Annual report pursuant to section 13 and 15(d)

CONSOLIDATED STATEMENTS OF CASH FLOWS

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
 12 Months Ended 168 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Net Loss $ (10,856,547) $ (9,494,906) $ (69,289,467)
Write off of intangible assets     505,000
Settlement of litigation and debt (175,934) (145,112) (1,338,254)
Settlement of Debt Due Morale/Matthews     927,903
Stock based compensation expense 2,240,961 230,433 6,176,117
Issuance of common stock for services 862,000 1,385,137 8,034,788
Issuance of options for legal settlement     31,500
Issuance of warrants for legal settlement     4,957
Issuance of warrants for financing fees     153,501
Issuance of warrants for consulting fees 411,888 126,000 537,888
Increase in convertible notes related to default 2,795 37,138 299,274
Interest on related party loans     22,305
Patent acquisition cost     1,610,066
Amortization of issuance costs and original issue debt discounts including beneficial conversion feature-part of interest expense 5,069,446 3,971,577 16,134,077
Fair value of common stock and warrants issued to induce conversion of notes   168,340 469,043
Costs of private placement convertible notes   1,129,212 1,640,715
Change in fair value of derivative liability (2,021,536) (414,505) (2,128,201)
Amortization of deferred compensation     3,060,744
Loss on disposition of assets     14,426
Depreciation and amortization of leasehold improvements 34,717 34,022 494,899
Bad debt     1,300
Accounts receivable     (1,380)
Prepaid expenses and others (48,481) (12,972) (77,826)
Other assets (2,310) 3,000 (10,330)
Accounts payable and accrued expenses 415,519 71,899 5,027,850
Accounts payable – license agreements (478,297) (284,599) (473,012)
Accounts payable – related parties (178,173) 52,356 (30,000)
Net cash used in operating activities (4,723,952) (3,142,980) (28,202,117)
Purchase of equipment (32,243) (11,235) (598,862)
Proceeds from sale of equipment     17,478
Net cash used in investing activities (32,243) (11,235) (581,384)
Net proceeds under equity line of credit     1,262,386
(Decrease) increase in loans from related parties and shareholders (86,947) (10,786) 536,979
Advances from founding executive officer     517,208
Net proceeds from issuance of convertible notes and warrants 5,360,070 3,217,735 16,565,048
Repayment of convertible notes (14,276)   (296,397)
Proceeds from exercise of warrants 13,500 15,300 10,816,074
Net cash provided by financing activities 5,272,347 3,222,249 29,401,298
Net increase in cash 516,152 68,034 617,797
Cash, beginning of period 101,645 33,611  
Cash, end of period 617,797 101,645 617,797
Interest 12,014 21,294 171,380
Income taxes 800 800 7,482
Acquisition of intangible asset through advance from related party and issuance of common stock     505,000
Deferred compensation for stock options issued for services 862,000 1,385,137 3,202,931
Purchase of property and equipment financed by advance from related party     3,550
Conversion of related party debt to equity     515,000
Issuance of common stock in settlement of payable   4,121 247,584
Cancellation of stock     8,047
Conversion of accounts payable and accrued expenses to common stock     612,521
Conversion of accounts payable and accrued expenses to convertible debentures 306,275 331,200 637,475
Conversion of related party debt to convertible debentures   27,500 72,500
Conversion of convertible debentures to common stock 4,965,370 4,417,417 15,751,351
Issuance of shares for settlement of loans and other payable to Morale/Matthews     2,783,711
Write off of deferred compensation     142,187
Fair value of derivative liability recorded as note discount   1,243,625 2,130,625
Proceeds of exercise of options applied to accounts payable 7,500 37,500 67,500
Fair value of warrants and beneficial conversion feature associated with issued convertible notes $ 5,666,345 $ 2,305,311 $ 13,912,733