of Shanghai Yide, Olson Labs conducted vehicle certification tests in February and
March&nbsp;2007 on an ATV manufactured by Shanghai Yide, which was fitted with a combination of our ECO
ChargR and CAT-MATE products. These tests were conducted as part of the application process by
Shanghai Yide to obtain EPA and CARB approval for the sale of certain of its vehicles in the United
States, not to prove that our ECO ChargR and CAT-MATE technologies were the decisive factor in
allowing the ATV test to surpass EPA and CARB standards. The results of these tests met current
compliance standards, as well as the future 2010 standards requirements, for both EPA and CARB, as
follows:
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Shanghai Yide 300cc ATV Certification Test Results</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">THC</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">NOx</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">CO</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">THC&#043;NOx</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EPA Standard</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CARB Standard</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ECO ChargR and CAT-MATE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.1985</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.279</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">% Below EPA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">74</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">81</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">% Below CARB</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">39</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Manufacturing</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to a right of refusal that Quadrant has to manufacture certain of our products, we
intend to outsource the manufacture of all our products incorporating our ZEFS and MK IV
technologies, as well as the magnets and housings used as components in those products. We believe
that we will have a number of choices available for third-party manufacturers of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The manufacture of the magnets used in products incorporating our ZEFS or MK IV technologies
requires a rare-earth metal, neodymium. Neodymium is readily available in China, at relatively
stable prices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although products incorporating the ELEKTRA technology remain in development, we currently
intend to outsource the manufacture of any such products, as well as the components used in those
products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The automotive and motor engine industry is highly competitive. We have many competitors in
the United States and throughout the world developing technologies to make engines more
environmentally friendly and fuel-efficient. Many of our competitors have greater financial,
research, marketing and staff resources than we do. For instance, automobile manufacturers have
already developed catalytic converters on automobiles in order to reduce emissions, but, as
discussed above, this creates greenhouse gases and makes controlling emissions costly and complex.
The industry has also proposed high-pressure fuel injection systems for gas and diesel applications
but these modifications are extremely expensive. While we believe that our technologies have
greater benefits, they may be unable to gain market acceptance. Furthermore, research and
development throughout the world is constantly uncovering new technologies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we are unaware of any technologies that compete directly with our technologies, there
can be no assurance that any unknown existing is, or future technology will be, superior to
products incorporating our ZEFS and MK IV technologies, as well as any products we may produce
incorporating the ELEKTRA technology. Our ZEFS and MK IV technologies provide, and we believe that
the ELEKTRA technology may provide, the benefits of all of emission reductions, fuel efficiency and
engine performance enhancement. There are competing products which provide one or more of the
beneficial attributes of our ZEFS, MK IV and ELEKTRA technologies, but not all three benefits.
Additionally, we believe that those competing products that show benefit in more than one area
demonstrate greater benefit in only one area and provide only minimal improvements in other areas.
This contrasts with the independent third-party testing of devices incorporating our ZEFS and MK IV
technologies, which shows greater improvement in multiple areas. See &#147;Independent Laboratory and
Scientific Testing&#148; and &#147;RAND Report&#148; above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competing emissions reduction products are largely comprised of catalytic converters and
alternative fuels. Catalytic converters are much more expensive than products incorporating our
ZEFS and MK IV technologies, and are sensitive and subject to damage caused by the poor quality or
adulteration of fuel commonly used in developing nations. In addition, while catalytic converters
reduce emissions, they do not improve fuel efficiency or engine performance. Domestically, there
are a large number of
manufacturers and distributors of catalytic converters, such as Engelhart Inc., Dow Corning Inc.,
Delphi Corporation and Car Sound Exhaust System, Inc., among others. Internationally, most
catalytic converters
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">are manufactured and distributed by Engelhart Inc., Delphi Corporation and a
large number of smaller businesses in a fragmented industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Alternative fuels, such as hydrogen, electricity, liquid natural gas and ethanol, generally
require more costly conversions and the fuels are not readily available, if at all, in most of the
world.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not aware of any other technology using magnetic, uniform electrical field fuel
treatments or products based on such technology which has been proven to significantly improve fuel
mileage. There are many products currently on the market that claim to increase fuel efficiency. We
believe that the majority of these products have not undergone or provided independent scientific
validation from a recognized third party, or testing at a certified laboratory. Fuel injection does
improve fuel efficiency and performance, but is extremely expensive from the perspective of the
developing nations of the world. Major domestic and international manufacturers and distributors of
fuel injection systems include Delphi Corporation, Robert Bosch Corporation, Siemens Corporation,
and a large number of smaller businesses in a fragmented industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not aware of any other technology using magnetic, uniform electrical fiedl fuel
treatments or products based on such technology which has been proven to significantly improve
performance. There are many products which a consumer can purchase to increase overall performance.
All of the most effective such products, including forced induction, nitrous oxide injection and
exotic exhaust, are very expensive, increase emissions, reduce fuel efficiency and shorter the life
of the engine. Major domestic and international manufacturers and distributors of
performance-enhancing systems include Holley Performance Products, Inc., Nitrous Express Inc.,
Paxton Automotive Corporation, Eaton Corporation, Vortec Engineering LLC, Flowermaster, Inc.,
Hedman Manufacturing, Inc., Gibson Performance, Inc. and a large number of smaller businesses in a
fragmented industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nonetheless, many of our competitors have greater financial, research, marketing and staff
resources than we do. While we believe that our technology has greater benefits, it may be unable
to gain market acceptance. Furthermore, research and development throughout the world is constantly
uncovering new technologies. Although we are unaware of any technologies that compete directly with
ours, there can be no assurance that any existing or future technology is or will be superior to
products incorporating our ZEFS, MK IV or CAT-MATE technologies, or any products we may produce
incorporating our ELEKTRA technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Government Regulation and Environmental Matters</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development activities are not subject to any governmental regulations that
would have a significant impact on our business and we believe that we are in compliance with all
applicable regulations that apply to our business as it is presently conducted. Our products, as
such, are not subject to certification or approval by the EPA or other governmental agencies
domestically or internationally. Instead, such agencies test and certify a sample engine fitted
with our products. Depending upon whether we manufacture or license our products in the future and
in which countries such products are manufactured or sold, we may be subject to regulations,
including environmental regulations, at such time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>U.S. Government Regulation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are currently pursuing EPA and CARB executive order exemptions for our products. These
exemptions would signify that our products do not adversely affect vehicles emissions and would
allow our products to be used on emissions control equipped on and off-road vehicles. We are also
submitting our technologies to the EPA under the &#147;511 Program&#148; which was established in 1970 to
evaluate new emissions and fuel saving technologies for cars and trucks. In April&nbsp;2007, we made a
formal request that the EPA consider our carbureted 4-stroke engine device as part of this program,
even though there are few carbureted cars and trucks left on the road, because the EPA is
tightening emissions regulation on motorcycle, utility and non-road vehicles. We believe that these
applications are well suited for our technologies. We are unable to estimate the time it may take
for the EPA to act upon our application or
predict whether or not such application will be favorably received, especially considering
that we are asking the EPA to amend its existing program.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>EU Regulation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current EU emissions standard for motorcycles is EURO 3, and for automobiles and trucks
the emissions standard is EURO 4. Although there is not a EURO 4 standard for motorcycles
currently, the current trend appears to be for stricter regulation. On the other hand, the
automobile standard is currently moving towards adopting EURO 5 standards by 2009 and EURO 6 by
2014. These standards are difficult to attain and the automotive industry is spending billions of
Euros to engineer solutions. European auto manufacturers are becoming increasingly at odds with the
European Commission (&#147;EC&#148;), the body which evaluates the industry and makes regulatory standards
recommendations to the EU, over CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB> emissions regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB> emissions limits are currently a voluntary agreement between the EU and the
auto manufacturers. The EU target is to reach an average CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB> emission<SUP style="font-size: 85%; vertical-align: text-top"> </SUP>of 120
g/km for all new passenger cars by 2012. However it has become increasingly clear that the
voluntary agreement will not succeed. The average CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB> emissions per car have dropped
only to 160 g/km in 2005, whereas the average was 186 g/km in 1995. Because of this, lawmakers
have started considering regulation. In late 2005, the European Parliament passed a resolution in
support of mandatory CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB> emissions standards to replace the current voluntary agreement.
In late 2006, the EC announced that it was working on a proposal for a legally-binding limit
CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB> emissions from cars. The EC is also proposing the doubling of the fuel efficiency of
new cars by 2020.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently the only accepted method for reducing a vehicle&#146;s CO, THC and NOx emissions is
catalytic converters, but this system converts these gases into largely CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB> and N2O,
both GHGs. Therefore the lower the CO, THC and NOx output, the higher the CO<SUB style="font-size: 85%; vertical-align: text-bottom">2</SUB>
production. The only remedy is increasing fuel efficiency and the automakers argue this is costly
and results in small low-power vehicles which consumers will not want to buy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Intellectual Property</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;1998, we acquired all of the marketing and manufacturing rights to the
ZEFS technologies from the purported inventor of the technology in exchange for 5,000,000 shares of
our common stock, $500,000 and $10 royalty for each unit sold. In November&nbsp;2002, under our
settlement with the bankruptcy trustee for the estate of the purported inventor and his wife, the
trustee transferred all ownership and legal rights to an existing international patent application
for the ZEFS MK I technology to us. In exchange for these rights, we issued to the bankruptcy
trustee a warrant to purchase 500,000 shares of our common stock at $1.00 share and granted a $0.20
royalty on each device we sell.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2002, we settled a dispute with Kevin &#147;Pro&#148; Hart, who claimed proprietary rights to the
ZEFS technologies. In November&nbsp;2002, under our settlement with the bankruptcy trustee for the
estate of Mr.&nbsp;Hart, the trustee assigned all ownership and legal rights to the international patent
application for the ZEFS technology to us, in exchange for an option to purchase 500,000 shares of
our common stock at $1.00 share and a $0.20 royalty on each device we sell. Mr.&nbsp;Hart died in March
2006. See &#147;Part&nbsp;I, Item&nbsp;3. Legal Proceedings&#148; and Note 1 to Notes to Consolidated Financial
Statements&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CAT-MATE technology was created by Adrian Menzell, a member of our research team in
Australia. On August&nbsp;20, 2003, Mr.&nbsp;Menzell filed preliminary Australian patent application
#2004900192 for the CAT-FLAP device, a version of the CAT-MATE technology. This technology was
enhanced and on June&nbsp;4, 2004, Mr.&nbsp;Menzell filed preliminary Australian patent application
#2004903000 for the CAT-MATE. On September&nbsp;1, 2003, we had entered into an Assignment Agreement
with Mr.&nbsp;Menzell, pursuant to which this technology was assigned to us in exchange for 20,000
shares of our common stock and a royalty of $.25 for each CAT-MATE device sold. On June&nbsp;26, 2004,
we received a deed of assignment from Mr.&nbsp;Menzell and each pending patent application was
transferred to our name. Mr.&nbsp;Menzell previously served as a consultant to our company.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>ZEFS Patent Applications</B>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We obtained the patent application for the ZEFS MK I device &#091;PCT/AU01/00585&#093; originally filed
in Australia on May&nbsp;19, 2000. The International Filing Application for our ZEFS MK I technology was
filed on May&nbsp;21, 2001 (Official No.&nbsp;10/275946) &#091;PCT/AU01/00585&#093; and modified as ZEFS MK II on July&nbsp;9,
2003. On November&nbsp;4, 2003 we filed for our ZEFS MK III (#2003906094). The United States Patent and
Trademark Office issued a Notice of Allowance of Patent dated January&nbsp;24, 2005 and the patent
issued on June&nbsp;7, 2005 for the ZEFS MK I device. The duration of the patent is 20&nbsp;years from the date
the original application was filed. Prior to the issuance of such patent, we relied solely on trade
secrets, proprietary know-how and technological innovation to develop our technology and the
designs and specifications for the ZEFS technology. Overall, we have applied for a patent on an
international basis in approximately 64 countries worldwide.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>ZEFS MK I&#151;Device For Saving Fuel and Reducing Emissions</I></B><B>. </B>Thi<B>s </B>fuel saving device has a disk-
like nonmagnetic body provided with a central opening and a number of permanent magnets having
opposed polarities positioned about the central opening to provide multidirectional magnetic
fields. The device is positioned in a fuel air mixture to reduce emissions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the status of the ZEFS MK I patent application in the following
countries:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Country</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Filing date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Status</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Australia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2001258057
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bosnia &#038; Herzegovina
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;BAP 021290A
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Short Term Patent GRANTED.
Application for Standard Patent Filed</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Brazil
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;0111365-8
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination requested September 5,
2003. Report expected mid-2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bulgaria
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;107391
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Under examination &#150; response filed</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canada (small <BR>
entity status)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2409195
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination requested April&nbsp;2006</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;01809802.9
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Under examination &#150; response filed</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;02115018
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination requested July&nbsp;23, 2004.</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Croatia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;P20020982A
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Czech Republic
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PV 2002-4092
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Under Examination &#150; response filed</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Eurasian &#043;&#043;&#043;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;200201237
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED and VALIDATED in all member
states</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Europe &#043;&#043;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;019331222.2
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting examination</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Georgia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;4098/01-2002
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hong Kong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;04100327.0
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Automatic grant upon grant of the
Chinese application</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hungary
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;P 03 01796
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination requested April&nbsp;2006.</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">India*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;IN/PCT/2002/01523
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Under Examination &#150; response filed</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Indonesia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;WO0200202844
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Registration Fee Paid &#150; Awaiting Grant</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Israel
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;152902
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Korea &#091;South&#093;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2002-7015531
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination requested May&nbsp;2006</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Japan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;586731/2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination to be requested by May
21, 2008</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mexico
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PA/A/2002/011365
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Morocco
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PV/26.964
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">New Zealand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;523113
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Norway
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;20025531
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting examination</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Country</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Filing date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Status</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Poland
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;P358837
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting examination</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Serbia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;P-870/02
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination requested December&nbsp;2002</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Singapore
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;93310&nbsp;&#091;WO
01/90562&#093;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">South Africa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2002/10013
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sri Lanka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;12918
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Trinidad &#038; Tobago
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;TT/A/2002/00213
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ukraine
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;20021210144
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">United States
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;6901917
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Vietnam
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;1-2002-01168
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;21, 2001
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">GRANTED</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 20px; text-indent: -20px">&#043;&#043;&nbsp;&nbsp;European patent application covers Austria Belgium Switzerland Liechtenstein Cyprus Germany
Denmark Spain Finland France Great Britain Greece Ireland Italy Luxembourg Netherlands Portugal
Sweden Turkey Lithuania Latvia Slovenia Romania Macedonia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 30px; text-indent: -30px">&#043;&#043;&#043; &nbsp;The Eurasian Patent Convention was signed on September&nbsp;9, 1994 in Moscow by the Heads of the
Governments of the Republic of Azerbaijan, the Republic of Armenia, the Republic of Belarus,
Georgia, the Republic of Kazahkstan, the Kyrgyz Republic, the Republic of Moldova, the Russian
Federation, the Republic of Tajikistan and Ukraine .
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>ZEFS MK II&#151;Device for Saving Fuel and Reducing Emissions</I></B>. This fuel saving device similar
to that of the MK I except that a central magnet can be provided in the opening and the peripheral
magnets extend only partially through the depth of the body and stop short of the top wall to
provide the option of moving the magnetic field further away from the base of the carburetor to
increase the area of magnetic influence between the point of fuel atomization and the point of
cessation of magnetic influence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The priority date is July&nbsp;19, 2003 from Australian patent application 2003903626.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the status of the ZEFS MK II patent application in the following
countries:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Country</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Filing date</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Status</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Taiwan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;1236519
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">July&nbsp;19, 2003
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">GRANTED</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;200480025660.X
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">July&nbsp;15, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exam requested July&nbsp;2006</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Europe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;04737571.2
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">July&nbsp;15, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed &#151; Awaiting Examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">India
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;300/KOL NP/06
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">July&nbsp;15, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Under examination &#150;
acceptance/response due
March&nbsp;18, 2008</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Indonesia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;WO0200600441
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">July&nbsp;15, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be requested
by July&nbsp;15, 2007</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Japan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;Awaiting
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">July&nbsp;15, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be requested
by July&nbsp;15, 2007</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">United States
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;10/564747
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">July&nbsp;15, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed, awaiting examination</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>ZEFS MK III&#151;Emission Control Devices. </I></B>This emission control device is particularly suited for
fuel injection systems which has an elongate body formed with one or more channels and a number of
permanent magnets is positioned in the channels. The device sits on a fuel rail.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The priority date is November&nbsp;4, 2003 from Australia patent application 2003906094.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the status of the ZEFS MK III patent application in the following
countries:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Country</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Filing date</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Status</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thailand <BR>
China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;095155&nbsp;<br>200480039739.8
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;3, 2004
November&nbsp;4, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be
requested by
September&nbsp;2010
Examination
requested October
2006</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Japan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;Awaiting Number
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;4, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be requested by
November&nbsp;3, 2007</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">United States
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;10/578311
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;4, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Application filed &#150; awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Europe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;04796967.0
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;4, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Application filed &#150; awaiting examination</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>MK IV Patent Applications</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Device for Saving Fuel and Reducing Emissions</I></B><B>. </B>This device is similar to the Mark 1 device
but uses stacked magnets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the status of the MK IV patent application in the following
countries:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Country</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Filing date</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Status</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taiwan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;95115220</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April 28, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination due by April 29, 2009</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thailand</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;0601001997</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May 2, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Application filed - awaiting examination</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Malaysia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PI 20062013</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May 2, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination due by May 2, 2008</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">PCT</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PCT/AU2006/000861</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">June 20, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Demand for IPE filed &#150; IPRP favorable.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The priority date is June&nbsp;21, 2005 from Australian patent application 2005903248.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the Paris Convention, the Australian patent application provided &#147;cover
note&#148; type protection for 12&nbsp;months (i.e. until June&nbsp;21, 2006) in all countries that are party to
the Paris Convention, including all the major economies. An International Patent Application (&#147;PCT
Application&#148;) was filed to continue the protection in a number of countries which are signatories
to the Patent Co-operation Treaty (the &#147;PCT&#148;). The PCT is an international agreement which
provides for a single filing to have simultaneous effect in a number of member countries. A single
search is conducted and the results of the search as well as a copy of the description and the
claims are communicated to each of the countries in which a patent is sought. The national patent
offices in each of the countries concerned subsequently process the PCT Application as a national
patent application, making use of the PCT search results. The filing of the PCT Application by the
Company extends the protection in all 133 signatory countries of the PCT until at least December
21, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional national patent applications are due by December&nbsp;21, 2007. The Company&#146;s ability
to make these filings in a timely manner is dependent, in part, on its financial resources. See
&#147;Management&#146;s Discussion and Analysis or Plan of Operations &#150; Liquidity and Capital Resources&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>CAT-MATE Patent Applications</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>CAT-FLAP (Afterburner) &#150;Improvements in or Relating to Emission Control Systems</I></B><U>.</U> A
catalytic converter is provided in an engine exhaust flow to reduce emissions. A valve is provided
downstream from the catalytic converter. The valve is in a closed position when the exhaust flow
volume is
low to keep the hot exhaust gas around the catalytic converter to keep the catalytic converter
within its operational temperatures. When the exhaust flow volume is high (e.g. the engine is
revving) the catalyst is kept at its operational temperature by normal gas flow and valve is opened
to not impede exhaust flow. A simple hinge flap is one method by which this can be achieved.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Country</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Filing date</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Status</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Australia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2004312099
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be
requested by
December&nbsp;2009</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canada
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2559287
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be
requested by
December&nbsp;2009</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;200480042295.3
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination
requested December
2006</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Europe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;04802122.4
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Application filed -
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Indonesia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;WO0200602208
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be
requested by
December&nbsp;2007</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Japan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2006-548033
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be
requested by
December&nbsp;2007</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Korea
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2006-7016017
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination Due by
December&nbsp;23, 2009</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mexico
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PA/a/2006/007863
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Malaysia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PI20050041
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;6, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be
requested by
January&nbsp;2010</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">New Zealand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;548993
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;23, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Application filed &#150;
awaiting
examination.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thailand
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;096762
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">January&nbsp;4, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be
requested by
January&nbsp;2010</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Taiwan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;93140533
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;24, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Examination to be
requested by
December&nbsp;2007</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">United States
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;N/A
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Application filed &#150;
awaiting
examination.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The priority date is January&nbsp;16, 2004 from Australian patent application 2004900192.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>CAT-MATE&#151;Inline Exhaust Device to Improve Efficiency of a Catalytic Converter</I></B><B>. </B>A set of rings
is placed downstream from the catalytic converter to re-radiate heat to the catalytic converter to
keep the converter working at a warmer temperature and therefore greater efficiency.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The priority date is June&nbsp;4, 2004 from Australian patent application 2004903000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This invention was incorporated into the specifications filed pursuant to the CAT-FLAP
invention.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Method and Apparatus for Treatment of a Fluid (Temple University</I></B><U><B>)</B></U><B>. </B>This is an
apparatus for the magnetic treatment of oils to improve viscosity. Under the 2004 License
Agreement with Temple University, we have filed the following patent applications, at our sole
expense and for the benefit of Temple University, in order to secure rights to license this
technology in these countries:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Country</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Filing date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Status</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">GCC*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;GCC/P/2005/5066
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">August&nbsp;22, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Brazil
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;0510871-3
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination to be
requested by May
2008</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Canada
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;2566739
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination to be
requested by May
2010</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">China
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;200580023369.3
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Examination to be
requested by May
2007</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Algeria
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;060593
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Eurasia**
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;200602114
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Egypt
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PCT 1087/2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">United Kingdom
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;0624025.3
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Indonesia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;WO0200603429
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mexico
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;PA/a/2006/013206
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Norway
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;20065632
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">United States
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;11/519168
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;13, 2005
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application filed &#150;
awaiting
examination</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>The GCC application covers Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and
Bahrain.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">**</TD>
    <TD>&nbsp;</TD>
    <TD>This application is in the name of Temple University of the Commonwealth System of Higher
Education.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The priority date is May&nbsp;14, 2004 from Australian patent application 2004902563.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Trademarks</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also filed two applications for trademark protection for CAT-MATE, both in respect of
goods as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Class&nbsp;7: Devices to reduce noxious exhaust emissions from combustion engines; devices
positioned in the exhaust flow of an exhaust of a combustion engine and to reduce pollutants
in the exhaust; devices to radiate or transmit heat to a catalytic converter in an exhaust
system; devices to radiate or transmit heat to a catalytic converter in an exhaust system and
which absorbs the heat from the exhaust gasses and reradiates the heat to the catalytic
converter in the exhaust system; all the foregoing being for petrol or diesel engines.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="16%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Country</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Filing Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Status</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Renewal</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Australia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1008291</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;25, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Registered
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;25, 2014</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Madrid*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">858359</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;21, 2004
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Registered
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;21, 2014</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>The Madrid Protocol application designated the following countries:
United States, China, European Union, Japan, Korea and Singapore.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have filed applications for trademark protection for ECO ChargR in respect of the following
goods in the countries listed in the table below:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Class&nbsp;7: Devices to treat fuel in combustion engines; devices positioned in the fuel train
of a combustion engine to reduce pollutants in the exhaust and maximize efficiency of
combustion; magnetic fuel treatment devices including in-line treatment devices; fuel
treatment devices utilizing magnets; all the foregoing being for petrol or diesel engines.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Country</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Filing Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Status</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Renewal</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Australia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1121860</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July 4, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application Allowed</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canada</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Indonesia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">D00 2007 000330</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 4, 2007</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting examination</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Madrid *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Malaysia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thailand</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taiwan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>The Madrid Protocol application designated the following countries:
United States, China, European Union, Japan, Korea, Singapore and
Vietnam.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The priority date is July&nbsp;4, 2006 from Australian trade mark application no. 1121860
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed applications for trademark protection for MAG ChargR in respect of the following
goods in the countries listed in the table below:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Class&nbsp;7: Devices to treat fuel in combustion engines; devices positioned in the fuel train
of a combustion engine to reduce pollutants in the exhaust and maximize efficiency of
combustion; magnetic fuel treatment devices including in-line treatment devices; fuel
treatment devices utilizing magnets; all the foregoing being for petrol or diesel engines..
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Country</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Filing Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Status</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Renewal</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Australia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1121864</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July 4, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Application Allowed</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canada</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Indonesia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">D00 2007 000331</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January 4, 2007</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting examination</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Madrid *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Malaysia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Thailand</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taiwan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting number</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>The Madrid Protocol application designated the following countries:
United States, China, European Union, Japan, Korea, Singapore and
Vietnam.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The priority date is July&nbsp;4, 2006 from Australian trademark application no. 1121864.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed a trademark application for STWA PERFORMANCE, as listed below for the following
goods:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class&nbsp;7: Devices to reduce noxious exhaust emissions from combustion engines, namely
inline valves, inline throttling valves, inline baffles and catalytic converter heaters;
devices positioned in the exhaust flow of a combustion engine and to reduce pollutants in
the exhaust, namely inline valves, inline throttling valves, inline baffles and catalytic
converter heaters; devices to radiate or transmit heat to a catalytic converter in an
exhaust system, namely inline valves, inline throttling valves, inline baffles and
catalytic converter heaters; devices to radiate or transmit heat to a
catalytic converter in an exhaust system and which absorbs the heat from the exhaust gases
and reradiates the heat to the catalytic converter in the exhaust system, namely inline
valves, inline
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">throttling valves, inline baffles and catalytic converter heaters; all the
foregoing being for petrol or diesel engines; devices to treat fuel in combustion engines;
devices positioned in the fuel train of a combustion engine to reduce pollutants in the
exhaust and maximize efficiency of combustion; magnetic fuel treatment devices including
in-line treatment devices; fuel treatment devices utilizing magnets; all the foregoing
being for petrol or diesel engines.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Country</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Filing Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Status</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Australia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1140033</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">October&nbsp;11, 2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Awaiting examination</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Non-Disclosure Agreements</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To further protect our intellectual property, we have entered into agreements with
certain employees and consultants, which limit access to, and disclosure or use of, our technology.
There can be no assurance, however, that the steps we have taken to deter misappropriation of our
intellectual property or third party development of our technology and/or processes will be
adequate, that others will not independently develop similar technologies and/or processes or that
secrecy will not be breached. In addition, although management believes that our technology has
been independently developed and does not infringe on the proprietary rights of others, there can
be no assurance that our technology does not and will not so infringe or that third parties will
not assert infringement claims against us in the future. Management believes that the steps they
have taken to date will provide some degree of protection, however, no assurance can be given that
this will be the case.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Employees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006, we had 14 full-time employees and three part-time employees. As of
such date, we also utilized the services of one full-time consultant in our research and consulting
facility in Australia and three additional part-time consultants to assist us with various matters,
including marketing. We intend to hire additional personnel to provide services when they are
needed on a full-time basis. We recognize that our efficiency largely depends, in part, on our
ability to hire and retain additional qualified personnel as and when needed and we have adopted
procedures to assure our ability to do so.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risk Factors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We have just begun to generate revenues, we have a history of losses, and we cannot assure you
that we will ever become or remain profitable. As a result, you may lose your entire investment.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generated our first revenues from operations in late 2006 and, accordingly, we have
incurred net losses every year since our inception in 1998. For the fiscal years ended December&nbsp;31,
2006 and 2005, we had net losses of $10,181,523 and $3,115,186, respectively. To date, we have
dedicated most of our financial resources to research and development, general and administrative
expenses and initial sales and marketing activities. We have funded all of our activities through
sales of our securities, including equity and debt. Although we generated our first revenues in
late 2006, we anticipate net losses and negative cash flow to continue for the foreseeable future
until such time as our products are brought to market in sufficient amounts to offset operating
losses. As planned, we have significantly expanded both our research and development efforts, and
our sales and marketing efforts, during the past year. Consequently, we will need to generate
substantial additional funds, from a combination of revenue and external financing activities, to
fund our operations. Our ability to achieve profitability is dependent upon our continuing research
and development, product development, and sales and marketing efforts, to deliver viable products
and the company&#146;s ability to successfully bring them to market. Although our management is
optimistic that we will succeed in marketing products incorporating our ZEFS, MK IV and CAT-MATE
technologies, there can be no assurance that we will ever generate significant revenues or that any
revenues that may be generated will be sufficient for us to become profitable or thereafter
maintain profitability. If we cannot generate sufficient revenues or become or remain profitable,
we may have to cease our operations and liquidate our business.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our independent auditors have expressed doubt about our ability to continue as a going
concern, which may hinder our ability to obtain future financing.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In their report dated May 15, 2007, our independent auditors stated that our
consolidated financial statements for the year ended December&nbsp;31, 2006 were prepared assuming that
we would continue as a going concern. Our ability to continue as a going concern is an issue raised
as a result of our recurring negative cash flows from operations and accumulated deficit. We had an
accumulated deficit of approximately $30,427,597 as of December&nbsp;31, 2006. Our ability to continue
as a going concern is subject to our ability to obtain significant additional capital to fund our
operations and to generate revenue from sales, of which there is no assurance. The going concern
qualification in the auditor&#146;s report could materially limit our ability to raise additional
capital. If we fail to raise sufficient capital, we may have to liquidate our business and you may
lose your investment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Since we have not yet begun to generate positive cash flow from operations, our ability
to continue operations is dependent on our ability to either begin to generate positive cash flow
from operations or our ability to raise capital from outside sources.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not generated positive cash flow from operations and have relied on external sources
of capital to fund operations. We had $244,228 in cash at December&nbsp;31, 2006 and negative cash flow
from operations of $5,197,587 for the year ended December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently do not have credit facilities available with financial institutions or other
third parties, and historically have relied upon best efforts third-party funding. Though we have
been successful at raising capital on a best efforts basis in the past, we can provide no assurance
that we will be successful in any future best-efforts financing endeavors. We will need to continue
to rely upon financing from external sources to fund our operations for the foreseeable future. If
we are unable to raise sufficient capital from external sources to fund our operations, we may need
to curtail operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We will need substantial additional capital to meet our operating needs, and we cannot be sure
that additional financing will be available.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006 and thereafter, our expenses ran, and are expected to continue to run,
at a &#147;burn rate&#148; of approximately <B>$</B>550,000 per month, which amount could increase during 2007. We
are not currently able to fund operations on a current basis, and we will require substantial
additional capital in order to operate. In order to fund some our capital needs, we conducted
private offerings of our securities in early 2006 and in early 2007. The net proceeds of these
offerings have been exhausted. We also established what is generally referred to as an equity line
of credit of up to $10,000,000 with Dutchess Private Equity Fund, LLP (&#147;Dutchess&#148;), under which we
may put shares of our common stock to Dutchess for sale into the marketplace and receive the
proceeds of these sales. From November&nbsp;6, 2006 through December&nbsp;31, 2006, we raised $380,095 gross
proceeds from such puts, and between January&nbsp;1, 2007 and May&nbsp;9, 2007, we raised an additional
$699,591 gross proceeds from such puts. Almost all of the proceeds of those puts have been
exhausted. We will need to rely substantially on additional puts from the equity line of credit
unless and until we can arrange additional interim or permanent financings. Reliance on the equity
line of credit could create downward pressure on the price of our common stock and is dilutive to
our existing shareholders. While discussion regarding additional interim and permanent financings
are being actively conducted, management cannot predict with certainty that the equity line of
credit will be available to provide adequate funds, or any funds at all, or whether any additional
interim or permanent financings will be available at all or, if it is available, if it will be
available on favorable terms. If we cannot obtain needed capital, our research and development, and
sales and marketing plans, business and financial condition and our ability to reduce losses and
generate profits will be materially and adversely affected. Additionally risks specifically
relating to our equity line of credit with Dutchess are set forth at the end of this section.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We will need additional capital to repay certain short-term debt as it matures.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We issued an aggregate $1,225,000 principal amount of convertible notes to Morale Orchards,
LLC in December&nbsp;2006 and January&nbsp;2007, of which $612,500 is due in December&nbsp;2007 and $612,500 is
due in January&nbsp;2008. In addition, we also issued an aggregate $400,000 principal amount of
convertible subordinated notes due November&nbsp;2007 and December&nbsp;2007 to certain investors.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->27<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the Company&#146;s limited capital resources, management cannot predict with certainty that
there will be cash available to repay these obligations, and other obligations, on their
respective maturity dates. If we do not raise adequate funds, we would be unable to repay these
obligations as they mature during the next twelve months and we could default on such obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>As a company with an unproven business strategy, our limited history of operations makes
evaluation of our business and prospects difficult.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business prospects are difficult to predict because of our limited operating history,
early stage of development and unproven business strategy. Since our incorporation in 1998, we have
been and continue to be involved in development of products using our technology, establishing
manufacturing and marketing of these products to consumers and industry partners. Although we
believe our technology and products in development have significant profit potential, we may not
attain profitable operations and our management may not succeed in realizing our business
objectives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we are not able to devote adequate resources to product development and commercialization,
we may not be able to develop our products.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business strategy is to develop, manufacture and market products incorporating our ZEFS
and MK IV technologies, and, to a lesser extent, our CAT-MATE technology. We also intend to
develop, manufacture and market products incorporating the ELEKTRA technology. We believe that our
revenue growth and profitability, if any, will substantially depend upon our ability to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>raise additional needed capital for research and development;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>complete development of our products in development; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>successfully introduce and commercialize our new products.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of our products are still under various stages of development. Because we have limited
resources to devote to product development and commercialization, any delay in the development of
one product or reallocation of resources to product development efforts that prove unsuccessful may
delay or jeopardize the development of other product candidates. Although our management believes
that it can finance our product development through private placements and other capital sources,
if we do not develop new products and bring them to market, our ability to generate revenues will
be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The commercial viability of the ZEFS and CAT-MATE technologies remains largely unproven and we
may not be able to attract customers.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Despite the fact that have entered into various distribution agreements and made
some initial sales of our products to distributors, to the best of our knowledge, no consumer or
automobile manufacturer has used the products incorporating the ZEFS or CAT-MATE technologies to
reduce motor vehicle emissions to date. Accordingly, the commercial viability of our devices is not
known at this time. If commercial opportunities are not realized from the use of products
incorporating the ZEFS and CAT-MATE technologies, our ability to generate revenue would be
adversely affected. There can be no assurances that we will be successful in marketing our
products, or that customers will ultimately purchase our products. Failure to have commercial
success from the sale of our products will significantly and negatively impact our financial
condition.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>RAND Corporation has raised questions about the scientific basis and testing results of the
ZEFS and CAT-MATE technologies.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;27, 2007, RAND issued its final report on our ZEFS and CAT-MATE technologies. In
that report, RAND opined that the application of magnetic fields has not been shown in scientific
literature to lower the viscosity of automotive fuels. RAND concluded, among other things, that we
would need to conduct further laboratory studies and in-use testing to determine the effectiveness
of our ZEFS technology in reducing pollutants and increasing fuel efficiency in gasoline and
diesel-powered vehicles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, RAND&#146;s analysis of the third-party laboratory testing we previously had
undertaken found at best mixed results from these tests, and therefore RAND could not confirm the
effectiveness of our ZEFS technology in actual use. The RAND report said the existing technical
literature does not contain credible reports that the application of magnetic fields to either
gasoline or diesel fuel oil will reduce the viscosities of these automotive fuels.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The impact of the RAND report on our ability to continue to sell our products is unknown at
this time. However, if distributors or purchasers of our products, or governments, develop
reservations about the effectiveness of our products as a result of the RAND report, or otherwise,
it would likely have a material adverse impact on our ability to sell our products and generate
revenue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The commercial viability of the ELEKTRA technology remains largely unproven and we may not be
able to attract customers.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the best of our knowledge, no consumer or automobile manufacturer has used the products
incorporating the ELEKTRA technology to reduce motor vehicle emissions to date. Accordingly, the
commercial viability of our devices are not known at this time. If commercial opportunities are not
realized from the use of products incorporating the ELEKTRA technology, our ability to generate
revenue would be adversely affected. There can be no assurances that we will be successful in
marketing our products, or that customers will ultimately purchase our products. Failure to have
commercial success from the sale of our products will significantly and negatively impact our
financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If our products and services do not gain market acceptance, it is unlikely that we will become
profitable.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for products that reduce harmful motor vehicle emissions is evolving and we have
many successful competitors. Automobile manufacturers have historically used various technologies,
including catalytic converters, to reduce exhaust emissions caused by their products. At this time,
our technology is unproven, and the use of our technology by others is limited. The commercial
success of our products will depend upon the adoption of our technology by auto manufacturers and
consumers as an approach to reduce motor vehicle emissions. Market acceptance will depend on many
factors, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willingness and ability of consumers and industry partners to adopt new technologies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the willingness of governments to mandate reduction of motor vehicle emissions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to convince potential industry partners and consumers that our
technology is an attractive alternative to other technologies for reduction of
motor vehicle emissions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to manufacture products and provide services in sufficient
quantities with acceptable quality and at an acceptable cost; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to place and service sufficient quantities of our products.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If our products do not achieve a significant level of market acceptance, demand for our
products will not develop as expected and it is unlikely that we will become profitable.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We need to outsource and rely on third parties for the manufacture, sales and marketing of our
products, and our future success will be dependent on the timeliness and effectiveness of the
efforts of these third parties.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not have the required financial and human resources or capability to manufacture, market
and sell our products. Our business model calls for the outsourcing of the manufacture, and sales
and marketing of our products in order to reduce our capital and infrastructure costs as a means of
potentially improving our financial position and the profitability of our business. Accordingly, we
must enter into agreements with other companies that can assist us and provide certain capabilities
that we do not possess. We have entered into certain distribution agreements, but we may not be
successful in entering into additional such alliances on favorable terms or at all. Even if we do
succeed in securing additional distribution agreements, we may not be able to maintain them.
Furthermore, any delay in entering into agreements could delay the development and
commercialization of our products and reduce their competitiveness even if they reach the market.
Any such delay related to our existing or future agreements could adversely affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not currently have an agreement in place for the manufacture of products incorporating
our ZEFS or MK IV technologies, although Quadrant has a right of first refusal for the manufacture
of such products. Although we presently intend to have products incorporating our CAT-MATE
technology manufactured by Kwong Kee in China , we do not yet have an agreement in place for the
manufacture of products incorporating our CAT-MATE technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If any party to which we have outsourced certain functions fails to perform its obligations
under agreements with us, the development and commercialization of our products could be delayed or
curtailed.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent that we rely on other companies to manufacture, sell or market our products, we
will be dependent on the timeliness and effectiveness of their efforts. If any of these parties do
not perform its obligations in a timely and effective manner, the commercialization of our products
could be delayed or curtailed because we may not have sufficient financial resources or
capabilities to continue such development and commercialization on our own.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Any revenues that we may earn in the future are unpredictable, and our operating results are
likely to fluctuate from quarter to quarter.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our future operating results will fluctuate due to a variety of factors,
including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>delays in product development;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>market acceptance of our new products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in the demand for, and pricing, of our products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competition and pricing pressure from competitive products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>manufacturing delays; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>expenses related to, and the results of, proceedings relating to our intellectual property.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A large portion of our expenses, including expenses for our facilities, equipment and
personnel, is relatively fixed and not subject to significant reduction. In addition, we expect our
operating expenses will continue to increase significantly in 2007 as we further increase our
research and development, production and marketing activities, among other activities. Although we
expect to generate revenues from sales of our products in future periods, revenues may decline or
not grow as anticipated and our operating results could be substantially harmed for a particular
fiscal period. Moreover, our operating results in some quarters may
not meet the expectations of stock market analysts and investors. In that case, our stock price
most likely would decline.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Nondisclosure agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to protect our proprietary technology and processes, we rely in part on
nondisclosure agreements with our employees, licensing partners, consultants, agents and other
organizations to which we disclose our proprietary information. These agreements may not
effectively prevent disclosure of confidential information and may not provide an adequate remedy
in the event of unauthorized disclosure of confidential information. In addition, others may
independently discover trade secrets and proprietary information, and in such cases we could not
assert any trade secret rights against such parties. Costly and time-consuming litigation could be
necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or
maintain trade secret protection could adversely affect our competitive business position. Since we
rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our
intellectual property, there is a risk that third parties may obtain and improperly utilize our
proprietary information to our competitive disadvantage. We may not be able to detect unauthorized
use or take appropriate and timely steps to enforce our intellectual property rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The manufacture, use or sale of our current and proposed products may infringe on the patent
rights of others, and we may be forced to litigate if an intellectual property dispute arises.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we infringe or are alleged to have infringed another party&#146;s patent rights, we may be
required to seek a license, defend an infringement action or challenge the validity of the patents
in court. Patent litigation is costly and time consuming. We may not have sufficient resources to
bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not
successfully defend an infringement action or are unable to have infringed patents declared
invalid, we may:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>incur substantial monetary damages;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>encounter significant delays in marketing our current and proposed product candidates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>be unable to conduct or participate in the manufacture, use or sale of product
candidates or methods of treatment requiring licenses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>lose patent protection for our inventions and products; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>find our patents are unenforceable, invalid, or have a reduced scope of protection.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Parties making such claims may be able to obtain injunctive relief that could
effectively block our ability to further develop or commercialize our current and proposed product
candidates in the United States and abroad and could result in the award of substantial damages.
Defense of any lawsuit or failure to obtain any such license could substantially harm the company.
Litigation, regardless of outcome, could result in substantial cost to and a diversion of efforts
by the Company to operate its business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We may face costly intellectual property disputes.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to compete effectively will depend in part on our ability to develop and maintain
proprietary aspects of our technologies and either to operate without infringing the proprietary
rights of others or to obtain rights to technology owned by third parties. Our pending patent
applications, specifically patent rights of the MK IV and CAT-MATE technologies, may not result in
the issuance of any patents or any issued patents that will offer protection against competitors
with similar technology. Patents we have received for our ZEFS technologies, and which we may
receive, may be challenged, invalidated or circumvented in the future or the rights created by
those patents may not provide a competitive advantage. We also rely on trade secrets, technical
know-how and continuing invention to develop and maintain our competitive position. Others may
independently develop substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We are involved in a patent infringement suit brought by our former sole director and
executive officer.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2005, Jeffrey A. Muller, the Company&#146;s former sole director and executive officer,
filed a complaint against us seeking declaratory and injunctive relief and alleging unfair
competition in connection with a claimed prior patent interest in the ZEFS technologies. Mr.&nbsp;Muller
is seeking to have the patent
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">rights in the ZEFS technologies that were previously transferred to
us by Mr.&nbsp;Muller&#146;s bankruptcy trustee declared null and void. This is but one of several claims
that have been litigated over a number of years between Mr.&nbsp;Muller and us. While we believe that we
have valid claims and defenses, there can be no assurance that an adverse result or outcome in the
pending litigation would not have a material adverse effect on our business prospects, financial
position and cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We may not be able to attract or retain qualified senior personnel.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe we are currently able to manage our current business with our existing management
team. However, as we expand the scope of our operations, we will need to obtain the full-time
services of additional senior management and other personnel. Competition for highly-skilled
personnel is intense, and there can be no assurance that we will be able to attract or retain
qualified senior personnel. Our failure to do so could have an adverse effect on our ability to
implement our business plan. As we add full-time senior personnel, our overhead expenses for
salaries and related items will increase from current levels and, depending upon the number of
personnel we hire and their compensation packages, these increases could be substantial.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we lose our key personnel or are unable to attract and retain additional personnel, we may
be unable to achieve profitability.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success is substantially dependent on the efforts of our senior management,
particularly Bruce McKinnon, our President and Chief Executive Officer, and John Bautista, our
Chief Operating Officer. The loss of the services of members of our senior management may
significantly delay or prevent the achievement of product development and other business
objectives. Because of the scientific nature of our business, we depend substantially on our
ability to attract and retain qualified marketing, scientific and technical personnel, including
consultants. There is intense competition among specialized automotive companies for qualified
personnel in the areas of our activities. If we lose the services of, or do not successfully
recruit key marketing, scientific and technical personnel, the growth of our business could be
substantially impaired. We do not maintain key man insurance for any of these individuals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We expect to incur increased costs under the Sarbanes-Oxley Act of 2002.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a public company, we incur significant legal, accounting and other expenses. In addition,
the Sarbanes-Oxley Act of 2002, as well as related rules adopted by the SEC, have imposed
substantial requirements on public companies, including certain corporate governance practices and
requirements relating to internal control over financial reporting under Section&nbsp;404 of the
Sarbanes-Oxley Act. We expect these rules and regulations to increase our legal and financial
compliance costs and to make some activities more time-consuming and costly. Although, under
proposed rules issued by the SEC in July&nbsp;2006, we will not be required to evaluate how to document
and test our internal control procedures under Section&nbsp;404 of the Sarbanes-Oxley Act and the
related rules of the SEC until our Annual Report on Form 10-KSB for the year ended December&nbsp;31,
2007, effective disclosure controls and procedures and internal controls are necessary for us to
produce reliable financial reports and are important in helping prevent financial fraud generally.
We must begin to implement proper procedures significantly in advance of this date and will incur
significant up-front expenses to do so. If we are unable to achieve and maintain adequate
disclosure controls and procedures and internal controls, our business and operating results could
be harmed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Changes in stock option accounting rules may adversely affect our reported operating results,
our stock price, and our ability to attract and retain employees.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the Financial Accounting Standards Board (&#147;FASB&#148;) published new rules that
will require companies such as us to record all stock-based employee compensation as an expense.
The new rules apply to stock options grants, as well as a wide range of other share-based
compensation arrangements including restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. As required by FASB, we adopted these rules
effective January&nbsp;1, 2006. As a small company with limited financial resources, we have depended
upon compensating our officers,
directors, employees and consultants with such stock based compensation awards in the past in order
to limit our cash expenditures and to attract and retain officers, directors, employees and
consultants. Accordingly, if we continue to grant stock options or other stock based compensation
awards to our
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">officers, directors, employees, and consultants after the new rules apply to us, our
future earnings, if any, will be reduced (or our future losses will be increased) by the expenses
recorded for those grants. These compensation expenses may be larger than the compensation expense
that we would be required to record were we able to compensate these persons with cash in lieu of
securities. Since we are a small company, the expenses we may have to record as a result of future
options grants may be significant and may materially negatively affect our reported financial
results. The adverse effects that the new accounting rules may have on our future consolidated
financial statements should we continue to rely heavily on stock-based compensation may reduce our
stock price and make it more difficult for us to attract new investors. In addition, reducing our
use of stock plans as an incentive for and a reward to our officers, directors and employees, could
result in a competitive disadvantage to us in the employee marketplace.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Currently, there is only very limited trading in our stock, so you may be unable to sell your
shares at or near the quoted bid prices if you need to sell your shares.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shares of our common stock are thinly-traded on the OTC Bulletin Board, meaning that the
number of persons interested in purchasing our common shares at or near bid prices at any given
time may be relatively small or non-existent. This situation is attributable to a number of
factors, including the fact that we are a small company engaged in a high risk business which is
relatively unknown to stock analysts, stock brokers, institutional investors and others in the
investment community that can generate or influence daily trading volume and valuation. Should we
even come to the attention of such persons, they tend to be risk-averse and would be reluctant to
follow an unproven, early stage company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable. As a consequence, there may be
periods of several days or more when trading activity in our shares is minimal or non-existent, as
compared to a seasoned issuer which has a large and steady volume of trading activity that will
generally support continuous trading without negatively impacting our share price. We cannot
provide any assurance that a broader or more active public trading market for shares of our common
stock will develop or be sustained. Due to these conditions, we cannot give any assurance that
shareholders will be able to sell their shares at or near bid prices or at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The market price of our stock is volatile.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market price for our common stock has been volatile during the last year, ranging from a
closing bid price of $0.57 on December&nbsp;18, 2006 to a closing bid price of $4.74 on March&nbsp;13, 2006,
and a closing bid price of $0.56 on May&nbsp;9, 2007. Additionally, the bid price of our stock has been
both higher and lower than those amounts on an intra-day basis in the last year. Because our stock
is thinly traded, its price can change dramatically over short periods, even in a single day. The
market price of our common stock could fluctuate widely in response to many factors, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>developments with respect to patents or proprietary rights;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements of technological innovations by us or our competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>announcements of new products or new contracts by us or our competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>actual or anticipated variations in our operating results due to the
level of development expenses and other factors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in financial estimates by securities analysts and whether any
future earnings of ours meet or exceed such estimates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>conditions and trends in our industry;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>new accounting standards;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>general economic, political and market conditions and other factors; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the occurrence of any of the risks described in this Memorandum.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->33<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Substantial sales of common stock could cause our stock price to fall.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past year, there have been times when average daily trading volume of our common stock
has been extremely low, and there have been many days in which no shares were traded at all. At
other times, the average daily trading volume of our common stock has been high. If all of the
shares we registered with the SEC are issued by us under the equity line of credit, an additional
7,000,000 shares of our common stock will be able to be freely sold on the market. Because of the
limited trading volume, the sudden release of up to 7,000,000 additional freely trading shares onto
the market, or the perception that such shares will or could come onto the market, could have an
adverse affect on the trading price of our stock. No prediction can be made as to the effect, if
any, that sales of the shares that we may issue under the equity line of credit, or the
availability of such shares for sale, will have on the market prices prevailing from time to time.
Nevertheless, the possibility that substantial amounts of common stock may be sold in the public
market may adversely affect prevailing market prices for our common stock and could impair our
ability to raise capital through the sale of our equity securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Potential issuance of additional shares of our common stock could dilute existing
stockholders.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are authorized to issue up to 200,000,000 shares of common stock. To the extent of such
authorization, our Board of Directors has the ability, without seeking stockholder approval, to
issue additional shares of common stock in the future for such consideration as the Board of
Directors may consider sufficient. The issuance of additional common stock in the future will
reduce the proportionate ownership and voting power of the common stock offered hereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>There are 7,000,000 shares underlying our equity line of credit, which shares we have
registered with the SEC, and the sale of these shares could depress the market price of our common
stock.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The sale by Dutchess into the public market of up to 7,000,000 shares we have registered under
our equity line of credit with Dutchess could depress the market price of our common stock. As of
September&nbsp;20, 2006, shortly before we filed a registration statement (the &#147;Dutchess Registration
Statement&#148;) with the SEC, we had 39,317,619 shares of common stock issued and outstanding and the
closing bid price of our common stock on the OTC Bulletin Board was $1.46. From November&nbsp;6, 2006
through May&nbsp;1, 2007, Dutchess sold, at our request, an aggregate 1,572,507 shares of our common
stock under the equity line of credit. As of May&nbsp;9, 2007, we had 41,196,180 shares of common stock
issued and outstanding and the closing bid price of our common stock on the OTC Bulletin Board was
$0.56. Of course, stock price is influenced by many factors other than sales of our stock by
Dutchess.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Assuming we utilize the maximum amount available under the equity line of credit, existing
shareholders could experience substantial dilution upon the issuance of shares to Dutchess.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our equity line of credit with Dutchess contemplates the potential future issuance and sale of
up to $10,000,000 of our common stock to Dutchess subject to certain restrictions and obligations.
The following is an example of the number of shares that could be issued at various prices assuming
we utilize the maximum amount available under the equity line of credit. These examples assume
issuance at a market price of $1.46 per share, which was the closing bid price of our common stock
on September&nbsp;20, 2006 and at 10%, 25% and 50% below $1.46 per share. However, the closing bid
price of our common stock on April&nbsp;30, 2007 was $0.74, meaning that based on current stock prices
even more shares of our common stock would now have to be issued to Dutchess for the same dollar
amount we draw down under the equity line of credit than in the examples given in the below table.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table should be read in conjunction with the text above and the footnotes
immediately following the table:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->34<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Percent below</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Percent of</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">current market</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Price per share</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Number of shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">outstanding</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">price </TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">issuable (2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">outstanding (3)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">shares (4)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:20px; text-indent:-15px">0 %</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.4162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,061,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,378,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15.22      </TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">10 %</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.2746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,845,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,163,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">16.63      </TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">25 %</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.0622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,414,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,732,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">19.32      </TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">50 %</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.7081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,122,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,439,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">26.43</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Represents purchase prices equal to 97% of $1.46 and potential reductions of 10%, 25% and 50%.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Represents the number of shares issuable if the entire $10,000,000 remaining commitment under
the equity line of credit was drawn down at the indicated purchase prices<B>. </B>Since only
7,000,000 shares of our common stock are being registered by us at this time, we would have
to file another registration statement and have it declared effective by the SEC in order to
make additional drawdowns resulting in the issuance of more than the 7,000,000 shares of
common stock being registered hereunder.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Based on 39,317,619 shares of common stock issued and outstanding as of September&nbsp;20, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Percentage of the total outstanding common stock after the issuance of the shares indicated,
without considering the 4.99% contractual restriction on the number of shares that Dutchess
may own at any point in time or other restrictions on the number of shares we may issue.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The lower the stock price, the greater the number of shares issuable under the equity line of
credit, which could contribute to the future decline of our stock price and dilute existing
shareholders&#146; equity and voting rights.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of shares that Dutchess will receive under its agreement with us is calculated
based upon the market price of our common stock prevailing at the time of each drawdown request, or
put. The lower the market price, the greater the number of shares issuable under the agreement.
Upon issuance of the shares, to the extent that Dutchess will attempt to sell the shares into the
market, these sales could further reduce the market price of our common stock. This in turn will
increase the number of shares issuable under the agreement. This could lead to lower market prices
and a greater number of shares to be issued. A larger number of shares issuable at a discount in a
declining market could expose our shareholders to greater dilution and a reduction of the value of
their investment. As of May&nbsp;9, 2007, we had issued 1,601,907 shares of our common stock to
Dutchess under the equity line of credit and had received $1,079,686 gross proceeds from Dutchess
under the equity line of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our common stock is subject to penny stock regulation, which may make it more difficult for us
to raise capital.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is considered penny stock under SEC regulations. It is subject to rules that
impose additional sales practice requirements on broker-dealers who sell our securities. For
example, broker-dealers must make a suitability determination for the purchaser, receive the
purchaser&#146;s written consent to the transaction prior to sale, and make special disclosures
regarding sales commissions, current stock price quotations, recent price information and
information on the limited market in penny stock. Because of these additional obligations, some
broker-dealers may not effect transactions in penny stocks, which may adversely affect the
liquidity of our common stock and shareholders&#146; ability to sell our common stock in the secondary
market. This lack of liquidity may make it difficult for us to raise capital in the future.
</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;2. </B><B><I>Properties</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive offices consist of leased space in North Hollywood, California. We
lease this space from KZ Golf, Inc. (&#147;KZG&#148;), pursuant to a lease we originally entered into on
October&nbsp;16, 2003 and which expired on October&nbsp;16, 2005. We exercised an option to renew the lease,
which renewal term was due to expire on October&nbsp;15, 2007. Through October&nbsp;16, 2005, the rent was
$3,400 per month for approximately 1,225 square feet, and for comprehensive office support
services, including reception, parking and conference facilities. During the extended lease term,
the rent was $3,740 per month.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with our need to acquire additional office space and expanded services as our
business activities grow, we entered into a new lease dated as of January&nbsp;1, 2006 with KZG,
replacing the prior lease and the terms applicable under the extended term thereof. The new lease
is for a term of 19&nbsp;months, expiring July&nbsp;31, 2007. The new rent is $6,208 per month for
approximately 1,700 square feet
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->35<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">of office space, and for additional common area use, expanded
office support services, including a computer network, and additional parking spaces. We have the
right to renew the lease for an additional term of two years at a 10% increase over the
then-current rent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Thereafter, in July&nbsp;2006, we acquired two additional offices comprising approximately 250
square feet, and additional parking spaces, for which we pay KZG an additional $964 per month in
additional rent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bruce H. McKinnon, our President, Chief Executive Officer and a director, is an owner of KZG.
Management believes that the terms of the lease with KZG are no less favorable than what we would
have had to pay for equivalent space and comparable services with an unaffiliated party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our engineering, production and testing facility is located in Morgan Hill, California. The
lease for this facility was entered into on September&nbsp;1, 2005 and amended on February&nbsp;1, 2006. The
term is for two years, expiring on August&nbsp;31, 2007. The base rent is $4,160 per month for
approximately 5,600 square feet of office and industrial usage space, and is renewable, at our
option, for two additional years at the then prevailing market rate. We believe that this space is
adequate for our current and planned engineering, production and testing activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development facility located in Queensland, Australia is leased. We entered
into the lease for this facility on November&nbsp;15, 2003 for a term of two years, and extended the
lease on a month-to-month basis thereafter until March&nbsp;14, 2006. The rent during this period was
AUD $1,292 (approximately US $1,018 at December&nbsp;31, 2006) per month. On March&nbsp;14, 2006, we entered
into a new lease for this facility for a term of two years commencing March&nbsp;15, 2006 at a rent of
AUD $1,462 (approximately US $1,152 at December&nbsp;31, 2006). Upon the termination of the term of the
lease, we have the option to renew the lease up to two times, each for an additional two-year term,
at an increase over the base rent of the greater of 5% or the increase in the annual consumer price
index in Australia. We are in the process of closing down this facility.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;3. </B><B><I>Legal Proceedings</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;19, 2001, the SEC filed civil charges in the United States Federal District Court,
Southern District of New York, against us, our former President and then sole director Jeffrey A.
Muller, and others, alleging that we and the other defendants were engaged in a fraudulent scheme
to promote our stock. The SEC complaint alleged the existence of a promotional campaign using press
releases, Internet postings, an elaborate website, and televised media events to disseminate false
and materially misleading information as part of a fraudulent scheme to manipulate the market for
stock in our corporation, which was then controlled by Mr.&nbsp;Muller. On March&nbsp;22, 2002, we signed a
Consent to Final Judgment of Permanent Injunction and Other Relief in settlement of this action as
against the corporation only, which the court approved on July&nbsp;2, 2002. Under this settlement, we
were not required to admit fault and did not pay any fines or restitution. The SEC&#146;s charges of
fraud and stock manipulation continue against Mr.&nbsp;Muller and others.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;2, 2002, after an investigation by our newly constituted board of directors, we filed
a cross-complaint in the SEC action against Mr.&nbsp;Muller and others seeking injunctive relief,
disgorgement of monies and stock and financial restitution for a variety of acts and omissions in
connection with sales of our stock and other transactions occurring between 1998 and 2002. Among
other things, we alleged that Mr.&nbsp;Muller and certain others sold Company stock without providing
adequate consideration to us; sold
insider shares without making proper disclosures and failed to make necessary filing required under
federal securities laws; engaged in self-dealing and entered into various undisclosed related-party
transactions; misappropriated for their own use proceeds from sales of our stock; and entered into
various undisclosed arrangement regarding the control, voting and disposition of their stock. On
July&nbsp;30, 2002, the U.S. Federal District Court, Southern District of New York, granted our
application for a preliminary injunction against Mr.&nbsp;Muller and others, which prevented Mr.&nbsp;Muller
and other cross-defendants from selling, transferring, or encumbering any assets and property
previously acquired from us, from selling or transferring any of our stock that they may own or
control, or from taking any action to injure us or our business and from having any direct contact
with our shareholders. The injunctive order also prevents Mr.&nbsp;Muller from engaging in any effort to
exercise control over our corporation and from serving as an officer or director of our
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->36<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">company.
While we believe that we have valid claims, there can be no assurance that an adverse result or
settlement would not have a material adverse effect on our financial position or cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the course of the litigation, we have obtained ownership control over Mr.&nbsp;Muller&#146;s claimed
patent rights to the ZEFS device. Under a Buy-Sell Agreement between Mr.&nbsp;Muller and dated December
29, 1998, Mr.&nbsp;Muller, who was listed on the ZEFS devise patent application as the inventor of the
ZEFS device, purported to grant us all international marketing, manufacturing and distribution
rights to the ZEFS device. Those rights were disputed because an original inventor of the ZEFS
device contested Mr.&nbsp;Muller&#146;s legal ability to have conveyed those rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Australia, Mr.&nbsp;Muller entered into a bankruptcy action seeking to overcome our claims for
ownership of the ZEFS device. In conjunction with these litigation proceedings, a settlement
agreement was reached with the bankruptcy trustee whereby the $10 per unit royalty previously due
to Mr.&nbsp;Muller under his contested Buy-Sell Agreement was terminated and replaced with a $0.20 per
unit royalty payable to the bankruptcy trustee. On November&nbsp;7, 2002, under a settlement agreement
executed with Mr.&nbsp;Muller&#146;s bankruptcy trustee, the trustee transferred to us all ownership and
legal rights to this international patent application for the ZEFS device.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both the SEC and we filed Motions for Summary Judgment contending that there are no material
issues of fact in contention and as a matter of law, the Court should grant a judgment against Mr.
Muller and the cross-defendants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Muller and several of the defendants filed a Motion to Dismiss the complaint filed by us
and moved for summary judgment in their favor. On December&nbsp;28, 2004, Judge George B. Daniels,
denied the cross-defendants&#146; motion to dismiss our cross-complaint, denied the defendants&#146; request
to vacate the July&nbsp;2, 2002 preliminary injunction and denied their request for damages against us.
The court also refused to grant a summary judgment in favor of the cross-defendants and dismissed
Mr.&nbsp;Muller&#146;s claims against us for indemnification for his legal costs and for damages resulting
from the litigation. Neither Mr.&nbsp;Muller nor any of the cross-defendants have filed any cross-claims
against us and we are not exposed to any liability as a result of the litigation, except for
possibly incurring legal fees and expenses should we lose the litigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2005, the Court granted the SEC&#146;s motion for summary judgment. In granting the
motion, the Court has barred Mr.&nbsp;Muller from serving as an officer or director of a public company
for a period of 20&nbsp;years, ordered Mr.&nbsp;Muller to disgorge any shares of our stock that he still owns
and directed the Company to cancel any issued and outstanding shares of our stock still owned by
Mr.&nbsp;Muller. Mr.&nbsp;Muller was also ordered to disgorge to the SEC unlawful profits in the amount of
$7.5&nbsp;million and a pay a civil penalty in the amount of $100,000. Acting in accordance with the
ruling and decision of the Court, we have canceled (i)&nbsp;8,047,403 shares of its common stock held by
Mr.&nbsp;Muller and/or his affiliates, (ii)&nbsp;options to acquire an additional 10,000,000 shares of our
common stock held by Mr.&nbsp;Muller personally and (iii) $1,017,208 of debt which Mr.&nbsp;Muller claimed
was owed to him by the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Muller subsequently filed a Notice of Appeal from the Judgment resulting from this
decision to the Second Circuit Court of Appeals in New York. The clerk of the Court recently
issued an Order dismissing this appeal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the November&nbsp;16, 2005 decision by the Court, Mr.&nbsp;Muller filed a motion seeking
to set aside the Decision and Order of the Court. On March&nbsp;31, 2006, the Court issued a Decision
and Order denying Mr.&nbsp;Muller&#146;s Motion to set aside the Decision on Summary Judgment issued against
Mr.&nbsp;Muller on November&nbsp;16, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;27, 2006, Magistrate Judge Frank Maas, Federal District Court of the Southern
District of New York, issued an order granting summary judgment in favor of the Company. The ruling
provided that all shares, options and any other obligations allegedly owed by the Company to Mr.
Muller were to be disgorged. The ruling also confirmed an earlier decision issued on November&nbsp;16,
2005 in favor of the SEC holding Mr.&nbsp;Muller liable for $7.5&nbsp;million in actual damages, imposing a
$100,000 fine and barring Mr.&nbsp;Muller from any involvement with a publicly traded company for 20
years. With prejudgment
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">interest, this ruling brings the actual damages against Muller to over $9
million. Additionally, the Court further clarified that the scope of its previous disgorgement
order required the disgorgement of any shares of the Company&#146;s stock that Mr.&nbsp;Muller or any of his
nominees directly or indirectly own or control. The Company has taken action to cancel over 3.6
million shares which had been issued to the offshore companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Court also confirmed the appropriateness of an action previously taken by the Company to
acquire the patent rights and to consolidate the manufacturing, marketing and distribution rights
with its ownership of all rights to the existing patents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finally, the Court ruled that Mr.&nbsp;Muller had no claim to an alleged $500,000 debt owed to him
while the damages of over $9&nbsp;million remain unpaid. The Court also ruled that other assets that
were transferred by Mr.&nbsp;Muller to members of his family through various offshore corporations were
also to be disgorged. Because the Court left unresolved an issue concerning claims against one
Muller family member, the Company sought a modification of the Order. On February&nbsp;8, 2007, Judge
Maas issued an Amended Order which concluded that all of the shares of the Company&#146;s stock held by
Mr.&nbsp;Muller or any of his nominees directly or indirectly owned or controlled were to be recaptured
by the Company and were subject to disgorgement and forfeiture. With this modification of the
October&nbsp;27, 2007 ruling, this order provides the complete relief requested by the Company in its
motion for summary judgment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2005, Jeffrey A. Muller, the Company&#146;s former sole director and executive officer,
filed a complaint against us in the Federal District Court for the Central District of California,
seeking declaratory and injunctive relief and alleging unfair competition in connection with a
claimed prior patent interest in the ZEFS device and stock option rights. In seeking declaratory
relief, Mr.&nbsp;Muller is seeking to have the patent rights in the ZEFS device that were previously
transferred to us by Mr.&nbsp;Muller&#146;s bankruptcy trustee declared null and void.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This lawsuit brought by Mr.&nbsp;Muller arose out of the same claims that are the subject of
ongoing litigation in the Federal District Court for the Southern District of New York, in which we
have previously obtained a preliminary injunction against Mr.&nbsp;Muller barring him from any
involvement with the Company and preventing Mr.&nbsp;Muller, his agents or assigns, from exercising any
claimed rights to our assets or stock. Mr.&nbsp;Muller previously filed the same complaint in the
Federal District Court for the Southern District of New York, which claim is still pending. On
December&nbsp;28, 2004, Federal District Court Judge George B. Daniels issued a decision dismissing
motions filed by Mr.&nbsp;Muller against our cross-claims. The dismissal of those motions involved
similar causes of action as those contained in Mr.&nbsp;Muller&#146;s recent lawsuit commenced in the Federal
District Court for the Central District of California. Since the case in New York is still pending,
we believe that the filing of the new lawsuit in California is subject to various defenses which
should result in the dismissal of the new lawsuit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;25, 2006, Mr.&nbsp;Muller&#146;s complaint, filed in the California District Court and
transferred to the Federal Court in the Southern District of New York, was assigned to Judge George
B. Daniels. That Complaint is currently pending, however, the issues raised in this Complaint
arise from the same claims already decided by the Court in its February&nbsp;8, 2007 Amended Order. The
Company plans to file a request to dismiss the pending Complaint on several grounds, including that
the claims sought to be litigated in this latter complaint has been included within the Summary
Judgment Motions decided against Mr.&nbsp;Muller, his
nominees and assignees. While we believe that we have valid claims and defenses, there can be no
assurance that an adverse result or outcome on the pending motions or a trial of this case would
not have a material adverse effect on our financial position or cash flow.
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4. </B><B><I>Submission of Matters to a Vote of Security Holders.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No matters were submitted to a vote of security holders during the fourth quarter of fiscal
2006.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II</B>
</DIV>

<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;5. </B><B><I>Market for Common Equity and Related Stockholder Matters</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through February&nbsp;1, 2006, our common stock was traded on the Pink Sheets under the symbol
&#147;ZERO&#148;. Effective February&nbsp;2, 2006, our common stock is quoted on the Over the Counter Bulletin
Board (the &#147;OTCBB&#148;). The following table sets forth the high and low bid prices of the Company&#146;s
common stock for the quarters indicated as quoted on the Pink Sheets or the OTCBB, as applicable,
as reported by Yahoo Finance. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">First Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the records of our transfer agent, we had 1,040 stockholders of record of our
common stock at May&nbsp;9, 2007. The Company believes that the number of beneficial owners is
substantially higher than this amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not pay a dividend on our common stock and we currently intend to retain future cash
flows to finance our operations and fund the growth of our business. Any payment of future
dividends will be at the discretion of our Board of Directors and will depend upon, among other
things, our earnings, financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect to the payment of dividends and other factors that our Board of Directors
deems relevant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Issuances of Unregistered Securities in Last Fiscal Year</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Bridge Notes</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In late 2005 and early 2006, we conducted an offering (the &#147;Bridge Offering&#148;) and sold an
aggregate $1,075,000 principal amount of our 9% convertible subordinated notes (the &#147;Bridge Notes&#148;)
and issued warrants (&#147;Bridge Warrants&#148;) to purchase up to 2,303,568 shares of our common stock at
$1.00 per share, to certain investors. Net proceeds to us from the sale of the Bridge Notes were
$935,250. All of the Bridge Notes were converted voluntarily during 2006 by the holders of the
Bridge Notes into 1,535,715 shares of our common stock (the &#147;Bridge Shares&#148;), at a conversion price
of $0.70 per share, on or prior to the maturity date of the Bridge Notes on May&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Overseas Offering</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April, 2006, we conducted an offering (the &#147;Overseas Offering&#148;) and sold 473,000 shares of
our common stock at $1.56 per share and issued warrants to purchase up to 118,250 shares of our
common stock at an exercise price of $2.60 per share, to two overseas investors. We raised $737,881
gross proceeds ($667,803 net proceeds) in this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>2006 PIPE Offering</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2006, we conducted an offering (the &#147;PIPE Offering&#148;) and sold 873,018 shares of our
common stock (the &#147;PIPE Shares&#148;) at $1.89 per share and issued warrants (the &#147;PIPE Warrants&#148;) to
purchase up to 436,511 shares of our common stock at $2.70 per share, through our exclusive
placement agent, Spencer Clarke LLC (&#147;Spencer Clarke&#148;). We raised $1,650,009 gross proceeds
($1,435,508 net proceeds) in the PIPE Offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;28, 2006, we filed a registration statement to register the Bridge Shares and the PIPE
Shares, and the shares of our common stock issuable upon exercise of the Bridge Warrants, the PIPE
Warrants and warrants issued to Spencer Clarke for various investment banking and other related
services,
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">including services in connection with the Bridge Offering, the Overseas Offering and the PIPE
Offering. The registration statement was declared effective by the SEC on July&nbsp;24, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other Issuances</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, convertible notes in the amount of $2,576,379 of our
previously issued and outstanding Investor Notes were converted to 3,680,540 shares of common
stock, at a conversion rate of $0.70 per share. In addition, $3,707 of accrued interest was
converted to 5,296 shares of common stock, at a conversion rate of $0.70 per share. The Company
did not receive any proceeds in connection with the conversion of the Investor Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, individuals exercised outstanding warrants to
purchase 2,328,452 shares of common stock for gross and net proceeds of $1,623,327.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Morale Orchards Transaction</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;5, 2006, we entered into a Note Purchase Agreement (the &#147;Note Purchase Agreement&#148;)
with Morale Orchards, LLC (&#147;Morale&#148;). The entire equity interest in Morale is beneficially owned by
Leodis Matthews, who serves as the Company&#146;s litigator through his law firm. The Note Purchase
Agreement provides that Morale will purchase the Company&#146;s one-year Convertible Promissory Notes in
the aggregate face amount of $1,225,000 (the &#147;Morale Notes&#148;), and five-year Warrants (the &#147;Morale
Warrants&#148;) to purchase shares of our Common Stock at prices ranging from $0.70 to $0.85 per share.
The aggregate purchase price for the Morale Notes and Morale Warrants is $1,000,000. Therefore,
while the stated interest on the Morale Notes is 0%, the actual interest rate is 22.5% because the
Morale Notes are being purchased at a discount from their face amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the terms of the Note Purchase Agreement, Morale purchased one Morale Note in the
principal amount of $612,500 on December&nbsp;5, 2006, for which it paid $500,000 and purchased the
other Morale Note in the principal amount of $612,500 on January&nbsp;10, 2007, for which it paid
$500,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the Morale Notes is convertible into shares of our Common Stock at a per share
conversion price initially equal to the closing price of a share of our Common Stock on the trading
day prior to the date of issuance of such Morale Note. The conversion right is exercisable during
the period commencing 90&nbsp;days prior to the maturity of each Morale Note. Concurrently with the
issuance of a Morale Note, for no additional consideration, Morale will acquire Morale Warrants to
purchase a number of shares of our Common Stock equal to 50% of the number of shares of our Common
Stock initially issuable on conversion of the associated Morale Note. The Morale Warrants become
exercisable 180&nbsp;days after the date of their issuance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Morale Note purchased by Morale on December&nbsp;5, 2006 is convertible at the rate of $0.85
per share into 720,588 shares of our Common Stock and the Morale Warrants are exercisable at $0.85
per share for 360,294 shares of our Common Stock. The Morale Note purchased by Morale on January
10, 2007 is convertible at the rate of $0.70 per share into 875,000 shares of our Common Stock and
the Morale Warrants are exercisable at $0.70 per share for 437,500 shares of our Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayment of each Morale Note is to be made monthly, at an amount equal to at least $3,750 for
each Morale Note. Additional payments may be made prior to maturity with no prepayment penalties.
In the event the Company has not repaid each Morale Note in full by the anniversary date of its
issuance, the remaining balance shall be increased by 10% as an initial penalty, and the Company
shall pay additional interest of 2.5% per month, compounded daily, for each month until such Morale
Note is paid in full.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Morale has piggyback registration rights pursuant to which Morale may require the Company to
include the shares of our Common Stock issuable upon conversion of the Morale Notes and exercise of
the Morale Warrants in certain future registration statements we may elect to file, subject to the
right of the Company and/or its underwriters to reduce the number of shares to be included in such
a registration in good faith based on market or other conditions.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The issuances of shares and warrants described above were made in reliance on the exemptions
from registration set forth in Section&nbsp;4(2) of the Securities Act of 1933, as amended (the &#147;Act&#148;),
or Regulations D or S promulgated thereunder.
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;6. </B><B><I>Management&#146;s Discussion and Analysis or Plan of Operation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements and supplementary data
referred to in Item&nbsp;7 of this Form 10-KSB.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion contains forward-looking statements that involve risks and uncertainties. Such
statements, which include statements concerning future revenue sources and concentration, selling,
general and administrative expenses, research and development expenses, capital resources,
additional financings and additional losses, are subject to risks and uncertainties, including, but
not limited to, those discussed above in Item&nbsp;1 and elsewhere in this Form 10-KSB, particularly in
&#147;Risk Factors,&#148; that could cause actual results to differ materially from those projected. Unless
otherwise expressly indicated, the information set forth in this Form 10-KSB is as of December&nbsp;31,
2006, and we undertake no duty to update this information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a development stage company that generated its first initial revenues in the fourth
quarter of 2006. Our focus is on research and development, and initial sales and marketing, of
products incorporating our proprietary and patented technology, which is designed to reduce harmful
emissions, and/or improve fuel efficiency and engine performance on equipment and vehicles driven
by internal combustion engines. We have devoted the bulk of our efforts to the completion of the
design, the development of our production models, testing of devices and the promotion of our
products in the marketplace. We anticipate that these efforts will continue during 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our expenses to date have been funded primarily through the sale of stock and convertible
debt, as well as proceeds from the exercise of stock purchase warrants. We raised capital in 2006
and will need to raise substantial additional capital in 2007, and possibly beyond, to fund our
sales and marketing efforts, continuing research and development, and certain other expenses, until
our revenue base grows sufficiently.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the fiscal year ended December&nbsp;31, 2006, we recorded our first revenues and cost of goods
sold of $30,000 and $13,400, respectively, realizing a gross profit of $16,600,
compared to $0 and $0, respectively, for the year ended December 31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating expenses were $7,412,227 for the fiscal year ended December&nbsp;31, 2006, compared to
$2,631,082 for the fiscal year ended December&nbsp;31, 2005, an increase of $4,781,145. The increase is
largely due to the continued cost of the Company bringing its first product to market and the
normal course of business operations. Much of the increase is also due to non-cash compensation to
both employees and to consultants and other professionals. Specifically, this increase is
attributable to increases in fair value of stock options given to employees ($2,253,263); salaries
and benefits expenses ($1,076,122); consulting and professional fees ($480,813); non-cash expenses
of amortization of deferred compensation, consulting fees, professional fees and settlement cost
($221,852); corporate expenses ($161,012); non-cash depreciation ($135,112); travel ($126,675);
office and other expenses (111,384); rent and utilities ($109,919); and exhibit and trade shows
($104,993).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenses were $401,827 for the fiscal year ended December&nbsp;31, 2006,
compared to $1,150,361 for the fiscal year ended December&nbsp;31, 2005, a decrease of $748,534. Our
research and development expenses include contracts with RAND, consultant&#146;s fees, capital
expenditures, cost of services and supplies. The decrease in research and development expenses is
primarily attributable to a
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">decrease in contracts with RAND Corporation ($785,000) and R&#038;D consulting fees ($64,270). These
decreases were offset by increases in travel expenses ($68,686) and testing tools and supplies
($32,050).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income was $15,422 for the fiscal year ended December 31, 2006, compared to $0 for the fiscal year ended
December&nbsp;31, 2005. The increase is the result of excess cash from fund raising that was invested in a money market
account. Interest expense was $2,398,691 for the fiscal year ended December 31, 2006, compared to $348,964 for the
fiscal year ended December&nbsp;31, 2005 an increase of $2,049,727. The increase is due to a non-cash increase of $1,965,894
from amortization of debt discount on convertible notes and payments of $83,833 on convertible notes. The settlement of
litigation and debt was $0 for the fiscal year ended December&nbsp;31, 2006 compared to $1,017,208 for the fiscal year ended
December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had a net loss of $10,181,523, or $.28 per share, for the year ended December&nbsp;31, 2006, as
compared to a net loss of $3,115,186, or $.08 per share for the fiscal year ended December&nbsp;31,
2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>General</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred negative cash flow from operations in the developmental stage since our
inception in 1998. As of December&nbsp;31, 2006, we had cash of $244,228 and an accumulated deficit of
$30,427,597. Our negative operating cash flow in 2006 was funded primarily through the sale of
common stock and convertible notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements accompanying this Annual Report have been prepared on a
going concern basis, which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of our business. As reflected in the accompanying consolidated
financial statements, we had a net loss of $10,181,523 and a negative cash flow from operations of
$5,197,587 for the year ending December&nbsp;31, 2006, and a stockholders&#146; deficiency of $896,694 as of
December&nbsp;31, 2006. These factors raise substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent on our ability to raise additional
funds and implement our business plan. The consolidated financial statements do not include any
adjustments that might be necessary if we are unable to continue as a going concern.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2006, we raised an aggregate of $3,817,976 gross proceeds ($3,431,496 net proceeds)
from the sale of our stock and the issuance of debt, as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross proceeds of $550,000 (net proceeds of $478,500) from the issuance of the
Bridge Notes and related warrants in a private offering conducted by Spencer Clarke
that began in November&nbsp;2005 and was completed in February&nbsp;2006. In addition, the
Company received gross proceeds of $525,000 (net proceeds $456,750) in 2005 in this
offering.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross proceeds of $737,881 (net proceeds of $667,803) from the sale of stock and
warrants in a private offering conducted by the company in April&nbsp;2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross proceeds of $1,650,000 (net proceeds of $1,435,500) from the sale of stock
and warrants in a PIPE offering conducted by Spencer Clarke, LLC of New York in April
and May&nbsp;2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross and net proceeds of $500,000 from the issuance of a convertible note and
related warrants in a private offering to Morale Orchards on December&nbsp;5, 2006. The
face amount of the note is $612,500 due December&nbsp;4, 2007.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross proceeds of $380,095 (net proceeds of $349,693) from the issuance of stock
under our equity line of credit from Dutchess in November and December&nbsp;2006.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also during 2006, we received $1,623,327 gross and net proceeds from the exercise of warrants
to purchase shares of our common stock and $60,000 gross and net proceeds from the exercise of
options to purchase shares of common stock. See &#147;Market for Common Equity and Related Stockholder
Matters <I>- </I>Issuances of Unregistered Securities in Last Fiscal Year&#148; for more details of the
issuances in 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to fiscal year ended December&nbsp;31, 2006 and through May&nbsp;9, 2007, we raised an
aggregate of $1,599,591 gross proceeds ($1,495,624 net proceeds) from the sale of our stock and the
issuance of debt, as follows:
</DIV>

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<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross and net proceeds of $500,000 from the issuance of a convertible note and
related warrants in a private offering to Morale Orchards on January&nbsp;10, 2007. The
face amount of the note is $612,500 due January&nbsp;9, 2008.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross proceeds of $699,591 (net proceeds of $643,624) from the issuance of stock
under our equity line of credit from Dutchess.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross proceeds of $400,000 (net proceeds of $352,000) from the issuance of Bridge
Notes and related warrants in a private offering conducted by Spencer Clarke that
began in January&nbsp;2007 and was completed on April&nbsp;27, 2007.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Details of Recent Financing Transactions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General</I></B><B>. </B>In late 2005 and early 2006, we conducted the Bridge Offering and sold an aggregate
$1,075,000 principal amount of our 9% Bridge Notes and issued Bridge Warrants to purchase up to
2,303,568 shares of our common stock at $1.00 per share, to certain investors. Net proceeds to us
from the sale of the Bridge Notes were $935,250. All of the Bridge Notes were converted voluntarily
by the holders of the Bridge Notes into 1,535,715 shares of our common stock (the &#147;Bridge Shares&#148;),
at a conversion price of $0.70 per share, on or prior to the maturity date of the Bridge Notes on
May&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2006, we raised capital through the sale of our common stock, to provide some of the funds
necessary to continue to execute on our business plan. In April, 2006, we conducted the &#147;Overseas
Offering&#148; and sold 473,000 shares of our common stock at $1.56 per share and issued warrants to
purchase up to 118,250 shares of our common stock at an exercise price of $2.60 per share, to two
overseas investors. We raised $737,881 gross proceeds ($667,803 net proceeds) in this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2006, we conducted the 2006 PIPE Offering and sold 873,018 shares of our common stock
(the &#147;PIPE Shares&#148;) at $1.89 per share and issued the PIPE Warrants to purchase up to 436,511
shares of our common stock at $2.70 per share, through our exclusive placement agent, Spencer
Clarke. We raised $1,650,009 gross proceeds ($1,435,508 net proceeds) in the PIPE Offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;28, 2006, we filed a registration statement to register the Bridge Shares and the PIPE
Shares, and the shares of our common stock issuable upon exercise of the Bridge Warrants, the PIPE
Warrants and warrants issued to Spencer Clarke for various investment banking and other related
services, including services in connection with the Bridge Offering, the Overseas Offering and the
PIPE Offering. The registration statement was declared effective by the SEC on July&nbsp;24, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Equity Line of Credit</I></B><U><B>.</B></U> In September&nbsp;2006, to address our longer-term capital needs,
we entered into what is sometimes referred to as an equity line of credit arrangement with
Dutchess. See &#147;Risk Factors&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Specifically, we entered into an investment agreement, pursuant to which Dutchess is committed
to purchase up to $10,000,000 of our common stock over the 36-month term of the investment
agreement. We are not obligated to request any portion of the $10,000,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the equity line of credit, we filed the Dutchess Registration Statement
with the SEC on October&nbsp;6, 2006 to register 7,000,000 shares of Common Stock that we may issue
under the equity line of credit and the Dutchess Registration Statement was declared effective by
the SEC on October&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the line of credit we may, but are not obligated to, put shares of our stock to Dutchess
from time to time over a 36-month period, at a purchase price calculated at 97% of the lowest best
closing bid for our common stock for the five trading days following our put notice to Dutchess.
Because the price of our common stock fluctuates and the number of shares of our common stock, if
any, that we may issue, should we exercise our put rights under the equity line of credit, will
vary, we do not know how many shares, if any, we will actually issue under the equity line of
credit. If we put more than the amount that would require us to issue the 7,000,000 shares that we
have registered with the SEC, we would be required to file a new registration statement with regard
to the excess number of shares and have it declared effective by the SEC, before we could make
further puts under the equity line of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The actual number of shares that we may issue pursuant to the equity line of credit is not
determinable as it is based on the market price of our common stock from time to time and the
number of
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">shares we desire to put to Dutchess. Under the terms of the equity line of credit, Dutchess may not
own more than 4.99% of our issued and outstanding stock at any one time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As we draw down on the equity line of credit, more shares will be sold into the market by
Dutchess. These additional shares could cause our stock price to drop. In turn, if the stock price
drops and we make more drawdowns on the equity line of credit, more shares will come into the
market, which could cause a further drop in the stock price. You should be aware that there is an
inverse relationship between our stock price and the number of shares to be issued pursuant to the
equity line of credit. If our stock price declines, we will be required to issue a greater number
of shares under the equity line of credit. We have no obligation to utilize the full amount
available under the equity line of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the Dutchess Registration Statement, we assumed that we would put $9,913,400,
or all 7,000,000 shares, based on a closing price of our common stock on September&nbsp;20, 2006 of
$1.46 per share, less the 3% discount applicable to the price per share that Dutchess would pay
under the terms of the equity line of credit. However, this may not in fact be the case. We would
only be able to put a total of approximately $5,908,000 for the same 7,000,000 shares, based on a
more current closing price of our Common Stock on January&nbsp;11, 2007 of $0.87 per share, less the 3%
discount applicable to the price per share that Dutchess would pay under the terms of the equity
line of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In part because of the drop of our stock price since the establishment of the equity line of
credit, we have not used the maximum amount of the equity line of credit to date that we could have
used. Additionally, as our business expands and new opportunities, technologies and markets
present themselves, our capital requirements are expected to increase.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Morale Transaction</I></B>. On December&nbsp;5, 2006, we entered into a Note Purchase Agreement (the &#147;Note
Purchase Agreement&#148;) with Morale. The entire equity interest in Morale is beneficially owned by
Leodis Matthews, who is the Company&#146;s litigator through his law firm. The Note Purchase Agreement
provides that Morale will purchase the Company&#146;s one-year Convertible Promissory Notes in the
aggregate face amount of $1,225,000 (the &#147;Morale Notes&#148;), and five-year Warrants (the &#147;Morale
Warrants&#148;) to purchase shares of our Common Stock. The aggregate purchase price for the Morale
Notes and Morale Warrants is $1,000,000. Therefore, while the stated interest on the Morale Notes
is 0%, the actual interest rate is 22.5% because the Morale Notes are being purchased at a discount
from their face amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the terms of the Note Purchase Agreement, Morale purchased one Morale Note in the
principal amount of $612,500 on December&nbsp;5, 2006, for which it paid $500,000 and purchased the
other Morale Note in the principal amount of $612,500 on January&nbsp;10, 2007, for which it paid
$500,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the Morale Notes is convertible into shares of our Common Stock at a per share
conversion price initially equal to the closing price of a share of our Common Stock on the trading
day prior to the date of issuance of such Morale Note. The conversion right is exercisable during
the period commencing 90&nbsp;days prior to the maturity of each Morale Note. Concurrently with the
issuance of a Morale Note, for no additional consideration, Morale will acquire Morale Warrants to
purchase a number of shares of our Common Stock equal to 50% of the number of shares of our Common
Stock initially issuable on conversion of the associated Morale Note. The Morale Warrants become
exercisable 180&nbsp;days after the date of their issuance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Morale Note purchased by Morale on December&nbsp;5, 2006 is convertible at the rate of $0.85
per share into 720,588 shares of our Common Stock and the Morale Warrants are exercisable at $0.85
per share for 360,294 shares of our Common Stock. The Morale Note purchased by Morale on January
10, 2007 is convertible at the rate of $0.70 per share into 875,000 shares of our Common Stock and
the Morale Warrants are exercisable at $0.70 per share for 437,500 shares of our Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayment of each Morale Note is to be made monthly, at an amount equal to at least $3,750 for
each Morale Note. Additional payments may be made prior to maturity with no prepayment penalties.
In the event the Company has not repaid each Morale Note in full by the anniversary date of its
issuance, the remaining balance shall be increased by 10% as an initial penalty, and the Company
shall pay additional interest of 2.5% per month, compounded daily, for each month until such Morale
Note is paid in full.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Morale has piggyback registration rights pursuant to which Morale may require the Company to
include the shares of our Common Stock issuable upon conversion of the Morale Notes and exercise of
the
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Morale Warrants in certain future registration statements we may elect to file, subject to the
right of the Company and/or its underwriters to reduce the number of shares to be included in such
a registration in good faith based on market or other conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>2007 PIPE Offering</I></B>. From January&nbsp;13 through April&nbsp;27, 2007, the Company conducted an offering
(the &#147;2007 PIPE Offering&#148;), through Spencer Clarke, as exclusive placement agent, of up to
$2,000,000 principal amount of its 10% convertible notes (the &#147;2007 PIPE Notes&#148;). Interest on the
2007 PIPE Notes, at a rate of 10% per annum, is payable quarterly. The Notes are due nine months
from date of issuance. The Notes are convertible into shares of Common Stock at an initial
conversion price of $0.70 per share (the &#147;Conversion Shares&#148;). The Company raised $400,000 gross
proceeds ($352,000 net proceeds) in the 2007 PIPE Offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has the right to redeem any or all of the outstanding 2007 PIPE Notes in its sole
discretion anytime after the termination of the 2007 PIPE Offering and prior to the maturity date
of the 2007 PIPE Notes. The redemption price shall be the face amount of the redeemed Notes plus
accrued and unpaid interest thereon. Subject to the following sentence, at any time prior to the
maturity date of the 2007 PIPE Notes, for each additional $1,000,000 of gross proceeds raised from
one or more offerings of the Company&#146;s equity or quasi-equity securities, the Company shall redeem
2007 PIPE Notes with a minimum face value of $500,000 together with accrued and unpaid interest,
until the entire outstanding 2007 PIPE Note is redeemed. Certain financings that the Company may
conduct outside of North America and only up to a maximum of UK &#163;15,000,000 in the aggregate, are
exempt from this provision to redeem the 2007 PIPE Notes in whole or in part.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investors in the 2007 PIPE Offering received, for no additional consideration, a warrant (the
&#147;2007 PIPE Warrant&#148;), entitling the holder to purchase a number of shares of the Company&#146;s common
stock equal to 150% of the number of shares of common stock into which the 2007 PIPE Notes are
convertible (the &#147;Warrant Shares&#148;). The 2007 PIPE Warrant will be exercisable on a cash basis only
and will have registration rights. The 2007 PIPE Warrant is exercisable at an initial price of
$1.00 per share, and is exercisable immediately upon issuance and for a period of three years from
the date of issuance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Promptly, but no later than 90&nbsp;days following the closing date of the 2007 PIPE Offering, the
Company is required file a registration statement with the SEC to register the Conversion Shares
and the Warrant Shares. The Company shall use its best efforts to ensure that such registration
statement is declared effective within 120&nbsp;days after filing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The proceeds of all of the offerings discussed above were exhausted by April&nbsp;30, 2007 and we
are having difficulty meeting all of our obligations and operating expenses. In order to fund our
capital needs for the foreseeable future, including the operations of our business, and the
repayment of the Bridge Notes and 2007 PIPE Notes, both of which series of notes are due by the end
of 2007, and the Morale Orchards Notes, which are due in December&nbsp;2007 and January&nbsp;2008, we must
raise substantial additional funds, in addition to the funds required to operate our business,
including without limitation the expenses we will incur in connection with the license and research
and development agreements with Temple University, costs associated with product development and
commercialization of the ELEKTRA technology, costs to manufacture our products, costs to design and
implement an effective system of internal controls and disclosure controls and procedures, and
costs required to protect our intellectual property. In addition, as discussed below, we have
substantial contractual commitments, including without limitation salaries to our executive
officers pursuant to employment agreements, certain severance payments to a former officer and
consulting fees, during the remainder of 2007 and beyond.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In light of the Company&#146;s financial commitments over the next several months and its liquidity
constraints, we are implementing cost reduction measures in all areas of operations, including but
not limited to personnel lay-offs, marketing and advertising, deferral of placing orders to
manufacturers of our ECO ChargR and MAG ChargR products for sale to our existing distributors,
research and development and product development of ELEKTRA products, and certain other expenses.
We intend to review these measures on an ongoing basis and make additional decisions as may be
required.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->45<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to continue to use our equity line of credit for some of our additional requirements
for 2007. However, the equity line of credit will not be sufficient to meet all of our current
liabilities and other obligations in 2007. Therefore, the Company is actively pursuing additional
financing alternatives, but no commitments have been received and, accordingly, no assurance can be
given that any financing will be available or, if available, that it will be on terms that are
satisfactory to the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Contractual Obligations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table discloses our contractual commitments for future periods. Long-term
commitments are comprised operating leases and minimum guaranteed compensation payments under
employment and other agreements. See Note 12 to Notes to Consolidated Financial Statements,
&#147;Commitments and Contingencies&#148;.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ending December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Operating Leases</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Guaranteed Payments</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">154,449</TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">1,585,338</TD>
    <TD nowrap>(3)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">150,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">300,000</TD>
    <TD nowrap>(4)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">92,343</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">75,000</TD>
    <TD nowrap>(5)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">397,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,960,338</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>We have assumed that we will renew the lease for our corporate offices at
North Hollywood, California when it expires on July&nbsp;31, 2007, at an increase in rent
of 10%, as provided for in the lease. We have assumed that we will renew the lease
for our engineering, production and testing facility at Morgan Hill, California when
it expires on August&nbsp;31, 2007, on the existing terms, including rent, for an
additional two-year period, expiring on July&nbsp;31, 2009. For a description of these
properties, see Part&nbsp;I, Item&nbsp;2, &#147;Properties&#148;.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Does not include rent for (i)&nbsp;our corporate offices at North Hollywood,
California beyond July&nbsp;31, 2009 or (ii)&nbsp;our engineering, production and testing
facility at Morgan Hill, California beyond August&nbsp;31, 2009, which are the expiration
dates of the respective renewal terms for those two leases.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Consists of an aggregate $545,600 in total compensation, including base
salary and certain contractually-provided benefits, to two executive officers,
pursuant to employment agreements that expire on December&nbsp;31, 2007, and to one
additional officer, pursuant to an employment agreement that expires on February&nbsp;28,
2008; $385,000 in licensing fees to Temple University; $322,800 in severance payments
to a former officer; $240,000 in consulting fees to Spencer Clarke; and $91,938 in
fees to certain other consultants.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Consists of licensing fees in the amount of $290,000 due to Temple
University; and salary in the amount of $10,000 for two months to an officer, pursuant
to an employment agreement that expires on February&nbsp;28, 2008. Does not include
compensation to our two executive officers, whose employment agreements expire on
December&nbsp;31, 2007.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Consists of licensing fees due to Temple University. Does not include
compensation to our two executive officers, whose employment agreements expire on
December&nbsp;31, 2007.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Licensing Fees to Temple University. </I></B>For details of the licensing agreements with Temple
University, see Part&nbsp;I, Item&nbsp;1, &#147;Business &#151; Our Business Strategy &#151; Our Technologies and Products&#148;.
We are current in our payments to Temple University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Severance Payments to Former Officer. </I></B>On November&nbsp;9, 2006, Eugene E. Eichler resigned as our
Chief Executive Officer and Chief Financial Officer, due to a medical disability. Mr.&nbsp;Eichler&#146;s
resignation as Chief Executive Officer took effect on November&nbsp;20, 2006 and his resignation as
Chief Financial Officer took effect on the appointment of his successor on January&nbsp;8, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of Mr.&nbsp;Eichler&#146;s separation as an officer of the Company, he is entitled to be
paid out the remainder of the cash portion of his employment agreement, at a rate of $300,000 per
annum, through December&nbsp;31, 2007, in accordance with the Company&#146;s normal pay policies. Options
granted to
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">him in February&nbsp;2006 have been accelerated and fully vested on November&nbsp;20, 2006;
additionally, Mr.Eichler will have until November&nbsp;20, 2007 to exercise such options. Mr.&nbsp;Eichler is
also entitled to receive a stock option grant in 2007 equal to the lesser of (i)&nbsp;the number of
stock options Mr.&nbsp;Eichler was granted in 2006 or (ii)&nbsp;the highest number of options granted to any
of the then Chief Executive Officer, President or Chief Financial Officer on an annualized basis,
on terms no less favorable as granted to such person; provided, however, that such options to be
granted to Mr.&nbsp;Eichler shall be fully vested upon grant and shall be exercisable for one year from
the date of grant. The Company and Mr.&nbsp;Eichler have waived any claims they may have against each
other and have agreed to mutual indemnification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of the payments we are required to make under this arrangement, we have paid $25,000 for
January&nbsp;2007 and have accrued but not yet paid $75,000 through April&nbsp;30, 2007, by agreement between
the Company and Mr.&nbsp;Eichler.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Transactions with Spencer Clarke. </I></B>Spencer Clarke has served as our exclusive
placement agent in recent offerings of our securities. We also have retained Spencer Clarke as a
consultant to the Company, for which it will be separately compensated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We entered into a consulting agreement dated January&nbsp;4, 2007 with Spencer Clarke (the
&#147;Consulting Agreement&#148;), pursuant to which Spencer Clarke has agreed that for a twelve-month period
beginning January&nbsp;15, 2007, Spencer Clarke will provide us with financial consulting services
(including but not limited to executive search, strategic partnerships, research on new markets,
strategic visibility, etc) to help further develop our strategic business plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For Spencer Clarke&#146;s services, we have agreed to pay Spencer Clarke a non-refundable fee of
$20,000 per month, payable in advance. The first payment, in the amount of $60,000 and covering
three months, is payable by us on March&nbsp;15, 2007. We will also reimburse Spencer Clarke for
expenses they incur in connection with the performance of their services under the Consulting
Agreement, provided that expenses in excess of $2,000 require our prior approval before they may be
incurred by Spencer Clarke.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have agreed to indemnify Spencer Clarke against any losses, claims, damages or liabilities
to which Spencer Clarke may become subject arising out of or in connection with the services they
render under the Consulting Agreement, unless it is finally judicially determined that such losses,
claims, damages or liabilities arose primarily out of the gross negligence or bad faith of Spencer
Clarke. We have also agreed to reimburse Spencer Clarke immediately for any legal or other
expenses they reasonably incur in connection with investigating, preparing to defend or defending
any lawsuits or other proceedings arising out of or in connection with their rendering of services
under the Consulting Agreement; provided, however, that in the event of a final judicial
determination that the alleged losses, claims, damages or liabilities arose primarily out of the
gross negligence or bad faith of Spencer Clarke, Spencer Clarke will remit to us any amounts
reimbursed, but the amount which Spencer Clarke must remit in such event is limited to the fee
payable by us to Spencer Clarke under the Consulting Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, we have not made any payments under the Consulting Agreement and have accrued $80,000
through April&nbsp;30, 2007 with respect to this obligation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies and Estimates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our discussion and analysis of financial condition and results of operations is based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these
consolidated financial statements and related disclosures requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosure
of contingent assets and liabilities. We evaluate, on an on-going basis, our estimates and
judgments, including those related to the useful life of the
assets. We base our estimates on historical experience and assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The methods, estimates and judgments we use in applying our most critical accounting policies
have a significant impact on the results that we report in our consolidated financial statements.
The SEC considers an entity&#146;s most critical accounting policies to be those policies that are both
most important to the portrayal of a company&#146;s financial condition and results of operations and
those that require management&#146;s most difficult, subjective or complex judgments, often as a result
of the need to make estimates about matters that are inherently uncertain at the time of
estimation. . For a more detailed discussion of the accounting policies of the Company,
see Note 2 of the Notes to the Consolidated Financial Statements, &#147;Summary of Significant
Accounting Policies&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe the following critical accounting policies, among others, require significant
judgments and estimates used in the preparation of our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Certain significant estimates were made in connection with preparing
our consolidated financial statements as described in Note 1 to Notes to Consolidated Financial
Statements. See Item&nbsp;7, &#147;Financial Statements&#148;. Actual results could differ from those estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Revenue Recognition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has adopted Staff Accounting Bulletin 104, &#147;Revenue Recognition&#148; and therefore
recognizes revenue based upon meeting four criteria:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Persuasive evidence of an arrangement exists;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Delivery has occurred or services rendered;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The seller&#146;s price to the buyer is fixed or determinable; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Collectibility is reasonably assured.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company contract manufactures fixed magnetic field products and sells them to various
original equipment manufacturers in the motor vehicle and small utility motor markets. The Company
negotiates an initial contract with the customer fixing the terms of the sale and then receives a
letter of credit or full payment in advance of shipment. Upon shipment, the Company recognizes the
revenue associated with the sale of the products to the customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Property and equipment and depreciation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are stated at cost. Depreciation is computed using the straight-line
method based on the estimated useful lives of the assets, generally ranging from three to ten
years. Expenditures for major renewals and improvements that extend the useful lives of property
and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as
incurred. Leasehold improvements are amortized using the straight-line method over the shorter of
the estimated useful life of the asset or the lease term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Long-lived assets</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for the impairment and disposition of long-lived assets in accordance
with SFAS No.&nbsp;144, &#147;Accounting for the Impairment or Disposal of Long-Lived Assets.&#148; In accordance
with SFAS No.&nbsp;144, long-lived assets to be held are reviewed for events or changes in circumstances
that
indicate that their carrying value may not be recoverable. The Company periodically reviews
the carrying values of long-lived assets to determine whether or not an impairment to such value
has occurred. No impairments were recorded for the year ended December&nbsp;31, 2006. The Company
recorded an impairment
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->48<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">of approximately $505,000 during the period from inception (February&nbsp;18,
1998) through December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Stock-Based Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through December&nbsp;31, 2005, the Company accounted for stock-based compensation to employees and
directors using the intrinsic value method in accordance with Accounting Principles Board Opinion
No.&nbsp;25, &#147;Accounting for Stock Issued to Employees&#148; (&#147;APB 25&#148;) and elected to provided the pro-forma
disclosure requirements of Statements of Financial Accounting Standards No.&nbsp;123, &#147;Share-Based
Payment,&#148; (&#147;SFAS 123&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the intrinsic value method, the Company recognized share-based compensation equal to the
award&#146;s intrinsic value at the time of grant over the requisite service periods using the
straight-line method. Forfeitures were recognized as incurred. The fair values of the awards were
not expensed over the requisite service period. Had the Company recognized such fair value expense
under SFAS 123 for the year ended December&nbsp;31, 2005, the Company would have recorded additional
compensation expense of $861,637.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of SFAS 123 to stock-based awards granted under the
Company&#146;s stock option plans for the year ended December&nbsp;31, 2005 and for the period from inception
(February&nbsp;18, 1998) to December&nbsp;31, 2006. For purposes of this pro-forma disclosure, the fair
value of the options is estimated using the Black-Scholes-Merton option-pricing formula
(&#147;Black-Scholes model&#148;) and amortized to expense over the options&#146; requisite service periods
(vesting periods).
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Cumulative</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Since</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Inception</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,115,186</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(30,427,597</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: total fair value method stock-based
employee compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,039,268</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,010,310</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: deferred compensation amortization
for below market employee options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,060,744</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,976,823</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(32,377,163</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">As reported &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Pro forma &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2006, the Company adopted Statements of Financial Accounting Standards No.&nbsp;123R
(revised 2004), &#147;Share-Based Payment,&#148; (&#147;SFAS 123R&#148;) which requires the measurement and recognition
of compensation expense for all share-based payment awards made to employees and directors based on
estimated fair values. SFAS 123R supersedes the Company&#146;s previous accounting under APB 25 for
periods beginning in fiscal 2006. In March&nbsp;2005, the Securities and Exchange Commission issued
Staff Accounting Bulletin No.&nbsp;107 (&#147;SAB 107&#148;) relating to SFAS 123R. The Company has applied the
provisions of SAB 107 in its adoption of SFAS 123R.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company adopted SFAS 123R using the modified prospective transition method, which requires
the application of the accounting standard as of January&nbsp;1, 2006, the first day of the Company&#146;s
fiscal year 2006. The Company&#146;s consolidated financial statements as of and for the year ended
December&nbsp;31, 2006 reflect the impact of SFAS 123R. In accordance with the modified prospective
transition method, the Company&#146;s consolidated financial statements for prior periods have not been
restated to reflect, and do not include, the impact of SFAS 123R. Stock-based compensation expense
recognized under SFAS 123R for employee and directors for the year ended December&nbsp;31, 2006 was
$2,253,263. Basic and diluted loss
per share for the year ended December&nbsp;31, 2006 would have been ($0.21) per share, if the
Company had not adopted SFAS 123R, compared to reported basic and diluted loss per share of ($0.28)
per share.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS 123R requires companies to estimate the fair value of share-based payment awards to
employees and directors on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as expense over the
requisite service periods in the Company&#146;s Statements of Operations. Stock-based compensation
expense recognized in the Statements of Operations for the year ended December&nbsp;31, 2006 included
compensation expense for share-based payment awards granted prior to, but not yet vested as of
January&nbsp;1, 2006 based on the grant date fair value estimated in accordance with the pro-forma
provisions of SFAS 123 and compensation expense for the share-based payment awards granted
subsequent to January&nbsp;1, 2006 based on the grant date fair value estimated in accordance with the
provisions of SFAS 123R. For stock-based awards issued to employees and directors, stock-based
compensation is attributed to expense using the straight-line single option method, which is
consistent with how the prior-period pro formas were provided. As stock-based compensation expense
recognized in the Statements of Operations for the second quarter of fiscal 2006 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. In our pro-forma information required under SFAS
123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s determination of fair value of share-based payment awards to employees and
directors on the date of grant using the Black-Scholes model, which is affected by the Company&#146;s
stock price as well as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to our expected stock price volatility over the term
of the awards, and actual and projected employee stock option exercise behaviors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has elected to adopt the detailed method provided in SFAS 123R for calculating the
beginning balance of the additional paid-in capital pool (&#147;APIC pool&#148;) related to the tax effects
of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and
Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are
outstanding upon adoption of SFAS 123R.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, there was $142,187 of total unrecognized compensation costs
recognized within the shareholders&#146; deficit related to non-vested share-based compensation
arrangements granted under the 2004 Stock Option Plan. See Note 9 to Notes to Consolidated
Financial Statements. In accordance with SFAS 123R and SAB 107, this cost was written off against
Additional Paid-in Capital when SFAS 123R and SAB 107 were adopted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for stock option and warrant grants issued to non-employees for goods and
services using the guidance of SFAS No.&nbsp;123 and Emerging Issues Task Force (EITF)&nbsp;No.&nbsp;96-18:
&#147;Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,&#148; whereby the fair value of such option and warrant
grants is determined using the Black-Scholes option pricing model at the earlier of the date at
which the non-employee&#146;s performance is completed or a performance commitment is reached.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recent Accounting Pronouncements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Statement No.&nbsp;123R</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has adopted SFAS No.&nbsp;123R effective January&nbsp;1, 2006. It will be effective for all
awards granted after that date. For those stock option awards granted prior to January&nbsp;1, 2006, but
for which the vesting period is not complete, the Company will use the modified prospective
transition method permitted by SFAS No.&nbsp;123R. Under this method, the Company accounts for such
awards on a prospective basis, with expense being recognized in the statement of operations
beginning in the first quarter of 2006 using the grant-date fair values previously calculated for
the SFAS No.&nbsp;123 pro forma disclosures presented in Note 2. The compensation expense not previously
recognized in the SFAS No.&nbsp;123 pro forma
disclosures for the options that have not vested will be recognized over the remaining
employee service period required to earn the awards. For stock option awards granted after January
1, 2006 the Company will value those awards under the provisions of SFAS No.&nbsp;123R and will record
compensation expense over the
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">employee service period required to earn the awards. Through December
31, 2005, the Company accounted for share-based payments to employees using Opinion No.&nbsp;25&#146;s
intrinsic value method and as such, generally recognized no compensation expense for employee stock
options in the statement of operations. See &#147;Critical Accounting Policies and Estimates &#150; Stock
Based Compensation&#148;, for a detailed discussion of the affect of SFAS 123R on the consolidated
financial statements of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Statement No.&nbsp;151</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;     In November 2004, the FASB issued Statement of Financial Accounting
standards No. 151, &#147;Inventory Costs&#148;. This statement amends the guidance in ARB
No. 43 Chapter 4 Inventory Pricing, to require items such as idle facility
costs, excessive spoilage, double freight and re-handling costs to be expenses
in the current period, regardless if they are abnormal amounts or not. This
statement became effective for us in the first quarter of 2006. SFAS 151 does
not have any effect on our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Statement No.&nbsp;154</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first quarter of 2006, we adopted Statement No. 154 (&#147;SFAS 154&#148;),
&#147;Accounting Changes and Error Corrections &#151; a replacement of APB Opinion No. 20
and FASB Statement No. 3. SFAS 154 changed the requirements for the accounting
for and reporting of a voluntary change in the accounting principles. The
adoption of this statement did not affect our consolidated financial statements
in the period of adoption. Its effects on future periods will depend on the
nature and significance of any future accounting changes subject to this
statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Statement No.&nbsp;157</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FASB Statement of Financial Accounting Standards (SFAS)&nbsp;No.&nbsp;157, Fair Value Measurements,
issued in September&nbsp;2006, establishes a formal framework for measuring fair value under GAAP. It
defines and codifies the many definitions of fair value included among various other authoritative
literature, clarifies and, in some instances, expands on the guidance for implementing fair value
measurements, and increases the level of disclosure required for fair value measurements. Although
SFAS No.&nbsp;157 applies to and amends the provisions of existing FASB and AICPA pronouncements, it
does not, of itself, require any new fair value measurements, nor does it establish valuation
standards. SFAS No.&nbsp;157 applies to all other accounting pronouncements requiring or permitting
fair value measurements, except for; SFAS No.&nbsp;123 (R), share-based payment and related
pronouncements, the practicability exceptions to fair value determinations allowed by various other
authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9 that deal with
software revenue recognition. This statement is effective for financial statements issued for
fiscal years beginning after November&nbsp;15, 2007, and interim periods within those fiscal years. The
Company is currently evaluating the effect SFAS 157 will have on its consolidated financial
position, results of operations and cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Statement No.&nbsp;159</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, the Financial Accounting Standards Board (FASB)&nbsp;issued FASB Statement No.
159, &#147;The Fair Value Option for Financial Assets and Financial Liabilities &#151; Including an
amendment of FASB Statement No.&nbsp;115&#148; (FAS 159). FAS 159, which becomes effective for the company
on January&nbsp;1, 2008, permits companies to choose to measure many financial instruments and certain
other items at fair value and report unrealized gains and losses in earnings. Such accounting is
optional and is generally to be applied instrument by instrument. The Company does not anticipate
that election, if any, of
this fair-value option will have a material effect on its consolidated financial position,
results of operations and cash flows.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Interpretation No.&nbsp;48</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the Financial Accounting Standards Board (FASB)&nbsp;issued FASB Interpretation No.
48 (&#147;FIN 48&#148;), &#147;Accounting for Uncertainty in Income Taxes &#151; an interpretation of FASB Statement
No.&nbsp;109, Accounting for Income Taxes&#148;. FIN 48 establishes that the financial statement effects of a
tax position taken or expected to be taken in a tax return are to be recognized in the financial
statements when it is more likely than not, based on the technical merits, that the position will
be sustained upon examination. FIN 48 is effective for fiscal years beginning after December&nbsp;15,
2006. The Company is currently assessing the impact this new standard will have on its consolidated
results of operations, financial position and cash flow. The Company does not expect the adoption
of FIN 48 to significantly affect its consolidated financial position, results of operations and
cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>SAB No.&nbsp;108</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
(&#147;SAB&#148;) No.&nbsp;108, &#147;Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements&#148;. SAB No.&nbsp;108 was issued in order to eliminate
the diversity in practice surrounding how public companies quantify financial statement
misstatements. SAB No.&nbsp;108 requires that registrants quantify errors using both a balance sheet
(iron curtain) approach and an income statement (rollover)&nbsp;approach then evaluate whether either
approach results in a misstated amount that, when all relevant quantitative and qualitative factors
are considered, is material. SAB No.&nbsp;108 is effective for fiscal years ending after November&nbsp;15,
2006. The Company has adopted the bulletin during 2006. The adoption did not have a material effect
on the Company&#146;s consolidated financial position, results of operations or cash flows.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;7. </B><B><I>Financial Statements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our consolidated financial statements as of and for the years ended December&nbsp;31, 2006 and 2005
are presented in a separate section of this report following Item&nbsp;14 and begin with the index on
page F-1.
</DIV>
<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;8. </B><B><I>Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</DIV>
<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;8A. </B><B><I>Controls and Procedures</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(a)&nbsp;Evaluation of disclosure controls and procedures. </I>Our management evaluated, with the
participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this Annual Report on
Form 10-KSB. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the &#147;Exchange Act&#148;)) are not adequate to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in SEC rules and
forms. These matters persist despite our having developed and partially implemented a plan to
ensure that all information will be recorded accurately, processed effectively, summarized promptly
and reported on a timely basis. Our plan to date has involved, in part, reallocation of
responsibilities among officers, various other personnel and some of our directors, and hiring
additional personnel. We began to implement this plan during 2005, including the hiring in August
2005 of a Controller who is a Certified Public Accountant. However, in December&nbsp;2006 our
Controller retired and in January&nbsp;2007 our Chief Financial Officer retired, although our former
Controller still provides certain financial consulting services for us. We have hired a new
part-time
Chief Financial Officer and a full-time Controller, although the latter is not a Certified
Public Accountant. One of several specific additional steps that the Company believes it must
undertake is to retain a consulting firm to, among other things, design and implement adequate
systems of accounting and financial statement disclosure controls during the current fiscal year to
comply with the requirements of the SEC.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe that the ultimate success of our plan to
improve our disclosure controls and procedures will require a combination of additional financial
resources, outside consulting services, legal advice, additional personnel, further reallocation of
responsibility among various persons, and substantial additional training of those of our officers,
personnel and others, including certain of our directors such as our Chairman of the Board and
committee chairs, who are charged with implementing and/or carrying out our plan. It should also
be noted that the design of any system of controls and procedures is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions, regardless of how
remote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(b)&nbsp;Changes in internal control over financial reporting. </I>Other than as described in Item
8A(a) above, there was no change in our internal control over financial reporting that occurred
during the period covered by this Annual Report on Form 10-KSB that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
</DIV>
<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Item&nbsp;8B. Other Information</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May 14, 2007, Erin Brockovich resigned as our Vice President of Environmental Affairs.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART III</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain information required by Part&nbsp;III is incorporated by reference from our Proxy Statement
to be filed with the Securities and Exchange Commission in connection with the solicitation of
proxies for our 2007 Annual Meeting of Stockholders, currently scheduled to be held in late June
2007 (the &#147;Proxy Statement&#148;).
</DIV>
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;9. </B><B><I>Directors and Executive Officers of Registrant</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this section is incorporated by reference from the section
entitled &#147;Proposal 1 &#151; Election of Directors&#148; in the Proxy Statement. Item&nbsp;405 of Regulation&nbsp;S-B
calls for disclosure of any known late filing or failure by an insider to file a report required by
Section&nbsp;16 of the Exchange Act. This disclosure is incorporated by reference to the section
entitled &#147;Section&nbsp;16(a) Beneficial Ownership Reporting Compliance&#148; in the Proxy Statement. The
information required by this Item with respect to our executive officers is contained in Item&nbsp;1 of
Part&nbsp;I of this Annual Report under the heading &#147;Business &#151; Executive Officers&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Code of Business Conduct</U>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have adopted codes of business conduct and ethics for our directors, officers and employees
which also meets the requirements of a code of ethics under Item&nbsp;406 of Regulation&nbsp;S-B. You can
access the Company&#146;s Code of Business Conduct and Ethics and our Code of Ethics for Senior
Executives and Financial Officers on the Corporate Governance page of the Company&#146;s website at
<U>www.stwa.com</U>. Any shareholder who so requests may obtain a printed copy of the Code of
Conduct by submitting a request to the Company&#146;s Corporate Secretary.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;10. </B><B><I>Executive Compensation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this section is incorporated by reference from the information in
the section entitled &#147;Executive Compensation&#148; in the Proxy Statement.
</DIV>
<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Item&nbsp;11. </B><B><I>Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this section is incorporated by reference from the information in
the section entitled &#147;Security Ownership of Certain Beneficial Owners and Management&#148; in the Proxy
Statement.
</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;12. </B><B><I>Certain Relationships and Related Transactions</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this section is incorporated by reference from the information in
the section entitled &#147;Certain Relationships and Related Transactions&#148; in the Proxy Statement.
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;13. </B><B><I>Exhibits</I></B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following documents are filed as part of this Form 10-KSB.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Financial Statements:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reference is made to the contents to the consolidated financial statements of Save the
World Air, Inc. under Item&nbsp;7 of this Form 10-KSB.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibits:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The exhibits listed below are required by Item&nbsp;601 of Regulation&nbsp;S-B.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Articles of Incorporation, as amended, of the Registrant.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Bylaws of the Registrant.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1(2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Commercial Sublease dated October&nbsp;16, 2003 between the Registrant
and KZ Golf, Inc.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2(9)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated June&nbsp;15, 2004 to Exhibit&nbsp;10.1</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3 (10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated August&nbsp;14, 2005 to Exhibit&nbsp;10.1</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">General Tenancy Agreement dated March&nbsp;14, 2006 between the
Registrant and Autumlee Pty Ltd.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5(3)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement dated December&nbsp;13, 2002 between the Registrant and RAND.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6(2)**
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement dated May&nbsp;7, 2003 between the Registrant and RAND.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Modification No.&nbsp;1 dated as of August&nbsp;21, 2003 to Exhibit&nbsp;10.5</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Modification No.&nbsp;2 dated as of October&nbsp;17, 2003 to Exhibit&nbsp;10.5</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Modification No.&nbsp;3 dated as of January&nbsp;20, 2004 to Exhibit&nbsp;10.5</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10(4)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed and Document Conveyance between the Trustee of the Property of Jeffrey Ann Muller and Lynette Anne
Muller (Bankrupts).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11(4)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignment and Bill of Sale dated May&nbsp;28, 2002 between the Registrant and Kevin Charles Hart.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12(11)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreement dated October&nbsp;5, 2005 between the Registrant and Eugene E.
Eichler.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13*&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Separation Agreement and General Mutual Release of Claims dated as of November&nbsp;9, 2006 between the Registrant and Eugene E. Eichler</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14(11)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreement dated October&nbsp;5, 2005 between the Registrant and Bruce H.
McKinnon.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15(6)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Save the World Air, Inc. 2004 Stock Option Plan</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Incentive Stock Option Agreement under 2004 Stock Option Plan</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Non-Qualified Stock Option Agreement under 2004 Stock Option Plan</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of October&nbsp;1, 2004 between the Registrant and John Fawcett</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19(7)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement dated as of July&nbsp;1, 2004 between the Registrant and Temple University &#150; The Commonwealth
System of Higher Education</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of November&nbsp;19, 2004 between the Registrant and London Aussie Marketing, Ltd.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.21(13)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated September&nbsp;14, 2006 to Exhibit&nbsp;10.20</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22(8)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement dated September&nbsp;1, 2004 with Erin Brockovich</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23*&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated as of July&nbsp;31, 2006 to Exhibit&nbsp;10.22</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.24(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignment of Patent Rights dated as of September&nbsp;1, 2003 between the Registrant and Adrian Menzell</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.25(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Global Deed of Assignment dated June&nbsp;26, 2004 between the Registrant and Adrian Menzell</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26(11)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment
Agreement dated as of March&nbsp;1, 2006 between the Registrant and John Richard
Bautista III</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.27(9)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease dated August&nbsp;15, 2005 between the Registrant and Thomas L. Jackson</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.28(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated February&nbsp;1, 2006 to Exhibit&nbsp;10.27</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.29(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of 9% Convertible Note issued in the 2005 Interim Financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.30(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in the 2005 Interim Financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.31(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in the 2005 Bridge Financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.32(11)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in 2006 Regulation&nbsp;S financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.33(11)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in 2006 PIPE financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.34(12)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Commercial Sublease between the Registrant and KZG Golf dated January&nbsp;1, 2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.35(12)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment Agreement dated September&nbsp;15, 2006 between the Registrant and Dutchess Private Equities Fund</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.36(12)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights Agreement dated September&nbsp;15, 2006 between the registrant and Dutchess Private Equities
Fund, LLP</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.37(16)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement between the Registrant and Temple University dated February&nbsp;2, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.38(16)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement between the Registrant and Temple University dated February&nbsp;2, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.39(16)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">R&#038;D Agreement between the Registrant and Temple University dated February&nbsp;2, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.40(14)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Note Purchase Agreement dated December&nbsp;5, 2006 between the registrant and Morale Orchards LLC</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.41(14)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued to Morale Orchards LLC</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.42(14)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Convertible Note issued to Morale Orchards LLC</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.43(15)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated January&nbsp;4, 2007 between the Registrant and Spencer Clarke LLC</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.44*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Marketing Representation Agreement dated as of July&nbsp;15, 2006 between the Company and SS Sales and Marketing Group</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.45*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Engagement Agreement between the
Registrant and CFO911</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.46*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of 10% Convertible Note issued in 2007 PIPE Offering</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.47*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in 2007 PIPE Offering</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of Subsidiaries</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Weinberg &#038; Co,</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power of Attorney (included on Signature Page)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer of Annual Report Pursuant to Rule&nbsp;13(a)&#151;15(e) or Rule&nbsp;15(d)&#151;15(e).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer of Annual Report Pursuant to 18 U.S.C. Section&nbsp;1350.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer and Chief Financial Officer of Annual Report pursuant to Rule
13(a)&#151;15(e) or Rule&nbsp;15(d)&#151;15(e).</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Filed herewith.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">**</TD>
    <TD>&nbsp;</TD>
    <TD>Confidential treatment previously requested.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">&#134;</TD>
    <TD>&nbsp;</TD>
    <TD>Management contract or compensatory plan or arrangement.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Registration Statement on Form 10-SB (Registration Number 000-29185), as amended, filed on March&nbsp;2, 2000.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 10-KSB for the fiscal year ended December&nbsp;31, 2002.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 8-K filed on December&nbsp;30, 2002.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->56<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 8-K filed on November&nbsp;12, 2002.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 10-QSB for the quarter ended March&nbsp;31, 2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Appendix&nbsp;C of Registrant&#146;s Schedule&nbsp;14A filed on April&nbsp;30, 2004, in connection with its Annual Meeting of Stockholders held on May&nbsp;24,
(6)&nbsp;2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporates by reference from Registrant Form 8-K filed on July&nbsp;12, 2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(8)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from registrant&#146;s Form 10-KSB for the fiscal year ended December&nbsp;31, 2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(9)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 10-QSB for the quarter ended September&nbsp;30, 2005</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(10)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 10-KSB for the fiscal year ended December&nbsp;31, 2005</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(11)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form SB-2 filed on June&nbsp;28, 2006 (SEC File No.&nbsp;333- 333-135415)</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(12)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 8-K filed on September&nbsp;21, 2006</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(13)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form SB-2 filed on October&nbsp;6, 2006 (SEC File No.&nbsp;333-137855)</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(14)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 8-K filed on December&nbsp;11, 2006</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(15)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 8-K filed on January&nbsp;10, 2007</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(16)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s form 8-K filed on February&nbsp;8, 2007</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;14. </B><B><I>Principal Accountant Fees and Services</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this section is incorporated by reference from the information in
the section entitled &#147;Proposal 2 &#151; Ratification of Appointment of Independent Auditors&#148; in the
Proxy Statement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->57<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="119">
</A></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Section&nbsp;13 or 15(d) of the Exchange Act, the Registrant has caused this
report to be signed on its behalf by the undersigned, hereunto duly authorized.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><FONT style="font-variant: SMALL-CAPS">Save The World Air, Inc.</FONT><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>

<TD colspan="2" style="border-bottom: 1px solid #000000" align="center">/s/ BRUCE MCKINNON
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center">Bruce McKinnon&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: May&nbsp;25, 2007&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center"><I>Chief Executive Officer</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>POWER OF ATTORNEY</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints, jointly and severally, Bruce H. McKinnon and Charles K. Dargan II, and each of them,
as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any and all capacities,
to sign any and all amendments to this Annual Report on Form 10-KSB, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them,
or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">NAME</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">TITLE</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">DATE</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ BRUCE H. MCKINNON
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Chief Executive Officer and
Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Bruce H. McKinnon
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ CHARLES K. DARGAN II
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Chief Financial Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Charles K. Dargan II
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ JOSEPH HELLEIS
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Chairman of the Board
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Joseph Helleis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ STEVEN BOLIO
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Steven Bolio
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ JOHN BROWN
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
John Brown
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ EUGENE E. EICHLER
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Eugene E. Eichler
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->58<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">NAME</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">TITLE</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">DATE</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ DENNIS KENNEALLY
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Dennis Kenneally
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ CECIL KYTE
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Cecil Kyte
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ JOHN PRICE
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
John Price
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ NATHAN SHELTON
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">May&nbsp;25, 2007</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Nathan Shelton
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->59<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT INDEX</B>
</DIV>



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Articles of Incorporation, as amended, of the Registrant.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Bylaws of the Registrant.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1(2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Commercial Sublease dated October&nbsp;16, 2003 between the Registrant
and KZ Golf, Inc.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2(9)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated June&nbsp;15, 2004 to Exhibit&nbsp;10.1</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3 (10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated August&nbsp;14, 2005 to Exhibit&nbsp;10.1</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">General Tenancy Agreement dated March&nbsp;14, 2006 between the
Registrant and Autumlee Pty Ltd.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5(3)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement dated December&nbsp;13, 2002 between the Registrant and RAND.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6(2)**
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement dated May&nbsp;7, 2003 between the Registrant and RAND.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Modification No.&nbsp;1 dated as of August&nbsp;21, 2003 to Exhibit&nbsp;10.5</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Modification No.&nbsp;2 dated as of October&nbsp;17, 2003 to Exhibit&nbsp;10.5</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Modification No.&nbsp;3 dated as of January&nbsp;20, 2004 to Exhibit&nbsp;10.5</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10(4)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed and Document Conveyance between the Trustee of the Property of Jeffrey Ann Muller and Lynette Anne
Muller (Bankrupts).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11(4)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignment and Bill of Sale dated May&nbsp;28, 2002 between the Registrant and Kevin Charles Hart.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12(11)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreement dated October&nbsp;5, 2005 between the Registrant and Eugene E.
Eichler.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13*&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Separation Agreement and General Mutual Release of Claims dated as of November&nbsp;9, 2006 between the Registrant and Eugene E. Eichler</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14(11)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreement dated October&nbsp;5, 2005 between the Registrant and Bruce H.
McKinnon.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15(6)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Save the World Air, Inc. 2004 Stock Option Plan</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Incentive Stock Option Agreement under 2004 Stock Option Plan</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Non-Qualified Stock Option Agreement under 2004 Stock Option Plan</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of October&nbsp;1, 2004 between the Registrant and John Fawcett</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19(7)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement dated as of July&nbsp;1, 2004 between the Registrant and Temple University &#150; The Commonwealth
System of Higher Education</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated as of November&nbsp;19, 2004 between the Registrant and London Aussie Marketing, Ltd.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.21(13)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated September&nbsp;14, 2006 to Exhibit&nbsp;10.20</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22(8)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement dated September&nbsp;1, 2004 with Erin Brockovich</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23*&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated as of July&nbsp;31, 2006 to Exhibit&nbsp;10.22</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.24(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignment of Patent Rights dated as of September&nbsp;1, 2003 between the Registrant and Adrian Menzell</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.25(8)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Global Deed of Assignment dated June&nbsp;26, 2004 between the Registrant and Adrian Menzell</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26(11)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment
Agreement dated as of March&nbsp;1, 2006 between the Registrant and John Richard
Bautista III</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.27(9)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease dated August&nbsp;15, 2005 between the Registrant and Thomas L. Jackson</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.28(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment dated February&nbsp;1, 2006 to Exhibit&nbsp;10.27</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Exhibit No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.29(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of 9% Convertible Note issued in the 2005 Interim Financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.30(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in the 2005 Interim Financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.31(10)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in the 2005 Bridge Financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.32(11)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in 2006 Regulation&nbsp;S financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.33(11)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in 2006 PIPE financing</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.34(12)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Commercial Sublease between the Registrant and KZG Golf dated January&nbsp;1, 2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.35(12)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment Agreement dated September&nbsp;15, 2006 between the Registrant and Dutchess Private Equities Fund</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.36(12)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights Agreement dated September&nbsp;15, 2006 between the registrant and Dutchess Private Equities
Fund, LLP</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.37(16)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement between the Registrant and Temple University dated February&nbsp;2, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.38(16)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement between the Registrant and Temple University dated February&nbsp;2, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.39(16)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">R&#038;D Agreement between the Registrant and Temple University dated February&nbsp;2, 2007</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.40(14)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Note Purchase Agreement dated December&nbsp;5, 2006 between the registrant and Morale Orchards LLC</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.41(14)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued to Morale Orchards LLC</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.42(14)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Convertible Note issued to Morale Orchards LLC</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.43(15)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consulting Agreement dated January&nbsp;4, 2007 between the Registrant and Spencer Clarke LLC</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.44*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Marketing Representation Agreement dated as of July&nbsp;15, 2006 between the Company and SS Sales and Marketing Group</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.45*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Engagement Agreement between the
Registrant and CFO911</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.46*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of 10% Convertible Note issued in 2007 PIPE Offering</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.47*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Purchase Warrant issued in 2007 PIPE Offering</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of Subsidiaries</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Weinberg &#038; Co,</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power of Attorney (included on Signature Page)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer of Annual Report Pursuant to Rule&nbsp;13(a)&#151;15(e) or Rule&nbsp;15(d)&#151;15(e).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer of Annual Report Pursuant to 18 U.S.C. Section&nbsp;1350.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer and Chief Financial Officer of Annual Report pursuant to Rule
13(a)&#151;15(e) or Rule&nbsp;15(d)&#151;15(e).</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Filed herewith.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">**</TD>
    <TD>&nbsp;</TD>
    <TD>Confidential treatment previously requested.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">&#134;</TD>
    <TD>&nbsp;</TD>
    <TD>Management contract or compensatory plan or arrangement.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Registration Statement on Form 10-SB (Registration Number 000-29185), as amended, filed on March&nbsp;2, 2000.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 10-KSB for the fiscal year ended December&nbsp;31, 2002.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form&nbsp;8-K filed on December&nbsp;30, 2002.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 8-K filed on November&nbsp;12, 2002.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(5)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 10-QSB for the quarter ended March&nbsp;31, 2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(6)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Appendix&nbsp;C of Registrant&#146;s Schedule&nbsp;14A filed on April&nbsp;30, 2004, in connection with its Annual Meeting of Stockholders held on May&nbsp;24,
(6)&nbsp;2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(7)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporates by reference from Registrant Form 8-K filed on July&nbsp;12, 2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(8)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from registrant&#146;s Form 10-KSB for the fiscal year ended December&nbsp;31, 2004.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(9)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 10-QSB for the quarter ended September&nbsp;30, 2005</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(10)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 10-KSB for the fiscal year ended December&nbsp;31, 2005</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(11)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form&nbsp;SB-2 filed on June&nbsp;28, 2006 (SEC File No.&nbsp;333- 333-135415)</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(12)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form&nbsp;8-K filed on September&nbsp;21, 2006</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(13)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form SB-2 filed on October&nbsp;6, 2006 (SEC File No.&nbsp;333-137855)</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(14)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 8-K filed on December&nbsp;11, 2006</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(15)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s Form 8-K filed on January&nbsp;10, 2007</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(16)</TD>
    <TD>&nbsp;</TD>
    <TD>Incorporated by reference from Registrant&#146;s form 8-K filed on February&nbsp;8, 2007</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>SAVE THE WORLD AIR, INC. AND SUBSIDIARY<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#300">Report of Independent Registered Public Accounting Firm</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#301">Consolidated balance sheets</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#302">Consolidated statements of operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#303">Consolidated statements of stockholders&#146; deficiency</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#304">Consolidated statements of cash flows</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#305">Notes to consolidated financial statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-14</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-1<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<!-- /TOC -->
</DIV>
<DIV align="left">
<A name="300"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To the Board of Directors<BR>
Save the World Air, Inc.

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated balance sheets of Save the World Air, Inc. and
Subsidiary (a development stage enterprise) as of December&nbsp;31, 2006 and 2005 and the related
consolidated statements of operations, changes in stockholders&#146; deficiency and cash flows for the
years then ended and for the period from inception (February&nbsp;18, 1998) to December&nbsp;31, 2006. These
financial consolidated financial statements are the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Save the World Air, Inc. (a development stage
enterprise) as of December&nbsp;31, 2006 and 2005 and the results of its operations and its cash flows
for the years then ended and for the period from inception (February&nbsp;18, 1998) to December&nbsp;31,
2006, in conformity with accounting principles generally accepted in the United States of America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As discussed in Note 2 to the consolidated financial statements, effective January&nbsp;1, 2006 the
Company adopted Statement of Financial Accounting Standard (&#147;SFAS&#148;), &#147;Share-Based Payment&#148; (&#147;SFAS
123(R)&#148;) which requires companies to estimate the fair value of share-based payment awards on the
date of grant using an option-pricing model.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the consolidated financial statements,
the Company had a net loss of $10,181,523 and a negative cash flow from operations of $5,197,587
for the year ended December&nbsp;31, 2006, and had a working capital deficiency of $1,223,217 and a
stockholders&#146; deficiency of $896,694 as of December&nbsp;31, 2006. These factors raise substantial doubt
about its ability to continue as a going concern. Management&#146;s plans concerning this matter are
also described in Note 2. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD>
</TR><TR>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ WEINBERG &#038; COMPANY, P.A.
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>
    <TD colspan="3" align="left">WEINBERG &#038; COMPANY, P.A.&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">May&nbsp;15, 2007<BR>
Los Angeles, California

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="301"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SAVE THE WORLD AIR, INC. AND SUBISIDARY<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED BALANCE SHEETS<BR>
DECEMBER 31, 2006 AND 2005</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">244,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">279,821</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,009</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">288,830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Property and equipment, </B>net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">322,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">295,374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">673,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">588,704</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES AND STOCKHOLDERS&#146; DEFICIENCY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">233,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">155,456</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">468,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">179,461</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued research and development fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">680,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">594,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,555</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payable to shareholder</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payable to related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,732</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Finders fees payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,916</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Convertible debentures, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,569,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,996,879</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Commitments and contingencies
Stockholders&#146; deficiency</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock, $.001 par value: 200,000,000
shares authorized, 40,081,758 and 31,387,418,
shares issued and outstanding at December&nbsp;31,
2006 and 2005, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock to be issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">612,521</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,430,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,336,178</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(142,187</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deficit accumulated during the development stage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,427,597</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,246,074</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total stockholders&#146; deficiency</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(896,694</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,408,175</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">673,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">588,704</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">See notes to consolidated financial statements.

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="302"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SAVE THE WORLD AIR, INC. AND SUBISIDARY<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Inception (February</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>18, 1998) to</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Years Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net sales</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">30,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">30,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cost of goods sold</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Gross profit</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,412,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,631,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,902,976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Research and development expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,150,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,205,414</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Non-cash patent settlement cost</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,610,066</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Loss before other income</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,797,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,781,443</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,701,856</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other income (expense)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,251</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,398,691</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(348,964</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,755,843</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Settlement of litigation and debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017,208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Loss before provision for income taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,180,723</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,113,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,424,115</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Provision for income taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net loss</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(10,181,523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,115,186</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(30,427,597</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net loss per common share, basic and diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Weighted average common shares outstanding, basic and diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,946,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,248,575</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">See notes to consolidated financial statements.

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-4<!-- /Folio -->
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- landscape -->


<DIV align="left">
<A name="303"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SAVE THE WORLD AIR, INC. AND SUBISIDARY<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENT OF STOCKHOLDERS&#146; DEFICIENCY<BR>
FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2006</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>During the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to be Issued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, February&nbsp;18, 1998 </B>(date of inception)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of common stock on April&nbsp;18, 1998</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">.0015 &#151; .01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,030,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,307</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,307</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 1998</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,030,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,307</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,993</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of common stock on May&nbsp;18, 1999</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">1.00 &#151; 6.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198,003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">516,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">516,936</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of common stock for ZEFS on September&nbsp;14, 1999</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for professional services on May&nbsp;18, 1999</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,444</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,513</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,075,264</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,075,264</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 1999</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,297,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">580,452</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,096,571</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(500,822</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for employee compensation on February&nbsp;8, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on February&nbsp;8, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for professional services on April&nbsp;18, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,260</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for directors fees on April&nbsp;18, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for professional services on May&nbsp;19, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for directors fees on June&nbsp;20, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,640</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for professional services on June&nbsp;20, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,251</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for professional services on June&nbsp;26, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,675</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for employee compensation on June&nbsp;26, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,820</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on June&nbsp;26, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,213</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for promotional services on July&nbsp;28, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,214</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on July&nbsp;28, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,985</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on August&nbsp;4, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,620</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for promotional services on August&nbsp;16, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on September&nbsp;5, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,874</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- landscape -->

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>During the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to be Issued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on September&nbsp;10, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on November&nbsp;2, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,653</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on November&nbsp;4, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,653</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on December&nbsp;20, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,541</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for filing services on December&nbsp;20, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for professional services on December&nbsp;26, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,925</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other stock issuance on August&nbsp;24, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,260</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common shares cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(64,245</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(64,300</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,270,762</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,270,762</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 2000</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,645,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,646</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,437,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,367,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(913,814</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on January&nbsp;8, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,048</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on February&nbsp;1, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,245</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on March&nbsp;1, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,753</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for legal services on March&nbsp;13, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on April&nbsp;3, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,458</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for legal services on April&nbsp;4, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for professional services on April&nbsp;4, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,760</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on April&nbsp;5, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for filing fees on April&nbsp;30, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,034</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for filing fees on September&nbsp;19, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for professional services on September&nbsp;28, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for directors services on October&nbsp;5, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for legal services on October&nbsp;17, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,655</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,666</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on October&nbsp;18, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">380,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on October&nbsp;19, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for exhibit fees on October&nbsp;22, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,751</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for directors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on November&nbsp;7, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-6<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- landscape -->

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>During the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to be Issued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on November&nbsp;20, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,140</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on November&nbsp;27, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on November&nbsp;28, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,260</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intrinsic value of options issued to employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,600,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of options issued to non-employees for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,667</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,735,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,735,013</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 2001</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,085,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,086</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,220,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,408,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,102,346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,272,271</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for directors services on December&nbsp;10, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">857,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">860,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock paid for, but not issued (2,305,000 shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">0.15-0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,875</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of options issued to non-employees for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(54,909</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">891,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">891,182</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss for the year ended December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 2002</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,235,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,133,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,572,060</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,851,545</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,880,413</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued, previously paid for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,425,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,425</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(213,750</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued, previously paid for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(220,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">219,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on March&nbsp;20, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">670,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on April&nbsp;4, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224,962</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on April&nbsp;8, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on May&nbsp;8, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">286,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287,480</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on June&nbsp;16, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">475,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for legal services on June&nbsp;27, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,877</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt converted to stock on June&nbsp;27, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">498,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock and warrants issued for cash on July&nbsp;11, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock and warrants issued for cash on September&nbsp;29, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,775,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">441,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">443,751</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock and warrants issued for cash on October&nbsp;21, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,845,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">459,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">461,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock and warrants issued for cash on October&nbsp;28, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,570,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">392,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock and warrants issued for cash on November&nbsp;19, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Finders&#146; fees related to stock issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(312,582</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(268,707</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-7<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- landscape -->

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>During the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to be Issued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock paid for, but not issued (25,000 shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization of deferred comp</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">863,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">863,727</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss for year ended December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,476,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,476,063</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,128,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,162,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(708,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,327,608</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(833,386</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued, previously paid for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,250</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for director services on March&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for finders fees on March&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,375</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for finders fees on March&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,606</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for services on April&nbsp;2, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,450</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt converted to stock on April&nbsp;2, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on May&nbsp;21, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">189,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for directors services on June&nbsp;8, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,019,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,020,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on August&nbsp;25, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">550,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">549,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">550,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of options on August&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on September&nbsp;8, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for consulting services on September&nbsp;15, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for patent settlement on September&nbsp;22, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for research and development on October&nbsp;6, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on October&nbsp;6, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on October&nbsp;15, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of stock options on October&nbsp;21, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on November&nbsp;3, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on November&nbsp;18, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on December&nbsp;9, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on December&nbsp;23, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Finders fees related to stock issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88,384</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88,384</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock paid for, but not issued (119,000 shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intrinsic value of options issued to employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">248,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(248,891</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- landscape -->

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>During the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to be Issued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of options issued to non-employees for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55,381</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of warrants issued for settlement costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,585,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,585,266</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of warrants issued to non-employees for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,872</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936,537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss for year ended December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,803,280</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,803,280</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 2004</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,784,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,043,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(76,068</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,130,888</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,007,144</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued, previously paid for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants, previously paid for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(50,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on January&nbsp;20, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on January&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on February&nbsp;17, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">324,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on March&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">215,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">215,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on May&nbsp;17, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on June&nbsp;7, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">299,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on August&nbsp;5, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">480,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on August&nbsp;9, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on October&nbsp;27, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock cancelled on December&nbsp;7, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Various</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,047,403</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,047</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for settlement of payables on December&nbsp;21, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,092</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for settlement of payables on December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">555,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">555,429</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Finders fees related to stock issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(109,840</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(109,840</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intrinsic value of options issued to employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">243,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(243,750</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of options issued for settlement costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of warrants issued for settlement costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of warrants issued to non-employees for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,505</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,631</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Warrants issued with convertible notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">696,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">696,413</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intrinsic value of beneficial conversion associated with convertible notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">756,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">756,768</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-9<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<!-- landscape -->

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>During the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to be Issued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss for year ended December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,115,186</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,115,186</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 2005</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,387,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">612,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,336,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(142,187</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(20,246,074</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,408,175</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued, for previously settled payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">846,549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(612,521</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">611,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on March&nbsp;23, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on March&nbsp;27, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on March&nbsp;27, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on March&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on April&nbsp;10, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,125</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for convertible debt on April&nbsp;10, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188,720</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on April&nbsp;24, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">473,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">737,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">737,881</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on April&nbsp;26, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on April&nbsp;26, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for convertible debt on April&nbsp;26, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on May&nbsp;6, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on May&nbsp;15, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on May&nbsp;15, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued for cash on June&nbsp;7, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">873,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,649,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,650,008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for convertible debt on June&nbsp;7, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,535,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,073,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,075,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on June&nbsp;8, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">449,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on June&nbsp;9, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on June&nbsp;23, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock issued upon exercise of warrants on June&nbsp;23, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for convertible debt on June&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">219,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for convertible debt on July&nbsp;11, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,222</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for convertible debt on August&nbsp;7, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,540,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,076,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,078,112</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-10<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- landscape -->

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>During the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to be Issued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued upon exercise of warrants on August&nbsp;7, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">262,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">262,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued upon exercise of warrants on August&nbsp;21, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for cash on August&nbsp;22, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,519</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued upon exercise of warrants on August&nbsp;23, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,683</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued upon exercise of warrants on August&nbsp;28, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for convertible debt on September&nbsp;13, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued upon exercise of warrants on September&nbsp;13, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for convertible debt on October&nbsp;16, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,654</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,658</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued upon exercise of warrants on November&nbsp;3, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for put on equity line of credit on November&nbsp;7, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,462</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for put on equity line of credit on November&nbsp;14, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,356</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for put on equity line of credit on November&nbsp;27, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,941</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for put on equity line of credit on November&nbsp;28, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,095</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for put on equity line of credit on December&nbsp;6, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for put on equity line of credit on December&nbsp;26, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,396</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issued for put on equity line of credit on December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,529</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock paid for, but not issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of options issued to employees and officers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,253,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,253,263</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fair value of warrants issued for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">401,130</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Write off of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(142,187</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-11<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- landscape -->

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>During the</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to be Issued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Compensation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Development Stage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Warrants issued for consulting services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,497</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Warrants issued with convertible notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408,596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">408,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intrinsic value of beneficial conversion associated with convertible notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">851,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">851,100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Finders fees related to stock issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(284,579</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(284,579</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fees paid on equity line of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,402</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,402</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss for year ended December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,181,523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,181,523</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance, December&nbsp;31, 2006</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,081,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,430,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(30,427,597</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(896,694</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See notes to consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->F-12<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="304"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SAVE THE WORLD AIR, INC. AND SUBSIDIARY<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Inception</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>(February 18, 1998)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Years Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Decmber 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from operating activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(10,181,523</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,115,186</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(30,427,597</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net loss to net cash used in operating
activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Write off of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Settlement of litigation and debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,017,208</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,017,208</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,716,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,901,584</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of common stock for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,668,102</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of options for legal settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of warrants for legal settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Patent acquisition cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,610,066</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization of issuance costs and original issue debt discounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,284,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,799,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,060,744</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">154,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188,219</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,314</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,314</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(72,223</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,407</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(81,232</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,500</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(78,615</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,010,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,232,114</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,197,587</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,567,178</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,550,260</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from investing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(181,106</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(279,123</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(506,692</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(181,106</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(279,123</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(506,692</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from financing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net proceeds under equity line of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">349,695</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Decrease) increase in payables to related parties and stockholder</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(158,733</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">511,450</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Advances from founding executive officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">517,208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net proceeds from issuance of convertible notes and warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,365,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,453,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,667,878</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net proceeds from issuance of common stock and common stock
issuable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,786,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,420,859</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,254,949</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,343,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,041,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,301,180</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net (decrease)&nbsp;increase in cash</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(35,593</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">244,228</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash</B>, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">279,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash</B>, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">244,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">279,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">244,228</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental disclosures of cash flow information</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash paid during the year for
Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">128,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">141,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Non-cash investing and financing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of intangible asset through advance from related party
and issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">505,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred compensation for stock options issued for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">243,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,202,931</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property and equipment financed by advance from
related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,550</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Conversion of related party debt to equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">515,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of common stock in settlement of payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,981</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cancellation of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,047</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Conversion of accounts payable and accrued expenses to common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">612,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">612,521</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Conversion of related party debt to convertible debentures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Conversion of convertible debentures to common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,580,086</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,580,086</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Write off of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,187</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See notes to consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-13<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="305"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SAVE THE WORLD AIR, INC. AND SUBISIDARY<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Description of business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Description of business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is a green technology company that leverages a suite of patented, patent-pending
and licensed intellectual properties related to the treatment of fuels. Technologies patented by,
or licensed to, the Company utilize either magnetic or uniform electrical fields to alter physical
characteristics of fuels and are designed to create a cleaner combustion. Cleaner combustion has
been shown to improve performance, enhance fuel economy and/or reduce harmful emissions in
laboratory testing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Save the World Air, Inc. (the &#147;Company&#148;) was incorporated in Nevada on February&nbsp;18, 1998 under
the name Mandalay Capital Corp. The Company changed its name to Save the World Air, Inc. on
February&nbsp;11, 1999 following the purchase of the worldwide exclusive manufacturing, marketing and
distribution rights for the ZEFS technologies. During the past four years, the Company has been
acquiring new technologies, developing prototype products using the Company&#146;s technologies and
conducting scientific tests regarding the technologies and prototype products. Our ECO ChargR&#153; and
MAG ChargR&#153; products, use fixed magnetic fields to alter some physical properties of fuel, by
incorporating our patented and patent-pending ZEFS and MK IV technologies. When fitted to an
internal combustion engine, they are expected to reduce carbon monoxide, hydrocarbons and nitrous
oxide emissions and to increase power and improve mileage.. The Company has also developed
prototype products and named them &#147;CAT-MATE&#148; technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has obtained licenses from Temple University for their patent-pending uniform
electric field technology, tentatively called ELEKTRA&#153;. The ELEKTRA technology consists of passing
fuel through a specific strong electrical field. Although ELEKTRA has a similar effect on fuels as
the Company&#146;s ZEFS and MK IV technologies, ELEKTRA incorporates a uniform electrical field
principle. Based on the Company&#146;s early research and product development, the Company believes
that ELEKTRA carries certain advantages over the Company&#146;s ZEFS and MK IV technologies, primarily
not requiring as many variations for products incorporating the ELEKTRA technology compared to
products incorporating the ZEFS or MK IV technologies. When it is developed, the Company intends to
market ELEKTRA products primarily to the transportation industry, oil refineries and pipelines, and
OEMs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Consolidation policy</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements of Save the World Air, Inc. and Subsidiary
include the accounts of Save the World Air, Inc. (the Parent) and its wholly owned subsidiary STWA
Asia Pte. Limited, incorporated on January&nbsp;17, 2006. To date STWA Asia Pte. Limited has had no
operating activity. Currently the subsidiary holds $9,000 in cash. Intercompany transactions and
balances have been eliminated in consolidation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Summary of significant accounting policies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Development stage enterprise</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is a development stage enterprise as defined by Statement of Financial Accounting
Standards (SFAS)&nbsp;No.&nbsp;7, &#147;Accounting and Reporting by Development Stage Enterprises.&#148; All losses
accumulated since the inception of the Company have been considered as part of the Company&#146;s
development stage activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s focus is on product development and marketing of proprietary devices that are
designed to reduce harmful emissions, and improve fuel efficiency and engine performance on
equipment and vehicles driven by internal combustion engines and has not yet generated meaningful
revenues. The technologies are called &#147;ZEFS&#148;, &#147;MK IV&#148;, &#147;ELEKTRA&#148; and &#147;CAT-MATE&#148;. The Company is
currently marketing its ECO and MAG ChargR products incorporating ZEFS and MK IV technologies,
worldwide; and the Company is in the early stages of developing ELEKTRA products. Expenses have
been funded through the sale of company stock, convertible notes and the exercise of warrants. The
Company has taken actions to secure the intellectual property rights to the ZEFS, MK IV and
CAT-MATE devices and is the worldwide exclusive licensee for patent pending technologies associated
with the development of ELEKTRA.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-14<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Liquidity</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is subject to the usual risks associated with a development stage enterprise.
These risks include, among others, those associated with product development, acceptance of the
product by users and the ability to raise the capital necessary to sustain operations. Since its
inception, the Company has incurred significant losses. The Company anticipates increasing
expenditures over at least the next year as the Company continues its product development and
evaluation efforts, and begins its marketing activities. Without significant revenue, these
expenditures will likely result in additional losses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Going concern</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. As reflected in the accompanying financial
statements, the Company had a net loss of $10,181,523 and a negative cash flow from operations of
$5,197,587 for the year ended December&nbsp;31, 2006, and had a working capital deficiency of $1,223,217
and a stockholders&#146; deficiency of $896,694 at December&nbsp;31, 2006. These factors raise substantial
doubt about its ability to continue as a going concern. The ability of the Company to continue as a
going concern is dependent upon the Company&#146;s ability to raise additional funds and implement its
business plan. The consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Revenue Recognition Policy</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has adopted Staff Accounting Bulletin 104, &#147;Revenue Recognition&#148; and therefore
recognizes revenue based upon meeting four criteria:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Persuasive evidence of an arrangement exists;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Delivery has occurred or services rendered;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The seller&#146;s price to the buyer is fixed or determinable; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Collectibility is reasonably assured.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company contract manufactures fixed magnetic field products and sells them to various
original equipment manufacturers in the motor vehicle and small utility motor markets. The Company
negotiates an initial contract with the customer fixing the terms of the sale and then receives a
letter of credit or full payment in advance of shipment. Upon shipment, the Company recognizes the
revenue associated with the sale of the products to the customer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Property and equipment and depreciation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are stated at cost. Depreciation is computed using the straight-line
method based on the estimated useful lives of the assets, generally ranging from three to ten
years. Expenditures for major renewals and improvements that extend the useful lives of property
and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as
incurred. Leasehold improvements are amortized using the straight-line method over the shorter of
the estimated useful life of the asset or the lease term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Long-lived assets</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for the impairment and disposition of long-lived assets in accordance
with SFAS No.&nbsp;144, &#147;Accounting for the Impairment or Disposal of Long-Lived Assets.&#148; In accordance
with SFAS No.&nbsp;144, long-lived assets to be held are reviewed for events or changes in circumstances
that indicate that their carrying value may not be recoverable. The Company periodically reviews
the carrying values of long-lived assets to determine whether or not an impairment to such value
has occurred. No impairments were recorded for the year ended December&nbsp;31, 2006. The Company
recorded an impairment of approximately $505,000 during the period from inception (February&nbsp;18,
1998) through December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Earnings (loss)&nbsp;per share</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic earnings (loss)&nbsp;per share is computed by dividing net income (loss)&nbsp;available to common
stockholders by the weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution, using the treasury stock method, that could
occur if securities or other contracts to issue common stock were exercised or converted into
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-15<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">common stock or resulted in the issuance of common stock that then shared in the earnings of
the Company. In computing diluted earnings per share, the treasury stock method assumes that
outstanding options and warrants are exercised and the proceeds are used to purchase common stock
at the average market price during the period. Options and warrants may have a dilutive effect
under the treasury stock method only when the average market price of the common stock during the
period exceeds the exercise price of the options and warrants. For the years ended December&nbsp;31,
2006 and 2005, the dilutive impact of outstanding stock options of 3,999,559 and 6,508,561,
respectively, and outstanding warrants of 20,897,311, and 20,792,492 have been excluded because
their impact on the loss per share is antidilutive.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income taxes</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for income taxes in accordance with SFAS No.&nbsp;109, &#147;Accounting for Income
Taxes.&#148; Under SFAS No.&nbsp;109, income taxes are recognized for the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets are recognized for the
future tax consequences of transactions that have been recognized in the Company&#146;s financial
statements or tax returns. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax asset will not be realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Stock-based compensation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through December&nbsp;31, 2005, the Company accounted for stock-based compensation to employees and
directors using the intrinsic value method in accordance with Accounting Principles Board Opinion
No.&nbsp;25, &#147;Accounting for Stock Issued to Employees&#148; (&#147;APB 25&#148;) and elected to provided the pro-forma
disclosure requirements of Statements of Financial Accounting Standards No.&nbsp;123, &#147;Share-Based
Payment,&#148; (&#147;SFAS 123&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the intrinsic value method, the Company recognized share-based compensation equal to the
award&#146;s intrinsic value at the time of grant over the requisite service periods using the
straight-line method. Forfeitures were recognized as incurred. The fair values of the awards were
not expensed over the requisite service period. Had the Company recognized such fair value expense
under SFAS 123 for the year ended December&nbsp;31, 2005, the Company would have recorded additional
compensation expense of $861,637.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of SFAS 123 to stock-based awards granted under the
Company&#146;s stock option plans for the year ended December&nbsp;31, 2005 and for the period from inception
(February&nbsp;18, 1998) to December&nbsp;31, 2006. For purposes of this pro-forma disclosure, the fair value
of the options is estimated using the Black-Scholes-Merton option-pricing formula (&#147;Black-Scholes
model&#148;) and amortized to expense over the options&#146; requisite service periods (vesting periods).
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cumulative</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Since</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Inception</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,115,186</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(30,427,597</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: total fair value method
stock-based employee
compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,039,268</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,010,310</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: deferred compensation
amortization for below market
employee options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,060,744</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,976,823</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(32,377,163</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">As reported &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2006, the Company adopted Statements of Financial Accounting Standards No.&nbsp;123
(revised 2004), &#147;Share-Based Payment,&#148; (&#147;SFAS 123(R)&#148;) which requires the measurement and
recognition of compensation expense for all share-based payment awards made to employees and
directors based on estimated fair values. SFAS 123(R) supersedes the Company&#146;s previous accounting
under APB 25 for periods beginning in fiscal 2006. In March&nbsp;2005, the Securities and Exchange
Commission issued Staff Accounting Bulletin No.&nbsp;107 (&#147;SAB 107&#148;) relating to SFAS 123(R). The
Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January&nbsp;1, 2006, the first day of the
Company&#146;s fiscal year 2006. The Company&#146;s financial statements as of and for the year ended
December&nbsp;31, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective
transition
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-16<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">method, the Company&#146;s financial statements for prior periods have not been restated to
reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense
recognized under SFAS 123(R) for employee and directors for the year ended December&nbsp;31, 2006 was
$2,253,263. Basic and diluted loss per share for the year ended December&nbsp;31, 2006 would have been
($0.21) per share, if the Company had not adopted SFAS 123(R), compared to reported basic and
diluted loss per share of ($0.28) per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS 123(R) requires companies to estimate the fair value of share-based payment awards to
employees and directors on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as expense over the
requisite service periods in the Company&#146;s Statements of Operations. Stock-based compensation
expense recognized in the Statements of Operations for the year ended December&nbsp;31, 2006 included
compensation expense for share-based payment awards granted prior to, but not yet vested as of
January&nbsp;1, 2006 based on the grant date fair value estimated in accordance with the pro-forma
provisions of SFAS 123 and compensation expense for the share-based payment awards granted
subsequent to January&nbsp;1, 2006 based on the grant date fair value estimated in accordance with the
provisions of SFAS 123(R). For stock-based awards issued to employees and directors, stock-based
compensation is attributed to expense using the straight-line single option method, which is
consistent with how the prior-period pro formas were provided. As stock-based compensation expense
recognized in the Statements of Operations for the second quarter of fiscal 2006 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. In our pro-forma information required under SFAS
123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s determination of fair value of share-based payment awards to employees and
directors on the date of grant using the Black-Scholes model, which is affected by the Company&#146;s
stock price as well as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to our expected stock price volatility over the term
of the awards, and actual and projected employee stock option exercise behaviors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has elected to adopt the detailed method provided in SFAS 123(R) for calculating
the beginning balance of the additional paid-in capital pool (&#147;APIC pool&#148;) related to the tax
effects of employee stock-based compensation, and to determine the subsequent impact on the APIC
pool and Statements of Cash Flows of the tax effects of employee stock-based compensation awards
that are outstanding upon adoption of SFAS 123(R).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, there was $142,187 of total unrecognized compensation costs
recognized within the shareholders&#146; deficit related to non-vested share-based compensation
arrangements granted under the 2004 Stock Option Plan (see Note 9). This cost was written off
against Additional Paid-in Capital when SFAS 123(R) was adopted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for stock option and warrant grants issued to non-employees for goods and
services using the guidance of SFAS No.&nbsp;123 and Emerging Issues Task Force (&#147;EITF&#148;) No.&nbsp;96-18:
&#147;Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,&#148; whereby the fair value of such option and warrant
grants is determined using the Black-Scholes option pricing model at the earlier of the date at
which the non-employee&#146;s performance is completed or a performance commitment is reached.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Business and credit concentrations</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s cash balances in financial institutions at times may exceed federally insured
limits. As of December&nbsp;31, 2006 and 2005, before adjustments for outstanding checks and deposits in
transit, the Company had $121,705 and $376,429, respectively, on deposit with three banks. The
deposits are federally insured up to $100,000 on each bank.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Warranties</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has a warranty policy for its products. No warranty liability has been recorded as
of December&nbsp;31, 2006 based on the limited sales and such amount is deemed immaterial.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Inventories</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are valued at the lower of cost (first-in, first-out) or market and primarily
consist of finished goods.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->F-17<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Reclassifications</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain reclassifications of 2005 amounts have been made to conform with the 2006
presentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Recent accounting pronouncements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement No.&nbsp;151
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2004, the FASB issued Statement of Financial Accounting Standards No.&nbsp;151,
&#147;Inventory Costs&#148;. This statement amends the guidance in ARB no. 43 Chapter&nbsp;4 Inventory Pricing,
to require items such as idle factory costs, excessive spoilage, double freight and re-handling
costs to be expenses in the current period, regardless if they are abnormal amounts or not. This
statement became effective for the Company in the first quarter of 2006. SFAS 151 does not have
effect on the Company&#146;s consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement No.&nbsp;154
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first quarter of 2006, the Company adopted Statement No.&nbsp;154 (&#147;SFAS 154&#148;), &#147;Accounting
Changes and Error Corrections &#151; a replacement of APB Opinion No.&nbsp;20 and FASB Statement No.&nbsp;3. SFAS
154 changed the requirements for the accounting for and reporting of a voluntary change in the
accounting principles. The adoption of this statement did not affect the Company&#146;s consolidated
financial statements in the period of adoption. Its effects on future periods will depend on the
nature and significance of any future accounting changes subject to this statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement No.&nbsp;157
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FASB Statement of Financial Accounting Standards (SFAS)&nbsp;No.&nbsp;157, Fair Value Measurements,
issued in September&nbsp;2006, establishes a formal framework for measuring fair value under GAAP. It
defines and codifies the many definitions of fair value included among various other authoritative
literature, clarifies and, in some instances, expands on the guidance for implementing fair value
measurements, and increases the level of disclosure required for fair value measurements. Although
SFAS No.&nbsp;157 applies to and amends the provisions of existing FASB and AICPA pronouncements, it
does not, of itself, require any new fair value measurements, nor does it establish valuation
standards. SFAS No.&nbsp;157 applies to all other accounting pronouncements requiring or permitting
fair value measurements, except for; SFAS No.&nbsp;123 (R), share-based payment and related
pronouncements, the practicability exceptions to fair value determinations allowed by various other
authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9 that deal with
software revenue recognition. This statement is effective for financial statements issued for
fiscal years beginning after November&nbsp;15, 2007, and interim periods within those fiscal years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement No.&nbsp;159
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, the Financial Accounting Standards Board (FASB)&nbsp;issued FASB Statement No.
159, &#147;The Fair Value Option for Financial Assets and Financial Liabilities  &#151; Including an
amendment of FASB Statement No.&nbsp;115&#148; (FAS 159). FAS 159, which becomes effective for the company
on January&nbsp;1, 2008, permits companies to choose to measure many financial instruments and certain
other items at fair value and report unrealized gains and losses in earnings. Such accounting is
optional and is generally to be applied instrument by instrument. The company does not anticipate
that election, if any, of this fair-value option will have a material effect on its (<I>consolidated)</I>
financial condition, results of operations, cash flows or disclosures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interpretation No.&nbsp;48
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the Financial Accounting Standards Board (FASB)&nbsp;issued FASB Interpretation No.
48 (&#147;FIN 48&#148;), &#147;Accounting for Uncertainty in Income Taxes &#151; an interpretation of FASB Statement
No.&nbsp;109,&#148; Accounting for Income Taxes&#148;. FIN 48 establishes that the financial statement effects of
a tax position taken or expected to be taken in a tax return are to be recognized in the financial
statements when it is more likely than not, based on the technical merits, that the position will
be sustained upon examination. FIN 48 is effective for fiscal years beginning after December&nbsp;15,
2006. The Company is currently assessing the impact this new standard will have on the consolidated
results of operations, financial position, or cash flows.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-18<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SAB 108</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (&#147;SAB&#148;) No.&nbsp;108, &#147;Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements&#148;. SAB No.&nbsp;108 was issued in order to
eliminate the diversity in practice surrounding how public companies quantify financial statement
misstatements. SAB No.&nbsp;108 requires that registrants quantify errors using both a balance sheet
(iron curtain) approach and an income statement (rollover)&nbsp;approach then evaluate whether either
approach results in a misstated amount that, when all relevant quantitative and qualitative factors
are considered, is material. SAB No.&nbsp;108 is effective for fiscal years ending after November&nbsp;15,
2006. The Company has adopted the bulletin during 2006. The adoption did not have a material effect
on results of operations, financial position, or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. Inventories</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2006 inventories consists of $21,314 of finished goods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. Certain relationships and related transactions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Advances from founding executive officer</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the marketing and manufacturing rights for the ZEFS were acquired from founding officer
Jeffery A. Muller, for 5,000,000 shares of common stock, $500,000 and a $10 royalty for each unit
sold (see discussion below), pursuant to the Agreement entered into in December&nbsp;1998, by and
between the Company and Mr.&nbsp;Muller. As of December&nbsp;31, 2006, working capital advances in the amount
of $517,208 and payment in the amount of $500,000 for marketing and distribution rights of the ZEFS
are due to Mr.&nbsp;Muller. Such amounts are interest free and do not have any due dates for payment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2000, the Company entered into an agreement offering Mr.&nbsp;Muller and Lynne Muller,
Mr.&nbsp;Muller&#146;s wife, the option to purchase 5,000,000 shares each at $0.10 per share as consideration
for work performed for the Company. Mrs.&nbsp;Muller subsequently transferred her option to Mr.&nbsp;Muller.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Company&#146;s legal proceedings against Mr.&nbsp;Muller (see Note 12), during
2005 the Company has canceled (i)&nbsp;the 8,047,403 shares of its common stock held by Mr.&nbsp;Muller
and/or his affiliates, (ii)&nbsp;the options to acquire an additional 10,000,000 shares of the Company&#146;s
common stock held by Mr.&nbsp;Muller personally and (iii)&nbsp;the $1,017,208 of debt which Mr.&nbsp;Muller
claimed was owed to him by the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Loans from related parties</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Masry &#038; Vititoe, a law firm in which Edward Masry, the Company&#146;s former Chief Executive
Officer, was a partner, had advanced $158,732 as of December&nbsp;31, 2005 to the Company for working
capital purposes. Advances by Masry and Vititoe are unsecured, non-interest bearing, and are due
on demand. These advances were repaid during the year ended December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, Eugene Eichler, the Company&#146;s former Chief Executive Officer, advanced $45,000 to the
Company for working capital purposes. These advances were unsecured, bore interest at 6% per
annum and due on demand. In February&nbsp;2006, these advances were converted into a convertible note
(Note&nbsp;10).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense recognized under related-party loans was immaterial for all periods
presented. Interest expense recognized under related-party loans for the period from inception
(February&nbsp;18, 1998) through December&nbsp;31, 2006 was $327.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Lease agreement</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2003, the Company had entered into a sublease lease agreement with an entity to lease
office space for its primary administrative facility. A director of the Company is an indirect
owner of the entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2005, the Company amended its sublease of a portion of a building in North
Hollywood, California from an entity that is owned by an officer of the Company. The original lease
term was from November&nbsp;1, 2003 through October&nbsp;16, 2005 and carried an option to renew for two
additional years with a 10&nbsp;percent increase in the rental rate. Monthly rent under this lease is
$3,740 per month under this lease. The Company exercised its option to renew the lease through
October&nbsp;15, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2006, the Company amended the existing sublease agreement, as a result of taking
more space and obtaining expanded support services. The sublease was amended to July&nbsp;31, 2007 and
carries an option to renew for two additional years with a 10&nbsp;percent
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-19<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">increase in the rental rate. Monthly rent is $6,208 per month under this amended sublease.
Additionally, the Company is leasing two new office spaces for $964 per month beginning
July&nbsp;2006 on a month-to-month basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended 2006 and 2005, rent expense under the sublease was $90,610 and $34,900,
respectively. Lease expense under the sublease prior to 2005 was immaterial.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2006, the Company enter into a separate agreement with SS Sales, to provide exclusive
marketing and promotional services in the western United States and western Canada ( the
&#147;Territory&#148;) for the Company,s products. SS Sales will also provide advice, assistance and
information on marketing the Company,s products in the automotive after-market, and will seek to
recruit and establish a market with distributors, Wholesalers and others. SS Sales will be paid a
commission equal to 5% of the gross amount actually collected on contracts the Company entered into
during the contract term for existing or future customers introduced by SS Sales in the Territory.
The contact has a term of five years unless sooner terminated by either party on 30&nbsp;days&#146; notice.
In the event of termination SS Sales will be entiltled to receive all commissions payable through
the date of termination. SS Sales is owned by Nathan Shelton, one of the directors of the Company
since February&nbsp;12,2007. No amount was due or paid under this contract as of December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. Property and equipment</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2006 and 2005, property and equipment consist of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Office equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">38,231</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,434</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dies and molds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Testing equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">147,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">147,312</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">236,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,229</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Subtotal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">510,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">329,136</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(188,219</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(33,762</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">322,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">295,374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation expense for the years ended December&nbsp;31, 2006 and 2005, was $154,457 and $19,345,
respectively. Depreciation expense for the period from inception (February&nbsp;18, 1998) through
December&nbsp;31, 2006 was $188,219.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. Income taxes</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax provision consists of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>For the years ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,987</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,987</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,987</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006, the Company has recorded a $10,276,437 valuation allowance against a
portion of its deferred tax assets, since at that time it was believed that such assets did not
meet the more likely than not criteria to be recoverable through projected future profitable
operations in the foreseeable future.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-20<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Failure by the Company to successfully maintain improved margins, grow revenues and/or
maintain anticipated savings on future interest costs, and maintain profitable operating results in
the near term, could adversely affect the Company&#146;s expected realization of some or all of its
deferred tax assets and could require the Company to record a valuation allowance against some or
all of such assets, which could adversely affect the Company&#146;s financial position and results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total income tax provision (benefit)&nbsp;was 0% of pretax income (loss)&nbsp;for the years ended
December&nbsp;31, 2006 and 2005, respectively. A reconciliation of income taxes with the amounts
computed at the statutory federal rate follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computed tax provision (benefit)&nbsp;at federal statutory rate (34%)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,461,446</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,058,492</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State income taxes, net of federal benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(406,769</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(218,030</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Permanent items</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,087,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(45,815</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,194</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,781,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,384,518</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,987</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The deferred tax assets and deferred tax liabilities recorded on the balance sheet are as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31, 2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred tax</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred tax</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred tax</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deferred tax</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>assets</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>liabilities</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>assets</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>liabilities</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">382,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">382,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Noncurrent:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net operating loss carry forwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,490,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,852,406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unexercised stock options and warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,118,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,217,259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Credit carryovers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">259,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256,757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,549</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,276,437</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,495,344</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(382,631</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(168,922</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,549</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total deferred taxes net of valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,549</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006, the Company had net operating losses available for carryforward for
federal tax purposes of approximately $21.6&nbsp;million expiring beginning in 2018. These carryforward
benefits may be subject to annual limitations due to the ownership change limitations imposed by
the Internal Revenue Code and similar state provisions. The annual limitation, if imposed, may
result in the expiration of net operating losses before utilization.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. Equity line of credit</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2006, the Company entered into what is sometimes termed an equity line of credit
arrangement. Under the line of credit the Company may, but is not obligated to, put shares of
common stock from time to time over a 36-month period, at a purchase price calculated at 97% of the
lowest best closing bid for the Company&#146;s common stock for the five trading days following the put
notice. The Company may draw up to $10,000,000 under the line of credit. Because the price of the
common stock fluctuates and the number of shares of common stock, if any, that the Company may
issue, should exercise the put rights under the equity line of credit, will vary, the Company does
not know how many shares, if any, will actually issue under the equity line of credit. As of
December&nbsp;31, 2006, the Company has registered and made available 7,000,000 shares of common stock
for possible future draws under the line of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006 the Company has drawn down $380,095 ($349,695 net of closing costs) of
this commitment and issued 487,484 shares at an average price of $0.78 per share, leaving 6,512,516
shares available under the equity line of credit.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-21<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. Stockholders&#146; deficiency</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006, the Company has authorized 200,000,000 shares of its common stock, of
which 40,081,758 shares, respectively, were issued and outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2005, the Company sold 1,599,500 units of common stock,
which consisted of one share of common stock and one warrant to acquire a share of common stock at
an exercise price of $1.50 per share, for net proceeds of $1,490,660. The 1,599,500 warrants were
issued to investors as part of an equity agreement and were not ascribed any value in the
accompanying financial statements. Of the 1,599,500 shares issued, the Company issued 68,500 shares
of common stock for which payment was previously received. The Company also issued 50,500 shares
for the exercise of warrants, 50,000 of which were paid for previously.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The warrants issued above were part of a private offering of 2,872,000 units that began July
29, 2004 and concluded on July&nbsp;22, 2005. The expiration date of each of the warrants was previously
extended by one hundred eighty (180)&nbsp;days from its original expiration date. On February&nbsp;6, 2006,
the Company extended the expiration date for each of the warrants by an additional one hundred
eighty-five (185)&nbsp;days, for a total extension of one year from its original expiration date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2005, the Company agreed to issue 846,548 shares in
settlement of accrued expenses of $612,521. These shares are reflected as common stock to be issued
as of December&nbsp;31, 2005, and were subsequently issued in 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2006, the Company sold an aggregate 473,000 shares of common stock and warrants to
purchase 118,250 additional shares of common stock at $2.60 per share, to two investors who are not
&#147;U.S. persons&#148; as that term is defined in Rule&nbsp;902 of Regulation&nbsp;S promulgated under the Securities
Act of 1933, as amended. Gross proceeds to the Company in connection with these issuances were
$737,881 and net proceeds were $667,803.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2006, the Company sold an aggregate 873,018 shares of common stock and warrants to
purchase 436,511 additional shares of common stock at $2.70 per share, for an aggregate $1,650,009
gross proceeds ($1,435,508 net proceeds). In addition, warrants exercisable for 87,302 shares of
the Company&#146;s common stock were issued to the Company&#146;s placement agent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, individuals exercised outstanding warrants to
purchase 2,328,452 shares of common stock for net proceeds of $1,623,327.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Stock options and warrants</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company currently issues stock options to employees, directors and consultants under the
2004 Stock Option Plan (the Plan). As of December&nbsp;31, 2005, the Company could issue options under
the Plan to acquire up to 5,000,000 shares of common stock. In February&nbsp;2006, the board approved an
amendment to the Plan, increasing the authorized shares by 2,000,000 shares to 7,000,000 shares. At
December&nbsp;31, 2006, 2,427,834 were available to be granted under the Plan. Prior to 2004, the
Company granted 3,250,000 options outside the Plan to officers of the Company that are still
outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee options vest according to the terms of the specific grant and expire from 5 to 10
years from date of grant. Non-employee option grants to date are vested upon issuance. The
weighted-average, remaining contractual life of employee options outstanding at December&nbsp;31, 2006
was 5.53&nbsp;years. Stock option activity for the years ended December&nbsp;31, 2006 and 2005, which
includes 3,250,000 options granted outside and prior to the adoption of the Plan, was as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Avg.</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Avg.</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options, January&nbsp;1, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,172,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.03</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options, December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,422,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,085,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,000,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options, December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,508,561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,313,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,860,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(962,607</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.84</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->F-22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Avg.</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Avg.</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options, December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,999,559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The weighted average exercise prices, remaining contractual lives and aggregate intrinsic
values for options granted, exercisable, and expected to vest under the Plan as of December&nbsp;31,
2006 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Remaining</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Contractual</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Life (Years)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>As of December&nbsp;31, 2006:</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,999,559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected to Vest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,974,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,352,932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.99</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Intrinsic value of employee options</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2005, certain employee options were granted with exercise
prices less the than fair market value of the Company&#146;s stock at the date of grant. As the grants
were to employees, the intrinsic value method was used to calculate the related compensation
expense. For the year ended December&nbsp;31, 2005, the Company granted 2,085,909 options to certain
employees, exercisable at amounts ranging from $0.85 to $1.10, vested over one year with a ten-year
life, except for 90,909 options issued to an employee who is a 10&nbsp;percent beneficial owner of the
Company. The life of these options is 5&nbsp;years. Options granted in 2005 were valued using the
intrinsic method at $243,750.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended December&nbsp;31, 2006 and 2005, the Company recognized compensation expense
by amortizing deferred compensation of $0 and $177,631, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Black-Scholes value of employee options</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended December&nbsp;31, 2006 and 2005, the Company valued employee options for
pro-forma purposes at the grant date using the Black-Scholes pricing model with the following
average assumptions:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected life (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.59</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.02</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">262.84</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">188.83</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The weighted average fair value for options granted in 2006 and 2005 were $1.66 and $0.69,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, the Company granted 1,313,605 options, to certain
employees, exercisable at amounts ranging from $0.85 to $2.26, vested immediately or over one year
with a one to ten year life. The options were valued at an aggregate amount of $2,189,322 (or $1.66
per share on average) using the Black Scholes pricing model using a 0.5 to 5.5&nbsp;year expected term,
95% to 282% volatility, no annual dividends, and a discount rate of 3.82% to 4.86%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Warrants</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes certain information about the Company&#146;s stock purchase warrants
(including the warrants discussed in Note 10).
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Avg.</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Warrants</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants outstanding, January&nbsp;1, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,252,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,372,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(960,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-23<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted Avg.</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Warrants</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants outstanding, December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,664,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,198,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(50,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants outstanding, December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,792,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,624,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,328,452</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,191,619</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Warrants outstanding, December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,897,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.81</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2005, the Company issued 10,000 warrants to an individual
for settlement of a claim. The Company also issued 25,000 warrants to an individual in exchange for
consulting services rendered. The warrants were valued at an aggregate amount of $18,462 using the
Black Scholes pricing model using 3-year and 5-year respective terms (statutory terms), 58.69%
volatility, no annual dividends, and a discount rate of 3.55% and 4.13%, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During February&nbsp;2006, the Company issued 250,000 performance based warrants to an outside
consultant. These warrants are to be exercisable at $.40 per share, are fully vested and
exercisable immediately. These warrants were valued at $401,130 using the Black-Scholes option
valuation model with the following assumptions: risk-free interest rate of 4.59%, dividends yield
of 0%, volatility factors of the expected market price common of 130.61%, and an expected life of
five years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2006, the Company entered into a one-year agreement with an outside consultant to
provide public relations services. The terms of the agreement calls for monthly payments of $7,000.
Additionally, the Company issued a five-year warrant to the consultant. The warrant is exercisable
for up to 100,000 shares of common stock at an exercise price of $2.30 per share and vests as to
8,333 shares per month commencing April&nbsp;30, 2006. The shares issuable upon exercise of the warrant
have piggyback registration rights. In August&nbsp;2006 the Company terminated the agreement. The
consultant earned 41,665 warrants and the remaining balance of 58,335 were forfeited.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Convertible notes and warrants</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>9% Convertible Notes</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2005, the Company completed the first part of a private
offering of its 9% Convertible Notes due at dates ranging between May&nbsp;31, 2006 and July&nbsp;31, 2006
(the &#147;Notes&#148;) and Warrants to purchase shares of the Company&#146;s common stock which expire between
August&nbsp;31, 2007 and December&nbsp;28, 2007 (the &#147;Warrants&#148;). The Notes are convertible at $0.70 per
share of common stock and the Warrants entitle the holder to purchase a number of shares of the
Company&#146;s common stock equal to 150% of the number of shares of common stock into which the Note is
convertible. The Warrants are exercisable at a price of $1.00 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2005, the Company issued Notes totaling $1,576,378 and paid
related transaction fees of $123,196, resulting in net proceeds to the Company of $1,453,182. In
addition to the cash paid for transaction fees, 166,126 additional Warrants were issued to certain
placement agents. These Warrants expire between August&nbsp;31, 2007 and December&nbsp;28, 2007 and are
exercisable at a price of $1.00 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate value of the Warrants issued in connection with the offering and to the
placement agent were valued at $696,413 using the Black-Scholes option valuation model with the
following assumptions; risk-free interest rate of 4.02% to 4.45%; dividend yield of 0%; volatility
factors of the expected market price of common stock of 83.59%; and an expected life of two years
(statutory term). The company also determined that the notes contained a beneficial conversion
feature of $756,768.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The value of the Warrants of $696,413, the conversion option of $756,768, and the transaction
fees of $123,196 are considered as debt discount and are being amortized over the life of the
Notes. During 2005, $318,759 of such discount has been amortized and included in the accompanying
statements of operations. The remaining unamortized debit discount as of December&nbsp;31, 2005 of
$1,257,619 has been netted against the convertible debentures in the accompanying consolidated
balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, the Company issued additional Notes totaling
$1,000,000, which included the conversion of $45,000 of debt owed to the Company&#146;s Chief Financial
Officer. The Company paid related transaction fees of $89,500
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-24<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">resulting in net proceeds to the Company of $865,500. In addition to the cash paid for
transaction fees, 117,857 additional Warrants were issued to certain placement agents. These
Warrants expire between August&nbsp;31, 2007 and February&nbsp;9, 2008 and are exercisable at a price of
$1.00 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate value of the Warrants issued in connection with the offering and to the
placement agent were valued at $620,252 using the Black-Scholes option valuation model with the
following assumptions; risk-free interest rate of 4.35% to 4.66%; dividend yield of 0%; volatility
factors of the expected market price of common stock of 130.61%; and an expected life of two years
(statutory term). The company also determined that the notes contained a beneficial conversion
feature of $290,248.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The value of the Warrants of $620,252, the conversion option of $290,248, and the transaction
fees of $89,500 are considered as debt discount and are being amortized over the life of the Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, convertible notes in the amount of $2,576,379 of the
Notes were converted to 3,680,540 shares of stock at $0.70 per share. In addition, $3,707 of
accrued interest was converted to 5,296 shares at $0.70 per share. For the year ended December&nbsp;31,
2006, $2,257,620 of the total discount has been amortized and included in the accompanying
consolidated statement of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Morale Notes</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;5, 2006, the Company entered into a Note Purchase Agreement (the &#147;Agreement&#148;) with
Morale Orchards, LLC, a limited liability company formed under the laws of the State of Oregon
(&#147;Morale&#148;). The entire equity interest in Morale is beneficially owned by Leodis Matthews who
provides legal services to the Company. The Agreement provides that Morale will purchase the
Company&#146;s one year Convertible Promissory Notes in the aggregate face amount of $1,225,000 (the
&#147;Morale Notes&#148;), and five-year Warrants (the &#147;Morale Warrants&#148;) to purchase shares of the Company&#146;s
common stock (the &#147;Common Stock&#148;). The aggregate purchase price for the Notes and Warrants is
$1,000,000. Therefore, while the stated interest on the Notes is 0%, the effective interest rate is
22.5% because the Notes are being purchased at a discount from their face amount.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the Morale Notes is convertible into shares of the Company&#146;s Common Stock at a per
share conversion price initially equal to the closing price of a share of the Company&#146;s Common
Stock on the trading day prior to the date of issuance of such Note. The conversion right is
exercisable during the period commencing 90&nbsp;days prior to the maturity of each Note. Concurrently
with the issuance of a Note, for no additional consideration, Morale will acquire Warrants to
purchase a number of shares of Common Stock equal to 50% of the number of shares of Common Stock
initially issuable on conversion of the associated Note. The Morale Warrants become exercisable 180
days after the date of their issuance. The Note purchased by Morale on December&nbsp;5, 2006 is
convertible at the rate of $0.85 per share into 720,588 shares of the Company&#146;s Common Stock and
the Morale Warrants are exercisable at the same per share price for 360,294 shares of the Company&#146;s
Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayment of each Note is to be made monthly, at an amount equal to at least $3,750 for each
Note. Additional payments may be made prior to maturity with no prepayment penalties. In the event
the Company has not repaid each Note in full by the anniversary date of its issuance, the remaining
balance shall be increased by 10% as an initial penalty, and the Company shall pay additional
interest of 2.5% per month, compounded daily, for each month until such Note is paid in full.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Morale has piggyback registration rights pursuant to which Morale may require the Company to
include the shares of the Company&#146;s Common Stock issuable upon conversion of the Morale Notes and
exercise of the Morale Warrants in certain future registration statements the Company may elect to
file, subject to the right of the Company and/or its underwriters to reduce the number of shares to
be included in such a registration in good faith based on market or other conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, the Company issued Morale Notes totaling $612,500
discounted by $112,500, resulting in net proceeds to the Company of $500,000. In addition to the
discount, 360,264 additional warrants were issued to Morale. These warrants expire December&nbsp;5, 2011
and are exercisable at a price of $0.85 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate value of the Morale Warrants issued in connection with the offering and to the
finder were valued at $118,348 using the Black-Scholes option valuation model with the following
assumptions; risk-free interest rate of 4.39%; dividend yield of 0%; volatility factors of the
expected market price of common stock of 110.21%; and an expected life of five years (statutory
term) and vest over 180&nbsp;days. The Company also determined that the notes contained a beneficial
conversion feature of $230,848.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The value of the Morale Warrants of $118,348, the conversion option of $230,848, and the
transaction fees of $112,500 are
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-25<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">considered as debt discount and are being amortized over the life of the Note. During 2006,
$27,122 of such discount has been amortized and included in the accompanying consolidated
statements of operations. The remaining unamortized debit discount as of December&nbsp;31, 2006 of
$434,574 has been netted against the convertible debentures in the accompanying consolidated
balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Research and development</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has research and development facilities in Morgan Hill, California and Queensland,
Australia. The Company has expanded research and development to include application of the ZEFS,
MK IV and CAT-MATE technologies for diesel engines, motorbikes, boats, generators, lawnmowers and
other small engines. The Company has purchased test vehicles, test engines and testing equipment.
The Company has completed testing on products incorporating its ZEFS, MK IV and CAT-MATE
technologies for multiple automobiles, trucks motorcycles, off-road vehicles and stationary
engines, the results of which have been provided to RAND Corporation (RAND)&nbsp;for evaluation. RAND
oversees the research and development facilities. The Company also uses third party research and
development facilities in Los Angeles, California for the development of the ZEFS and CAT-MATE
devices. The Company spent $401,827 and $1,150,360 for the years ended December&nbsp;31, 2006 and 2005,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Commitments and contingencies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Legal matters</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;19, 2001, the SEC filed civil charges in the United States Federal District Court,
Southern District of New York, against us, the Company&#146;s former President and then sole director
Jeffrey A. Muller, and others, alleging that the Company and the other defendants were engaged in a
fraudulent scheme to promote our stock. The SEC complaint alleged the existence of a promotional
campaign using press releases, Internet postings, an elaborate website, and televised media events
to disseminate false and materially misleading information as part of a fraudulent scheme to
manipulate the market for stock in the corporation, which was then controlled by Mr.&nbsp;Muller. On
March&nbsp;22, 2002, the Company signed a consent to final judgment of permanent injunction and other
relief in settlement of this action as against the corporation only, which the court approved on
July&nbsp;2, 2002. Under this settlement, the Company was not required to admit fault and did not pay
any fines or restitution. The SEC&#146;s charges of fraud and stock manipulation continue against Mr.
Muller and others.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;2, 2002, after an investigation by the Company&#146;s newly constituted board of directors,
the Company filed a cross-complaint in the SEC action against Mr.&nbsp;Muller and others seeking
injunctive relief, disgorgement of monies and stock and financial restitution for a variety of acts
and omissions in connection with sales of our stock and other transactions occurring between 1998
and 2002. Among other things, the Company alleged that Mr.&nbsp;Muller and certain others sold Company
stock without providing adequate consideration to the Company; sold insider shares without making
proper disclosures and failed to make necessary filing required under federal securities laws;
engaged in self-dealing and entered into various undisclosed related-party transactions;
misappropriated for their own use proceeds from sales of the Company&#146;s stock; and entered into
various undisclosed arrangement regarding the control, voting and disposition of their stock. On
July&nbsp;30, 2002, the U.S. Federal District Court, Southern District of New York, granted the
Company&#146;s application for a preliminary injunction against Mr.&nbsp;Muller and others, which prevented
Mr.&nbsp;Muller and other cross-defendants from selling, transferring, or encumbering any assets and
property previously acquired from the Company, from selling or transferring any of the Company&#146;s
stock that they may own or control, or from taking any action to injure the Company or the
Company&#146;s business and from having any direct contact with the Company&#146;s shareholders. The
injunctive order also prevents Mr.&nbsp;Muller from engaging in any effort to exercise control over the
Company&#146;s corporation and from serving as an officer or director of the Company. While the Company
believes that the Company has valid claims, there can be no assurance that an adverse result or
settlement would not have a material adverse effect on the Company&#146;s financial position or cash
flow..
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the course of the litigation, the Company has obtained ownership control over Mr.&nbsp;Muller&#146;s
claimed patent rights to the ZEFS device. Under a Buy-Sell Agreement between Mr.&nbsp;Muller and the
Company dated December&nbsp;29, 1998, Mr.&nbsp;Muller, who was listed on the ZEFS devise patent application
as the inventor of the ZEFS device, purported to grant us all international marketing,
manufacturing and distribution rights to the ZEFS device. Those rights were disputed because an
original inventor of the ZEFS device contested Mr.&nbsp;Muller&#146;s legal ability to have conveyed those
rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Australia, Mr.&nbsp;Muller entered into a bankruptcy action seeking to overcome the Company&#146;s
claims for ownership of the ZEFS device. In conjunction with these litigation proceedings, a
settlement agreement was reached whereby the $10 per unit royalty previously due to Mr.&nbsp;Muller
under his contested Buy-Sell Agreement was terminated and replaced with a $.20 per unit royalty
payable to the bankruptcy trustee. On November&nbsp;7, 2002, under a settlement agreement executed with
the Mr.&nbsp;Muller&#146;s bankruptcy trustee, the trustee transferred to the Company all ownership and legal
rights to this international patent application for the ZEFS device.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-26<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both the SEC and the Company have filed Motions for Summary Judgment contending that there are
no material issues of fact in contention and as a matter of law, the Court should grant a judgment
against Mr.&nbsp;Muller and the cross-defendants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Muller and several of the defendants filed a Motion to Dismiss the complaint filed by the
Company and moved for summary judgment in their favor. On December&nbsp;28, 2004, Judge George B.
Daniels denied the cross-defendants&#146; motion to dismiss the Company&#146;s cross-complaint, denied the
request to vacate the July&nbsp;2, 2002 preliminary injunction and denied the request for damages
against the Company. The court also refused to grant a summary judgment in favor of the
cross-defendants and dismissed Mr.&nbsp;Muller&#146;s claims against the Company for indemnification for his
legal costs and for damages resulting from the litigation. Neither Mr.&nbsp;Muller nor any of the
cross-defendants have filed any cross-claims against the Company and the Company is not exposed to
any liability as a result of the litigation, except for possibly incurring legal fees and expenses
should the Company lose the litigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2005, the Court granted the SEC&#146;s motion for summary judgment. In granting the
motion, the Court has barred Mr.&nbsp;Muller from serving as an officer or director of a public company
for a period of 20&nbsp;years, ordered Mr.&nbsp;Muller to disgorge any shares of our stock that he still owns
and directed the Company to cancel any issued and outstanding shares of our stock still owned by
Mr.&nbsp;Muller. Mr.&nbsp;Muller was also ordered to disgorge to the SEC unlawful profits in the amount of
$7.5&nbsp;million and a pay a civil penalty in the amount of $100,000. Acting in accordance with the
Court&#146;s order, the Company has canceled (i)&nbsp;8,047,403 shares of its common stock held by Mr.&nbsp;Muller
and/or his affiliates, (ii)&nbsp;options to acquire an additional 10,000,000 shares of the Company&#146;s
common stock held by Mr.&nbsp;Muller personally and (iii) $1,017,208 of debt which Mr.&nbsp;Muller claimed
was owed to him by the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Muller subsequently filed a Notice of Appeal from the Judgment resulting from this
decision to the Second Circuit Court of Appeals in New York. The clerk of the Court recently
issued an Order dismissing this appeal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the November&nbsp;16, 2005 decision by the Court, Muller filed a motion seeking to
set aside the decision and order of the Court. On March&nbsp;31, 2006, the Court issued a decision and
order denying Muller&#146;s motion to set aside the decision on summary judgment issued against Muller
on November&nbsp;16, 2005.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;27, 2006, Magistrate Judge Frank Maas, Federal District Court of the Southern District
of New York, issued an order granting summary judgment in favor of the Company. The ruling provided
that all shares, options and any other obligations allegedly owed by the Company to Jeffrey A.
Muller, its former Chairman, were to be disgorged. The ruling also confirmed an earlier decision
issued on November&nbsp;16, 2005 in favor of the SEC holding Mr.&nbsp;Muller liable for $7.5&nbsp;million in
actual damages, imposing a $100,000 fine and barring Muller from any involvement with a publicly
traded company for 20&nbsp;years. With prejudgment interest, this ruling brings the actual damages
against Muller to over $9&nbsp;million. Additionally, the Court further clarified that the scope of its
previous disgorgement order required the disgorgement of any shares of the Company&#146;s stock that Mr.
Muller or any of his nominees directly or indirectly own or control. The Company has taken action
to cancel over 3.6&nbsp;million shares which had been issued to the offshore companies.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Court also confirmed the appropriateness of an action previously taken by the Company to
acquire the patent rights and to consolidate the manufacturing, marketing and distribution rights
with its ownership of all rights to the existing patents.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finally, the Court ruled that Mr.&nbsp;Muller had no claim to an alleged $500,000 debt owed to him
while the damages of over $9&nbsp;million remain unpaid. The Court also ruled that other assets that
were transferred by Mr.&nbsp;Muller to members of his family through various offshore corporations were
also to be disgorged. Because the Court left unresolved an issue concerning claims against one
Muller family member, the Company sought a modification of the Order. On February&nbsp;8, 2007, Judge
Maas issued an Amended Order which concluded that all of the STWA shares of Muller or any of his
nominees directly or indirectly owned or controlled were to be recaptured by STWA and were subject
to disgorgement and forfeiture. With this modification of the October&nbsp;27, 2007 ruling, this order
provides the complete relief requested by the Company in its motion for summary judgment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2005, Jeffrey A. Muller, the Company&#146;s former sole director and executive officer,
filed a lawsuit in the Federal District Court for the Central District of California, seeking
declaratory and injunctive relief and alleging unfair competition in connection with a claimed
prior patent interest in the ZEFS device and stock option rights. In seeking declaratory relief,
Mr.&nbsp;Muller is seeking to have the patent rights in the ZEFS device that were previously transferred
to the Company by Mr.&nbsp;Muller&#146;s bankruptcy trustee declared null and void.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-27<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This lawsuit brought by Mr.&nbsp;Muller arises out of the same claims that are the subject of
ongoing litigation in the Federal District Court for the Southern District of New York, in which
the Company has previously obtained a preliminary injunction against Mr.&nbsp;Muller barring him from
any involvement with the Company and preventing Mr.&nbsp;Muller, his agents or assigns, from exercising
any claimed rights to the Company&#146;s assets or stock. Mr.&nbsp;Muller previously filed the same complaint
in the Federal District Court for the Southern District of New York, which claim is pending
dismissal. On December&nbsp;28, 2004, Federal District Court Judge George B. Daniels issued a decision
dismissing motions filed by Mr.&nbsp;Muller against the Company&#146;s cross-claims. The dismissal of those
motions involved similar causes of action as those contained in Mr.&nbsp;Muller&#146;s recent lawsuit
commenced in the Federal District Court for the Central District of California. Since the case in
New York is still pending, the filing of the new lawsuit in California is subject to various
defenses which should result in the dismissal of the new lawsuit.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;25, 2006, Mr.&nbsp;Muller&#146;s complaint, filed in the California District Court and transferred
to the Federal Court in the Southern District of New York, was assigned to Judge George B. Daniels.
That Complaint is currently pending, however, the issues raised in this Complaint arise from the
same claims already decided by the Court in its February&nbsp;8, 2007 Amended Order. The Company plans
to file a request to dismiss the pending Complaint on several grounds, including that the claims
sought to be litigated in this latter complaint has been included within the Summary Judgment
Motions decided against Muller, his nominees and assignees. While the Company believes that the
Company has valid claims and defenses, there can be no assurance that an adverse result or outcome
on the pending motions or a trial of this case would not have a material adverse effect on our
financial position or cash flow.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Employment agreements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2005, the Company entered into an employment agreement with an individual to serve as
a Vice President of Operations for the Company. The agreement expired December&nbsp;31, 2005, with an
automatic one-year extension and provided for annual base compensation of not less than $120,000
per year. During the employment term, the individual is eligible to participate in certain
incentive plans, stock option plans and similar arrangements in accordance with the Company&#146;s
recommendations at award levels consistent and commensurate with the position and duties hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;9, 2006, the individual who served as the Company&#146;s Chief Executive Officer and
Chief Financial Officer resigned, due to a medical disability. His resignation as Chief Executive
Officer took effect on November&nbsp;20, 2006 and his resignation as Chief Financial Officer takes
effect on the earlier to occur of (i)&nbsp;the appointment of his successor or (ii)&nbsp;January&nbsp;31, 2007. He
will continue to serve as a director of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the separation agreement as an officer of the Company, he is entitled to be
paid out the remainder of the cash portion of his employment agreement through December&nbsp;31, 2007,
in accordance with the Company&#146;s normal pay policies. Options granted to him in February&nbsp;2006 have
been accelerated and will fully vest on November&nbsp;20, 2006 and be recalculated under 123R;
additionally, the former officer will have until November&nbsp;20, 2007 to exercise such options. He is
also entitled to receive a stock option grant in 2007 equal to the lesser of (i)&nbsp;the number of
stock options he was granted in 2006 or (ii)&nbsp;the highest number of options granted to any of the
then Chief Executive Officer, President or Chief Financial Officer on an annualized basis, on terms
no less favorable as granted to such person; provided, however, that such options to be granted to
the former officer shall be fully vested upon grant and shall be exercisable for one year from the
date of grant. The Company and the former officer have waived any claims they may have against each
other and have agreed to mutual indemnification. The Company expensed $345,000 for the remaining
term of his employment agreement and benefits for the year ended December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Including those agreements entered into prior to 2006, minimum guaranteed compensation
payments under employment agreements, as amended, by year are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">868,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">878,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, approximately $835,900 was paid for employment
agreement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-28<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Consulting agreements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2006, the Company entered into a one-year agreement with an outside consultant to
provide public relations services. The terms of the agreement calls for monthly payments of $7,000.
Additionally, the Company issued a five-year warrant to the consultant. The warrant is exercisable
for up to 100,000 shares of common stock at an exercise price of $2.30 per share and vests as to
8,333 shares per month commencing April&nbsp;30, 2006. The shares issuable upon exercise of the warrant
have piggyback registration rights. In August&nbsp;2006 the Company terminated the agreement. The
consultant earned 41,665 warrants and the remaining balance of 58,335 were forfeited.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Leases</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2003, the Company had entered into a sublease lease agreement with an entity to lease
office space for its primary administrative facility. An officer of the Company is an indirect
owner of the entity. As amended as of December&nbsp;31, 2005, the lease term is from November&nbsp;1, 2003
through October&nbsp;31, 2007 and carries an option to renew for two additional years with a 10&nbsp;percent
increase in the rental rate. Monthly rent is $3,740 per month under this lease for approximately
1,225 square feet, and for comprehensive office support services, including reception, parking and
conference facilities. The Company occupies less than 25% of the facility and the rent payment is
comparable to other space in the area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2006, the Company amended the existing sublease agreement whereby it increased its
monthly rents from $3,740 to $6,208 and expires July&nbsp;31, 2007 with an option to renew for two
additional years. The increase in rent was for an increase of space of approximately 475 square
feet, and for additional common area use, expanded office services, including a computer network
and additional parking spaces. Additionally, the Company is leasing two new office spaces for $964
per month beginning July&nbsp;2006 on a month-to-month basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2003, the Company entered into a lease for a research and development facility
located in Queensland, Australia. The term of the lease is from November&nbsp;15, 2003 through March&nbsp;15,
2006 and carries an option to renew for two additional years each with an increase of the greater
of 5% or the increase in the then current Australian Consumer Price Index. Monthly rent is AUD
$1,292 (approximately US $1,000) per month under this lease. In March&nbsp;2006, the Company entered
into a new lease for this facility for a term of two years commencing March&nbsp;15, 2006. Monthly rent
is AUD $1,462 (approximately US $1,100) per month.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2005, the Company entered into a lease for a testing facility located in Morgan
Hill, California. The term of the lease is from September&nbsp;1, 2005 through August&nbsp;31, 2007 and
carries an option to renew for two additional years at the then prevailing market rate. Monthly
rent is $2,240 per month under this lease. The lease was amended in February&nbsp;2006 for additional
space. Monthly rate under the amended lease is $4,160 per month.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total rent expense under these leases for the years ended December&nbsp;31, 2006 and 2005, is
$165,879 and $44,180, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a schedule by years of future minimum rental payments required under the
non-cancelable operating leases as of December&nbsp;31, 2006 and assuming that the Company will exercise
its option to renew its leases at its primary administrative facility and its testing facility in
Morgan Hill:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Years Ending December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">154,449</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,348</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,343</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">397,140</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. Subsequent events</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;4, 2007, the Company entered into a Consulting Agreement (the &#147;Consulting
Agreement&#148;) with Spencer Clarke LLC (&#147;Spencer Clarke&#148;) pursuant to which Spencer Clarke has agreed
that for a twelve-month period beginning January&nbsp;4, 2007, Spencer Clarke will provide the Company
with financial consulting services (including but not limited to executive search, strategic
partnerships, research on new markets, strategic visibility, etc) to help further develop the
Company&#146;s strategic business plan.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->F-29<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For Spencer Clarke&#146;s services the Company has agreed to pay Spencer Clarke a non-refundable
fee of $20,000 per month, payable in advance. The first payment, in the amount of $60,000 and
covering three months, was due by the Company on March&nbsp;1, 2007. No payments have been made under
this agreement. The Company will also reimburse Spencer Clarke for expenses it incurs in connection
with the performance of its services under the Consulting Agreement, provided that expenses in
excess of $2,000 require the Company&#146;s prior approval before such expenses may be incurred by
Spencer Clarke.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;8, 2007 the Company engaged an individual to serve as its Chief Financial Officer
for a term of one year, subject to earlier termination on 30&nbsp;days&#146; notice after the first three
months. During the term, he will receive a fee of $4,000 per month, which amount will be increased
to $8,000 or more in months during which the Company files its periodic reports with the Securities
and Exchange Commission. He will be eligible to receive grants of stock options under the Company&#146;s
Stock Option Plan on terms and conditions to be agreed upon between the Company and the individual.
He will be reimbursed for business expenses he incurs in connection with the performance of his
services as the Company&#146;s Chief Financial Officer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;10, 2007, the Company issued Morale notes totaling $612,500 discounted by $112,500,
resulting in net proceeds to the Company of $500,000. In addition to the discount, 437,500 warrants
were issued to Morale. These warrants expire January&nbsp;10, 2011 and are exercisable at $0.70 per
share. The note is convertible at the rate of $0.70 per share into 875,000 shares of the Company&#146;s
Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From January&nbsp;13 through April&nbsp;27, 2007, the Company conducted an offering (the &#147;2007 PIPE
Offering&#148;), through Spencer Clarke, as exclusive placement agent, of up to $2,000,000 principal
amount of its 10% convertible notes (the &#147;2007 PIPE Notes&#148;). Interest on the 2007 PIPE Notes, at a
rate of 10% per annum, is payable quarterly. The Notes are due nine months from date of issuance.
The Notes are convertible into shares of Common Stock at an initial conversion price of $0.70 per
share (the &#147;Conversion Shares&#148;). The Company raised $400,000 gross proceeds ($352,000 net
proceeds) in the 2007 PIPE Offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has the right to redeem any or all of the outstanding 2007 PIPE Notes in its sole
discretion anytime after the termination of the 2007 PIPE Offering and prior to the maturity date
of the 2007 PIPE Notes. The redemption price shall be the face amount of the redeemed Notes plus
accrued and unpaid interest thereon. Subject to the following sentence, at any time prior to the
maturity date of the 2007 PIPE Notes, for each additional $1,000,000 of gross proceeds raised from
one or more offerings of the Company&#146;s equity or quasi-equity securities, the Company shall redeem
2007 PIPE Notes with a minimum face value of $500,000 together with accrued and unpaid interest,
until the entire outstanding 2007 PIPE Note is redeemed. Certain financings that the Company may
conduct outside of North America are exempt from this provision to redeem the 2007 PIPE Notes in
whole or in part.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investors in the 2007 PIPE Offering received, for no additional consideration, a warrant (the
&#147;2007 PIPE Warrant&#148;), entitling the holder to purchase a number of shares of the Company&#146;s common
stock equal to 150% of the number of shares of common stock into which the 2007 PIPE Notes are
convertible (the &#147;Warrant Shares&#148;). The 2007 PIPE Warrant will be exercisable on a cash basis only
and will have registration rights. The 2007 PIPE Warrant is exercisable at an initial price of
$1.00 per share, and is exercisable immediately upon issuance and for a period of three years from
the date of issuance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Promptly, but no later than 90&nbsp;days following the closing date of the 2007 PIPE Offering, the
Company is required to file a registration statement with the SEC to register the Conversion Shares
and the Warrant Shares. The Company shall use its best efforts to ensure that such registration
statement is declared effective within 120&nbsp;days after filing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From January&nbsp;1, 2007 through May&nbsp;9, 2007, the Company received gross proceeds of $699,591 (net
proceeds of $643,624) from the issuance of stock under our equity line of credit from Dutchess.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, the Company entered into two license agreements with Temple University, one
covering Temple&#146;s current patent application concerning certain electric field effects on gasoline,
kerosene and diesel fuel particle size distribution, and the other covering Temple&#146;s current patent
application concerning electric field effects on crude oil viscosity, and any and all United States
and foreign patents issuing in respect of the technologies described in such applications
(individually, a &#147;License Agreement&#148; and collectively, the &#147;License Agreements&#148;). Initially, the
License Agreements are exclusive and the territory licensed to the Company is worldwide. Pursuant
to the License Agreements, the Company will pay to Temple (i)&nbsp;license fees in the aggregate amount
of $250,000.00, payable in three installments of $100,000.00, the first installment of which was
paid in March&nbsp;2007, and $75,000.00 on each of February&nbsp;2, 2008 and February&nbsp;2, 2009, respectively;
and (ii)&nbsp;annual maintenance fees of $125,000 annually commencing January&nbsp;1, 2008. In addition, each
License Agreement separately provides that the Company will pay royalties to Temple on net sales of
products incorporating the technology licensed under that License Agreement in an amount equal to
7% of the first $20&nbsp;million of net sales, 6% of the next $20&nbsp;million of net sales and 5% of net
sales in excess of $40&nbsp;million. Sales under the two License
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Agreements are not aggregated for purposes of calculating the royalties payable to Temple. In
addition, the Company has agreed to bear all costs of obtaining and maintaining patents in any
jurisdiction where the Company directs Temple to pursue a patent for either of the licensed
technologies. Should the Company not wish to pursue a patent in a particular jurisdiction, that
jurisdiction would not be included in the territory licensed to the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, the Company also entered into a research and development agreement (&#147;R&#038;D
Agreement&#148;) with Temple University to conduct further research on the ELEKTRA technology. Under the
R&#038;D Agreement, Temple will conduct a 24-month research project towards expanding the scope of, and
developing products utilizing, the technologies covered under the License Agreements, including
design and manufacture of prototypes utilizing electric fields to improve diesel, gasoline and
kerosene fuel injection in engines using such fuels and a device utilizing a magnetic field to
reduce crude oil viscosity for crude oil (paraffin and mixed base) flow in pipelines. Pursuant to
the R&#038;D Agreement, the Company will make payments to Temple in the aggregate amount of $500,000.00,
payable in eight non-refundable installments commencing with $123,750, which was paid in March
2007, and $53,750 every three months thereafter until paid in full. If the research project yields
results within the scope of the technologies licensed pursuant to the License Agreements, those
results will be deemed included as rights licensed to the Company pursuant to the License
Agreements. If the research project yields results outside of the scope of the technologies covered
by the License Agreements, the Company has a six-month right of first negotiation to enter into a
new worldwide, exclusive license agreement with Temple for the intellectual property covered by
those results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company also has an annual employment agreement with an officer for $60,000 a year, which
was renewed on March&nbsp;1, 2007.
</DIV>


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<TYPE>EX-10.13
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<FILENAME>v28291exv10w13.htm
<DESCRIPTION>EXHIBIT 10.13
<TEXT>
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>SEPARATION AGREEMENT AND</B></U><BR>
<U><B>GENERAL MUTUAL RELEASE OF CLAIMS</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Separation Agreement and General Mutual Release of Claims dated as of November&nbsp;9, 2006
(this &#147;Agreement&#148;) is made between Save the World Air, Inc. (the &#147;Company&#148;) and Eugene E. Eichler,
an individual (&#147;Eichler&#148;). The Company and Eichler are sometimes referred to collectively herein as
the &#147;Parties&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Eichler wishes to resign as an officer of the Company, including without limitation,
as its Chief Executive Officer and Chief Financial Officer, as the sole result of a medical
disability; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Company wishes to accept the resignation of Eichler as on officer of the Company,
including without limitation, as its Chief Executive Officer and Chief Financial Officers, as the
sole result of a medical disability; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Parties wish to provide for clarity, finality and certainty as to the basis for
Eichler&#146;s resignation, and the terms of cash and non-cash compensation to which Eichler is entitled
following such resignation; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, Eichler wants to release any and all claims that he may have or which exist, or may
exist, by him against the Company, known and unknown, including, but not necessarily limited to,
all known and unknown claims arising out of Eichler&#146;s service to the Company as an officer or
employee of the Company or any subsidiary thereof; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, the Company wants to release any and all claims that it may have or which exist, or
may exist, by him against Eichler, known and unknown, including, but not necessarily limited to,
all known and unknown claims arising out of Eichler&#146;s service to the Company as an officer or
employee of the Company or any subsidiary thereof;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THEREFORE, in consideration of the promises in this Agreement, the adequacy of which is
acknowledged, the Parties agree as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1. Resignation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1 <U>Basis for Resignation</U>. Eichler has represented to the Company that he
suffers from a medical disability (a &#147;Disability&#148;) rendering him unable to continue to
discharge his day-to-day responsibilities as an officer of the Company and its subsidiary,
STWA Asia Pte. Limited (&#147;Subsidiary&#148;). The Company accepts such representation and
acknowledges and agrees that Eichler has a Disability and such Disability is a
&#147;Disability&#148; as defined in that certain Amended and Restated Employment Agreement
dated as of October&nbsp;5, 2005 between the Parties (the &#147;Employment Agreement&#148;), a copy
of which is attached hereto as Exhibit&nbsp;A, without any further requirement of medical
proof thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2 <U>Resignation as Officer</U>. As the sole result of his Disability, Eichler hereby
tenders his resignation pursuant to Section&nbsp;6 of the Employment Agreement, as Chief
Executive Officer, Chief Financial Officer and any and all other offices he holds with the
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Company or its subsidiary. Eichler&#146;s resignation as Chief Executive Officer is effective on
November&nbsp;20, 2006. Eichler&#146;s resignation as Chief Financial Officer is effective upon the
appointment by the Board of Directors of the Company (the &#147;Board&#148;) of his successor, but in no
event later than January&nbsp;31, 2007. Eichler&#146;s resignation from any and all other offices held holds
with the Company or the Subsidiary is effectives on November&nbsp;20, 2006. Notwithstanding anything
contained herein to the contrary, the Company does not regard the deferred resignation of Eichler
as Chief Financial Officer, as provided in the foregoing sentence, as inconsistent with Eichler&#146;s
Disability and waives any right to claim that Eichler&#146;s separation as provided in this Agreement is
for any reason other than Disability. During the period that Eichler continues to serve as Chief
Financial Officer, (i)&nbsp;he shall do so primarily from his home and shall not be  required to be
present at the Company&#146;s principal offices and (ii)&nbsp;his duties and responsibilities shall be no
greater than necessary for him to discharge the obligations described herein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.3 <U>Resignation as Director</U>. Eichler hereby tenders his resignation as a
director of Subsidiary effective November&nbsp;20, 2006. Eichler is not tendering his resignation as a
director of the Company and shall continue to serve as a director of the Company with all the
rights, privileges, prerogatives and responsibilities attendant thereto, including without
limitation, compensation therefore, until he has resigned, been removed by the stockholders or not
been re-elected to the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2. Termination Benefits</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 <U>Cash Compensation</U>. Notwithstanding anything provided in the
Employment Agreement to the contrary, the Parties agree that Eichler shall be paid cash
compensation at the rate of Three Hundred Thousand Dollars ($300,000) per annum, for
the period commencing November&nbsp;20, 2006 and continuing thereafter to and including
December&nbsp;31, 2007 (the &#147;Remaining Term&#148;), which period constitutes the remaining
term of the Employment Agreement, all such amounts to be paid in accordance with the
Company&#146;s normal pay policies applicable to senior officers of the Company; provided,
however, that the Company may not declare a moratorium on any payment hereunder to
Eichler as part of cash management by the Company, or any other reason, without
Eichler&#146;s prior written consent. All such sums paid hereunder shall be subject to
appropriate withholding as required by applicable laws and regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 <U>Non-Cash Compensation Previously Granted</U>. Notwithstanding anything
provided in the Employment Agreement to the contrary, the Parties further agree that the
vesting of all stock options or warrants heretofore granted to Eichler for services rendered
(&#147;Options&#148;), shall be accelerated and shall become fully vested on November&nbsp;20, 2006.
Moreover, such Options may be exercised by Eichler at any time and from time to time,
until November&nbsp;20, 2007, after which time any Options that remain unexercised shall be
cancelled and rendered null and void, other than in the event of Eichler&#146;s prior death, in
which case such Options shall be exercisable in accordance with the agreements entered
into in connection with each such Option.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3 <U>Additional Non-Cash Compensation</U>. Notwithstanding anything provided
in the Employment Agreement to the contrary, the Parties further agree that Eichler shall
be granted for 2007, at the time that grants are made to officers and employees of the
Company, the lesser of (i)&nbsp;the aggregate number of stock options Eichler was granted in
2006 or (ii)&nbsp;the highest number of the aggregate of incentive stock options and non-
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">qualified stock options granted to any of the then Chief Executive Officer, President or Chief
Financial Officer of the Company on an annualized basis, on terms no less favorable to Eichler as
granted to such other person; provided, however, that such options granted to Eichler shall be
fully vested upon grant and shall be exercisable for one year from the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4 <U>Other Compensation</U>. Eichler shall be entitled to any additional amounts,
in the form of cash or non-cash compensation, as the Compensation Committee of the
Board, or the Board, may determine, in their sole and absolute discretion, or nothing as
the Compensation Committee of the Board or the Board may determine. Eichler shall not
be entitled to receive any compensation granted generally to directors, during his
remaining term(s) on the Board.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5 <U>Other Benefits</U>. Eichler shall be entitled to all other benefits not expressly
provided for herein, pursuant to Section&nbsp;6 of the Employment Agreement for the
Remaining Term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3. Claims</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 <U>Waiver of Claims</U>. Eichler acknowledges that the consideration provided
for pursuant to Section&nbsp;2 of this Agreement is provided to him in full and complete
satisfaction and discharge of any and all claims that he may have against the Company,
its parents, subsidiaries, directors, officers and agents, whether asserted or unasserted,
known or unknown, occurring up to and including the date of execution of this
Agreement. The Company acknowledges that Eichler&#146;s agreements and releases set forth
in this Agreement are provided to the Company in full and complete satisfaction and
discharge of any and all claims that the Company, its parents, subsidiaries, directors,
officers and agents may have against Eichler, whether asserted or unasserted, known or
unknown, occurring up to and including the date of execution of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 <U>Section&nbsp;1542</U>. With respect to the waivers set forth in Section&nbsp;3.1 above,
the Parties and each of them acknowledges and expressly waives any and all rights he or
it may have under California Civil Code Section&nbsp;1542 which provides as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known to him must have materially
affected his settlement with the debtor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3 <U>No Other Relief</U>. Each of the Parties understands and agrees that all other
entities released herein shall neither make nor cause to be made any additional relief to
the other Party, except as specifically referenced herein. Should any third party,
including any state or federal agency, bring any action or claim against the Company on
Eichler&#146;s behalf, either collectively or individually, Eichler acknowledges and agrees that
this Agreement provides him with full relief and that he will not request any other relief.
Should any third party, including any state or federal agency, bring any action or claim
against Eichler on the Company&#146;s behalf, either collectively or individually, the
Company acknowledges and agrees that this Agreement provides it with full relief and
that it will not request any other relief.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4 <U>Indemnification by the Company</U>. The Company agrees to indemnify and
hold Eichler harmless from any &#147;Damages&#148; (as defined in Section&nbsp;3.7 below) which
Eichler suffers as a result of the agreements made in the Employment Agreement, this
Agreement or anything else arising from, or in connection with, Eichler&#146;s service as an
employee of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5 <u>Indemnification by Eichler</u>. Eichler agrees to indemnify and hold the
Company harmless from any Damages which the Company suffers as a result of the
agreements made in the Employment Agreement, this Agreement or anything else arising
from, or in connection with, Eichler&#146;s service as an employee of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6 <U>Statutory Indemnification</U>. Notwithstanding anything to the contrary
contained in Sections&nbsp;3.4 or 3.5 of this Agreement, Eichler shall be entitled to
indemnification in accordance with laws of the state of Nevada, and the Articles of
Incorporation and Bylaws of the Company, to the fullest extent provided by law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7 <U>Definitions</U>. As used in this Section&nbsp;3, the term &#147;Damages&#148; shall mean (i)&nbsp;the
amount of any damages awarded against the Company in a judgment entered by any court of competent
jurisdiction pursuant to which judgment a finding has been made, (ii)&nbsp;all amounts paid in
settlement of any &#147;Third Party Claim&#148; (as defined below) and (iii)&nbsp;all legal fees and related costs
incurred in connection with defending any Third Party Claim. As used in this Section&nbsp;3, the term
&#147;Third Party Claim&#148; shall mean any claim asserted by any person other than Eichler and the Company,
and shall also include claims asserted in the name of the Company in the nature of a derivative
claim.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4. Miscellaneous</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 <U>Nondisclosure</U>. The Parties hereto agree to keep the terms of this
Agreement and the transactions provided for herein strictly confidential, except as the
same may be required to be disclosed under the Rules and Regulations of the United
State Securities and Exchange Commission. No press release or other public statements
shall be issued or made by either Party without the prior written consent of the other
Party. The Parties further agree not to disparage each to any third person(s), either orally
or in writing. The Parties acknowledge that irreparable harm would occur to the non-breaching Party if the other Party violates the terms of this paragraph 4, and, accordingly,
the non-breaching Party may immediately seek legal and equitable relief, including
without limitation injunctive relief, against the Party who breaches any provision of this
paragraph 4.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 <u>Severability</u>. If any portion of this Agreement is void or deemed
unenforceable for any reason, the unenforceable portion shall be deemed severed from
the remaining portions of this Agreement, which shall otherwise remain in full force.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 <U>Disputes; Applicable Law</U>. Any dispute under this Agreement shall be
resolved by meditation and, if such meditation is not successful, by arbitration pursuant
to the rules of the Los Angeles Superior Court. This Agreement shall be interpreted in
accordance with California law without regard to conflict of laws principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 <U>Counterparts</U>. This Agreement may be executed in two or more counterparts,
each of which will be deemed an original, but all of which together shall constitute one
and the same instrument. Faxed copies shall be effective and enforceable.
</DIV>



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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5 <U>Authorization</U>. Each of the Parties and each of the individuals signing this
Agreement on behalf of the Parties represents and warrants that the individuals executing
this Agreement on behalf of the Parties have the capacity and have been duly authorized to
execute this Agreement on behalf of the party so indicated. Each of the Parties shall
indemnify the other parties to this Agreement, and hold the other harmless, for, from and against any
and all damages, costs, attorneys&#146; fees, and other expenses, if the respective signatory
executing on behalf of such party is not so authorized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6 <u>Conflicts</u>. In the event of any conflict between the provisions of the
Employment Agreement and this Agreement, the provisions of this Agreement shall
govern.
</DIV>

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</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7 <U>Entire Agreement</U>. This Agreement constitutes the entire agreement of the Parties
and that in executing this Agreement neither Party has relied upon any representation or statement
not set forth herein with regard to the subject matter, basis, or effect of this Agreement. Eichler
represents that he has been given adequate time to consider this Agreement before executing it and
that he executes this Agreement as his own free act and deed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREFORE, the Parties, by their signatures below, acknowledge that there exist no other
promises, representations, or agreements relating to this Agreement, except as specifically set
forth herein and that they voluntarily enter into this Agreement with the intent to be legally
bound thereby, as of the date first above written.
</DIV>

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    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">SAVE THE WORLD AIR, INC.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="BOTTOM">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left"><IMG src="v28291v2829104.gif" alt="-s- Bruce H. McKinnon">
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Bruce H. McKinnon     &nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Title:&nbsp;&nbsp;</TD>
    <TD align="left">President&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left"><IMG src="v28291v2829106.gif" alt="-s- Eugene E. Eichler">
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Eugene E. Eichler&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>3
<FILENAME>v28291exv10w23.htm
<DESCRIPTION>EXHIBIT 10.23
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w23</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><b>AMENDMENT</b> <B>TO EMPLOYMENT</B> <B>AGREEMENT</B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Amendment to Employment Agreement (this &#147;Amendment&#148;) is made and entered into as of the
31st day of July, 2006 by and between SAVE THE WORLD AIR, INC. (&#147;STWA&#148;), a Nevada chartered
corporation, and ERIN BROCKOVICH (the &#147;Executive&#148;).</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>BACKGROUND</B></U></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;STWA
has employed the Executive pursuant to the provisions of an Employment
Agreement between the Executive and STWA dated as of September&nbsp;1, 2004 (the &#147;Agreement&#148;).</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;The
term of the Agreement was previously extended to July&nbsp;31, 2006.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;The parties desire to further extend the term of the Agreement to February&nbsp;28,
2007.</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto agree as follows:</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;Section&nbsp;3
of the Agreement is hereby amended to read in its entirety as follows:</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;3.
<u><b>Term of Agreement</b></u> The Executive&#146;s employment under this Agreement shall
commence on September&nbsp;1, 2004 and, except as otherwise provided herein, shall
continue until February&nbsp;28, 2007; provided, however, that thereafter, the term of this
Agreement shall automatically be extended for one additional year beyond the term
otherwise established unless, prior to such date, STWA or the Executive shall have
given a Notice of Non-Extension.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;Except as hereinabove amended or modified the Agreement is and shall remain
in full force and effect in accordance with its terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first
above written.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SAVE THE WORLD AIR, INC.
</DIV>
<DIV align="center" style="margin-left: 0%">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ EUGENE E. EICHLER</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Erin Brockovich</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Its: </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ERIN BROCKOVICH</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.44
<SEQUENCE>4
<FILENAME>v28291exv10w44.htm
<DESCRIPTION>EXHIBIT 10.44
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w44</TITLE>
</HEAD>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B><FONT style="font-variant: SMALL-CAPS">Marketing Representative Agreement</FONT></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS MARKETING REPRESENTATIVE AGREEMENT is made this 15<SUP style="font-size: 85%; vertical-align: text-top">th </SUP>day of July&nbsp;2006 by and
between Save the World Air, lnc.(STWA or Company), a Nevada Corporation, with its principal place of
business at 5125 Lankershim Blvd., North Hollywood, CA 91601-3718 and SS Sales and Marketing Group
(Marketing Representative), with its principal place of business at 9330 7<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> Street,
Suite&nbsp;E, Rancho Cucamonga, California 91730.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Recital
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SS Sales ad Marketing Group and STWA have mutually discussed and decided that their respective
business interests will be met by an Agreement for Marketing Representative to engage in marketing
activities in the automotive after-market and to establish sales Territory for products
manufactured by STWA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In consideration of the mutual covenants, obligations and promises set forth by this
document, the parties hereby agree as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. DEFINITIONS
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1. &#147;Products.&#148; Products shall include all current and future products of STWA or any
such particular products as from time to time may be identified by the parties and confirmed
in writing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2. &#147;Territory&#148;. The Territory consists of and is limited to the following U.S.
states and Canadian provinces: Arkansas, Arizona, California, Colorado, Hawaii, Idaho,
Montana, New Mexico, Nevada, Oregon, El Paso, Texas, Utah, Washington, Wyoming, British
Columbia and Alberta.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.3 &#147;Customers.&#148; Customers shall mean distributors, wholesalers and others who place
orders to purchase products from STWA for direct retail advertising, promotions, sales and
marketing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.4 &#147;Market&#148;. Market means the automotive after-market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. SERVICES
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1. Subject to the terms and conditions herein, STWA engages Marketing
Representative to provide marketing and promotional services in the Territory on an
exclusive basis with respect to the Market, and Marketing Representative agrees to provide
such services in the Territory on such basis.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-1-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2. Marketing Representative will:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Provide advice, assistance and information on marketing opportunities for the
Market and in the Territory, for the Products;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Undertake such marketing, investigatory, promotional or other visits as are
necessary or desirable, in consultation with STWA, to establish a market, recruit
distributors and wholesalers and to develop a good business relationship with potential or
actual Customers for the Products for the Market and in the Territory.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Advise on the best methods of securing market
opportunities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Advise on any actual or suspected local problems whether economic, political or
otherwise in the Territory or concerning the actual or potential customer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Provide information and advice on any governmental or marketing requirements and
the activities of competitors.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Keep records of all activities and inquiries and submit written reports as
required (any copyrights created by such records will vest in STWA).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) Arrange meetings and introductions as necessary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) Conduct, advise, and participate as required, in all pre-contract
negotiations and negotiations on the terms and conditions of contracts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Advise on any suspected wrongful use of STWA&#146;s intellectual property
rights.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) Work and communicate with any subsidiaries, agents or employees of STWA
designated to monitor the Territory.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) Comply with all instructions of STWA in order to achieve the foregoing and
promote its marketing and distribution interests.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. SALES
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1. Marketing Representative will use its best endeavors and highest professional
efforts to promote sales and obtain orders for the Products in the Territory. Marketing
Representative will provide the necessary resources to assure that adequate
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-2-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">market penetration for STWA&#146;s Products is in accordance with its projected plans and
objectives for the respective Territory. All inquires and orders will be promptly submitted
to STWA in a timely manner.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2. Unless otherwise agreed, Marketing Representative will not offer for direct retail
sale nor commit STWA to offer or to sell Products on a direct retail basis, but will
indicate that all such inquiries and orders will be promptly passed to Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3. Marketing Representative will not make any commitment, except for sales as
described in this agreement, in the name of Company or represent that it has authority to
bind or make commitments on behalf of Company, except with the express written consent of
the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. RESPONSIBILITIES OF STWA
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1. STWA will provide Marketing Representative with such training and assistance
as is necessary to enable its personnel to perform its duties.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2. STWA will provide, and update from time to time, such technical, sales or
promotional literature, brochures and Product samples in sufficient quantities as needed by
Marketing Representative&#146;s field representatives and personnel. All materials supplied shall
remain the property of STWA, except as is distributed in the marketing efforts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3. STWA will make commission payments on the terms as specified in Section&nbsp;6 of
this document.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 STWA will use all reasonable endeavors at its disposal to support the
promotion of sales of Products and the activities of Marketing Representative in
performing its obligations under this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. RESPONSIBILITIES OF MARKETING REPRESENTATIVE
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to all other responsibilities of Marketing Representative hereunder, Marketing
Representative shall:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 provide written periodic reports to STWA not less frequently than monthly regarding
its activities;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 arrange for its duties to be carried out by its own personnel and such other
personnel as its may select;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3. devote such resources as is necessary to meet projected sales objectives or
as required in consultation with STWA in performance of its obligations and duties as
described in this Agreement;
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-3-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4. not be, nor shall it hold itself out to be, an agent or partner of STWA, and shall at
all times be an independent contractor to STWA;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5. not receive any moneys or give any receipt on behalf of STWA nor compromise any claim or
debt due to STWA except with the prior written approval of STWA;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6. not make or provide any warranty or representation concerning the Products or the
detailed terms under which STWA will supply Products except as reflected within the literature,
promotional or other materials provided by STWA or with prior written approval of STWA. Marketing
Representative may make all representations which have been published or approved by STWA and may
represent any reasonable terms for delivery of the Products;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.7. permit STWA, upon reasonably request and during normal business hours, to audit the books
and record of Marketing Representative in connection with its services and responsibilities
pertaining to, and all other matters arising under, this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. FINANCIAL PROVISIONS
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1. In consideration of the services provided by Marketing Representative, STWA will
provide payment as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) A commission equal to 5% of the gross amount actually collected by STWA for
all Products supplied under contracts entered into by STWA during the term of this Agreement
for the existing or future Customers introduced by Marketing Representative within the
Territory. Commissions, calculated in accordance with the previous sentence, will be paid by
STWA to Marketing Representative monthly, on or before the 15<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day of the month
(or the nearest following business day if such day falls on a weekend or holiday) following
the month in which payments are actually received by STWA and have cleared for credit to
STWA&#146;s bank account. A recapitalization sheet showing the Customer, invoice number, invoice
date, commission rate and commission dollar amount will accompany each monthly commission
check. Any chargeback, refund or debit against the account of any Customer will not be
credited against any payment due to the Marketing Representative unless and until they have
been provided an opportunity to ensure collection of any outstanding receivables. Marketing
Representative will be provided with a past due and outstanding receivable accounting for
any account, unsettled or unpaid, and aged over 30&nbsp;days. Unless otherwise agreed, an
additional 30&nbsp;days will be considered a reasonable time for Marketing Representative to
ensure collection of due and owing receivables.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-4-<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2. It is expressly agreed that Marketing Representative will bear the costs of its
own expenses in fulfilling its duties hereunder, including any collection efforts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3. STWA will provide Marketing Representative with copies of invoice and credit
memos showing all activities it has generated within the Territory not more than twice, but
at least monthly. For purposes of its commission payments, Marketing Representative will be
credited for all sales within the Territory. Any deviations and exceptions will have to be
established by STWA and agreed by Marketing Representative.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. CONFIDENTIALITY
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1 Marketing Representative shall not, without STWA&#146;s express written
permission, reveal or otherwise make available to any person or persons any confidential,
privileged information or trade secrets regarding STWA&#146;s products, business, customers, or
methods of operation learned by Marketing Representative during the term of this
Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2. Marketing Representative will ensure that all directors, officer, employees,
agents or representatives involved with any work under this Agreement are fully aware that
they must comply with the obligations relating to the confidentiality of STWA&#146;s information.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3. In furtherance of the obligations of this Section&nbsp;7, Marketing Representative will
enter into, not later than at the time of the execution of this Agreement, and will cause
each of its directors, officers, employees, agents and representatives who provide services
to STWA under this Agreement to enter into, not later than the commencement of their work, a
confidentiality and non-disclosure agreement (&#147;Confidentiality Agreement&#148;) in the form
attached hereto as Exhibit&nbsp;A. If there is any conflict between the provisions of this
Agreement and the Confidentiality Agreements, the provisions of the Confidentiality
Agreement shall prevail.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4. The parties expressly acknowledge and agree that the failure of Marketing
Representative or any of its employees, agents or representatives who provide services to
STWA to (i)&nbsp;fail to execute the Confidentiality Agreement and (ii)&nbsp;abide by all the terms of
the Confidentiality Agreement, shall result in immediate and irreparable harm to STWA and
shall constitute a material breach of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. NONASSIGNABILITY
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consultant agrees that during the period of this Agreement, Marketing Representative will
not assign or transfer its obligations this Agreement or any part of it without the previous
written consent of STWA.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-5-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9. DURATION AND TERMINATION
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1. This Agreement will commence when signed by both parties and, subject
to Sections&nbsp;9.2 through 9.4 below, will remain in force for a period of five years or unless
sooner terminated, at the discretion of either party, upon 30&nbsp;days notice. Every year this
Agreement is in force, the notice period will-increase by 30&nbsp;days, up a maximum notice period of
90&nbsp;days.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2. This Agreement shall terminate automatically if:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(i)&nbsp;Either Party shall make an assignment for the benefit of creditors or shall
file a voluntary petition in bankruptcy or shall be adjudicated a bankruptcy or insolvent
or shall file any petition or answer seeking reorganization, arrangement, liquidation or
similar relief or shall file an answer admitting the material allegations of a petition
against it for any such relief; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">(ii)&nbsp;Any proceeding against either Party seeking reorganization, arrangement,
liquidation or similar relief shall not have been dismissed within 30&nbsp;days after the
commencement thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3. Either party may terminate this Agreement forthwith by written notice, if the other
party goes into liquidation or winding up, has execution levied upon any of its assets, or
generally becomes unable to pay its debts, including its debts to the other party as they become
due. Such party shall promptly and fully inform the other party of the imminence or occurrence of
any event described in this Section&nbsp;9.2.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4. Either party may terminate this Agreement forthwith upon written notice to the other
party in the event of a default in the performance of this Agreement by the other party including
any default by any employee, representative or agent of that party. For the avoidance of doubt, a
breach of any of the following conditions shall of itself be deemed to be a default for the
purposes of this sub-section.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Any act or default of the Marketing Representative that directly and materially
prejudices STWA&#146;s interest or goodwill in the Territory.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any material failure by Marketing Representative to perform its duties
hereunder.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Any material breach by Marketing Representative of the terms of this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Any material failure to follow the express instructions of
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-6-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">STWA.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) If Nate Shelton ceases to work a substantial amount of his available time
for Marketing Representative.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) The disability or death of Nate Shelton.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) If Marketing Representative suffers any change in the
control, management or ownership of its shares of such a nature that STWA
considers prejudicial to its interests.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The foregoing list is inclusive but not exclusive of events of default under this
Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10. CONSEQUENCES OF TERMINATION
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.1. Marketing Representative will be entitled to receive all commissions payment
until the actual date of any termination, after which STWA will no longer have any
obligations to Marketing Representative in connection with commission payments or other
obligations under this agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2. Marketing Representative will be immediately obligated to promptly return all
technical, sales, brochures, promotional or other literature and Product samples provided by
STWA, together with original and copies of all marketing surveys, inquiries, correspondence
or other written records relating to the Products and/or the Territory.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.3. Marketing Representative will cease forthwith to represent that it is acting
under contract from STWA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11. WAIVER
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No waiver of breach of any of the provisions of this Agreement shall be construed to be a
waiver of any succeeding breach of the same or any other provision.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12. NOTICES AND CONSENTS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All notices and consents hereunder shall be in writing and shall be deemed given when
delivered personally or to the address of the recipients. If any change in addresses provided on
the date of this Agreement, each party is obligated to provide notice to the other.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13. ENTIRE AGREEMENT
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Agreement covers all contracts and agreements between the parties. All other contracts
between the parties which relate to the subject matter of this Agreement are hereby
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-7-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">terminated. In order to be binding upon either party any amendment, modification, rescission,
discharge, abandonment or waiver of disagreement or any of the provisions hereof, must be in
writing, signed by the parties to be bound.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14. SEVERABILITY
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The validity or unenforceability of any term or provision of this Agreement shall not affect
the remaining terms or provisions which shall continue in full force and effect unless the
fundamental purposes of the Agreement would otherwise be frustrated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15. DISPUTES, LIMITATIONS AND GOVERNING LAW.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Parties agree that every dispute or difference that arises from or relates to this
agreement will be settled first by meeting to resolve the dispute. If no agreement can be reached,
the parties agree to submit such dispute to binding arbitration in the State of California. The
arbitration will be conducted on a confidential basis pursuant to the rules for Commercial
Arbitration of the American Arbitration Association. The parties hereto and hereby irrevocably
submit to the jurisdiction and venue of the United States District Court for the Central District
of California to confirm or enforce any arbitration award. The parties agree that personal service
of any such action maybe obtained as provided by the above Arbitration Rules. Any and all disputes
or claims concerning this Agreement must be submitted for mediation and/or arbitration not later
than six months after the basis for the claim or dispute is known or reasonably discoverable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties shall have the right, at their election, to obtain injunctive relief to enforce
the provisions of this Agreement against the other party. Nothing herein shall be construed as
prohibiting either party from pursuing any other remedies available to either party including
recovery of damages, including reasonable attorneys&#146; fees through all proceedings, trials and
appeals relating to such a suit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first
above written.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><B>SAVE THE WORLD AIR, INC.</B><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left"><IMG src="v28291v2829104.gif" alt="-s- Bruce McKinnon">
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Bruce McKinnon, President &nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><B>SS SALES AND MARKETING GROUP</B><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left"><IMG src="v28291v2829105.gif" alt="-s- Nate Shelton">
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Nate Shelton, President&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->-8-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Receiving Party: Nathan Shelton
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Non-Disclosure Agreement</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The party designated as the receiving party below (the &#147;<B>Receiving Party</B>&#148;) understands
that Save the World Air, Inc., a Nevada corporation (the &#147;<B>Disclosing Party</B>&#148;), has disclosed or may
disclose confidential information relating to the Disclosing Party&#146;s business, including without
limitation computer programs, computer code, modules, scripts, algorithms, features and modes of
operation, inventions (whether or not patentable), techniques, processes, methodologies,
schematics, testing procedures, software design and architecture, design and function
specifications, analysis and performance information, user documentation, internal documentation
and the features, mode of operation and other details of its products and services, as well as
names and expertise of employees, consultants, customers and prospects, know-how, ideas, and
technical, business, financial, marketing, customer and product development plans, forecasts,
strategies and other information, which to the extent previously, presently, or subsequently
disclosed to the Receiving Party is hereinafter referred to as &#147;<B>Proprietary Information</B>&#148; of the
Disclosing Party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In consideration of any access the Receiving Party may have to Proprietary Information of
the Disclosing Party, and other good and valuable consideration, the Receiving Party hereby
agrees as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;The Receiving Party agrees (i)&nbsp;to hold the Disclosing Party&#146;s Proprietary Information in
strict confidence and to take ail reasonable precautions to protect such Proprietary Information, (ii)&nbsp;not
to divulge any such Proprietary Information or any information derived therefrom to any third
person, including, but not limited to, any affiliated entity, (iii)&nbsp;not to make any use whatsoever
at any time of Proprietary Information except to evaluate a potential transaction with the
Disclosing Party (the &#147;<B>Transaction</B>&#148;), and (iv)&nbsp;not to copy, decompile, disassemble or reverse
engineer any such Proprietary Information. Any employee, officer or director of the Receiving Party
given access to any Proprietary Information must have a legitimate &#147;need to know&#148; and shall be
similarly bound in writing to the restrictions herein. The Receiving Party shall be responsible to
Disclosing Party for any violations by such persons. The Disclosing Party agrees that the foregoing
clauses (i), (ii), (iii)&nbsp;and (iv)&nbsp;shall not apply with respect to any information that the
Receiving Party can document (a)&nbsp;is or (through no improper action or inaction by the Receiving
Party or any affiliate, agent, consultant or employee) becomes generally available or known to the
public, or (b)&nbsp;was rightfully in its possession or known by it on an non-confidential basis prior
to receipt from the Disclosing Party, or (c)&nbsp;was rightfully disclosed to it by a third party having
no obligation of confidentiality. The Receiving Party may make disclosures required by court
order, regulatory authorities or arbitrator(s) that are approved of by both parties, provided the
Receiving Party uses diligent efforts to limit disclosure and to obtain confidential treatment or a
protective order and has allowed the Disclosing Party to participate in the proceeding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;The Receiving Party agrees not to remove or export from the United States or re-export any
such Proprietary Information or any direct product thereof except in compliance with, and with all
licenses and approvals required under, applicable export laws and regulations, including without
limitation, those of the U.S. Department of Commerce.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;Immediately upon (i)&nbsp;the decision by either party not to enter into the Transaction
contemplated by paragraph 1, or (ii)&nbsp;a request by the Disclosing Party at any time, the Receiving
Party will turn over to the Disclosing Party all Proprietary Information of the Disclosing Party
and all documents or media containing any such Proprietary Information and any and all copies,
summaries, analyses, reflections, derivatives or extracts thereof. The Receiving Parry understands
that nothing herein (a) requires the disclosure of any Proprietary Information of the Disclosing
Party, which shall be disclosed if at all solely at the option of the Disclosing Party,
or (b) requires the Disclosing Party or the Receiving Party to proceed with any proposed
Transaction or relationship in connection with which Proprietary Information may be disclosed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;THE PROPRIETARY INFORMATION IS PROVIDED &#147;AS IS.&#148; THE DISCLOSING PARTY MAKES NO WARRANTY,
EXPRESS OR IMPLIED, REGARDING THE ACCURACY OR COMPLETENESS OF THE PROPRIETARY INFORMATION.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;This Agreement does not grant any rights to the Receiving Party under any patent, copyright
or other intellectual property right of the Disclosing Party, or in the Proprietary&#146; Information,
except as expressly set forth herein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;The obligations under this Agreement will continue until such time as the Proprietary
Information is publicly known and made generally available through no action or inaction of the
Receiving Party.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;The Receiving Party acknowledges and agrees that due to the unique nature of the
Disclosing Party&#146;s Proprietary Information, there can be no adequate remedy at law for any breach
of its obligations&#146; hereunder, that any such breach may allow the Receiving Party or third parties
to unfairly compete with the Disclosing Party resulting in irreparable harm to the Disclosing
Party, and therefore, that upon any such breach or any threat thereof, the Disclosing Party shall
be entitled to appropriate equitable relief in addition to whatever remedies it might have at law
(without being required to post a bond or other security) as determined by a court of competent
jurisdiction or arbitrator(s) approved of by both parties, and to be indemnified by the Receiving
Party from any loss or harm, including, without limitation, attorneys&#146; fees, in connection with
any breach or enforcement of the Receiving Parry&#146;s obligations hereunder or the unauthorized use
or release of any such Proprietary Information. The Receiving Party will notify the Disclosing
Party in writing immediately upon the occurrence of any such unauthorized release or other breach
of which it is aware.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;In the event that any of the provisions of this Agreement shall be held by a court or
other tribunal of competent jurisdiction to be illegal, invalid or unenforceable, such provisions shall be limited
or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect. This Agreement shall be governed by the laws of the State of California without
regard to the conflicts of law provisions thereof and the parties consent to the exclusive
jurisdiction and venue of the state and federal courts located in the State of California and
County of Los Angeles. This Agreement supersedes all prior or contemporaneous discussions and
writings and constitutes the entire agreement between the parties with respect to the subject
matter hereof. No waiver or modification of this Agreement will be binding upon either party unless
made in writing and signed by a duly authorized representative of such party and no failure or
delay in enforcing any right will be deemed a waiver. Notices hereunder will be effective only if
in writing and upon receipt if delivered personally or by overnight mail carrier or fax, or three
(3)&nbsp;days after deposit in the U.S. mail, first class postage prepaid. The prevailing party in any
action to enforce this Agreement shall be entitled to costs and fees (including attorneys&#146; fees and
expert witness fees) incurred in connection with such action. The individual executing this
Agreement on behalf of a corporation or other legal entity personally represents that he or she is
duly authorized to execute this Agreement on behalf of such entity and that this Agreement is
binding upon such entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;Except as otherwise expressly provided in this Agreement, any controversy, dispute
and/or claim in any manner arising out of or relating to this Agreement, the meaning, application
and/or interpretation of this Agreement, any breach or claimed breach of this Agreement or any
voluntary or involuntary termination of this Agreement shall be settled solely by arbitration in
the County of Los Angeles, State of California, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, Judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Each party shall pay the fees of its own
attorneys, the expenses of his or its witnesses and all other expenses connected with presenting
their case in arbitration. All other costs of the arbitration, including, without limitation, the
costs of any record or transcript of the arbitration proceedings, administrative fees, the fee of
the arbitrator and all other fees and costs shall be borne equally by the parties hereto.
Notwithstanding anything contained in this Section&nbsp;9, the Disclosing Party shall at all times have
and retain the full, complete and unrestricted right to immediate and permanent injunctive and
other relief as provided in Section&nbsp;7 of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year set
forth below.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">DISCLOSING PARTY</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">RECEIVING PARTY</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">Save the World Air, Inc.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Signature:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Bruce McKimnnou
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Signature:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Nate Shelton</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Bruce McKimnnou
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Nate Shelton
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
(print name)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
(print name)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Title:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">7/17/06
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July 17, 2006</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.45
<SEQUENCE>5
<FILENAME>v28291exv10w45.htm
<DESCRIPTION>EXHIBIT 10.45
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w45</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">EXHIBIT 10.45
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="61%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" rowspan="2" valign="top"><DIV style="font-size: 24pt"><B>CFO</B></DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><DIV style="font-size: 12pt"><B>911</B></DIV></TD>
</TR>
<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><b>Accounting and Finance
Solutions</b></TD>
</TR>
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" colspan="3" valign="top"><DIV style="font-size: 12pt"><B>Save the World Air, Inc.</B></DIV></TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" colspan="3" valign="top"><DIV style="font-size: 12pt"><B>Engagement Agreement</B></DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 0pt"><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Advisor</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CFO 911 will be the exclusive accounting and
financial advisor (&#147;Advisor&#148;) responsible for
completion of the project during the engagement
(the &#147;Agreement&#148;).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Role</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">To act as the Company&#146;s Chief Financial Officer,
overseeing all of Save the World Air (the
&#147;Company&#148;) financial management and accounting
activities, including helping design and oversee
an efficient monthly accounting closing process,
review of the Company&#146;s monthly financial
statements, llaison with the Company&#146;s external
accountants on a monthly or quarterly basis and
certifying the Company&#146;s public financial
statements as the Company&#146;s Chief Financial
Officer.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Term</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Twelve Months, with appropriate extensions as
agreed to by the Advisor and the Company. After
three months, the engagement will be reviewed as
to the scope and compensation terms and either
party can cancel with one month&#146;s written
notice.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Fees:</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The Advisor shall be compensated as follows:</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">As part of the Initial compensation, the Advisor
will receive stock options, a portion to vest
Immediately and the balance to vest ratably ever
the initial term of the engagement. Such amount
and terms of the stock options will be mutually
agreed to by the Company and the Advisor.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">On an ongoing monthly basis, a fee of $4,000 a
month, payable in advance, for performing the
services detailed above (under the &#147;Role&#148;
section) in those months where a 10K or 10Q SEC
financial filing is not required. In those
months where a 10K or 10Q SEC financial filing
is required, a fee of $8,000 a month will be
paid for performing the services detailed above.
When filing the next 10K for March&nbsp;31, 2007,
there might be an additional fee based on the
work involved.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Expenses</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Reimbursement of all out-of-pocket expenses
(including fees and disbursements of
professionals such as legal counsel, if
required).</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="right" style="font-size: 10pt"><!-- Folio -->p. 1 of 2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Indemnification</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Customary indemnification normally accorded to
accounting and financial advisors shall hold
harmless the Advisor from any losses, claims or
damages resulting from the Advisor&#146;s services,
except as delineated in the Chief Financial
Office Certification requirements of the
Sarbanes Oxley Act. A separate indemnification
agreement shall be executed in a form
satisfactory to the Advisor.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">In the event the Advisor is called to testify,
provide legal support or be a witness on behalf
of the Company for any event at any time, all
legal expenses and professional time will be
reimbursed by the Company.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Arbitration</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Any dispute between the Advisor and the Company
regarding the construction or application of the
Agreement and the related services will, upon a
written request, be submitted to arbitration,
and this arbitration shall comply with and be
governed by the provisions of the American
Arbitration Association and shall take place in
Los Angeles, California. The prevailing party
shall be entitled to attorney fees and costs
incurred in connection with any such dispute.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Governing Law</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">This Agreement shall be governed by the laws of
the State of California. Further, no change or
modification of this Agreement shall be valid or
binding unless such change or modification shall
be in writing.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>AGREED TO AND ACCEPTED THIS 11TH DAY OF JANUARY, 2007</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" colspan="3"><DIV style="margin-left:0px; text-indent:-0px"><B>CFO 911<BR>
8055 W. Manchester Ave., Suite&nbsp;405<BR>
Playa del Rey, CA 90232<BR>
(310)&nbsp;574-9119</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" colspan="3" valign="top"><B>Save the World Air, Inc.<BR>
5125 Lankershim Blvd.<BR>
North Hollywood, CA 91601<BR>
(818)&nbsp;487-8000</B></TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="bottom"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>

<TD valign="bottom" colspan="2"><IMG src="v28291v2829107.gif" alt="-s- Mr. Charles K. Dargan II"></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">By:</TD>

<TD align="left" colspan="2" valign="top"><IMG src="v28291v2829104.gif" alt="-s- Mr. Bruce McKinnon"></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>Name:&nbsp;</TD>
    <TD align="left" valign="top">Mr.&nbsp;Charles K. Dargan II</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="left" valign="top">Name:&nbsp;</TD>
    <TD>Mr.&nbsp;Bruce McKinnon</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>Title:&nbsp;</TD>
    <TD align="left" valign="top">Principal</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="left" valign="top">Title:&nbsp;</TD>
    <TD>President/CEO</TD>
    <TD>&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date:&nbsp;
</DIV></TD>
    <TD colspan="2">January&nbsp;11, 2007</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date:&nbsp;</TD>
    <TD align="left" colspan="2" valign="top">January 11, 2007</TD>
    <TD>&nbsp;</TD>

</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="right" style="font-size: 10pt"><!-- Folio -->p. 2 of 2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="61%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" rowspan="2" valign="top"><DIV style="font-size: 24pt"><B>CFO</B></DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><DIV style="font-size: 12pt"><B>911</B></DIV></TD>
</TR>
<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><b>Accounting and Finance
Solutions</b></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>The Scope Letter</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The scope of the Agreement (the &#147;Agreement&#148;) dated January
11, 2007, by and between CFO 911 (the &#147;Advisor&#148;) and Save
the World Air, Inc. (the &#147;Company&#148;) is limited to the
details herein. The tasks to be performed as delineated
herein are to be completed within the term of the Agreement.
The scope of the Agreement may only be modified by written
consent of both the Advisor and the Company.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tasks are as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review and establish the Company&#146;s monthly accounting closing
process.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Specific additional activities shall include:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">A.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Review and implementation of the Company&#146;s monthly financial
statements.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">B.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Act as the liaison with the Company&#146;s
external accountants.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">C.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certify the Company&#146;s public
financial statements as the Company&#146;s
Chief Financial Officer.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">D.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Assist with and implement accounting
procedures as necessary in order to
produce timely financial statements.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">E.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Transition to the permanent Chief
Financial Officer, at the
appropriate time.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Caveats:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall
have a sufficient 10K or 10Q document with
sufficient disclosures, as mutually decided by
the Company and the Advisor. If not, then an
additional fee will be charged as discussed in
the Agreement.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company shall
also be successful in raising interim capital
and long-term equity capital as discussed with
management, in order to maintain the operations
of the Company.</TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>AGREED TO AND ACCEPTED THIS 11TH DAY OF JANUARY, 2007</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" colspan="3"><DIV style="margin-left:0px; text-indent:-0px"><B>CFO 911<BR>
8055 W. Manchester Ave., Suite&nbsp;405<BR>
Playa del Rey, CA 90232<BR>
(310)&nbsp;574-9119</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" colspan="3" valign="top"><B>Save the World Air, Inc.<BR>
5125 Lankershim Blvd.<BR>
North Hollywood, CA 91601<BR>
(818)&nbsp;487-8000</B></TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="bottom"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>

<TD valign="bottom" colspan="2"><IMG src="v28291v2829107.gif" alt="-s- Mr. Charles K. Dargan II"></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">By:</TD>
    <TD align="left" colspan="2" valign="top"><IMG src="v28291v2829104.gif" alt="-s- Mr. Bruce McKinnon"></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>Name:&nbsp;</TD>
    <TD align="left" valign="top">Mr.&nbsp;Charles K. Dargan II</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="left" valign="top">Name:&nbsp;</TD>
    <TD>Mr.&nbsp;Bruce McKinnon</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>Title:&nbsp;</TD>
    <TD align="left" valign="top">Principal</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="left" valign="top">Title:&nbsp;</TD>
    <TD>President/CEO</TD>
    <TD>&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date:&nbsp;
</DIV></TD>
    <TD colspan="2">January&nbsp;11, 2007</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Date:&nbsp;</TD>
    <TD align="left" colspan="2" valign="top">January 11, 2007</TD>
    <TD>&nbsp;</TD>

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<DOCUMENT>
<TYPE>EX-10.46
<SEQUENCE>6
<FILENAME>v28291exv10w46.htm
<DESCRIPTION>EXHIBIT 10.46
<TEXT>
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<TITLE>exv10w46</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">THIS SECURITY HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE
SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE CORPORATION SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF
SUCH EXEMPTION REASONABLY SATISFACTORY TO THE CORPORATION (WHICH MAY INCLUDE, AMONG OTHER THINGS,
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION).
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SUBORDINATED CONVERTIBLE PROMISSORY NOTE</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD align="left" valign="top"><B>Los Angeles, California</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><B>, 2007</B></TD>
</TR>
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</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR VALUE RECEIVED, Save the World Air, Inc., a Nevada corporation (the &#147;Company&#148;), promises
to pay to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (the &#147;Holder&#148;), or its assigns, the principal sum of
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, the outstanding principal amount subscribed to hereof and hereby noted on
the signature page below, together with interest from the date of this convertible promissory note
(the &#147;Note&#148;) on the unpaid principal balance at a rate equal to 10% (ten percent) per annum,
computed on the basis of the actual number of days elapsed and a year of 365&nbsp;days. Interest on the
Note shall be paid quarterly. All unpaid principal, together with any then unpaid and accrued
interest and other amounts payable hereunder, shall be due and payable on the &#147;Maturity Date&#148;,
which date shall be the earlier of (i)&nbsp;nine months after the date of this Note, (ii)&nbsp;when such
amounts are declared due and payable by the Holder (or made automatically due and payable) upon or
after the occurrence of an Event of Default (as defined in Section&nbsp;7 below) or (iii)&nbsp;in the event
of Accelerated Maturity (as defined in Section&nbsp;9 below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a statement of the rights of the Holder and the conditions to which this Note
is subject, and to which the Holder, by the acceptance of this Note, agrees:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;DEFINITIONS. As used in this Note, the following capitalized terms have the following
meanings:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) &#147;Accelerated Maturity&#148; has the meaning given in Section&nbsp;9 hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The &#147;Company&#148; includes the corporation initially executing this Note and any Person which
shall succeed to or assume the obligations of the Company under this Note.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) &#147;Certificate&#148; shall mean the Articles of Incorporation of Company as in effect on the date
hereof.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) &#147;Equity Securities&#148; of any Person shall mean (a)&nbsp;all common stock, preferred stock,
participations, shares, partnership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b)
all warrants, options and other rights to acquire any of the foregoing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) &#147;Event of Default&#148; has the meaning given in Section&nbsp;7 hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) &#147;Financial Statements&#148; shall mean, with respect to any accounting period for any Person,
statements of operations, retained earnings and cash flows of such Person for such period, and
balance sheets of such Person as of the end of such period, setting forth in each case in
comparative form figures for the corresponding period in the preceding fiscal year if such period
is less than a full fiscal year or, if such period is a full fiscal year, corresponding figures
from the preceding fiscal year, all prepared in reasonable detail and in accordance with generally
accepted accounting principles (except, with respect to quarterly financial statements, for
footnotes and year end adjustments). Unless otherwise indicated, each reference to Financial
Statements of any Person shall be deemed to refer to Financial Statements prepared on a
consolidated basis.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) &#147;Holder&#148; shall mean the Person specified in the introductory paragraph of this Note or any
Person who shall at the time be the holder of this Note, pursuant to a transfer, assignment or
other transaction effected on the terms and subject to the conditions set forth in this Note.
&#147;Holders&#148; shall mean the Holder, together with all other Persons who hold this series of Notes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) &#147;Indebtedness&#148; shall mean and include the aggregate amount of, without duplication (a)&nbsp;all
obligations for borrowed money, (b)&nbsp;all obligations evidenced by bonds, debentures, notes or other
similar instruments, (c)&nbsp;all obligations to pay the deferred purchase price of property or services
(other than accounts payable incurred in the ordinary course of business determined in accordance
with generally accepted accounting principals), (d)&nbsp;all obligations with respect to capital leases,
(e)&nbsp;all guaranty obligations; (f)&nbsp;all obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person, (g)&nbsp;all
reimbursement and other payment obligations, contingent or otherwise, in respect of letters of
credit and/or taxes or other charges not at the time delinquent or thereafter payable without
penalty or being contested in good faith.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) &#147;Investment&#148; of any Person shall mean any loan or advance of funds by such Person to any
other Person (other than advances to employees of such Person for moving and travel expense,
drawing accounts and similar expenditures in the ordinary course of business), any purchase or
other acquisition of any Equity Securities or Indebtedness of any other Person, any capital
contribution by such Person to or any other investment by such Person in any other Person
(including, without limitation, any Indebtedness incurred by such Person of the type described in
clauses (a)&nbsp;and (b)&nbsp;of the definition of &#147;Indebtedness&#148; on behalf of any other Person); provided,
however, that
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Investments shall not include accounts receivable or other indebtedness owed by customers of such
Person, which are current assets and arose from sales or non-exclusive licensing in the ordinary
course of such Person&#146;s business.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) &#147;Lien&#148; shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property or the
income therefrom, including, without limitation, the interest of a vendor or lessor under a
conditional sale agreement, capital lease or other title retention agreement, or any agreement to
provide any of the foregoing, and the filing of any financing statement or similar instrument under
the Uniform Commercial Code or comparable law of any jurisdiction.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) &#147;Material Adverse Effect&#148; shall mean a material adverse effect on (a)&nbsp;the business,
assets, operations, or financial or other condition of the Company; (b)&nbsp;the ability of the Company
to pay or perform the Obligations in accordance with the terms of this Note and the other
Transaction Documents and to avoid a default or Event of Default under any Transaction Document; or
(c)&nbsp;the rights and remedies, taken as a whole, of Holder under this Note, the other Transaction
Documents or any related document, instrument or agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) &#147;Permitted Indebtedness&#148; means:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Indebtedness of Company in favor of the Holder arising under this Note;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;The existing indebtedness set forth on the Company&#146;s Form 10-QSB for the period ended
September&nbsp;30, 2006 filed by the Company with the Securities and Exchange Commission (the &#147;SEC&#148;), as
the same may have increased or decreased in the ordinary course of the Company&#146;s business after the
date thereof;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Up to $1,000,000 of the Company&#146;s Convertible Notes due December&nbsp;5, 2007 and January&nbsp;10,
2008 (collectively, the &#147;Morale Notes&#148;), as disclosed in the Company&#146;s Current Report on Form 8-K
dated December&nbsp;11, 2006;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Indebtedness of up to $2,000,000 issued by the Company in connection with the
Company&#146;s offering of its securities after the date of this Note;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Indebtedness incurred in connection with the financing of the Company&#146;s inventory or
its accounts receivable;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Indebtedness to trade creditors, including, without limitation, affiliates of and
service providers to the Company, incurred in the ordinary course of business;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Other indebtedness of Company, not exceeding $1,000,000 in the aggregate outstanding at
any time;
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;Contingent obligations of Company consisting of guarantees (and other credit
support) of the obligations of vendors and suppliers of Company in respect of transactions entered
into in the ordinary course of business;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;Indebtedness with respect to capital lease obligations and Indebtedness secured by
Permitted Liens;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;Extensions, renewals, refundings, refinancings, modifications, amendments and
restatements of any of the items of Permitted Indebtedness (a)&nbsp;through (f)&nbsp;above, provided that the
principal amount thereof is not increased or the terms thereof are not modified to impose more
burdensome terms upon Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;Taxes or other charges not at the time delinquent or thereafter payable without
penalty or being contested in good faith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) &#147;Permitted Investments&#148; shall mean and include: (a)&nbsp;deposits with commercial banks
organized under the laws of the United States or a state thereof to the extent such deposits are
fully insured by the Federal Deposit Insurance Corporation; (b)&nbsp;Investments in marketable
obligations issued or fully guaranteed by the United States and maturing not more than one (1)&nbsp;year
from the date of issuance; (c)&nbsp;Investments in open market commercial paper rated at least &#147;A1&#148; or
&#147;P1&#148; or higher by a national credit rating agency and maturing not more than one (1)&nbsp;year from the
creation thereof; (d)&nbsp;Investments pursuant to or arising under currency agreements or interest rate
agreements entered into in connection with bona fide hedging arrangements; (e)&nbsp;Investments
consisting of deposit accounts of the Company in which the Holder has a perfected security interest
and deposit accounts of its Subsidiaries maintained in the ordinary course of business; (f)
Investments existing on the Closing Date disclosed in the Schedule; (g)&nbsp;Extensions of credit in the
nature of accounts receivable or notes receivable arising from the same or lease of goods or
services in the ordinary course of business; (h)&nbsp;Investments consisting of the endorsement of
negotiable instruments for deposit or collection or similar transactions in the ordinary course of
business; (i)&nbsp;Investments (including debt obligations) received in connection with the bankruptcy
or reorganization of customers or suppliers and in settlement of delinquent obligations of, and
other disputes with, customers or suppliers arising in the ordinary course of business; (j)
Investments consisting of (i)&nbsp;compensation of employees, officers and directors of borrower so long
as the Board of Directors of Company determines that such compensation is in the best interests of
Company, (ii)&nbsp;travel advances, employee relocation loans and other employee loans and advances in
the ordinary course of business, (iii)&nbsp;loans to employees, officers or directors relating to the
purchase of equity securities of Company, (iv)&nbsp;other loans to officers and employees approved by
the Board of Directors; and (k)&nbsp;other Investments aggregating not in excess of $1,000,000 at any
time; (l)&nbsp;Investments in Subsidiaries of the Company or in joint ventures formed in connection with
the Company&#146;s manufacturing, distribution or sales activities.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) &#147;Permitted Liens&#148; shall mean and include: (i)&nbsp;Liens for taxes or other governmental
charges not at the time delinquent or thereafter payable without penalty or being contested in good
faith, provided provision is made to the reasonable satisfaction of Holder for the eventual payment
thereof if subsequently found payable; (ii)&nbsp;Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of business for sums not
overdue or being contested in good faith, provided provision is made to the reasonable satisfaction
of Holder for the eventual payment thereof if subsequently found payable; (iii)&nbsp;deposits under
workers&#146; compensation, unemployment insurance and social security laws or to secure the performance
of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or to
secure statutory obligations of surety or appeal bonds or to secure indemnity, performance or other
similar bonds in the ordinary course of business; (iv)&nbsp;Liens securing obligations under a capital
lease if such Liens do not extend to property other than the property leased under such capital
lease; (v)&nbsp;Liens upon any equipment acquired or held by Company or any of its Subsidiaries to
secure the purchase price of such equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such equipment; (vi)&nbsp;easements, reservations, rights of way,
restrictions, minor defects or irregularities in title and other similar charges or affecting the
value or use of such property; (vii)&nbsp;Liens in favor of the Holder; (viii)&nbsp;Liens existing on the
date hereof in favor of holders of Senior Indebtedness; (ix)&nbsp;any liens existing as of the date
hereof and disclosed in the Schedule; (x)&nbsp;liens on equipment leased by Company pursuant to an
operating lease in the ordinary course of business (including proceeds thereof and accessions
thereto) incurred solely for the purpose of financing the lease of such equipment (including Liens
arising from UCC financing statements regarding such leases); (xi)&nbsp;liens arising from judgements,
decrees or attachments to the extent and only so long as such judgment, decree or attachment does
not constitute an Event of Default under 7(h); (xii)&nbsp;liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in connection with the
importation of goods; (xiii)&nbsp;liens arising solely by virtue of any statutory or common law
provision relating to banker&#146;s liens, rights off setoff or similar rights and remedies as to
deposit accounts or other funds maintained with a creditor depository institution; (xiv)&nbsp;liens on
the Company&#146;s inventory or accounts receivable to secure Indebtedness incurred in connection with
the financing of such accounts receivable or inventory; and (xv)&nbsp;liens incurred in connection with
the extension, renewal, refunding, refinancing, modification, amendment or restatement of the
indebtedness secured by Liens of the type described in clauses (i)&nbsp;and (xiv)&nbsp;above, provided that
any extension, renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced
does not increase.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) &#147;Person&#148; shall mean and include an individual, a partnership, a corporation (including a
business trust), a joint stock company, a limited liability company, an unincorporated association,
a joint venture or other entity or a governmental authority.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) &#147;Senior Indebtedness&#148; shall mean the principal of, unpaid interest on and other amounts due in
connection with the notes payable and other evidences of indebtedness outstanding at the time of
execution of this Note.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) &#147;Subsidiary&#148; shall mean (a)&nbsp;any corporation of which more than 50% of the issued and
outstanding equity securities having ordinary voting power to elect a majority of the Board of
Directors of such corporation is at the time directly or indirectly owned or controlled by Company,
(b)&nbsp;any partnership, joint venture, or other association of which more than 50% of the equity
interest having the power to vote, direct or control the management of such partnership, joint
venture or other association is at the time directly or indirectly owned and controlled by Company
(c)&nbsp;any other entity included in the financial statements of Company on a consolidated basis.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) &#147;Transaction Documents&#148; shall mean this Note and the Warrant (as the latter is defined in
Section&nbsp;12 hereof).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company represents and warrants to the Holder as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Due Incorporation and Qualification. Each of the Company and its Subsidiaries (i)&nbsp;is
a corporation duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation; (ii)&nbsp;has the power and authority to own, lease and operate its
properties and carry on its business as now conducted and as proposed to be conducted; and (iii)&nbsp;is
duly qualified, licensed to do business and in good standing as a foreign corporation in each
jurisdiction where the failure to be so qualified or licensed could reasonably be expected to have
a Material Adverse Effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Authority. The execution, delivery and performance by Company of each Transaction Document
to be executed by Company and the consummation of the transactions contemplated thereby (i)&nbsp;are
within the corporate power of Company and (ii)&nbsp;have been duly authorized by all necessary corporate
actions on the part of Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Enforceability. Each Transaction Document executed, or to be executed, by Company
has been, or will be, duly executed and delivered by Company and constitutes, or will constitute, a
legal, valid and binding obligation of Company, enforceable against Company in accordance with its
terms, except as limited by bankruptcy, insolvency or other laws of general application relating to
or affecting the enforcement of creditors&#146; rights generally and general principles of equity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Non-Contravention. The execution and delivery by Company of the Transaction Documents
executed by Company and the performance and consummation of the transactions contemplated thereby
do not and will not (i)&nbsp;violate the Certificate or Bylaws of the Company or any material judgment,
order, writ, decree, statute, rule or regulation applicable to Company; (ii)&nbsp;violate any provision
of, or result in the breach or the acceleration of, or entitle any other Person to accelerate
(whether after the giving of notice or lapse of time or both), any material mortgage, indenture,
agreement, instrument
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">or contract to which Company is a party or by which it is bound; or (iii)&nbsp;result in the creation or
imposition of any Lien upon any property, asset or revenue of Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or
approval applicable to Company, its business or operations, or any of its assets or properties.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Approvals. No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority or other Person (including, without
limitation, the shareholders of any Person) is required in connection with the execution and
delivery of the Transaction Documents executed by Company and the performance and consummation of
the transactions contemplated thereby, except for filings and notifications required by federal and
state securities laws in connection with the offer and sale of this Note and the consummation of
the transactions contemplated hereby and thereby.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;No Violation or Default. None of the Company or the Company&#146;s Subsidiaries is in
violation of or in default with respect to (i)&nbsp;its Certificate or Bylaws or equivalent charter
document or any material judgment, order, writ, decree, statute, rule or regulation applicable to
such Person; (ii)&nbsp;any material mortgage, indenture, agreement, instrument or contract to which such
Person is a party or by which it is bound (nor is there any waiver in effect which, if not in
effect, would result in such a violation or default), where, in each case, such violation or
default, individually, or together with all such violations or defaults, could reasonably be
expected to have a Material Adverse Effect.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Litigation. Except as described in the Company&#146;s Quarterly Report on Form 10-QSB for the
period ended September&nbsp;30, 2006, no actions (including, without limitation, derivative actions),
suits, proceedings or investigations are pending or, to the knowledge of the Company, threatened
against the Company or the Company&#146;s Subsidiaries at law or in equity in any court or before any
other governmental authority which if adversely determined (i)&nbsp;would (alone or in the aggregate)
have a Material Adverse Effect or (ii)&nbsp;seeks to enjoin, either directly or indirectly, the
execution, delivery or performance by the Company of the Transaction Documents or the transactions
contemplated thereby.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;Title. The Company and the Company&#146;s Subsidiaries own and have good and marketable title
in fee simple absolute to, or a valid leasehold interest in, all their respective real properties
and good title to their other respective assets and properties as reflected in the most recent
Financial Statements delivered to Purchasers (except those assets and properties disposed of in the
ordinary course of business since the date of such Financial Statements) and all respective assets
and properties acquired by Company and Company&#146;s Subsidiaries since such date (except those
disposed of in the ordinary course of business). Such assets and properties are subject to no Lien,
except for Permitted Liens.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Equity Securities. The authorized capital stock of the Company may be found in the
Company&#146;s Quarterly Report on Form 10-QSB for the period ended September&nbsp;30, 2006 filed by the
Company with the SEC.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder represents and warrants to the
Company that such Holder has been advised that neither this Note nor the securities which may be
issued upon the conversion hereof have been registered under the Securities Act, or any state
securities laws and, therefore, cannot be resold unless registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration requirements is
available. Such Holder is aware that the Company is under no obligation to effect any such
registration with respect to the Note or to file for or comply with any exemption from
registration. Such Holder has not been formed solely for the purpose of making this investment and
is purchasing the Note to be acquired by such Holder hereunder for its own account for investment,
not as a nominee or agent, and not with a view to, or for resale in connection with, the
distribution thereof. Such Holder has such knowledge and experience in financial and business
matters that such Purchaser is capable of evaluating the merits and risks of such investment, is
able to incur a complete loss of such investment and is able to bear the economic risk of such
investment for an indefinite period of time. Such Holder is an accredited investor as such term is
defined in Rule&nbsp;501 of Regulation&nbsp;D under the Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;INTEREST. Accrued interest on the outstanding principal balance on this Note shall be payable on the Maturity Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;PREPAYMENT. Upon 3 (three)&nbsp;days&#146; prior written notice to the Holder, the
Company may prepay this Note in whole or in part; provided that any such prepayment will be applied
first to the payment of expenses due under this Note, second to interest accrued on this Note and
third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to
the payment of principal of this Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;CERTAIN COVENANTS. While any amount is outstanding under the Note, without the prior
written consent of Holders of 2/3 (two thirds) or more in interest of then-outstanding principal
amount of the Notes, which consent shall not be unreasonably withheld or delayed:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Indebtedness. Neither Company nor any of its Subsidiaries shall create, incur, assume or
permit to exist any Indebtedness except Senior Indebtedness and Permitted Indebtedness.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Liens. Neither the Company nor any of its Subsidiaries shall create, incur, assume or
permit to exist any Lien on or with respect to any of its assets or property of any character,
whether now owned or hereafter acquired, except for Permitted Liens.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Asset Dispositions. Neither the Company nor any of its Subsidiaries shall sell, lease,
transfer, license or otherwise dispose of any of its assets or property (collectively, a
&#147;Transfer&#148;), whether now owned or hereafter acquired, except (i)&nbsp;transfers in the ordinary course
of its business consisting of the sale of inventory and sales of worn-out or obsolete equipment and
(ii)&nbsp;transfers not in excess of $1,000,000 for fair value and other than to any affiliate of the
Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Mergers, Acquisitions, Etc. Neither the Company nor any of its Subsidiaries shall
consolidate with or merge into any other Person or permit any other Person to merge into it, or
acquire all or substantially all of the assets or capital stock of any other Person.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Investments. Neither the Company nor any of its Subsidiaries shall make any
Investment except for Permitted Investments. Without previous notice to Holder, Company will not
sell an amount greater than $100,000 in equity securities, with the exception of (i)&nbsp;up to an
aggregate of UK &#163;15,000,000 private and/or public offerings outside the United States; (ii)
compensatory and incentive awards of Equity Securities to employees of and consultants to the
Company consistent with its prior practices; and (iii)&nbsp;for issuances of Equity Securities in
connection with the exercise of conversion rights of the holders of outstanding convertible
securities, including without limitation warrants or options, to purchase Company securities
granted or issued by the Company prior to the date hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Dividends, Redemptions, Etc. Neither the Company nor any of its Subsidiaries shall
(i)&nbsp;pay any dividends or make any distributions on its Equity Securities; (ii)&nbsp;purchase, redeem,
retire, decease or otherwise acquire for value any of its Equity Securities; (iii)&nbsp;return any
capital to any holder of its Equity Securities; (iv)&nbsp;make any distribution of assets, Equity
Securities, obligations or securities to any holder of its Equity Securities; or (v)&nbsp;set apart any
sum for any such purpose; other than payments of principal and interest on outstanding Interim
Bridge Notes and repurchases of shares from terminated employees pursuant to the terms of
restricted stock purchase agreements, and provided, however, that any Subsidiary may pay cash
dividends to Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Indebtedness Payments. Neither the Company nor any of its Subsidiaries shall (i)
prepay, redeem, purchase, decrease or otherwise satisfy in any manner prior to the scheduled
repayment thereof any Indebtedness for borrowed money (other than (A)&nbsp;amounts due under this Note
and (B)&nbsp;Senior Indebtedness) or lease obligations, (ii)&nbsp;amend, modify or otherwise change the terms
of any Indebtedness for borrowed money (other than (A)&nbsp;obligations under this Note and (B)&nbsp;Senior
Indebtedness) or lease obligations so as to accelerate the scheduled repayment thereof or (iii)
repay any notes to officers, directors or stockholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;Information Rights; Notices. The Company shall furnish to the Holder the following:
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;SEC Reports. In no event later than five (5)&nbsp;business days after they are sent, made
available or filed, copies of all registration statements and reports filed by Company with the
Securities and Exchange Commission and all reports, proxy statements and financial statements sent
or made available by Company to its stockholders generally; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Notice of Defaults. Promptly upon the occurrence thereof, written notice of the
occurrence of any Event of Default hereunder or any event of default with respect to any Senior
Indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Inspection Rights. The Holder and its representatives shall have the right, at any
time during normal business hours, upon reasonable prior notice, and at the expense of the Holder,
to visit and inspect the properties of the Company and its corporate, financial and operating
records, and make abstracts therefrom, and to discuss the Company&#146;s affairs, finances and accounts
with its directors, officers and independent public accountants.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;Use of Proceeds. The Company shall use the proceeds it receives from sales of Notes to all
of the Holders as set forth in the Company&#146;s Private Placement Memorandum dated January&nbsp;12, 2006;
provided, however that (i)&nbsp;not more than $25,000 per month of such proceeds may be used by the
Company to pay R&#038;D payables reflected on the Balance Sheet contained in its Quarterly Report on
Form 10-QSB for its period ended September&nbsp;30, 2006 and (ii)&nbsp;not more than $10,000 per month may be
used to pay other payables reflected on the Balance Sheet contained in said Form 10-QSB.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an &#147;Event
of Default&#148; under this Note and the other Transaction Documents:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Failure to Pay. The Company shall fail to pay (i)&nbsp;when due any principal payment on
the due date hereunder or (ii)&nbsp;any interest or other payment required under the terms of this Note
or any other Transaction Document on the date due and such payment shall not have been made within
five (5)&nbsp;days of Company&#146;s receipt of the Holder&#146;s written notice to Company of such failure to
pay; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Breaches of Certain Covenants. The Company or any of its Subsidiaries shall fail to
observe or perform any covenant, obligation, condition or agreement set forth in Section&nbsp;6(d), 6(f)
or 6(j) of this Note; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Breaches of Other Covenants. The Company or any of its Subsidiaries shall fail to observe
or perform any other covenant, Transaction Documents (other than those specified in Sections 7(a)
and 7(b)) and (i)&nbsp;such failure shall continue for fifteen (15)&nbsp;days, or (ii)&nbsp;if such failure does
not result from the payment of money or the failure to pay money and is not curable within such
fifteen (15)&nbsp;day period, but is reasonably capable of cure within forty-five (45)&nbsp;days, either (A)
such failure shall continue for forty-five (45)&nbsp;days or (B)&nbsp;the Company or its Subsidiary shall not
have commenced a
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">cure in a manner reasonably satisfactory to the Holders within the initial fifteen (15)&nbsp;day period;
or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Representations and Warranties. Any representation, warranty, certificate, or other
statement (financial or otherwise) made or furnished by or on behalf of the Company to the Holder
in writing in connection with this Note or any of the other Transaction Documents, or as an
inducement to the Holder to enter into this Note and the other Transaction Documents, shall be
false, incorrect, incomplete or misleading in any material respect when made or furnished, except
any such false, incorrect, incomplete or misleading statement which will not result in a Material
Adverse Effect on the Company; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Other Payment Obligations. The Company or any of its Subsidiaries shall (i)(A) fail to
make any payment when due under the terms of any bond, debenture, note or other evidence of
Indebtedness, including the Senior Indebtedness, to be paid by such Person (excluding this Note and
the other Transaction Documents but including any other evidence of Indebtedness of Company or any
of its Subsidiaries to the Holder) and such failure shall continue beyond any period of grace
provided with respect thereto, or (B)&nbsp;default in the observance or performance of any other
agreement, term or condition contained in any such bond, debenture, note or other evidence of
Indebtedness, and (ii)&nbsp;the effect of such failure or default is to cause, or permit the holder or
holders thereof to cause, Indebtedness in an aggregate amount of Two Hundred Fifty Thousand Dollars
($250,000) or more to become due prior to its stated date of maturity, unless such acceleration
shall have been rescinded or forgone and such failure to pay cured within thirty (30)&nbsp;days from the
date of such acceleration; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Voluntary Bankruptcy or Insolvency Proceedings. The Company or any of its Subsidiaries
shall (i)&nbsp;apply for or consent to the appointment of a receiver, trustee, liquidator or custodian
of itself or of all or a substantial part of its property, (ii)&nbsp;be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii)&nbsp;make a general assignment for the
benefit of its or any of its creditors, (iv)&nbsp;be dissolved or liquidated in full or in part, (v)
become insolvent (as such term may be defined or interpreted under any applicable statute), (vi)
commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other proceeding commenced against it, or
(vii)&nbsp;take any action for the purpose of effecting any of the foregoing; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a
receiver, trustee, liquidator or custodian of the Company or any of its Subsidiaries or of all or a
substantial part of the property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company or any of its Subsidiaries
or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in
effect shall be commenced and an order for relief
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">entered or such proceeding shall not be dismissed or discharged within sixty (60)&nbsp;days of
commencement; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;Judgments. A final judgment or order for the payment of money in excess of Two Hundred
Fifty Thousand Dollars ($250,000) (exclusive of amounts covered by insurance issued by an insurer
not an affiliate of Company) shall be rendered against the Company or any of its Subsidiaries and
the same shall remain undischarged for a period of thirty (30)&nbsp;days during which execution shall
not be effectively stayed, or any judgment, writ, assessment, warrant of attachment, or execution
or similar process shall be issued or levied against a substantial part of the property of the
Company or any of its Subsidiaries and such judgment, writ, or similar process shall not be
released, stayed, vacated or otherwise dismissed within thirty (30)&nbsp;days after issue or levy; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Transaction Documents. Any Transaction Document or any material term thereof shall cease
to be, or be asserted by the Company not to be, a legal, valid and binding obligation of Company
enforceable in accordance with its terms or if the Liens of the Holder in any of the assets of
Company or its Subsidiaries shall cease to be or shall not be valid and perfected Liens or the
Company or any Subsidiary shall assert that such Liens are not valid and perfected Liens.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;RIGHTS OF HOLDER UPON DEFAULT. Upon the occurrence or existence of any Event of
Default (other than an Event of Default referred to in Sections 7(f) and 7(g)) and at any time
thereafter during the continuance of such Event of Default, the Holders may, by written notice to
the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately
due and payable without presentment, demand, protest or any other notice of any kind, all of which
are hereby expressly waived, anything contained herein or in the other Transaction Documents to the
contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in
Sections 7(f) and 7(g), immediately and without notice, all outstanding Obligations payable by
Company hereunder shall automatically become immediately due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition
to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holders
may exercise any other right, power or remedy granted to it by the Transaction Documents or
otherwise permitted to it by law, either by suit in equity or by action at law, or both.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;ACCELERATED MATURITY. Subject to the following sentence, at any time prior to the Maturity
Date, for each additional $1,000,000 of gross proceeds raised from one or more offerings of the
Company&#146;s equity or quasi-equity securities, the Company shall redeem Notes with a minimum face
value of $500,000 together with accrued and unpaid interest, until the entire outstanding Note is
redeemed. The Company&#146;s transaction with Suisse Finance (America) Inc. and its affiliates
(collectively, &#147;Suisse Finance&#148;), only outside of North America and only up to a maximum of UK
&#163;15,000,000 in the aggregate, are exempt from this provision and no sales of the Company&#146;s
securities arranged or facilitated by, to, or through Suisse Finance
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">shall obligate the Company to apply any portion of the proceeds of any such offering(s) to the
redemption of the Notes in whole or in part.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;SUBORDINATION. The indebtedness evidenced by this Note is hereby expressly subordinated,
to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in
full of the Senior Indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Insolvency Proceedings. If there shall occur any receivership, insolvency, assignment for
the benefit of creditors, bankruptcy, reorganization, or arrangements with creditors (whether or
not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation, or any other marshaling of the assets and liabilities of the
Company, (i)&nbsp;no amount shall be paid by the Company in respect of the principal of, interest on or
other amounts due with respect to this Note at the time outstanding, unless and until the principal
of and interest on the Senior Indebtedness then outstanding shall be paid in full, and (ii)&nbsp;no
claim or proof of claim shall be filed with the Company by or on behalf of Holder of this Note
which shall assert any right to receive any payments in respect of the principal of and interest on
this Note except subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Default on Senior Indebtedness. If there shall occur an event of default which has been
declared in writing with respect to any Senior Indebtedness, as defined therein, or in the
instrument under which it is outstanding, permitting the holder to accelerate the maturity thereof
and the Holder shall have received written notice thereof from the holder of such Senior
Indebtedness, then, unless and until such event of default shall have been cured or waived or shall
have ceased to exist, or all Senior Indebtedness shall have been paid in full, no payment shall be
made in respect of the principal of or interest on this Note, unless within one hundred eighty
(180)&nbsp;days after the happening of such event of default, the maturity of such Senior Indebtedness
shall not have been accelerated. Not more than one notice may be given to Holder pursuant to the
terms of this Section 10(b) during any 360&nbsp;day period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Further Assurances. By acceptance of this Note, the Holder agrees to execute and deliver
customary forms of subordination agreement requested from time to time by holders of Senior
Indebtedness, and as a condition to the Holder&#146;s rights hereunder, the Company may require that the
Holder execute such forms of subordination agreement; provided that such forms shall not impose on
the Holder terms less favorable than those provided herein.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Other Indebtedness. No Indebtedness which does not constitute Senior Indebtedness shall be
senior in any respect to the indebtedness represented by this Note.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Subrogation. Subject to the payment in full of all Senior Indebtedness, the Holder shall
be subrogated to the rights of the holder(s) of such Senior Indebtedness (to the extent of the
payments or distributions made to the holder(s) of such Senior Indebtedness pursuant to the
provisions of this Section&nbsp;10) to receive payments and
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">distributions of assets of the Company applicable to the Senior Indebtedness. No such payments or
distributions applicable to the Senior Indebtedness shall, as between the Company and its
creditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a payment
by the Company to or on account of this Note; and for purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness to which the Holder would be entitled except
for the provisions of this Section&nbsp;10 shall, as between the Company and its creditors, other than
the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company to or
on account of the Senior Indebtedness.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;No Impairment. Subject to the rights, if any, of the holders of Senior Indebtedness under
this Section&nbsp;10 to receive cash, securities or other properties otherwise payable or deliverable to
the Holder, nothing contained in this Section&nbsp;10 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms and conditions hereof, to pay to the
Holder the principal hereof and interest hereon as and when the same become due and payable, or
shall prevent the Holder, upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Reliance of Holders of Senior Indebtedness. The Holder, by its acceptance hereof, shall
be deemed to acknowledge and agree that the foregoing subordination provisions are, and are
intended to be, an inducement to and a consideration of each holder of Senior Indebtedness, whether
such Senior Indebtedness was created or acquired before or after the creation of the indebtedness
evidenced by this Note, and each such holder of Senior Indebtedness shall be deemed conclusively to
have relied on such subordination provisions in acquiring and holding, or in continuing to hold,
such Senior Indebtedness.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;CONVERSION.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Conversion by Holder. At any time prior to payment in full of the principal balance of
this Note, the Holder shall have the right, at the Holder&#146;s option, to convert this Note, in
accordance with the provisions of Section 11(c) hereof, in whole or in part, into fully paid and
nonassessable shares of Common Stock, provided that the Holder shall provide at least fifteen (15)
business days notice to the Company of Holder&#146;s election to convert this Note into shares of the
Company&#146;s Common Stock. The number of shares of the Company&#146;s Common Stock into which this Note may
be converted shall be determined by dividing the aggregate amount of this Note to be converted by
the Conversion Price (as defined below) in effect at the time of such conversion. The initial
&#147;Conversion Price&#148; shall be equal to $0.70 per share. The Conversion Price shall be subject to
adjustment from time to time pursuant to Section&nbsp;13 hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Conversion by the Company. The Company shall have the right, but only with the Holder&#146;s
consent, to convert this Note, in accordance with the provisions of Section 11(c) hereof, in whole
or in part, into fully paid and nonassessable shares of the Company&#146;s common stock. The number of
shares of common stock into which this Note
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">may be converted shall be determined by dividing the aggregate amount of this Note to be converted
by the Conversion Price in effect at the time of such conversion.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Conversion Procedure.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Conversion Pursuant to Section&nbsp;11(a). Before the Holder shall be entitled to convert this
Note into shares of the Company&#146;s Common Stock, it shall surrender this Note, duly endorsed, at the
office of the Company and shall give written notice, postage prepaid, to the Company at its
principal corporate office, of the election to convert the same pursuant to Section&nbsp;11(a), and
shall state therein the amount of the unpaid principal amount of this Note, together with accrued
but unpaid interest, to be converted and the name or names in which the certificate or certificates
for shares of the Company&#146;s Common Stock are to be issued, subject to compliance by the Holder of
this Note with the transfer restrictions applicable to this Note. The Company shall, as soon as
practicable thereafter (but in any event within ten (10)&nbsp;days thereafter), issue and deliver to the
Holder of this Note a certificate or certificates for the number of shares of the Company&#146;s Common
Stock to which the Holder shall be entitled upon conversion (bearing such legends as are required
by applicable state and federal securities laws), together with a replacement Note (if any
principal amount is not converted) and any other securities and property to which the Holder is
entitled upon such conversion under the terms of this Note, including a check payable to Holder for
any cash amounts payable as described in Section&nbsp;11(d). The conversion shall be deemed to have
been made immediately prior to the close of business on the date of the surrender of this Note, and
the Person or Persons entitled to receive the shares of the Company&#146;s Common Stock upon such
conversion shall be treated for all purposes as the record holder or holders of such shares of the
Company&#146;s Common Stock as of such date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Conversion Pursuant to Section&nbsp;11(b). If this Note is converted by the Company pursuant
to Section&nbsp;11(b), written notice shall be delivered to the Holder notifying the Holder of the
conversion to be effected, specifying the Conversion Price, the principal amount of the Note to be
converted, the date on which such conversion is expected to occur and calling upon such Holder to
surrender to Company, in the manner and at the place designated, the Note. Upon such conversion of
this Note, the Holder shall surrender this Note, duly endorsed, at the principal office of Company.
At its expense, the Company shall, as soon as practicable thereafter (but in any event within ten
(10)&nbsp;days thereafter), issue and deliver to such Holder a certificate or certificates for the
number of shares to which Holder shall be entitled upon such conversion (bearing such legends as
are required by applicable state and federal securities laws), together with any other securities
and property to which the Holder is entitled upon such conversion under the terms of this Note,
including a check payable to the Holder for any cash amounts payable as described in Section&nbsp;11(d).
Any conversion of this Note pursuant to Section 11(b) shall be deemed to have been made immediately
prior to the closing of the issuance and sale of shares as described in Section 11(b) and on and
after such date the Person entitled to receive the shares issuable upon such conversion shall be
treated for all purpose as the record Holder of such shares as of such date.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Fractional Shares; Interest; Effect of Conversion. No fractional shares shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional shares to the Holder
upon the conversion of this Note, the Company shall pay to the Holder an amount equal to the
product obtained by multiplying the Conversion Price by the fraction of a share not issued pursuant
to the previous sentence. In addition, the Company shall pay to the Holder any interest accrued on
the amount converted and on the amount to be paid to the Company pursuant to the previous sentence.
Upon conversion of this Note in full and the payment of the amounts specified in this Section
11(d), the Company shall be forever released and discharged from all its obligations and
liabilities under this Note.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;ISSUANCES OF WARRANTS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The Holder shall receive, for no additional consideration, a stock purchase warrant (the
&#147;Warrant&#148;) in a form attached to this Note, entitling the Holder to purchase shares of the
Company&#146;s Common Stock.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;The Company shall issue to the Holder a Warrant entitling the Holder to purchase a number
of shares of the Company&#146;s Common Stock equal to 150% of the number of shares of Common Stock into
which this Note initially is convertible.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Each Warrant to be issued by the Company pursuant to this Section&nbsp;12 shall have an initial
exercise price of $1.00 per share, and expiration date of three (3)&nbsp;years from the date when it is
issued.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;The shares of the Company&#146;s Common Stock issuable upon the exercise of any Warrants issued
pursuant to this Section&nbsp;12 shall be entitled to &#147;piggy back&#148; registration rights.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.&nbsp;CONVERSION PRICE ADJUSTMENTS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Adjustments for Stock Splits and Subdivisions. In the event the Company should at any
time or from time to time after the date of issuance hereof fix a record date for the effectuation
of a split or subdivision of the outstanding shares of the Company&#146;s Common Stock or other
distribution payable in additional shares of the Company&#146;s Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or indirectly,
additional shares of the Company&#146;s Common Stock (hereinafter referred to as &#147;the Company&#146;s Common
Stock Equivalents&#148;) without payment of any consideration by such holder (including the additional
shares of the Company&#146;s Common Stock issuable upon conversion or exercise thereof), then, as of
such record date (or the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of this Note shall be appropriately decreased so that the number of
shares of the Company&#146;s Common Stock issuable upon conversion of this Note shall be increased in
proportion to such increase of outstanding shares.
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Adjustments for Reverse Stock Splits. If the number of shares of the Company&#146;s Common
Stock outstanding at any time after the date hereof is decreased by a combination of the
outstanding shares of the Company&#146;s Common Stock, then, following the record date of such
combination, the Conversion Price for this Note shall be appropriately increased so that the number
of shares of the Company&#146;s Common Stock issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Notices of Record Date, etc. In the event of:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Any taking by the Company of a record of the holders of any class of securities of the
Company for the purpose of determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend payable out of earned surplus at the same rate as that of the last such
cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or property, or to
receive any other right; or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Any capital reorganization of the Company, any reclassification or recapitalization of
the capital stock of the Company or any transfer of all or substantially all of the assets of the
Company to any other Person or any consolidation or merger involving the Company; or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Any voluntary or involuntary dissolution, liquidation or winding-up of the Company, the
Company will mail to Holder of this Note at least ten (10)&nbsp;days prior to the earliest date
specified therein, a notice specifying (A)&nbsp;the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of such dividend,
distribution or right; and (B)&nbsp;the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is expected to become
effective and the record date for determining stockholders entitled to vote thereon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of the Company&#146;s Common Stock solely for
the purpose of effecting the conversion of this Note such number of its shares of the Company&#146;s
Common Stock as shall from time to time be sufficient to effect the conversion of the Note; and if
at any time the number of authorized but unissued shares of the Company&#146;s Common Stock shall not be
sufficient to effect the conversion of the entire outstanding principal amount of this Note,
without limitation of such other remedies as shall be available to the holder of this Note, the
Company will use its best efforts to take such corporate action as may, in the opinion of counsel,
be necessary to increase its authorized but unissued shares of the Company&#146;s Common Stock to such
number of shares as shall be sufficient for such purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.&nbsp;SUCCESSORS AND ASSIGNS. Neither this Note nor any of the rights, interests or obligations
hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company
without the prior written consent of the Holder or by
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the Holder without the prior written consent of the Company. Subject to the foregoing and the
restrictions on transfer described in Section&nbsp;16 below, the rights and obligations of the Company
and the Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.&nbsp;WAIVER AND AMENDMENT. Any provision of this Note may be amended, waived or modified
upon the written consent of the Company and the Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.&nbsp;TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF. With respect to any
offer, sale or other disposition of this Note or any securities into which this Note may be
converted, the Holder will give written notice to the Company prior thereto, describing briefly the
manner thereof, together with a written opinion of the Holder&#146;s counsel, to the effect that such
offer, sale or other distribution may be effected without registration or qualification under any
federal or state law then in effect. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested and subject to Section&nbsp;14 above, the Company, as promptly as
practicable, shall notify the Holder that the Holder may sell or otherwise dispose of this Note or
such securities, all in accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this Section&nbsp;16 that the opinion of counsel for the Holder
is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Each Note thus transferred and each certificate
representing the securities thus transferred shall bear a legend as to the applicable restrictions
on transferability in order to ensure compliance with the Act, unless in the opinion of counsel for
the Company such legend is not required in order to ensure compliance with the Act. The Company may
issue stop transfer instructions to its transfer agent in connection with such restrictions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17.&nbsp;NOTICES. Any notice, request or other communication required or permitted hereunder
shall be in writing and shall be deemed to have been duly given if personally delivered or mailed
by registered or certified mail, postage prepaid, or by recognized overnight courier, or by
facsimile transmission or personal delivery, addressed (i)&nbsp;if to the Holder, at such Holder&#146;s
address set forth at the end of this Agreement, or at such other address as such Holder shall have
furnished the Company in writing, or (ii)&nbsp;if to the Company, at its address or fax number set forth
at the end of this Agreement, or at such other address as the Company shall have furnished to the
Holder in writing. Any party hereto may by notice so given change its address for future notice
hereunder. Notice shall conclusively be deemed to have been given when received.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.&nbsp;PAYMENT. Payment shall be made in lawful tender of the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.&nbsp;DEFAULT RATE; USURY. During any period in which an Event of Default has occurred and is
continuing, the Company shall pay interest on the unpaid principal balance hereof at a rate per
annum equal to the rate otherwise applicable hereunder plus 8% (eight percent) until such time as
the event of default has been cured in its entirety, and the Note Holders will be entitled to
receive additional Warrants to
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">purchase a number of shares of the Company&#146;s Common Stock equal to 25% (twenty-five percent) of the
number of shares of the Company&#146;s Common Stock issuable upon the exercise of the original Warrants
issued hereunder, for each 60-day period the Company remains in default. In the event any interest
is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then legal maximum rate
shall be deemed a payment of principal and applied against the principal of this Note.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.&nbsp;EXPENSES; WAIVERS. If action is instituted to collect this Note, the Company promises to
pay all costs and expenses, including, without limitation, reasonable attorneys&#146; fees and costs,
incurred by one counsel representing all Holders designated in accordance with Section&nbsp;22 below, in
connection with such action. The Company hereby waives notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative
to this instrument. The Company shall pay on demand all reasonable fees and expenses, including
reasonable attorneys&#146; fees and expenses, incurred by the Holder with respect to the enforcement or
attempted enforcement of any of the obligations of the Company to the Holder under the Transaction
Documents or in preserving any of the Holder&#146;s rights and remedies (including, without limitation,
all such fees and expenses incurred in connection with any &#147;workout&#148; or restructuring affecting the
Transaction Documents or the obligations thereunder or any bankruptcy or similar proceeding
involving Company or any of its Subsidiaries).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.&nbsp;REPLACEMENT NOTE. Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of any Note and (a)&nbsp;in the
case of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (b)&nbsp;in the case
of mutilation, upon surrender thereof; the Company, at its expense, will execute and deliver in
lieu thereof a new Note executed in the same manner as the Note being replaced, in the same
principal amount as the unpaid principal amount of such Note and dated the date to which interest
shall have been paid on such Note or, if no interest shall have yet been so paid, dated the date of
such Note.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22.&nbsp;ACTION OF HOLDERS. Any action required or permitted to be taken by the Holders of this
Note and the other Notes, and any demand, sent, forbearance or waiver, shall be effective only with
the consent or other affirmative action of 2/3 (two- thirds) or more in interest of
then-outstanding principal amount of the Notes. No such demand, consent, waiver or forbearance
shall be of any force or effect without such consent or other action.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.&nbsp;GOVERNING LAW. This Note and all actions arising out of or in connection with this
Note shall be governed by and construed in accordance with the laws of the State of New York,
without regard to the conflicts of law provisions of the State of New York or of any other state.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written
above.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="3" align="left"><B>SAVE THE WORLD AIR, INC.</B> <BR>&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">SPECIMEN&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
    <TD align="left">Its:&nbsp;</TD>
    <TD  style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD colspan="3" align="left">Fax Number: (818) 487-8003&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>




<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="3" align="left"><B>HOLDER</B> <BR>&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD valign="top">Amount:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">$&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">Signature:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">SPECIMEN&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left">Name:&nbsp;</TD>
    <TD  style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left">Address:&nbsp;</TD>
    <TD  style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD  style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" valign="top">Fax Number:&nbsp;&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000" align="left">&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" valign="top">Social Security/Federal ID No.&nbsp;&nbsp;_____________________________________</TD>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



</TABLE>





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<TYPE>EX-10.47
<SEQUENCE>7
<FILENAME>v28291exv10w47.htm
<DESCRIPTION>EXHIBIT 10.47
<TEXT>
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">THIS SECURITY HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE
SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE CORPORATION SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF
SUCH EXEMPTION REASONABLY SATISFACTORY TO THE CORPORATION (WHICH MAY INCLUDE, AMONG OTHER THINGS,
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION).
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>WARRANT TO PURCHASE SHARES OF COMMON STOCK OF<BR>
SAVE THE WORLD AIR, INC.</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top"><B>Los Angeles, California</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;, 2007</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This is to Certify that, for value received,
&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;(the &#147;Holder&#148;), is entitled
to purchase, subject to the provisions of this Warrant, from Save the World Air, Inc., a Nevada
corporation (the &#147;Company&#148;), at any time on or after date hereof, and not later than 5:00 p.m.
California local time, three years after &#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;, 2007,
 &#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95; shares of the Common
Stock, US$.001 par value, of the Company (the &#147;Common Stock&#148;) at a purchase price per share equal
to US$1.00, subject to adjustment as to the number of shares and purchase price as hereinafter set
forth. The shares of the Company&#146;s Common Stock issuable upon the exercise of this Warrant are
called herein the &#147;Warrant Stock.&#148; The price per share of the Warrant Stock as adjusted from time
to time as hereinafter set forth is sometimes referred to as the &#147;Exercise Price.&#148; The Holder
hereof may exercise this Warrant as to all or any portion of the shares of the Warrant Stock which
such Holder shall have the right to acquire hereunder. This Warrant is the Warrant referred to in
that certain Subscription Agreement of even date herewith (the &#147;Subscription Agreement&#148;) between
the Company and the Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;<u>Exercise of Warrant</u>. This Warrant may be exercised by presentation and surrender hereof to
the Company with the Exercise Notice attached hereto as Annex A. The Warrant shall be deemed to
have been exercised when (i)&nbsp;the Company has received this Warrant, together with a completed
Exercise Notice, and (ii)&nbsp;the Company has received payment in the amount of the applicable Exercise
Price, notwithstanding that certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder. If the stock transfer books of the Company shall be closed on the
date of receipt of this Warrant, the Exercise Notice and the Exercise Price as aforesaid, the
Holder shall be deemed to be the holder of such shares of Common Stock on the next succeeding day
on which the stock transfer books of the Company shall be opened. If
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the shares purchasable hereunder. In the event this Warrant shall not be exercised
on or before three (3)&nbsp;years after the date of issue, this Warrant shall become void and all rights
hereunder shall cease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;<u>Method of Payment</u>. Holder may pay the applicable Exercise Price by cash, check or cash
equivalent.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;<u>Expenses of Issuance</u>. The Company shall issue the shares of Common Stock upon exercise of
this Warrant without charge to Holder for any issuance tax or other cost incurred by the Company in
connection with such exercise and the related issuance of the shares of Common Stock. Each of the
shares of Common Stock shall, upon payment of the Exercise Price therefor, be fully paid and
nonassessable and free from all liens and charges with respect to the issuance thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;<u>Withholding Taxes</u>. Holder shall satisfy any federal, state, local or foreign withholding
tax obligations arising from the exercise of the Warrant or the subsequent disposition of the
Shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;<u>Reservation of Shares</u>. The Company agrees that at all times there shall be authorized and
reserved for issuance upon exercise of this Warrant such number of shares of its Common Stock as
shall be required for issuance or delivery upon exercise of this Warrant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;<u>Fractional Shares</u>. This Warrant shall be exercisable in such manner as not to require the
issuance of fractional shares or scrip representing fractional shares. If, as a result of
adjustment in the Exercise Price or the number of shares of Common Stock to be received upon
exercise of this Warrant fractional shares would be issuable, no such fractional shares shall be
issued. In lieu thereof the Company shall pay the Holder an amount in cash equal to such fraction
multiplied by the current market value of one share of Common Stock. The current value shall be an
amount, not less than twice book value, determined in such reasonable manner as may be prescribed
by the Board of Directors of the Company, such determination to be final and binding on the Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;<u>Exchange or Assignment of Warrant</u>. Holder may not, directly or indirectly, voluntarily or
involuntarily, sell, assign, transfer, pledge, hypothecate, encumber or otherwise dispose of,
voluntarily or involuntarily, directly or indirectly (each, a &#147;Transfer&#148;) this Warrant, except that
Holder may transfer the Warrant to Holder&#146;s spouse and direct descendants of Holder, and the heirs,
executors, administrators, testamentary trustees, legatees or beneficiaries of Holder&#146;s estate upon
death (each, a &#147;Permitted Transferee&#148;); provided, however, that (x)&nbsp;any such Permitted Transferee
shall have agreed in writing to be bound by the terms of this Agreement with respect to the Shares
and (y)&nbsp;any transfer to a Permitted Transferee shall not be in violation of applicable federal or
state securities laws.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;<u>Rights of the Holder; Limitation on Liability</U>. The Holder shall not, prior to exercise of
this Warrant, by virtue hereof, be entitled to any rights of a shareholder in the
Company, either at law or equity, and the rights of the Holder are limited to those expressed in
the Warrant. No provision hereof, in absence of an affirmative action by the Holder to purchase the
Warrant Stock, and no enumeration herein of rights or privileges by the Holder, shall give rise to
any liability of the Holder for the Exercise Price of the Warrant Stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;<u>Adjustment of Exercise Rights</u>. The Exercise Price or the number of shares of Common Stock
to be received upon the exercise of this Warrant, or both shall be subject to adjustment from time
to time as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;<U>Dividends</U>. In case any additional shares of Common Stock or any obligation or stock
convertible into or exchangeable for shares of Common Stock (such convertible or exchangeable
obligations or stock being hereinafter called &#147;Convertible Securities&#148;) shall be issued as a
dividend on any class of stock of the Company, such shares or Convertible Securities, the Exercise
Price then in effect shall be increased proportionately and the number of shares of Warrant Stock
then exercisable hereunder shall be decreased proportionately. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment in the Exercise Price in
the case of the issuance at any time or from time to time of any shares of Common Stock pursuant to
any exercise of this Warrant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;<U>Effect of &#147;Split-ups&#148; and &#147;Split-down&#148; and Certain Dividends</U>. In case at any time or from
time to time the Company shall subdivide as a whole, by reclassification, by the issuance of a
stock dividend on the Common Stock payable in Common Stock, or otherwise, the number of shares of
Common Stock then outstanding into a greater number of shares of Common Stock, with or without par
value, the Exercise Price then in effect shall be reduced proportionately, and the number of shares
of Warrant Stock then exercisable hereunder shall be increased proportionately. In case at any time
or from time to time the Company shall consolidate as a whole, by reclassification or otherwise,
the number of shares of Common Stock then outstanding into a lesser number of shares of Common
Stock, with or without par value, the Exercise Price then in effect shall be increased
proportionately and the number of shares of Warrant Stock then exercisable hereunder shall be
decreased proportionately.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;<U>Statement of Adjusted Exercise Price</U>. Whenever the Exercise Price is adjusted pursuant to
any of the foregoing provisions of this Section (f), the Company shall forthwith prepare a written
statement signed by the President or the Treasurer of the Company, setting forth the adjusted
Exercise Price and any adjustment in the number of shares purchasable hereunder, determined as
provided in this Section (f), and in reasonable detail the facts requiring such adjustment. Such
statement shall be filed among the permanent records of the Company, shall be furnished to the
Holder of each Warrant upon request, and shall be open to inspection by the Holders of the Warrants
during normal business hours.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)&nbsp;<U>Effect of Merger or Consolidation</U>. In case the Company shall enter into any consolidation
with or merger into any other corporation wherein the Company is not the surviving corporation, or
sell or convey its property as an entirety or substantially as an entirety and in connection with such consolidation, merger, sale or
conveyance shares of stock or other securities shall be issuable or deliverable in exchange for the
Common Stock of the Company, the Holder of any Warrant shall thereafter be entitled to purchase
pursuant to such Warrant (in lieu of the number of shares of Common Stock which such Holder would
have been entitled to purchase immediately prior to such consolidation, merger, sale or conveyance)
the shares of stock or other securities to which such number of shares of Common Stock would have
been entitled at the time of such consolidation, merger sale or conveyance, at an aggregate
Exercise Price equal to that which would have been payable if such number of shares of Common Stock
had been purchased immediately prior thereto. In case of any such consolidation, merger, sale or
conveyance, appropriate provision (as determined by resolution of the Board of Directors of the
Company with the approval of the Holder) shall be made with respect to the rights and interests
thereafter of the Holders of Warrants, to the end that all the provisions of the Warrants
(including adjustment provisions) shall thereafter be applicable, as nearly as reasonably
practicable, in relation to such stock or other securities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)&nbsp;<U>Reorganization and Reclassification</U>. In case of any capital reorganization or any
reclassification of the capital stock of the Company (except as provided in Subsection (2)&nbsp;of this
Section (f)); the Holder of any Warrant shall thereafter be entitled to purchase pursuant to such
Warrant (in lieu of the number of shares of Common Stock which such Holder would have been entitled
to purchase immediately prior to such reorganization or reclassification) the shares of stock of
any class or classes or other securities or property to which the holder of such number of shares
of Common Stock would have been entitled at the time of such reorganization or reclassification, at
an aggregate Exercise Price equal to that which would have been payable if such number of shares of
Common Stock had been purchased immediately prior to such reorganization or reclassification,
appropriate provision (as determined by resolution of the Board of Directors of the Company with
the approval of the Holder) shall be made with respect to the rights and interest thereafter of the
Warrants (including adjustment provisions) shall thereafter be applicable, as nearly as reasonably
practicable, in relation to such stock or other securities or property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6)&nbsp;<U>Distributions</U>. In case the Company shall make any distribution of its assets to holders of
its Common Stock as a liquidation or partial liquidation dividend or by way of return of capital,
or other than as a dividend payable out of earnings or any surplus legally available for dividends
under the laws of the State of California, then the Holder of this Warrant who thereafter exercises
the same as herein provided after the date of record for the determination of those holders of
Common Stock entitled to such distribution of assets, shall be entitled to receive for the purchase
price of the shares of Common Stock stated in this Warrant, in addition to the Shares of Common
Stock, the amount of such assets (or at the option of the Company, a sum equal to the value thereof
at the time of such distribution to holders of Common Stock, as such
value</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">is determined by the Board of Directors of the Company in good faith), which would have been payable to such Holder had
he been the holder of record of such shares of Common Stock on the record date for the
determination of those entitled to such distribution.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7)&nbsp;<U>Dissolution or Liquidation</U>. In case the Company shall liquidate or wind up its affairs,
the Holder of this Warrant shall be entitled, upon the exercise thereof, to receive, in lieu of the
shares of Common Stock of the Company which it would have been entitled to receive, the same kind
and amount of assets as would have been issued, distributed or paid to it upon any such
dissolution, liquidation or winding up with respect to such shares of Common Stock of the Company,
had it been the holder of record of such shares of Common Stock on the record date for the
determination of those entitled to receive any such liquidating distribution; provided, however,
that all rights under this Warrant shall terminate on a date fixed by the Company, such date to be
not earlier than the date of commencement of proceedings for dissolution, liquidation or winding up
and not later than 30&nbsp;days after such commencement date, unless the Holder shall have, prior to
such termination date, exercised this Warrant. Notice of such termination of rights under this
Warrant shall be given to the last registered Holder hereof, as the same shall appear on the books
of the Company, by mail at least 30&nbsp;days prior to such termination date. In the event of such
notice the Holder may exercise this Warrant prior to the fifth anniversary hereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;<U>Limitations on Transfer of Warrant Stock</U>. The Warrant Stock issuable pursuant hereto has
not been registered under the Act. Accordingly, by acceptance hereof the Holder agrees that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;It will acquire the Warrant Stock issuable pursuant hereto to be held as an investment and
that it will not attempt to sell, distribute or dispose of the same except pursuant to this
agreement and:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">(a)&nbsp;pursuant to a registration statement filed and rendered effective under the
Act; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">(b)&nbsp;pursuant to a specific exemption from registration under the Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;There shall appear on the certificate or certificates evidencing any Warrant Stock issued
pursuant hereto a legend as follows:
</DIV>


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</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">THIS SECURITY HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE CORPORATION SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF
SUCH EXEMPTION REASONABLY SATISFACTORY TO THE CORPORATION (WHICH MAY INCLUDE, AMONG OTHER THINGS,
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;Company shall cover all shares which may be issued to the Holder under the terms of this
Warrant in the registration statement to be filed by the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;<U>Notices</U>. All notices, payments, requests and demands and other communications required or
permitted under this Warrant shall be deemed to have been duly given, delivered and made if in
writing and if served either by personal delivery to the party for whom it is intended or by being
deposited, postage prepaid, certified or registered mail return receipt requested to the address
shown below or such other address as may be designated in writing hereafter by such party:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><U>If
to the Company</U>:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 6%; margin-top: 6pt">Save The World Air, Inc.<BR>Bruce H.
McKinnon, CEO<BR> 5125 Lankershim Boulevard<BR>
North Hollywood, California 91601
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><U>With
a copy to</U>:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 6%; margin-top: 6pt">Lance Jon Kimmel, Esq.<BR>SEC
Law Firm<BR>
11693 San Vicente Boulevard, Suite&nbsp;357<BR>Los
Angeles, California 90049
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%"><U>If
to the Holder</U>:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 6%; margin-top: 6pt">____________________<BR>
____________________<BR>
____________________<BR>
____________________
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;<U>Governing Law</U>. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of New York.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;<U>Controversy</U>. In the event of any controversy, claim or dispute between the parties hereto,
arising out of or relating to this Warrant, the prevailing party shall be entitled to recover from
the non-prevailing party reasonable expenses, attorneys&#146; fees, and costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;<U>Further Assurances</U>. The parties agree to execute, acknowledge and deliver any and all such
other documents and to take any and all such of the action as may, in the reasonable opinion of
either of the parties hereto be necessary or convenient to efficiently carry out any or all of the
purposes of this Warrant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;<U>Severability</U>. Each and all provisions of this Warrant deemed to be prohibited by law or
otherwise held invalid shall be ineffective only to the extent of such prohibition or invalidity
and shall not invalidate or otherwise render ineffective any or all of the remaining provisions of
this Warrant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;<U>Parties in Interest</U>. Assignment. The Company may assign any and all of its rights under
this Agreement to its successors, and this Agreement shall inure to the benefit of, and be binding
on, the successors of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon the Holder and his heirs,
executors, administrators, successors and assigns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)&nbsp;<U>Entire Agreement</U>. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supercedes in its entirety all prior undertakings and
agreements of the Company and the Holder with respect to the subject matter hereof, and may not be
modified adversely to the Holder interest except by means of a writing signed by the Company and
the Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the Company has caused this instrument to be signed as of the
&#95;&#95;&#95;, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SAVE THE WORLD AIR, INC.</B>
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD>
</TR><TR>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">SPECIMEN
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>
    <TD>Its:&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>8
<FILENAME>v28291exv21.htm
<DESCRIPTION>EXHIBIT 21
<TEXT>
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<HEAD>
<TITLE>exv21</TITLE>
</HEAD>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;21
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>Subsidiaries </B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All subsidiaries are wholly-owned by Save the World Air, Inc. unless stated otherwise:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STWA Asia Pte Limited, a company organized under the laws of Singapore
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>9
<FILENAME>v28291exv23.htm
<DESCRIPTION>EXHIBIT 23
<TEXT>
<HTML>
<HEAD>
<TITLE>exv23</TITLE>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

</div>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;23
</DIV>


<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To the Board of Directors<BR>
Save the World Air, Inc &#038; subsidiary

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-140303 and 333-137094) and Form&nbsp;SB-2 (Nos. 333-137855 and 333-135415) of Save the World
Air, Inc. and subsidiary of our report, dated May&nbsp;15, 2007, relating to the consolidated financial
statements, which appear in this Form 10-KSB. Additionally, we also consent to the reference to our
firm under the caption &#147;Experts&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Weinberg &#038; Company, P.A.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Los Angeles, CA<BR>
May&nbsp;25, 2007</div>




<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>10
<FILENAME>v28291exv31w1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;31.1
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 AND</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>RULES 13A-14 AND 15D-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934</B></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Bruce H. McKinnon, Chief Executive Officer, certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. I have reviewed this 10-KSB of Save the World Air, Inc. (the &#147;Company&#148;);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the Company&#146;s as of, and for, the periods presented ire this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. The Company&#146;s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and
15d-15(f)) for the Company&#146;s and have:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the Company&#146;s, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.&nbsp;Evaluated the effectiveness of the Company&#146;s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.&nbsp;Disclosed in this report any change in the Company&#146;s internal control over financial
reporting that occurred during the Company&#146;s most recent fiscal quarter (the Company&#146;s fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the Company&#146;s internal control over financial reporting; and
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">5. The Company&#146;s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the Company&#146;s auditors and the audit committee of
the Company&#146;s board of directors (or persons performing the equivalent functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the Company&#146;s
ability to record, process, summarize and report financial information; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Company&#146;s internal control over financial reporting.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: May&nbsp;25, 2007&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ BRUCE H. McKINNON
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bruce H. McKinnon&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;&nbsp;&nbsp;&nbsp;Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>11
<FILENAME>v28291exv31w2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;31.2
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION OF THE CHIEF FINANCIAL OFFICER</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 AND</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>RULES 13A-14 AND 15D-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934</B></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Charles K. Dargan II, Chief Financial Officer, certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. I have reviewed this 10-KSB of Save the World Air, Inc. (the &#147;Company&#148;);
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the Company&#146;s as of, and for, the periods presented ire this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. The Company&#146;s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and
15d-15(f)) for the Company&#146;s and have:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the Company&#146;s, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.&nbsp;Evaluated the effectiveness of the Company&#146;s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.&nbsp;Disclosed in this report any change in the Company&#146;s internal control over financial
reporting that occurred during the Company&#146;s most recent fiscal quarter (the Company&#146;s fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the Company&#146;s internal control over financial reporting; and
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">5. The Company&#146;s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the Company&#146;s auditors and the audit committee of
the Company&#146;s board of directors (or persons performing the equivalent functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the Company&#146;s
ability to record, process, summarize and report financial information; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Company&#146;s internal control over financial reporting.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: May&nbsp;25, 2007&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ CHARLES K. DARGAN II
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Charles K. Dargan II&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>12
<FILENAME>v28291exv32w1.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;32.1
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Certification of Periodic Financial Report by the Chief Executive Officer and</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>Chief Financial Officer Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</B></DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Solely for the purposes of complying with 18 U.S.C. &#167;1350, as adopted pursuant to Section&nbsp;906
of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial
Officer of Save the World Air, Inc. (the &#147;Company&#148;), hereby certify, based on our knowledge, that
the Annual Report on Form 10-KSB of the Company for the year ended December&nbsp;31, 2006 (the &#147;Report&#148;)
fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and
that the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Dated: May&nbsp;25, 2007&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ BRUCE H. McKINNON
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bruce H. McKinnon&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Dated: May&nbsp;25, 2007&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ CHARLES K. DARGAN II
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Charles K. Dargan II&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
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</TEXT>
</DOCUMENT>
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<TYPE>GRAPHIC
<SEQUENCE>13
<FILENAME>v28291v2829104.gif
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</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
