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TAPIMMUNE INC
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Smaller Reporting Company
FY
2012
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<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 1:	Nature of Operations</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">TapImmune Inc. (the “Company”),
a Nevada corporation incorporated in 1992, is a development stage company which was formed for the purpose of building a biotechnology
business specializing in the discovery and development of immunotherapeutics aimed at the treatment of cancer, and therapies for
infectious diseases, autoimmune disorders and transplant tissue rejection.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Since inception, the Company has been
party to various Collaborative Research Agreements (“CRA”) working with universities to carry out development of the
licensed technology and providing TapImmune the option to acquire the rights to commercialize any additional technologies developed
within the CRA. The lead product candidate, now wholly owned and with no ongoing license or royalty, resulting from these license
agreements is an immunotherapy vaccine, on which the Company has been completing pre-clinical work in anticipation of clinical
trials. Specifically, the Company has obtained and expanded on three U.S. and international patents, tested various viral vectors,
licensed a viral vector and is working towards production of a clinical grade vaccine. The Company plans to continue development
of the lead product vaccine through to clinical trials in both oncology and infectious diseases alone or in partnership with other
vaccine developers.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">These
consolidated financial statements have been prepared on the basis of a going concern which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As at December 31, 2012, the Company had a working capital
deficiency of $5,666,597 and has incurred significant losses since inception. Further losses are anticipated in the development
stage raising substantial doubt as to the Company’s ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on raising additional capital to fund ongoing research and development, maintenance and
protection of patents, accommodation from certain debt obligations and ultimately on generating future profitable operations. Planned
expenditures relating to future clinical trials of the Company’s immunotherapy vaccine will require significant additional
funding. The Company is dependent on future financings to fund ongoing research and development as well as working capital requirements.
The Company’s future capital requirements will depend on many factors including the rate and extent of scientific progress
in its research and development programs, the timing, cost and scope involved in clinical trials, obtaining regulatory approvals,
pursuing further patent protections and the timing and costs of commercialization activities.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">Management
is addressing going concern remediation through seeking new sources of capital, restructuring and retiring debt through conversion
to equity and debt settlement arrangements with creditors, cost reduction programs and seeking possible joint venture participation.
Management’s plans are intended to return the Company to financial stability and improve continuing operations. The Company
is continuing initiatives to raise capital through private placements, related party loans and other institutional sources to
meet immediate working capital requirements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">Additional
funding was raised through equity and debt placements in 2011 and 2012, and management intends to continue restructuring outstanding
debt and equity instruments. Additional capital is required currently to expand programs including pre-clinical work and to establish
future manufacturing contracts necessary for clinical trials for the lead TAP (Transporters of Antigen Processing) vaccine and
infectious disease adjuvant technology. Strategic partnerships will be needed to continue the product development portfolio and
fund development costs. These measures, if successful, may contribute to reduce the risk of going concern uncertainties for the
Company over the next twelve months. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">There
is no certainty that the Company will be able to arrange sufficient funding to satisfy current debt obligations or to continue
development of products to marketability.</font></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 2:	SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Basis of Presentation</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">These financial statements are presented
in United <font style="letter-spacing: -0.1pt">States</font> dollars and have been prepared in accordance with accounting principles
generally accepted in the United States of America.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Principles of Consolidation</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">These financial statements <font style="letter-spacing: -0.1pt">include</font>
the accounts of the Company and its wholly-owned subsidiaries GeneMax Pharmaceuticals Inc. (“GPI”) and GeneMax Pharmaceuticals
Canada Inc. (“GPC”). All significant intercompany balances and transactions are eliminated upon consolidation.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Use of Estimates</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Preparation of the Company’s <font style="letter-spacing: -0.1pt">financial</font>
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ materially
from those estimates. Significant areas requiring management’s estimates and assumptions include deferred taxes and related
tax balances and disclosures, determining the fair value of stock-based compensation and stock based transactions, the fair value
of the components of the convertible notes payable, foreign exchange gains and losses, allocation of costs to research and development
and accrued liabilities. Matters impacting the company’s ability to continue as a going concern and contingencies also involve
the use of estimates and assumptions.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Fair Value Measurements</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The objective of ASC 820, <i>Fair Value
Measurements and Disclosures</i>, is to increase consistency and comparability in fair value measurements and to expand disclosures
about fair value measurements. ASC 820 defines fair value, establishes a <font style="letter-spacing: -0.1pt">framework</font>
for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC
820 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair
value measurements.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Foreign Currency Translation</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The functional currency of the Company,
including its subsidiary, is United States dollars. GPC maintains its accounting records in its local currency (Canadian dollar).
In accordance with ASC 830, <i>Foreign Currency Matters</i>, the financial statements of the Company's subsidiary is translated
into United States dollars using period end exchange rates for monetary assets and liabilities and average <font style="letter-spacing: -0.1pt">exchange</font>
rates over the period for revenues and expenses. Non-monetary assets are translated at their historical exchange rates. Net gains
and losses resulting from foreign exchange translations and foreign currency exchange gains and losses on transactions occurring
in a currency other than the Company's functional currency are included in the determination of net income in the period.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Financial Instruments and Concentration of Credit Risk</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The fair values of cash, accounts payable,
and other current monetary liabilities approximate their carrying values due to the immediate or short-term <font style="letter-spacing: -0.1pt">maturity</font>
of these financial instruments. The Company's operations and financing activities are conducted primarily in United States dollars,
and as a result the Company is not subject to significant exposure to market risks from changes in foreign currency rates. U<font style="letter-spacing: -0.1pt">nless
otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from
assets classified as financial instruments.</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Impairment of Long-Lived Assets</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. <font style="letter-spacing: -0.1pt">Circumstances</font>
which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability of these assets
is measured by comparison of carrying amounts to future undiscounted cash flows the assets are expected to generate. An impairment
loss is recognized when the carrying amount exceeds fair value.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Stock-Based Compensation</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company uses the Black-Scholes option-pricing
model to determine the grant date fair-value of stock-based awards under ASC 718, <i>Compensation – Stock Compensation</i>.
The fair value is recorded in income depending on the terms and conditions of the award, and the <font style="letter-spacing: -0.1pt">nature</font>
of the relationship of the recipient of the award to the Company. The Company records the grant date fair value in income in line
with the period over which it was earned. For employees and management this is typically considered to be the vesting period of
the award. For consultants the fair value of the award is recorded in income over the term of the service period, and unvested
amounts are revalued at each reporting period over the service period.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Deferred Financing Costs</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company defers direct costs incurred
in connection with the sale of common shares which are offset against the proceeds of the financing upon completion. Costs incurred
in connection with convertible loans payable are deferred and amortized as a financing cost over the term of the convertible loans.
Upon conversion of the loan, any unamortized amount of deferred financing costs will be charged to <font style="letter-spacing: -0.1pt">stockholders’</font>
equity as a cost of financing.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Research and Development Costs</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company has acquired <font style="letter-spacing: -0.1pt">development</font>
and marketing rights to certain technologies. The rights and licenses acquired are considered rights to unproven technology which
may not have alternate future uses and therefore, have been expensed as incurred as research and development costs.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Income Taxes</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company follows the liability method
of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax
balances. Potential deferred tax assets and liabilities are measured using enacted tax rates expected <font style="letter-spacing: -0.1pt">to</font>
apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on potential
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment.
The Company recognizes deferred taxes on unrealized gains directly within other comprehensive income, and concurrently releases
part of the related valuation allowance resulting in nil impact within OCI or on the balance sheet. As at December 31, 2012, the
Company had net operating loss carry forwards; however, due to the uncertainty of realization, the Company has provided a full
valuation allowance for the potential deferred tax assets resulting from these loss carry forwards.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Derivative Warrant Liability</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company evaluates its convertible
debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as
derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that
the carrying amount of embedded derivatives be marked-to-market at each balance sheet date and carried at fair value. In the event
that the fair value is recorded as a liability, the change in fair value during the period is recorded in the Statement of Operations
as either income or expense. Upon conversion, exercise or modification to the terms of a derivative instrument, the instrument
is marked to fair value at the conversion date and then the related fair value is reclassified to equity.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In circumstances where the embedded conversion
option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the
convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single,
compound derivative instruments.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to
liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified
in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected
within 12 months of the balance sheet date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In evaluating the application of ASC
815-40, management must determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. ASC
815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
The application of ASC 815-40-15 has affected the accounting for (i) certain freestanding warrants that contain exercise price
adjustment features and (ii) convertible notes containing full-ratchet and anti-dilution protections (iii) certain free standing
warrants that contain contingently puttable cash settlement.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Fair Value of Financial Instruments</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company follows ASC paragraph 825-10-50-10
for disclosures about fair value of its financial instruments and ASC paragraph 820-10-35-37 to measure the fair value of its financial
instruments. 820-10-35-37 establishes a framework for measuring fair value pursuant to GAAP and expands disclosures about fair
value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37
further establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into
three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy are
described below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Level 1	Quoted market prices available
in active markets for identical assets or liabilities as of the reporting date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0 1in; text-align: justify; text-indent: -1in">Level 2	Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of
the reporting date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Level 3	Pricing inputs that are generally
observable inputs and not corroborated by market data.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The carrying amounts of the Company’s
financial assets and liabilities, such as; cash, receivables, prepaid expenses and deposits, accounts payable and accrued liabilities,
research agreement obligations, and due to related parties, approximate their fair values because of their short term maturity.
The Company’s convertible notes payable approximate fair value based upon management’s estimate of comparable interest
rates that would be available to the Company for similar financial arrangements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company revalues its derivative warrant
and derivative conversion option liabilities at each reporting period and recognizes gains or losses in the consolidated statements
of operations that are attributable to the change in the fair value.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">Loss per Common Share</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Basic loss per share is computed by dividing
loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. If applicable,
diluted earnings per share reflect the potential dilution of securities that could share in the earnings (loss) of the Company.
The common shares potentially issuable on conversion of outstanding convertible debentures, warrants and stock options are anti-dilutive
and have not been included in the calculation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0"><b>Recently Issued Accounting Pronouncements</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 1, 2012, the Company adopted new guidance
related to the presentation of comprehensive income. The main provisions of the new guidance provide that an entity that reports
items of other comprehensive income has the option to present comprehensive income as (i) a single statement that presents the
components of net income and total net income, the components of other comprehensive income and total other comprehensive income
and a total for comprehensive income or (ii) in two separate but consecutive statements, whereby an entity must present the components
of net income and total net income in the first statement and that statement is immediately followed by a financial statement that
presents the components of other comprehensive income, a total for other comprehensive income and a total for comprehensive income.
The new rules eliminate the option to present the components of other comprehensive income as part of the statement of stockholders'
equity. These new rules have been applied retrospectively and became effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2011 (January 1, 2012 for the Company), with early adoption permitted. The adoption
of this new guidance did not have a material impact on our Consolidated Financial Statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has reviewed recently issued accounting
pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements
to have a material impact on its financial position, results of operations or cash flows.</p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase"> </font></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 3:	Research Agreements</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Crucell Holland B.V. (“Crucell”) –
Research License and Option Agreement</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Effective August 7, 2003, Crucell and
the Company’s subsidiary GPI entered into a five-year research license and option agreement whereby Crucell granted to GPI
a non-exclusive worldwide license for the research use of its adenovirus technology. The Company was required to make certain payments
over the five-year term totaling Euro €450,000 (approximately $510,100).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">At December 31, 2008, $243,598 (€172,801)
was owing to Crucell under this agreement. During the year ended December 31, 2009, management negotiated a settlement of the outstanding
balance requiring a €17,000 cash payment (paid) and the issuance of 265,000 shares of the Company’s common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In addition, retroactively effective
August 7, 2008, the Company negotiated an amended license agreement for the use of Crucell’s adenovirus technology. The Company
is required to make annual license payments on the anniversary of the effective date for the three year term equal to €75,000
per annum. As at December 31, 2012, the Company had accrued $415,998 (€314,703) under the amended agreement, inclusive of
interest on outstanding amounts. The Company is currently delinquent on making its first annual license payment under the amended
license agreement. Crucell has the right to cancel the agreement however, to date, the Company has not received any notice terminating
the license agreement. Management plans to negotiate an amended payment structure with Crucell that, if successful, would allow
the Company to maintain the license agreement in good standing. However, there is no certainty that the license agreement will
be maintained or that Management will successfully negotiate new terms.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Mayo Clinic –License Option Agreement</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">For details regarding the license option
agreement with Mayo Clinic, please refer to Note 12.</p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase"> </font></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 4:	DERIVATIVE WARRANT
LIABILITY AND FAIR VALUE</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company has evaluated the application
ASC 480-10 <i>Distinguishing liabilities from equity</i>, ASC 815-40 <i>Contracts in an Entity’s Own Equity</i> and ASC 718-10
<i>Compensation – Stock Compensation</i> to the issued and outstanding warrants to purchase common stock that were issued
with the convertible notes, private placements, consulting agreements, and various debt settlements during 2009 through 2012. Based
on the guidance, management concluded these instruments are required to be accounted for as derivatives either due to a ratchet
down protection feature available on the exercise price (Note 5) or a holder’s right to put the warrants back to the Company
for cash under certain conditions or a conversion option feature with conversion into variable number of shares. Under ASC 815-40-25,
the Company records the fair value of these warrants and conversion options (derivatives) on its balance sheet, at fair value,
with changes in the values reflected in the statements of operations as “Changes in fair value of derivative liabilities”.
The fair value of the share purchase warrants are recorded on the balance sheet under ‘Derivative liability – warrants’
and the fair value of the conversion options are recorded on the balance sheet under ‘Derivative liability – conversion
option’.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">ASC 820-10 defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also
establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820-10 describes three levels of inputs that may be used to measure fair value: Level 1 –
Quoted prices in active markets for identical assets or liabilities; Level 2 – Observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities; and Level 3 – Unobservable inputs that are supported
by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted
cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant
judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities associated with the warrants
issued with the convertible notes during the year ended December 31, 2011. At December 31, 2012, all of the Company’s derivative
liabilities were categorized as Level 3 fair value liabilities. If the inputs used to measure the financial assets and liabilities
fall within more than one level described above, the categorization is based on the lowest level input that is significant to the
fair value measurement of the instrument.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><i>Level 3 Valuation Techniques</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Financial liabilities are considered
Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and
at least one significant model assumption or input is unobservable. Level 3 financial liabilities consist of the notes and warrants
for which there is no current market for these securities such that the determination of fair value requires significant judgment
or estimation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Determining fair value of share purchase
warrants and conversion options, given the Company’s stage of development and financial position, is highly subjective and
identifying appropriate measurement criteria and models is subject to uncertainty. There are several generally accepted pricing
models for warrants and options and derivative provisions. The Company has chosen to value the warrants and conversion option on
the notes that contain ratchet down provisions using the Binomial model under the following assumptions:</p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="border-bottom: windowtext 1pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify"> </td>
<td colspan="4" style="border-bottom: windowtext 1pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">December 31, 2011</td>
<td colspan="4" style="border-bottom: windowtext 1pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">December 31, 2012</td></tr>
<tr>
<td style="vertical-align: top; width: 26%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify"> </td>
<td style="vertical-align: bottom; width: 10%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Expected Life (Years)</td>
<td style="vertical-align: bottom; width: 10%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Risk free Rate</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Dividend yield</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Volatility</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Expected Life (Years)</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Risk free Rate</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Dividend yield</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Volatility</td></tr>
<tr style="vertical-align: top">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Share purchase warrants</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.09 to 4.80</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.12% to 0.83%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.00%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">199%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.08 to 3.21</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.02% to 0.36%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.00%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">199%</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="border-bottom: windowtext 1pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify"> </td>
<td colspan="4" style="border-bottom: windowtext 1pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">At Initial Recognition</td>
<td colspan="4" style="border-bottom: windowtext 1pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">December 31, 2012</td></tr>
<tr>
<td style="vertical-align: top; width: 24%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify"> </td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Expected Life (Years)</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Risk free Rate</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Dividend yield</td>
<td style="vertical-align: bottom; width: 11%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Volatility</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Expected Life (Years)</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Risk free Rate</td>
<td style="vertical-align: bottom; width: 9%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Dividend yield</td>
<td style="vertical-align: bottom; width: 11%; border-bottom: windowtext 1.5pt solid; padding-top: 6pt; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Volatility</td></tr>
<tr style="vertical-align: top">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Conversion Option</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.25 to 1.04</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.06% to 0.20%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.00%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">100.88% to 141.43%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.003 to 0.89</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.05% to 0.19%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0.00%</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">100.88% to 141.21%</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The foregoing assumptions are reviewed
quarterly and are subject to change based primarily on management’s assessment of the probability of the events described
occurring. Accordingly, changes to these assessments could materially affect the valuations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><i>Financial Assets and Liabilities Measured
at Fair Value on a Recurring Basis</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Financial assets and liabilities measured
at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Derivative liability – warrants
and Derivative liability – conversion option:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: left"> </td>
<td colspan="2" style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><b>As of December 31, 2012</b></p></td>
<td colspan="2" style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td colspan="2" style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td colspan="5" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Fair Value Measurements </b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p></td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Carrying Value</b></td>
<td colspan="2" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Level 1</b></td>
<td colspan="2" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Level 2</b></td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Level 3</b></td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Total</b></td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Derivative liability - warrants</td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 677,086</td>
<td colspan="2" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td colspan="2" style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 677,086</td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 677,086</td></tr>
<tr>
<td style="vertical-align: bottom; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Derivative liability – conversion option</td>
<td style="vertical-align: bottom; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">798,300</td>
<td colspan="2" style="vertical-align: top; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td colspan="2" style="vertical-align: bottom; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="vertical-align: bottom; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">798,300</td>
<td style="vertical-align: bottom; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">798,300</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Total</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,475,386</td>
<td colspan="2" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td colspan="2" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,475,386</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,475,386</td></tr>
<tr>
<td style="width: 36%"> </td>
<td style="width: 13%"> </td>
<td style="width: 11%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%"> </td>
<td style="width: 1%"> </td>
<td style="width: 13%"> </td>
<td style="width: 13%"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse; font: 10pt Times New Roman, Times, Serif">
<tr>
<td style="vertical-align: bottom; border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: left"> </td>
<td colspan="3" style="vertical-align: bottom; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>As of December 31, 2011 </b></p></td>
<td colspan="2" style="vertical-align: bottom; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="vertical-align: bottom; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="border-bottom: windowtext 0.5pt solid"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td colspan="3" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Fair Value Measurements Using</b></td>
<td colspan="3" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p></td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Carrying Value</b></td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Level 1</b></td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Level 2</b></td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Level 3</b></td>
<td colspan="3" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Total</b></td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Derivative liability - warrants</td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,317,834</td>
<td style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,317,834</td>
<td colspan="3" style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,317,834</td></tr>
<tr>
<td style="vertical-align: bottom; border-bottom: windowtext 1pt solid; padding-right: -12.25pt; padding-left: 5.4pt">Derivative liability – conversion option</td>
<td style="vertical-align: top; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="vertical-align: top; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="vertical-align: bottom; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="vertical-align: top; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td colspan="3" style="vertical-align: top; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Total</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,317,834</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,317,834</td>
<td colspan="3" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,317,834</td></tr>
<tr>
<td style="width: 35%"> </td>
<td style="width: 11%"> </td>
<td style="width: 11%"> </td>
<td style="width: 12%"> </td>
<td style="width: 11%"> </td>
<td style="width: 1%"> </td>
<td style="width: 13%"> </td>
<td style="width: 6%"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0">The table below provides a summary of the changes in fair value,
including net transfers, in and/or out, of financial assets and liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) during the years ended December 31, 2012 and 2011:</p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: top">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p></td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td colspan="3" style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Fair Value Measurements Using Level 3 Inputs</b></td></tr>
<tr style="vertical-align: top">
<td colspan="2" style="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 4pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p></td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Derivative liability - warrants</b></td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Derivative liability – conversion option</b></td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center"><b>Total</b></td></tr>
<tr>
<td colspan="2" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">Balance, December 31, 2011 </td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,819,512<font style="letter-spacing: -0.1pt"> </font></td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 175,389<font style="letter-spacing: -0.1pt"> </font></td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,994,901<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr>
<td colspan="2" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">Additions during the year</td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">1,587,275<font style="letter-spacing: -0.1pt"> </font></td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">- </td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">1,587,275<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt">Total unrealized (gains) or losses included in net loss</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">(631,631) </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(37,079) </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">(668,710)</font></td></tr>
<tr>
<td colspan="2" style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt">Debt settlement</td>
<td style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(1,457,322)</td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(138,310) </td>
<td style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(1,595,632)</td></tr>
<tr>
<td colspan="2" style="vertical-align: bottom; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Transfers in and/or out of Level 3</td>
<td style="vertical-align: top; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="vertical-align: top; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="vertical-align: top; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr>
<td colspan="2" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">Balance, December 31, 2011 </td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">1,317,834<font style="letter-spacing: -0.1pt"> </font></td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">-<font style="letter-spacing: -0.1pt"> </font></td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">1,317,834<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr>
<td colspan="2" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">Additions during the year</td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">- </td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">737,700 </td>
<td style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">737,700 </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt">Total unrealized (gains) or losses included in net loss</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">(597,127)</font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">60,600 </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">(536,527)</font></td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt">Debt settlement</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(43,621)</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">- </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(43,621)</td></tr>
<tr>
<td colspan="2" style="vertical-align: bottom; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Transfers in and/or out of Level 3</td>
<td style="vertical-align: top; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="vertical-align: top; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="vertical-align: top; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 35%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Balance, December 31, 2012</td>
<td style="width: 13%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="width: 19%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 677,086 </td>
<td style="width: 20%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 798,300<font style="letter-spacing: -0.1pt"> </font></td>
<td style="width: 13%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,475,386 </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of the warrants is determined
using a Binomial option pricing model. The valuation of warrants is subjective and is affected by changes in inputs to the valuation
model including the price per share of common stock, the historical volatility of the stock price, risk-free rates based on U.S.
Treasury security yields, the expected term of the warrants and dividend yield. Changes in these assumptions can materially affect
the fair value estimate. The Company could ultimately incur amounts to settle the warrant at a cash settlement value that is significantly
different than the carrying value of the liability on the financial statements. The Company will continue to classify the fair
value of the warrants as a liability until the warrants are exercised, expire, or are amended in a way that would no longer require
these warrants to be classified as a liability. Changes in the fair value of the common stock warrants liability are recognized
as a component of other income (expense) in the statement of operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The net cash settlement value at the
time of any future Fundamental Transaction will depend upon the value of the following inputs at that time: the consideration value
per share of the Company’s common stock, the volatility of the Company’s common stock, the remaining term of the warrant
from announcement date, the risk-free interest rate based on U.S. Treasury security yields, and the Company’s dividend yield.
The warrant requires use of a volatility assumption equal to the greater of 100% and the 100-day volatility function determined
as of the trading day immediately following announcement of a Fundamental Transaction. The fair value of the warrants is determined
using the Black Scholes Option Pricing Model.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 5:	CONVERTIBLE NOTES
PAYABLE</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"><font style="letter-spacing: -0.1pt">The
following is a summary of debt instrument transactions that are relevant to the current year:</font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 43%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: left"> </td>
<td style="width: 12%; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Face Value</b></p></td>
<td style="width: 15%; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Principal Repayment/</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Settlement</b></p></td>
<td style="width: 15%; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Unamortized</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Discount</b></p></td>
<td style="width: 15%; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Balance at</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2012</b></p></td></tr>
<tr style="vertical-align: bottom">
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>February 2011 Secured Convertible Notes</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Senior Secured Notes, due February 24, 2014</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,184,694<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">$ 203,836  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">$ 153,358 </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 827,500<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>April 2011 Secured Convertible Notes</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Senior Secured Notes, due April 4, 2014</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">215,000<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">43,140 </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">171,860<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>June 2011 Secured Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Senior Secured Notes, due June 6, 2014</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">30,000<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">3,953 </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">26,047<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>August 8, 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note due August 8, 2013</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">111,430<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">67,163 </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">44,267<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>August 12, 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note became due November 12, 2012</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">27,500<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">27,500<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>August 20, 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note due August 20, 2013</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">20,000<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">12,712 </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">7,288<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>September 18, 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note due October 1, 2013</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">82,500<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">59,741 </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">22,759<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>October 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note due October 15, 2013</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">340,000<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">268,275 </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">71,725<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>November 1, 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note due April 30, 2013</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">31,471<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">18,200  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">13,271<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>November 20, 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note due November 20, 2013</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">55,710<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">49,605 </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">6,105<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>December 14, 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note due April 18, 2013</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">189,210<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">81,302  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">107,908<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>December 18, 2012 Convertible Note</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Note due December 14, 2013</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">50,000<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">-  </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">- </font></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">50,000<font style="letter-spacing: -0.1pt"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>Total</b></td>
<td style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 2,337,515<font style="letter-spacing: -0.1pt"> </font></td>
<td style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">$ 203,836  </font></td>
<td style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">$ 757,449 </font></td>
<td style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 1,376,230<font style="letter-spacing: -0.1pt"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b>February 2011 Secured Convertible Notes</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On February 24, 2011, the Company entered
into a securities purchase agreement with accredited investors to place Senior Secured Convertible Notes (the “February 2011
Notes”) with a maturity date of three years after the issuance thereof in the aggregate principal amount of $1,184,694. Consideration
under the notes consisted of $944,694 in cash proceeds, including accrued interest, and $240,000 was subscribed for by two of the
holders of outstanding and demandable 2010 secured convertible notes (the “2010 Notes”). The holders of the 2010 Notes
returned their Series A, Series B and Series C warrants to the Company for cancellation. In connection with the issuance of the
February 2011 Notes, the Company entered into a 2011 Security Agreement with the note holders securing the February 2011 Notes
with all of the Company’s assets. One year after the issuance of the February 2011 Notes, the note holders have the option
to convert a portion or all of the outstanding balance of the February 2011 Notes including any accrued interest into shares of
the Company’s common stock at a conversion rate of $0.15 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The February 2011 Notes bear interest
at the rate of 10% per annum except in case of default, in which case they bear interest at the rate of 20% per annum. The interest
is due on the February 2011 Notes at the end of each three month period, starting three months from their issuance. One year after
the issuance of the February 2011 Notes, the Company may elect to prepay a portion of the principal. If the Company makes such
an election, the holders may elect to receive such prepayment in cash or in shares of the Company’s common stock, at a conversion
rate of $0.15 per share, or in a combination thereof.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company paid a finders’ fee
of $41,500. The finder’s fee was accounted for as deferred financing costs, and is being amortized over the term of the notes.
At December 31, 2012, $15,008 of the $37,452 in deferred financing costs relates to the February 2011 Notes which remains unamortized,
and is presented in the current assets on the Company’s Balance Sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In connection with the issuance of the
February 2011 Notes, the Company issued 2,369,388 warrants, exercisable into common stock at $0.25 with five year terms. The Company
may force the exercise of the warrants at any time that the average volume weighted average price of the Company’s common
stock over the prior ten trading days is greater than $0.50, the average daily dollar volume of the Company’s common stock
sold over those ten trading days is greater than $25,000 and there is an effective registration statement covering the resale of
the shares underlying the warrants.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated the net proceeds
to the warrants based on the calculated fair value at the date of issuance. The fair value of the warrants was recorded at $483,355
and recognized as derivative liabilities and the debt was recorded at $701,339. The fair value of the warrants was calculated using
the Binomial option pricing model under the following assumptions: estimated life of five years, risk free rate of 2.06%, dividend
yield of 0% and volatility of 199%. The debt discount is being accreted over the three year term of the February 2011 Notes using
the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">During the year, one of the investors settled
the principal amount of $203,836 and accrued interest of $16,419 of the February 2011 Notes in exchange for December 14, 2012 Convertible
Note (the “December 14, 2012 Note”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $160,046 was recorded for the February 2011 Notes.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>April 2011 Secured Convertible Notes</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On April 4, 2011, the Company entered
into a securities purchase agreement with accredited investors to place Senior Secured Convertible Notes (the “April 2011
Notes”) with a maturity date of three years after the issuance thereof in the aggregate principal amount of $215,000. Consideration
under the notes consisted of $190,000 in cash proceeds, and $25,000 was subscribed for by a holder of 2010 Notes in exchange for
the extinguishment of the Series A, Series B and Series C warrants related to the 2010 Notes. In connection with the issuance of
the April 2011 Notes, the Company entered into a 2011 Security Agreement with the note holders securing the April 2011 Notes with
a secondary security interest in all of the Company’s assets. One year after the issuance of the April 2011 Notes, the note
holders have the option to convert a portion or all of the outstanding balance of the April 2011 Notes including any accrued interest
into shares of the Company’s common stock at a conversion rate of $0.15 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The April 2011 Notes bear interest at
the rate of 10% per annum except in case of default, in which case they bear interest at the rate of 20% per annum. The interest
is due on the April 2011 Notes at the end of each three month period, starting three months from their issuance. One year after
the issuance of the April 2011 Notes, the Company may elect to prepay a portion of the principal. If the Company makes such an
election, the holders may elect to receive such prepayment in cash or in shares of the Company’s common stock, at a conversion
rate of $0.15 per share, or in a combination thereof.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company paid a finders’ fee
of $4,550. The finder’s fee was accounted for as deferred financing costs, and is being amortized over the term of the notes.
At December 31, 2012, $1,891 of the $37,452 in deferred financing costs relates to the April 2011 Notes which remains unamortized,
and is presented in the current assets on the Company’s Balance Sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In connection with the issuance of the
April 2011 Notes, the Company issued 430,000 warrants, exercisable into common stock at $0.25 with 2 year terms. The Company may
force the exercise of the warrants at any time that the average volume weighted average price of the Company’s common stock
over the prior ten trading days is greater than $0.50, the average daily dollar volume of the Company’s common stock sold
over those ten trading days is greater than $25,000 and there is an effective registration statement covering the resale of the
shares underlying the warrants.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated the net proceeds
to the warrants based on the calculated fair value. The fair value of the warrants was recorded at $130,720 and recognized as derivative
liabilities and the debt was recorded at $84,280. The fair value of the warrants was calculated using the Binomial option pricing
model under the following assumptions: estimated life of two years, risk free rate of 0.77%, dividend yield of 0% and volatility
of 199%. The debt discount is being accreted over the three year term of the April 2011 Notes using the effective interest rate
method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $34,399 was recorded for the April 2011 Notes.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>June 2011 Secured Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On June 6, 2011, the Company entered
into a securities purchase agreement with accredited investors to place Senior Secured Convertible Note (the “June 2011 Note”)
with a maturity date of three years after the issuance thereof in the aggregate principal amount of $30,000. In connection with
the issuance of the June 2011 Note, the Company entered into a 2011 Security Agreement with the note holder securing the June 2011
Note with a secondary security interest in all of the Company’s assets. One year after the issuance of the June 2011 Note,
the note holder has the option to convert a portion or all of the outstanding balance of the June 2011 Note including any accrued
interest into shares of the Company’s common stock at a conversion rate of $0.15 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The June 2011 Note bears interest at
the rate of 10% per annum except in case of default, in which case it bears interest at the rate of 20% per annum. The interest
is due on the June 2011 Note at the end of each three month period, starting three months from its issuance. One year after the
issuance of the June 2011 Note, the Company may elect to prepay a portion of the principal. If the Company makes such an election,
the holders may elect to receive such prepayment in cash or in shares of the Company’s common stock, at a conversion rate
of $0.15 per share, or in a combination thereof.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In connection with the issuance of the
June 2011 Note, the Company issued 60,000 warrants, exercisable into common stock at $0.25 with two year terms. The Company may
force the exercise of the warrants at any time that the average volume weighted average price of the Company’s common stock
over the prior ten trading days is greater than $0.50, the average daily dollar volume of the Company’s common stock sold
over those ten trading days is greater than $25,000 and there is an effective registration statement covering the resale of the
shares underlying the warrants.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated the net proceeds
to the warrants based on the calculated fair value. The fair value of the warrants was recorded at $8,280 and recognized as derivative
liabilities and the debt was recorded at $21,720. The fair value of the warrants was calculated using the Binomial option pricing
model under the following assumptions: estimated life of two years, risk free rate of 0.43%, dividend yield of 0% and volatility
of 199%. The debt discount is being accreted over the three year term of the June 2011 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $2,772 was recorded for the June 2011 Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>August 8, 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On August 8, 2012, the Company entered
into a securities purchase agreement with accredited investors to place a Convertible Note (the “August 8, 2012 Note”)
with a maturity date of one year after the issuance thereof in the aggregate principal amount of $111,430. Consideration under
the notes consisted of $92,000 in cash proceeds after $8,000 payment of finders’ fee and an original issue discount of $11,430.
The note holder has the option to convert a portion or all of the outstanding balance of the August 8, 2012 Note including any
accrued interest into shares of the Company’s common stock at a conversion rate of $0.09 per share or 70% of the lowest traded
price in the 25 trading days prior to conversion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The August 8, 2012 Note carries no interest
if the Company repays the note within 90 days from issuance. If the Company does not repay the note within 90 days, a one-time
interest of 5% shall apply to the principal sum.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The finder’s fee of $8,000 was
accounted for as deferred financing costs, and is being amortized over the term of the note. At December 31, 2012, $4,822 of the
$37,452 in deferred financing costs relates to the August 8, 2012 Note which remains unamortized, and is presented in current assets
on the Company’s Balance Sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated the net proceeds
to the conversion option based on the calculated fair value. The fair value of the conversion option was recorded at $155,700 and
recognized as a derivative liability and the debt was recorded at $nil. The transaction resulted in an accounting loss on debt
financing of $55,700. The fair value of the conversion option was calculated using the Binomial option pricing model under the
following assumptions: estimated life of one year, risk free rate of 0.19%, dividend yield of 0% and volatility of 139.77%. The
debt discount is being accreted over the one year term of the August 8, 2012 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $44,267 was recorded for the August 8, 2012 Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>August 12, 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On August 12, 2012, the Company entered
into a securities purchase agreement with accredited investors to place a Convertible Note (the “August 12, 2012 Note”)
with a maturity date of three months after the issuance thereof in the aggregate principal amount of $27,500. Consideration under
the notes consisted of $25,000 in cash proceeds after an original issue discount of $2,500. The note holder has the option to convert
a portion or all of the outstanding balance of the August 8, 2012 Note including any accrued interest into shares of the Company’s
common stock at a conversion rate of $0.09 per share or on similar terms as of any future financings with more favorable terms.
The agreement provides for the Company to issue 50,000 shares to the note holder as risk premium. The 50,000 shares were valued
at $6,250 and recorded as loss on debt financing and obligation to issue shares.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The August 12, 2012 Note bears interest
at the rate of 10% per annum.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company allocated the net proceeds
to the conversion option based on the calculated fair value. The fair value of the conversion option was recorded at $31,100 and
recognized as a derivative liability and the debt was recorded at $nil. The transaction resulted in an accounting loss on debt
financing of $6,100. The fair value of the conversion option was calculated using the Binomial option pricing model under the following
assumptions: estimated life of three months, risk free rate of 0.11%, dividend yield of 0% and volatility of 138.31%. The debt
discount is being accreted over the three month term of the August 12, 2012 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $27,500 was recorded for the August 12, 2012 Note. The Company has not repaid the August 12, 2012 Note
which is in default.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>August 20, 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On August 20, 2012, the Company entered
into a securities purchase agreement with accredited investors to place a Convertible Note (the “August 20, 2012 Note”)
with a maturity date of one year after the issuance thereof in the aggregate principal amount of $20,000. The note holder has the
option to convert a portion or all of the outstanding balance of the August 8, 2012 Note including any accrued interest into shares
of the Company’s common stock at a conversion rate of $0.09 per share or 70% of the lowest traded price in the 25 trading
days prior to conversion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The August 20, 2012 Note bears interest
at the rate of 8% per annum.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated the net proceeds
to the conversion option based on the calculated fair value. The fair value of the conversion option was recorded at $36,100 and
recognized as a derivative liability and the debt was recorded at $nil. The transaction resulted in an accounting loss on debt
financing of $16,100. The fair value of the conversion option was calculated using the Binomial option pricing model under the
following assumptions: estimated life of one year, risk free rate of 0.19%, dividend yield of 0% and volatility of 140.11%. The
debt discount is being accreted over the one year term of the August 20, 2012 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">For the year ended December 31, 2012,
accretion of the debt discount of $7,288 was recorded for the August 20, 2012 Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>September 18, 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On September 18, 2012, the Company entered
into a securities purchase agreement with accredited investors to place a Convertible Note (the “September 18, 2012 Note”)
with a maturity date of one year after the issuance thereof in the aggregate principal amount of $82,500. Consideration under the
notes consisted of $69,000 in cash proceeds after $6,000 payment of finders’ fee and an original issue discount of $7,500.
The note holder has the option to convert a portion or all of the outstanding balance of the September 18, 2012 Note including
any accrued interest into shares of the Company’s common stock at a conversion rate of $0.09 per share or 70% of the lowest
traded price in the 20 trading days prior to conversion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The September 18, 2012 Note carries no
interest other than the amortization of the original issue discount.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The finder’s fee of $6,000 was
accounted for as deferred financing costs, and is being amortized over the term of the note. At December 31, 2012, $4,290 of the
$37,452 in deferred financing costs relates to the September, 2012 Note which remains unamortized, and is presented in current
assets on the Company’s Balance Sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated the net proceeds
to the conversion option based on the calculated fair value. The fair value of the conversion option was recorded at $76,400 and
recognized as a derivative liability and the debt was recorded at $nil. The transaction resulted in an accounting loss on debt
financing of $1,400. The fair value of the conversion option was calculated using the Binomial option pricing model under the following
assumptions: estimated life of one year, risk free rate of 0.20%, dividend yield of 0% and volatility of 141.43%. The debt discount
is being accreted over the one year term of the September, 2012 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $2,626 was recorded for the September, 2012 Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>October 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On October 15, 2012, the Company entered
into a securities purchase agreement with an accredited investor to place a Convertible Note (the “October 2012 Note”)
with a maturity date of one year after the issuance thereof in the aggregate principal amount of $340,000. Consideration under
the notes consisted of $310,000 in cash proceeds after $10,000 payment of legal fee and an original issue discount of $30,000.
The note holder has the option to convert a portion or all of the outstanding balance of the October 2012 Note including any accrued
interest into shares of the Company’s common stock at a conversion rate of $0.12 per share or to a new lower issuance price
if the Company issues shares (or reduces the conversion or exercise price for outstanding debt or warrants) for less than $0.12.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The October 2012 Note carries an interest
rate of 8%. There are seven installment payments due on the note beginning on the seventh month after its issuance and each month
thereafter until maturity.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The legal fee of $10,000 was accounted
for as deferred financing costs, and is being amortized over the term of the note. At December 31, 2012, $5,425 of the $37,452
in deferred financing costs relates to the October 2012 Note which remains unamortized, and is presented in current assets on the
Company’s Balance Sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Provided that there is sufficient volume
in the trading of the Company’s common stock and other criteria are met, the Company may elect to make any payment due on
an installment date in shares of common stock. If the Company elects to make a payment in shares of common stock, the number of
shares that the Company issues will be equal to the amount to be converted divided by the lesser of the conversion price or 70%
of the average of the three lowest closing bid prices of the shares of common stock during the prior twenty consecutive trading
days. If the Company elects to pay the full amount of the note in common shares (excluding any interest that becomes due thereon),
the holder shall receive at a minimum 2,833,333 shares of the Company’s common stock, but this amount could be substantially
higher. Unless otherwise agreed in writing by both parties, at no time will the holder convert any amount of the debenture into
common stock that would result in the holder owning more than 4.99% of the common stock outstanding.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">As part of the agreement, the Company
also issued 3,000,000 warrants to the note holder exercisable at $0.25/share expiring on October 31, 2016.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The warrants include price adjustment
provisions whereby the exercise price will be adjusted downwards based on future grants, which results in a share issuance at a
per share amount less than $0.25 per share, or repricing of any existing warrants to a lower price.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated the net proceeds
to the conversion option and equity based on the calculated fair value. The fair value of the conversion option was recorded at
$248,000 and recognized as a derivative liability and the equity was recorded at $62,000. The fair value of the conversion option
was calculated using the Binomial option pricing model under the following assumptions: estimated life of one year, risk free rate
of 0.19%, dividend yield of 0% and volatility of 139.16%. The debt discount is being accreted over the one year term of the October
2012 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $71,726 was recorded for the October 2012 Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>November 1, 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">During the year, the Company converted
a promissory note of $100,000 (Note 7) with an accredited investor into three convertible notes of $105,000 cumulatively. The three
convertible notes were assigned to a third party, of which, two notes were converted into equity. In November and December 2012,
the Note holder converted $73,737 of principal and interest into 1,262,727 shares. The fair value of the shares was determined
to be $140,538 based on the quoted market prices. The Company recorded $66,801 as loss on settlement of debt (Note 9).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The third Convertible Note (the “November
1, 2012 Note”) was issued with a maturity date of six months in the aggregate principal amount of $31,471. The note holder
has the option to convert a portion or all of the outstanding balance of the November 1, 2012 Note including any accrued interest
into shares of the Company’s common stock at a conversion rate of $0.09 per share or 65% of the lowest bid price in the 20
trading days prior to conversion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The November 1, 2012 Note bears interest
at the rate of 10% per annum starting on November 15, 2012. If the Company is in default under certain events, the November 1,
2012 Note shall incur interest at the rate of 20% per annum retroactively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated $31,471 of the
balance of the November 1, 2012 Note to the conversion option and debt based on the calculated fair value. The fair value of the
conversion option was recorded at $27,300 and recognized as a derivative liability and the debt was recorded at $4,171. The fair
value of the conversion option was calculated using the Binomial option pricing model under the following assumptions: estimated
life of 0.49 year, risk free rate of 0.09%, dividend yield of 0% and volatility of 127.26%. The debt discount is being accreted
over the 0.49 year term of the November 1, 2012 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $9,100 was recorded for the November 1, 2012 Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>November 20, 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On November 20, 2012, the Company entered
into a securities purchase agreement with an accredited investor to place a Convertible Note (the “November 20, 2012 Note”)
with a maturity date of one year after the issuance thereof in the aggregate principal amount of $55,710. Consideration under the
notes consisted of $50,000 in cash proceeds after $4,000 payment of finder’s fee and an original issue discount of $5,710.
The note holder has the option to convert a portion or all of the outstanding balance of the November 20, 2012 Note including any
accrued interest into shares of the Company’s common stock at a conversion rate of $0.09 per share or 70% of the lowest traded
price in the 25 trading days prior to conversion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The August 8, 2012 Note carries no interest
if the Company repays the note within 90 days from issuance. If the Company does not repay the note within 90 days, a one-time
interest of 5% shall apply to the principal sum.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The finder’s fee of $4,000 was
accounted for as deferred financing costs, and is being amortized over the term of the note. At December 31, 2012, 3,551 of the
$37,452 in deferred financing costs relates to the November 20, 2012 Note which remains unamortized, and is presented in current
assets on the Company’s Balance Sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated the net proceeds
to the conversion option based on the calculated fair value. The fair value of the conversion option was recorded at $69,000 and
recognized as a derivative liability and the debt was recorded at $nil. The transaction resulted in an accounting loss on debt
financing of $19,000. The fair value of the conversion option was calculated using the Binomial option pricing model under the
following assumptions: estimated life of one year, risk free rate of 0.16%, dividend yield of 0% and volatility of 134.71%. The
debt discount is being accreted over the one year term of the November 20, 2012 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $6,105 was recorded for the November 20, 2012 Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>December 14, 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On December 14, 2012, the Company converted
part of the February 2011 Notes in the amount of $220,255 into a Convertible Note (the “December 14, 2012 Note”) with
a maturity date of four months after the issuance thereof in the aggregate principal amount of $252,280. Consideration under the
notes consisted of $220,255 from February 2011 Notes, $10,000 payment of legal fee and an original issue discount of $22,025. The
December 14, 2012 Note is repayable in four equal installments with accrued interest, starting on January 18, 2013 and subsequently,
the same day on each of the following calendar months. The Company can elect to pay the installments in cash or shares of Company’s
common stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The December 14, 2012 Note bears interest
at the rate of 8% per annum. In the event of default under certain conditions, the interest will accrue at the rate of 18% per
annum.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The note holder has the option to convert
a portion or all of the outstanding balance of the December 14, 2012 Note including any accrued interest into shares of the Company’s
common stock at a conversion rate of 70% of the three lowest closing bid prices in the 20 trading days prior to conversion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In December 2012, the December 14, 2012
Note was assigned to a third party and the Company paid the first installment of $65,032 consisting of principal and interest in
1,078,477 shares. The fair value of the shares was determined to be $96,523 based on the quoted market price of $0.09 per share.
The Company recorded $31,491 as loss on settlement of debt (Note 9).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">The Company has allocated $189,210 of the
balance of the December 14, 2012 Note to the conversion option and debt based on the calculated fair value. The fair value of the
conversion option was recorded at $94,100 and recognized as a derivative liability and the debt was recorded at $95,110. The fair
value of the conversion option was calculated using the Binomial option pricing model under the following assumptions: estimated
life of 0.35 year, risk free rate of 0.06%, dividend yield of 0% and volatility of 100.88%. The debt discount is being accreted
over the 0.45 year term of the December 14, 2012 Note using the effective interest rate method.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">For the year ended December 31, 2012, accretion
of the debt discount of $12,798 was recorded for the November 1, 2012 Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><b>December 18, 2012 Convertible Note</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On December 18, 2012, the Company entered
into a securities purchase agreement with accredited investors to place convertible notes (the “December 18, 2012 Notes”)
with a maturity date of one year after the issuance thereof in the aggregate principal amount of $50,000. The note holders have
the option to convert a portion or all of the outstanding balance of the November 20, 2012 Note including any accrued interest
into shares of the Company’s common stock at a conversion rate of $0.10 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The December 18, 2012 Notes carry an
interest rate of 9%, due and payable on the maturity date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 6:	Loans payable</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">As at December 31, 2012, there was an
unsecured loan advance from a third party in the amount of $10,000 (December 31, 2011 - $7,000), which is due on demand. The loan
is accruing interest of 10% per annum.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman Bold; margin: 0"><font style="font-weight: normal; text-transform: uppercase">Note 7:	Promissory
note</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">During the year ended December 31, 2011,
the Company issued a note in the amount of $100,000 towards future legal services, which matured July 24, 2011. As of December
31, 2012, the Company had received legal services in the amount of $100,000 against the note. The note bears interest at 10% per
annum and may be converted into shares at equal to lower of $0.09 or 65% of the arithmetic average of the lowest closing bid prices
of the Company’s shares during the consecutive twenty day trading period prior to notice of conversion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">During the year ended December 31, 2012,
the Company issued 500,000 shares to the holder of the note in exchange for the note holder’s agreement to forbear from pursuing
collections actions on the outstanding note (Note 9) and converted the promissory note into three convertible notes (Note 5).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">During the year ended December 31, 2012,
the Company issued additional promissory notes in the amount of $67,942, of which $38,000 of promissory notes were issued to an
officer and a director of the Company (Note 8). The promissory notes had no interest charges and no fixed repayment terms.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 8:	Related Party Transactions</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">During
the </font>year ended December 31, 2012<font style="letter-spacing: -0.1pt">, the Company entered into transactions with certain
officers and directors of the Company as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0 0.75in; text-align: justify; text-indent: -0.5in"><font style="letter-spacing: -0.1pt">(a)<font style="font: 7pt Times New Roman, Times, Serif">                
</font>incurred $391,600 (2011 - $248,400) in management, consulting and directors’ fees and $90,000 (2011 - $90,000) in research and
development services paid to officers and directors during the period;</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.5in"><font style="letter-spacing: -0.1pt">(b)<font style="font: 7pt Times New Roman, Times, Serif">                
</font>recorded $124,209 (2011 - $389,824) in stock based compensation for the fair value of options granted to management that
were granted and or vested during the period;</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.5in"><font style="letter-spacing: -0.1pt">(c)<font style="font: 7pt Times New Roman, Times, Serif">                
</font>converted $50,000 (2011 - $25,000) of debt due to related parties during the period, which were settled with shares. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.5in"><font style="letter-spacing: -0.1pt">(d)<font style="font: 7pt Times New Roman, Times, Serif">                
</font>issued $38,000 (2011 - $nil) in promissory notes to an officer and director of the Company (Note 7).</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">All
related party transactions (other than stock based consideration) involving provision of services were recorded at the exchange
amount, which is the amount established and agreed to by the related parties as representing fair value. The Company accounted
for the debt settlement transactions with related parties at management’s estimate of fair value, using amounts similar to
arm’s length settlements for debt settled.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">At
December 31, 2012, the Company had amounts owing to directors and officers of $366,697 (2011 - $322,905). Amounts due to related
parties are unsecured, non-interest bearing and have no specific terms of repayment.</font></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 6pt 0 0"><font style="text-transform: uppercase"> </font></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 9:	Capital Stock</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Share Capital</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">Prior
to March 27, 2007, the authorized capital of the Company consisted of 50,000,000 common shares with $0.001 par value and 5,000,000
non-voting preferred shares with $0.001 par value. On March 27, 2007, the Company’s Articles of Incorporation were amended
to increase the authorized shares of common stock from 50,000,000 shares of common stock to 200,000,000 shares. On June 28, 2007,
the Company completed a reverse stock split thereby issuing 1 new share for each 2.5 outstanding shares of the Company’s
common stock. Accordingly, the Company’s authorized share capital was decreased from 200,000,000 common shares to 80,000,000
common shares. On January 22, 2009 the authorized shares of common stock increased from 80,000,000 shares to 500,000,000 shares.</font>
Effective July 10, 2009, the Company executed a further 1 for 10 reverse stock split while simultaneously reducing the authorized
shares of common stock to 50,000,000 common shares with a $0.001 par value. Effective February 21, 2010, the Company increased
its authorized shares of common stock from 50,000,000 shares to 150,000,000 common shares. The Company maintained its authorized
shares of preferred stock at 5,000,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">All prior period share transactions included
in the Company’s stock transactions and balances have been retroactively restated for the transactions described above.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">2012 Share Transactions</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 15, 2012, the Company issued 333,334 shares of its restricted common stock to related parties, pursuant to debt settlement
agreements to settle $50,000 of outstanding trade payable. </font>At the time of issuance the fair value of the shares was determined
to be $50,000 based on the quoted market price of $0.15 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 15, 2012, the Company issued </font>400,000 shares of its restricted common stock pursuant to a debt settlement and a consulting
agreement. At the time of issuance the fair value of the shares was determined to be $71,200 based on the quoted market price of
$0.15 per share. The Company recorded $9,930 as gain on settlement of debt.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 15, 2012, the Company issued </font>789,778 shares of its restricted common stock in settlement of accrued interest on the
outstanding 2011 Notes. At the time of issuance the fair value of the shares was determined to be $118,467 based on the quoted
market price of $0.15 per share. No gain or loss was recorded on settlement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In March 2012, the Company received subscription
proceeds of $85,000. The subscribers purchased 733,334 share units at $0.15 per unit. Each unit consists of 1 share of Company’s
common stock and half a warrant exercisable at $0.40, which expires in two years. The fair value of these warrants was determined
to be $5,133.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In April 2012, the Company received subscription
proceeds of $345,000. The subscribers purchased 2,300,000 share units at $0.15 per unit. Each unit consists of 1 share of Company’s
common stock and half a warrant exercisable at $0.40, which expires in two years. The fair value of these warrants was determined
to be $123,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="letter-spacing: -0.1pt">In April, 2012, the Company
issued 1</font>00,000 shares of its restricted common stock pursuant to a debt settlement and a consulting agreement. At the time
of issuance the fair value of the shares was determined to be $18,500 based on the quoted market price of $0.185 per share. The
Company recorded $18,758 as gain on settlement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0">In April 2012, the Company issued 933,333 restricted common
shares, at $0.15 per share, for proceeds of $140,000 received in October 2011, in a private placement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In April 2012, the Company issued 1,000,000
common shares to a consultant pursuant to a consulting agreement effective October 1, 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
April, 2012, the Company issued </font>163,334 shares of its restricted common stock in settlement of accrued interest on the outstanding
2011 Notes. At the time of issuance the fair value of the shares was determined to be $24,500 based on the quoted market price
of $0.15 per share. No gain or loss was recorded on settlement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In May 2012, the Company issued 14,000,000
common shares to consultants pursuant to a consulting agreement (Note 12). At the time of issuance the fair value of the shares
was determined to be $1,918,000 based on the quoted market price of $0.137 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
June 2012, the Company issued </font>35,179 shares of its restricted common stock pursuant to a consulting agreement. The fair
value of the shares was determined to be $6,000 based on the quoted market price of $0.17 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
August 2012, the Company issued </font>500,000 shares of its restricted common stock pursuant to a consulting agreement. The fair
value of the shares was determined to be $74,000 based on the quoted market price of $0.148 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
September 2012, the Company issued </font>500,000 shares of its restricted common stock to the holder of a promissory note in exchange
for the note holder’s agreement to forebear from pursuing collection action on that note (Note 7). The fair value of the
shares was determined to be $72,750 based on the quoted market price of $0.146 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
November 2012, the Company issued </font>437,063 shares of its restricted common stock on election by the holder to convert part
of a convertible debt (Note 5) at a conversion price of $.0572 per share. The fair value of the shares was determined to be $55,944
based on the quoted market price of $0.128 per share. The Company recorded $30,944 as loss on settlement of debt.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
November 2012, the Company issued </font>597,185 shares of its restricted common stock on election by the holder to convert part
of a convertible debt (Note 5) at a conversion price of $.0586 per share. The fair value of the shares was determined to be $63,003
based on the quoted market price of $0.106 per share. The Company recorded $28,003 as loss on settlement of debt.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
November 2012, the Company issued </font>228,479 shares of its restricted common stock on election by the holder to convert part
of a convertible debt (Note 5) at a conversion price of $.0601 per share. The fair value of the shares was determined to be $21,591
based on the quoted market price of $0.095 per share. The Company recorded $7,854 as loss on settlement of debt.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
December 2012, the Company issued </font>1,078,477 shares of its restricted common stock as payment of installment of $65,032 for
a convertible debt (Note 5) at a conversion price of $.0603 per share. The fair value of the shares was determined to be $96,523
based on the quoted market price of $0.09 per share. The Company recorded $31,491 as loss on settlement of debt.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">2011 Share Transactions</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 21, 2011, the Company issued </font>641,023 shares of its restricted common stock pursuant to debt settlement and warrant
extinguishment agreement to settle $83,333 of the 2010 Notes and partial extinguishment of the Series A, Series B and Series C
Warrants. At the time of issuance, the fair value of the shares was determined to be $115,384, based on the quoted market price
of $0.18 per share, which has been recorded against the carrying value of the debt. The Company recognized a loss of $87,734 on
partial settlement of 2010 Notes and partial extinguishment of the Series A, Series B and Series C Warrants.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 23, 2011, the Company issued </font>1,180,000 shares of its restricted common stock pursuant to various consulting agreements.
At the time of issuance the fair value of the shares was determined to be $227,432 based on the quoted market price of $0.18 per
share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 23, 2011, the Company issued 885,295 shares of its restricted common stock pursuant to debt settlement agreements to settle
$150,500 of outstanding trade payables. </font>At the time of issuance the fair value of the shares was determined to be $172,633
based on the quoted market price of $0.195 per share. The Company recorded $22,133 as loss on settlement of debt.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 23, 2011, the Company issued 441,177 shares of its restricted common stock to related parties, pursuant to debt settlement
agreements to settle $75,000 of its outstanding trade payables. At the time of issuance the fair value of the shares was determined
to be $86,030 based on the quoted market price of $0.195 per share. The Company recorded the calculated loss on settlement of $11,030
to the statement of operations.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 30, 2011, the Company issued </font>2,048,578 shares of its restricted common stock pursuant to an exchange agreement to
settle $233,333 of the 2010 Notes. At the time of issuance the fair value of the shares was determined to be $450,687 based on
the quoted market price of $0.22 per share. The discounted carrying amount of the 2010 Note as of March 30, 2011 was $77,421. The
Company recorded the difference between the fair value and accreted amount of $373,266 as loss on settlement of debt.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
April 5, 2011, the Company issued </font>500,000 shares of its restricted common stock pursuant to a consulting agreement. At the
time of issuance the fair value of the shares was determined to be $125,000 based on the quoted market price of $0.25 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
April 25, 2011, the Company issued </font>350,000 shares of its restricted common stock pursuant to a consulting agreement. At
the time of issuance the fair value of the shares was determined to be $87,500 based on the quoted market price of $0.25 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
April 25, 2011, the Company issued 366,783 shares of its restricted common stock pursuant to debt settlement agreements to settle
$84,315 of outstanding trade payables. </font>At the time of issuance the fair value of the shares was determined to be $91,696
based on the quoted market price of $0.25 per share. The Company recorded $7,381 as loss on settlement of debt.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
April 25, 2011, the Company issued 20,000 shares of its restricted common stock pursuant to a debt settlement agreement to settle
$4,575 of outstanding trade payables. </font>At the time of agreement the fair value of the shares was determined to be $6,800
based on the quoted market price of $0.34 per share. The Company recorded $2,225 as loss on settlement of debt.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
April 25, 2011, the Company issued 108,696 shares of its restricted common stock to related parties, pursuant to a debt settlement
agreement to settle $25,000 of its outstanding accounts payables. At the time of issuance the fair value of the shares was determined
to be $27,174 based on the quoted market price of $0.25 per share. The Company recorded the calculated loss on settlement of $2,174
to the statement of operations.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In April 2011, the Company received subscription
proceeds of $90,000 and issued 600,001 shares of common stock in a private placement. The subscribers purchased one unit for each
$3.00 of subscription proceeds. Each unit consists of 20 shares of Company’s common stock and 6 warrants each exercisable
at $0.25, which expire in two years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
June 1, 2011, </font>586,858 shares of <font style="letter-spacing: -0.1pt">the Company’s </font>restricted common stock
were returned to treasury due to an adjustment to the final settlement of the $233,333 2010 Notes. The return of the shares resulted
in a $134,977 reduction to the previously calculated loss on debt settlement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On July 7, 2011, the Company received
subscription proceeds of $65,000 and issued 325,000 shares of common stock in a private placement. The subscribers purchased one
unit for each $2.00 of subscription proceeds. Each unit consists of 10 shares of Company’s common stock and 6 warrants each
exercisable at $0.25, which expire in two years. The fair value of these warrants was determined to be $33,600.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On August 19, 2011, the Company received
subscription proceeds of $45,000 and issued 225,000 shares of common stock in a private placement. The subscribers purchased one
unit for each $2.00 of subscription proceeds. Each unit consists of 10 shares of Company’s common stock and 6 warrants each
exercisable at $0.25, which expire in two years. The fair value of these warrants was determined to be $23,400.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On October 1, 2011, the Company issued
44,405 shares of its common stock pursuant to a consulting services agreement. At the time of issuance, the shares had a quoted
market value of $0.20 per share, and $9,000 was recorded as stock-based consulting fees.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">In October and November 2011, the Company
received subscription proceeds of $635,000 and converted debt of $115,250. As of December 31, 2012, the Company issued 4,068,334
shares of common stock in a private placement and has $140,000 in subscription proceeds for which the common shares have yet to
be issued. The subscribers purchased one unit for each $0.15 of subscription proceeds. Each unit consists of 1 share of Company’s
common stock and half a warrant exercisable at $0.40, which expires in two years. The fair value of these warrants was determined
to be $287,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On November 19, 2011, the Company issued
100,000 shares of its common stock pursuant to a consulting services agreement. The Company determined the market value of the
shares to be $0.27 per share, and $27,000 was recorded as stock-based consulting fees.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On December 13, 2011, the Company issued
500,000 shares of its common stock pursuant to consulting service agreements and as settlement pursuant to consulting service termination
agreements. The Company determined the market value of the shares to be $0.22 per share, and recorded $107,700 as gain on settlement
of debt.</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Stock Compensation Plan</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On October 14, 2009, the Company adopted
the 2009 Stock Incentive Plan (the “2009 Plan”) which supersedes and replaces the 2007 Stock Plan. The 2009 Plan allows
for the issuance of up to 10,000,000 common shares. <font style="letter-spacing: -0.1pt">Options granted under the Plan shall be
at prices and for terms as determined by the Board of Directors.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On September 7, 2010, the Company granted
250,000 stock options at an exercise price of $0.35 per share, vesting monthly over a twenty four month period, to a director of
the Company. The term of the options is ten years. <font style="letter-spacing: -0.1pt">The fair value of the new grant was estimated
at $47,500, or $0.19 per option, using the Black-Scholes Option Pricing Model with a risk free interest rate of 2.61%, a dividend
yield of 0%, an expected volatility of 249.6%, and an expected life of 10 years. The expensed portion of the value of these options
during the year ended December 31, 2011 was $1,979, which was recorded as stock based management compensation.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On February 16, 2011, the Company granted
a total of 850,000 stock options at an exercise price of $0.17 per share to consultants and management, which vest monthly over
a twenty-four month period. The term of the options is ten years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Additionally, on February 16, 2011, the
Company approved the repricing of 2,928,000 stock options issued to consultants and management. Options with an exercise price
of $0.97 were repriced to $0.17 per share and the Company recognized aggregate incremental fair value of the repriced options of
$40,260. The incremental fair value was determined using the Black-Scholes <font style="letter-spacing: -0.1pt">Option Pricing
Model </font>with weighted average assumptions as follows: Expected life of 3.48 years, an expected volatility of 199%, dividend
yield of 0% and risk-free rate of 1.4%.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On March 16, 2011, the Company granted
2,000,000 stock options to management at an exercise price of $0.19 per share, of which, 1,000,000 vested immediately and the remaining
vest monthly over twenty four month period. <font style="letter-spacing: -0.1pt">The aggregate fair value of the new grants was
estimated at $522,500, or $0.18 per option, using the Black-Scholes Option Pricing Model with weighted average assumptions as follows:
a risk free interest rate of 2.4%, a dividend yield of 0%, an expected volatility of 248%, and an expected life of 6.43 years.
</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On June 8, 2011, the Company granted
250,000 stock options to a consultant at an exercise price of $0.17 per share, of which, 125,000 vested immediately and the remaining
vest monthly over twenty four month period. <font style="letter-spacing: -0.1pt">The aggregate fair value of the grant was estimated
at $42,500, or $0.17 per option, using the Black-Scholes Option Pricing Model with weighted average assumptions as follows: a risk
free interest rate of 2.98%, a dividend yield of 0%, an expected volatility of 238.4%, and an expected life of 10 years. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On April 30, 2012, the Company granted
250,000 stock options to a management at an exercise price of $0.18 per share, vesting monthly over thirty six month period. <font style="letter-spacing: -0.1pt">The
aggregate fair value of the grant was estimated at $45,000, or $0.18 per option, using the Black-Scholes Option Pricing Model with
weighted average assumptions as follows: a risk free interest rate of 1.95%, a dividend yield of 0%, an expected volatility of
199.0%, and an expected life of 10 years. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">On May 8, 2012, the Company granted 250,000
stock options to a consultant at an exercise price of $0.17 per share, vesting monthly over twelve month period. <font style="letter-spacing: -0.1pt">The
aggregate fair value of the grant was estimated at $40,000, or $0.17 per option, using the Black-Scholes Option Pricing Model with
weighted average assumptions as follows: a risk free interest rate of 1.71%, a dividend yield of 0%, an expected volatility of
199.0%, and an expected life of 10 years. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">The
expensed portion of the value of the granted and vested options during the year ended December 31, 2012 was $204,427 (2011 - $456,081)
which was recorded as stock based consulting and management fees.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt"><b>Share
purchase options</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"><font style="letter-spacing: -0.1pt">A
summary of the Company’s stock options as of December 31, 2012 and changes during the period is presented below:</font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="width: 47%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="width: 17%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Number of</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Options</p></td>
<td style="width: 18%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Weighted Average</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Exercise Price</p></td>
<td style="width: 18%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Weighted Average</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Remaining Life</p></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td></tr>
<tr>
<td style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>Balance, December 31, 2010</b></td>
<td style="vertical-align: bottom; padding-right: 6.45pt; padding-left: 5.4pt; text-align: right">3,272,000<font style="letter-spacing: -0.1pt"> </font></td>
<td style="vertical-align: bottom; padding-right: 18.8pt; padding-left: 5.4pt; text-align: right">$ 0.92</td>
<td style="vertical-align: bottom; padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">8.65</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Issued</td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right">3,100,000 </td>
<td style="padding-right: 18.8pt; padding-left: 5.4pt; text-align: right">0.18</td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">5.98</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Cancelled</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 6.45pt; padding-left: 5.4pt; text-align: right">(94,000)</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 18.8pt; padding-left: 5.4pt; text-align: right">0.97</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">-</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 18.8pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>Balance, December 31, 2011</b></td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right">6,278,000 </td>
<td style="padding-right: 18.8pt; padding-left: 5.4pt; text-align: right">$ 0.18</td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">6.85</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Issued</td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right">500,000 </td>
<td style="padding-right: 18.8pt; padding-left: 5.4pt; text-align: right">0.17</td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">9.35</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Cancelled/Forfeited</td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right">(250,000)</td>
<td style="padding-right: 18.8pt; padding-left: 5.4pt; text-align: right">0.35</td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">-</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 6.45pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 18.8pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 21.95pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>Balance, December 31, 2012 </b></td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 6.45pt; padding-left: 5.4pt; text-align: right">6,528,000 </td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 18.8pt; padding-left: 5.4pt; text-align: right">$ 0.18</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">6.05</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"><font style="letter-spacing: -0.1pt">At
December 31, 2012, the intrinsic value of the vested options was equal to $nil (2011 - $nil).</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"><font style="letter-spacing: -0.1pt">A
summary of the status of the Company’s unvested options as of December 31, 2012 is presented below:</font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="width: 47%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="width: 17%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="width: 18%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Number of</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Shares</p></td>
<td style="width: 18%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Weighted Average</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Grant-Date</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Fair Value</p></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>Unvested, December 31, 2011</b></td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.3pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">1,037,709 </font></td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">$ 0.18</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Granted</td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.3pt; padding-left: 5.4pt; text-align: right">500,000<font style="letter-spacing: -0.1pt"> </font></td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">0.17</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Vested</td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.3pt; padding-left: 5.4pt; text-align: right">(1,158,134)</td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">0.18</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Cancelled</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 6.45pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.3pt; padding-left: 5.4pt; text-align: right">-<font style="letter-spacing: -0.1pt"> </font></td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">-</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 6.45pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.3pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 21.95pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold"><b>Unvested, December 31, 2012</b></td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 6.45pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.3pt; padding-left: 5.4pt; text-align: right"><font style="letter-spacing: -0.1pt">379,575 </font></td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 21.95pt; padding-left: 5.4pt; text-align: right">$ 0.18</td></tr>
</table>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Share Purchase Warrants</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
February 24, 2011, the Company issued 2,369,388 share purchase warrants to acquire an equivalent number of common shares of the
Company, at an exercise price of $0.25 per share for an exercise period of up to five years from the issuance date. The warrants
were issued pursuant to a securities purchase agreement (Note 5). The fair value of these warrants of $483,355 was recognized under
derivative liabilities, using the Binomial option pricing model with an expected life of 5 years, a risk free interest rate of
2.06%, a dividend yield of 0%, and an expected volatility of 199%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
March 21, 2011, the Company issued 250,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.25 per share for an exercise period of up to five years from the issuance date. The warrants were issued
pursuant to a debt settlement agreement (Note 5). The fair value of these warrants of $43,750 was recognized under derivative liabilities,
using the Binomial option pricing model with an expected life of 5 years, a risk free interest rate of 0.77%, a dividend yield
of 0%, and an expected volatility of 199%. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
April 4, 2011, the Company issued 430,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.25 per share for an exercise period of up to five years from the issuance date. The warrants were issued
pursuant to a securities purchase agreement (Note 5). The fair value of these warrants of $130,720 was recognized under derivative
liabilities, using the Binomial option pricing model with an expected life of 2 years, a risk free interest rate of 0.77%, a dividend
yield of 0%, and an expected volatility of 199%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
April 4, 2011, the Company issued 1,000,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.25 per share for an exercise period of up to five years from the issuance date. The warrants were issued
pursuant to a debt settlement agreement (Note 5). The fair value of these warrants of $304,000 was recognized under derivative
liabilities, using the Binomial option pricing model with an expected life of 2 years, a risk free interest rate of 0.77%, a dividend
yield of 0%, and an expected volatility of 199%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
April 25, 2011, the Company issued 180,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.38 per share for an exercise period of up to five years from the issuance date. The warrants were issued
pursuant to the private placement of $90,000. The fair value of these warrants of $50,760 was recognized under derivative liabilities,
using the Binomial option pricing model with an expected life of 2 years, a risk free interest rate of 0.77%, a dividend yield
of 0%, and an expected volatility of 199%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">On
June 6, 2011, the Company issued 60,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.25 per share for an exercise period of up to five years from the issuance date. The warrants were issued
pursuant to a securities purchase agreement (Note 5). The fair value of these warrants of $8,280 was recognized under derivative
liabilities, using the Binomial option pricing model with an expected life of 2 years, a risk free interest rate of 0.43%, a dividend
yield of 0%, and an expected volatility of 199%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
July, 2011, the Company issued 275,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.25 per share for an exercise period of up to five years from the issuance date. The fair value of these
warrants of $58,850 was recognized under derivative liabilities, using the Binomial option pricing model with an expected life
of 2 years, a risk free interest rate of 0.49%, a dividend yield of 0%, and an expected volatility of 199%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
October, 2011, the Company issued 600,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.20 per share for an exercise period of up to five years from the issuance date. The fair value of these
warrants of $117,000 was recognized under derivative liabilities, using the Binomial option pricing model with an expected life
of 5 years, a risk free interest rate of 1.40%, a dividend yield of 0%, and an expected volatility of 199%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
November, 2011, the Company issued 2,034,167 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.40 per share for an exercise period of up to two years from the issuance date. The warrants were issued
pursuant to the private placement of $610,250. The fair value of these warrants of $390,560 was recognized under derivative liabilities,
using the Binomial option pricing model with an expected life of 2 years, a risk free interest rate of 0.29%, a dividend yield
of 0%, and an expected volatility of 199%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
March, 2012, the Company issued 366,668 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.40 per share for an exercise period of up to two years from the issuance date. The warrants were issued
pursuant to the private placement of $110,000 and included within equity. The fair value of these warrants was determined to be
$5,133, using the Black-Scholes Option Pricing Model with an expected life of 2 years, a risk free interest rate of 0.37%, a dividend
yield of 0%, and an expected volatility of 63%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
April, 2012, the Company issued 1,150,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.40 per share for an exercise period of up to two years from the issuance date. The warrants were issued
pursuant to a private placement and included within equity. The fair value of these warrants was determined to be $123,000, using
the Black-Scholes Option Pricing Model with an expected life of 2 years, a risk free interest rate of 0.27%, a dividend yield of
0%, and an expected volatility of 146.6%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
October, 2012, the Company issued 3,000,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.25 per share for an exercise period of up to four years from the issuance date. The warrants were issued
pursuant to a convertible debt and included within equity. The residual fair value of these warrants was determined to be $62,000.
</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">In
December, 2012, the Company issued 1,000,000 share purchase warrants to acquire an equivalent number of common shares of the Company,
at an exercise price of $0.10 per share for an exercise period of up to five years from the issuance date. The warrants were issued
pursuant to a private placement and included within equity. The fair value of these warrants was determined to be $178,000, using
the Black-Scholes Option Pricing Model with an expected life of 5 years, a risk free interest rate of 0.87%, a dividend yield of
0%, and an expected volatility of 199.0%.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify"><font style="letter-spacing: -0.1pt">A
summary of the Company’s share purchase warrants as of December 31, 2012 and 2011 changes during the year is presented below:</font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="width: 47%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="width: 17%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Number of</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Warrants</p></td>
<td style="width: 18%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Weighted Average</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Exercise Price</p></td>
<td style="width: 18%; border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Weighted Average</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Remaining Life</p></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td></tr>
<tr>
<td style="vertical-align: top; border-top: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify; font-weight: bold"><b>Balance, December 31, 2010</b></td>
<td style="vertical-align: bottom; border-top: windowtext 1pt solid; padding-right: 0.25pt; padding-left: 5.4pt; text-align: right">24,868,300<font style="font-size: 9pt; letter-spacing: -0.1pt"> </font></td>
<td style="vertical-align: bottom; border-top: windowtext 1pt solid; padding-right: 20.4pt; padding-left: 5.4pt; text-align: right">$ 0.45</td>
<td style="vertical-align: bottom; border-top: windowtext 1pt solid; padding-right: 23.5pt; padding-left: 5.4pt; text-align: right">3.24</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Issued</td>
<td style="padding-right: 3.7pt; text-align: right">7,198,555 </td>
<td style="padding-right: 20.4pt; text-align: right">0.29</td>
<td style="padding-right: 23.5pt; text-align: center">2.63</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Exercised, cancelled or expired</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 3.7pt; text-align: right">(19,960,500)</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 20.4pt; text-align: right">0.32</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 23.5pt; text-align: right">-</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify; font-weight: bold"><b>Balance, December 31, 2011</b></td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">12,106,355 </td>
<td style="padding-right: 20.4pt; padding-left: 5.4pt; text-align: right">$ 0.56</td>
<td style="padding-right: 23.5pt; padding-left: 5.4pt; text-align: right">2.81</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Issued</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">5,516,668 </td>
<td style="padding-right: 20.4pt; text-align: right">0.26</td>
<td style="padding-right: 23.5pt; text-align: right">3.32</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify">Extinguished or expired</td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(714,400)</td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 20.4pt; text-align: right">2.33</td>
<td style="border-bottom: windowtext 1pt solid; padding-right: 23.5pt; text-align: right">-</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify; font-weight: bold"><b>Balance, December 31, 2012</b></td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">16,908,623 </td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 20.4pt; padding-left: 5.4pt; text-align: right">$ 0.39</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 23.5pt; padding-left: 5.4pt; text-align: right">2.19</td></tr>
</table>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"> </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0">NOTE 10: INCOME TAXES<font style="font: normal 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company has not identified or quantified
any significant temporary differences between the Company’s tax and financial bases of assets and liabilities that result
in deferred tax assets, except for the Company’s net operating loss carry-forwards amounting to approximately $18,201,000
at December 31, 2012 (2011 - $13,629,000), which may be available to reduce future year’s taxable income. These carry forwards
begin to expire, if not utilized, commencing in 2015. Future tax benefits which may arise as a result of these losses have not
been recognized in these financial statements, as their realization does not meet a more likely than not test and accordingly,
the Company has recorded a 100% valuation allowance for the potential deferred tax asset relating to these tax loss carry forwards.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company reviews its valuation allowance
requirements on an annual basis based on management’s expectations of future operations. Should circumstances change resulting
in a change in management’s judgment about the recoverability of future tax assets, the impact of the change on the valuation
allowance would be reflected in current operations and disclosures.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company’s policy is to accrue
amounts for known or likely interest and penalties related to unrecognized tax charges or likely penalties and interest in its
provision for income taxes. Additionally, ASC 740-10 requires that a company recognize in its financial statements the impact of
a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position. The
Company has incurred taxable losses for all tax years since inception and accordingly, no provision for taxes has been recorded
for the current or any prior fiscal year.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The actual income tax provisions differ
from the expected amounts calculated by applying the combined federal and state corporate income tax rates to the Company’s
loss before income taxes and other temporary adjusted as appropriate for temporary and permanent tax basis differences. The components
of these differences are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="width: 56%; border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="width: 22%; border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Year Ended</td>
<td style="width: 22%; border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Year Ended</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">December 31, 2012</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">December 31, 2011</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Loss before income taxes</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$  (5,857,943)</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$  (2,028,941)</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Corporate tax rate</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">35.00%</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">35.00%</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Expected tax recovery</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(2,050,280)</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(710,129)</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Increase (decrease) resulting from:</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">  Permanent differences</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">384,590 </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">152,458 </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">  Other items</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(3,908)</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(3,908)</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">  Change in valuation allowance</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">1,669,598 </td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">561,579 </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Income tax recovery</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$                 - </td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$                  - </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: justify">The Company’s estimated deferred
tax assets are as follows:</p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="width: 63%; border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="width: 18%; border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Year Ended</td>
<td style="width: 19%; border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Year Ended</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">December 31, 2012</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">December 31, 2011</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Deferred tax assets:</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Stock option expense</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 2,730,750 </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ 2,730,750 </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt">Loss carry-forwards and tax pools</td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">9,585,489 </td>
<td style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">7,985,278 </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Valuation allowance</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(12,316,239)</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">(10,716,028)</td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Net deferred income tax assets</td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ - </td>
<td style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">$ - </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">As
the criteria for recognizing future </font>income tax assets have not been met due to the uncertainty of realization, a valuation
allowance of 100% has been recorded for the current and prior year.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">The Company has not filed income tax
returns for several years for the US entities within the consolidated group of companies. Canadian corporate tax returns to the
end of 2007 have been filed. Both taxing authorities prescribe penalties for failing to file certain tax returns and supplemental
disclosures. Upon filing and/or review there could be penalties and interest assessed. Such penalties vary by jurisdiction and
by assessing practices and authorities. As the Company has incurred losses since inception anticipated risk for exposure to penalties
for income tax liability is determined to be low. However, certain jurisdictions may assess penalties for failing to file returns
and other disclosures and for failing to file other supplementary information associated with foreign ownership, debt and equity
positions. Inherent uncertainties arise over tax positions taken, or expected to be taken, with respect to transfer pricing, inter-company
charges and allocations, financing charges, fees, related party transactions, tax credits, tax based incentives and stock based
transactions.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Management has considered the likelihood
and significance of possible penalties associated with its current and intended filing positions and has determined, based on
their assessment<font style="letter-spacing: -0.1pt">, that such penalties, if any, would not be expected to be material.</font></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 11:	Supplemental Cash
Flow Information AND NON-CASH INVESTING AND FINANCING ACTIVITIES </font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr>
<td nowrap="nowrap" style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" colspan="2" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td colspan="3" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Year Ended</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2012</p></td>
<td style="border-bottom: windowtext 0.5pt solid"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" colspan="2" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Shares/warrants</font></td>
<td nowrap="nowrap" colspan="2" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Amount</font></td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">$</font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Shares issued pursuant to consulting arrangements</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">14,535,179 </font></td>
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">1,998,000</font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Shares issued pursuant to debt settlement agreements</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">3,014,538 </font></td>
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">348,282</font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Shares issued for interest and penalties</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">1,653,113</font></td>
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">245,717</font></td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr>
<td style="width: 52%"> </td>
<td style="width: 2%"> </td>
<td style="width: 5%"> </td>
<td style="width: 8%"> </td>
<td style="width: 2%"> </td>
<td style="width: 1%"> </td>
<td style="width: 16%"> </td>
<td style="width: 8%"> </td>
<td style="width: 6%"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="width: 54%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 2%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 5%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 6%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 3%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 16%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 14%; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr>
<td nowrap="nowrap" style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td colspan="2" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td colspan="2" style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Year Ended</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">December 31, 2011</p></td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Shares/warrants</font></td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Amount</font></td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">  $ </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Prepaid portion of fair value of shares issued pursuant to consulting service agreements</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">-</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">35,968 </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Shares issued pursuant to consulting arrangements</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">2,971,464 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">646,408</font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Shares issued pursuant to debt settlement agreements</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">3,953,413 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">755,777</font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Accounts payable settled by issuing shares</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">1,029,413</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right"><font style="color: black">200,736</font></td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">Pursuant to the February 2011 Note settlement
agreement entered during the year ended December 31, 2012, the Company issued December 14, 2012 Note in the amount of $252,280
of which, $220,255 was deemed to be for partial settlement of the February 2011 Note (Note 5).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">Pursuant to the promissory note settlement
agreement entered during the year ended December 31, 2012, the Company issued November 1, 2012 Notes in the amount of $105,000
which was deemed to be full settlement of the promissory note (Note 7).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">Pursuant to the 2010 Note settlement and
warrant extinguishment agreements entered during the year ended December 31, 2011, the Company issued February 2011 Notes in the
amount of $240,000 of which, $80,000 was deemed to be for partial settlement of the 2010 Series A, Series B and Series C warrants
(Note 5).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">Pursuant to the warrant extinguishment
agreement entered during the year ended December 31, 2011, the Company issued an April 2011 Note in the amount of $25,000, which
was for partial settlement of the 2010 Series A, Series B and Series C warrants (Note 5).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-align: justify">See Notes 5 and 9 for additional disclosure
on non-cash transactions.</p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: top">
<td rowspan="2" style="border-top: windowtext 1.5pt solid; border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p></td>
<td colspan="2" style="border-top: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Year Ended December 31,</td></tr>
<tr style="vertical-align: top">
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">2012</td>
<td style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">2011</td></tr>
<tr>
<td style="vertical-align: top; width: 64%; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td style="vertical-align: bottom; width: 18%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td style="vertical-align: bottom; width: 18%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td></tr>
<tr>
<td style="vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt">Interest paid in cash</td>
<td style="vertical-align: bottom; padding-right: 12.4pt; padding-left: 5.4pt; text-align: right">$ -</td>
<td style="vertical-align: bottom; padding-right: 15.9pt; padding-left: 5.4pt; text-align: right">$ -</td></tr>
<tr>
<td style="vertical-align: top; border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Income taxes paid</td>
<td style="vertical-align: bottom; border-bottom: windowtext 1.5pt solid; padding-right: 12.4pt; padding-left: 5.4pt; text-align: right">$ -</td>
<td style="vertical-align: bottom; border-bottom: windowtext 1.5pt solid; padding-right: 15.9pt; padding-left: 5.4pt; text-align: right">$ -</td></tr>
</table>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase"> </font></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 12:	ContingencIES AND
COMMITMENTs</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Contingencies</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Tax Filings</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">The
Company has not filed income tax returns for several years in certain operating jurisdictions (Note 10), and may be subject to
possible compliance penalties and interest. Management is currently not able to make a reliably measurable provision for possible
liability for penalties and interest, if any, at this time, and the Company may be liable for such amounts upon assessment. Penalties
and interest, if assessed in the future, will be recorded in the period such amounts are determinable.</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Commitments</p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Combined Research and Operating Obligations</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">Effective
May 25, 2010, the Company entered into a research and license Option Agreement with the Mayo Clinic for the development and possible
commercial use of a cancer vaccine. Subject to the approval and guidance of the United States Food and Drug Administration (“FDA”)
the Mayo Clinic plans to conduct a Phase I human clinical trial (“Phase I Trial”) to test and develop the Company’s
technology. </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><font style="letter-spacing: -0.1pt">The
Company has agreed that, during the period of the option and upon approval of FDA to conduct Phase I Trials, will pay all the costs
incurred by the Mayo Clinic, not to exceed a total of $841,000, of which, $500,000 has been accrued as of December 31, 2012. Both
Parties agree that within 30 days after the Mayo Clinic informs the Company in writing about the receipt of FDA approval, the parties
shall enter into an a formal research agreement. Management anticipates that Phase 1 Trials will begin in the second quarter of
2013. An initial payment of $250,000 will be required within 30 days of receiving notice from the Mayo</font> Clinic that the Phase
1 Trial will commence.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify">Management Services Agreement</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt">In February
2011, the Company approved an employment agreement with Dr. Wilson with an initial term of 2 years, which may be automatically
extended for successive one-year terms. This employment agreement provides for annual compensation of $180,000 and the grant of
an option to acquire 2,000,000 shares of the Company’s common stock at $0.19 per share, 50% of which vested on March 16,
2011, while the remainder will vest monthly over a period of two years (41,667 per month). The options shall be exercisable for
at least five years.</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Consultant Agreements<font style="font-size: 8pt; font-weight: normal"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt">In April
2012, the Company entered into an investors’ relation consulting agreement for a one year term, with a one-time right to
terminate the agreement at its six month anniversary. The consulting agreement provides for the Company to issue 620,690 shares
to the consultant and a monthly payment of $7,500.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt">In April
2012, the Company entered into financial consulting service agreements, which included compensation of 14,000,000 shares of common
stock, whereby the Company agreed to issue additional shares to the consultants to restore their holdings to 24.8% of fully diluted
capitalization of the Company if the Company completes a re-organization, re-capitalization or a liquidity event during the eighteen
months commencing with the signing of these agreements.</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Rental Lease Agreement</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt">In December
2011, the Company entered into a lease agreement, to start in January 2012 for a two year period. The Company will pay a monthly
basic rent of $7,152 and additional rent for operating costs of 2.20% of total operating expenses of the property.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt">The Company
has obligations under various research and consulting agreements through December 31, 2014. The aggregate minimum annual payments
for the years ending December 31 are as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt"></font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="width: 70%"> </td>
<td style="width: 5%; text-align: center"> </td>
<td style="width: 1%; text-align: center"> </td>
<td style="width: 23%; text-align: center"> </td>
<td style="width: 1%; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center">2013</td>
<td> </td>
<td>$</td>
<td style="text-align: right">725,813</td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center">2014</td>
<td> </td>
<td style="border-bottom: Black 1pt solid"> </td>
<td style="text-align: right; border-bottom: Black 1pt solid">22,284</td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td style="border-bottom: Black 2pt solid">$</td>
<td style="text-align: right; border-bottom: Black 2pt solid">748,097</td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt">Refer
to Note 14 Subsequent Events.</font></p>
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>Note 14:	SUBSEQUENT
EVENTS</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="letter-spacing: -0.1pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is in default of the secured notes
issued in February 2011. No second year amortization payments have been made to the holders as of the anniversary of the notes
in February 2013 and April 2013. Interest charges will be accrued at 20% per year. The note holders have not made any demands other
than the interest rate penalty and are in discussions with the Company to resolve the matter.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is in default of the October 2012
note to a note holder due to the late filing of this annual report. Concurrent with the filing, this default will be cured. The
lender has not made any claims under their default provisions and management is working closely with them to mitigate or negate
any such claims.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2013, the Company recovered 2,800,000
of 14,000,000 common shares issued to a consultant during the year ended December 31, 2012, under a settlement agreement.</p>
<p style="margin: 0pt"></p>
50679
250234
23516
1077
1060
15004
56627
37452
2058556
794291
415998
259752
1376230
998790
10000
7000
67942
100000
366697
322905
76404
52072
43545947
39943374
352859
362906
35968
49580159
43722216
-61648
-60528
-5666597
-3460360
104212
340212
104212
307921
32291
104212
340212
798300
677086
1317834
5770809
3800572
0.001
0.001
150000000
150000000
76402958
52073460
182813
179250
2221500
213227
1012116
305714
3929352
745074
679332
6576087
295600
248400
3067654
489537
437785
5416109
1057430
203725
6968595
-7903
10237
45687
536527
668710
4611667
-104550
-1373263
-59219
317801
-11690801
290500
290500
33344
-5399
-5857943
-2028941
-49580159
-0.09
-0.04
65526927
45994617
2316019
872159
8038372
612000
6222798
3316189
41491894
213228
-59219
317801
-11690801
-5399
679332
5468499
2440228
1261983
13115620
-22
13
1055
5161
-58843
12203
2032645
-66124
5614121
156246
117991
634129
555000
683450
10860575
602000
724535
2123906
3000
428000
919845
205543
-11400
1793134
140000
140000
1365543
1536585
16265460
218626
423373
204747
41623
-55927
-39004
-6222798
-3316189
-41491894
-5857943
-2028941
-49580159
-1565098
-1309867
-16419528
-199555
226718
50679
0
124209
389824
4448998
-5666597
1
76402958
76404
43545947
352859
-49580159
-61648
1850
74000
740
1110
2150
86000
860
1290
177100
177100
-80733
-80733
100367
160001
1600
2400
177100
-80733
3600
144000
1440
2160
500
20000
200
300
572630
56353
564
749166
-177100
512400
34160
342
512058
4986
50
-50
-935332
-935332
-1937
-1937
252228
419499
4195
1266034
-1016065
-1937
82750
4413
44
82706
265000
10600
106
264894
-671986
-671986
-2041
-2041
-74049
434512
4345
1613635
-1688051
-3978
170500
7500
75
170425
136245
7266
73
136172
232696
449279
4493
1920232
-1688051
-3978
493712
612805
6128
7180164
-85000
-6607580
-449279
-4493
-6603087
6607580
726408
612805
6128
2497309
-85000
-1688051
-3978
285000
285000
1063500
17016
170
1063330
51000
4080
41
50959
630275
630275
-2284709
-2284709
-5645
-5645
465829
633901
6339
4241873
200000
-3972760
-9623
1421815
92745
927
1420888
30000
1720
17
214983
-185000
521815
22214
222
521593
1341
13
-13
10000
400
4
9996
-10000
5000
-15000
2733000
2733000
-5778905
-5778905
-37299
-37299
-643745
752321
7523
9147319
-9751665
-46922
550000
34286
343
549657
2857
29
-29
65000
65000
205085
14291
143
204942
10000
400
4
9996
73500
73500
-2683105
-2683105
-16865
-16865
-2440130
804155
8042
10050385
-12434770
-63787
46250
46250
1162064
362732
3627
1158437
-985599
-985599
-2333
-2333
-2219748
1166887
11669
11255072
-13420369
-66120
205579
205579
288921
288921
-1304387
-1304387
29555
29555
-3000080
1166887
11669
11749572
-14724756
-36565
545000
218000
2180
542820
494500
197800
1978
492522
1016000
406400
4064
1011936
727952
291181
2912
725040
150000
60000
600
149400
36000
10000
100
35900
-167500
-167500
358906
358906
657095
657095
374104
374104
35600
35600
40000
40000
904822
904822
44000
44000
23400
23400
-3891411
-3891411
-23161
-23161
-1674772
2350268
23503
16910218
67400
-18616167
-59726
35000
14000
140
34860
25000
20715
207
24793
90000
30000
300
89700
206820
206820
256350
256350
234168
234168
-2195939
-2195939
-3023373
2414983
24150
17500559
323750
-20812106
-59726
118
-21735
21735
875
875000
875
27500
25000
25
27475
15215430
33812065
33812
15181618
242750
1234508
1235
241515
2091900
2091900
425319
725669
-300350
75491
75491
19270
19270
246533
246533
243800
243800
-17348546
-17348546
-1783051
38361674
38362
35885232
513733
-38160652
-59726
184155
952305
952
427003
-243800
1134477
1134477
28220
28220
90412
361648
372
90040
12703
570000
570
275306
-263173
10400
-1169
-1169
-3532623
-3532623
-3866876
40256027
40256
37812058
34980
-41693275
-60895
431094
2102742
2102
428992
456081
456081
-500170
-500170
198971
198971
80000
80
12852
-12932
486379
2590284
2590
483789
510399
2594405
2594
570773
-27000
-35968
28887
28887
835000
4450002
4450
690550
140000
-11551
-11551
367
367
-2028941
-2028941
-3460360
52073460
52072
39943374
362906
-35968
-43722216
-60528
237062
2341204
2341
234721
204427
204427
62000
62000
214083
214083
106569
833334
833
138866
-33130
1992000
14535179
14536
1983434
-6000
245717
1653113
1655
244062
555000
4966668
4967
735033
-185000
35968
35968
-1120
-1120
-5857943
-5857943
<p style="margin: 0pt"></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase"></font></p>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase">Note 13:	accounts payable
and accrued liabilities</font></p>
<p style="font: bold 10pt Times New Roman, Times, Serif; margin: 12pt 0 0">Accounts Payable and Accrued Liabilities</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> December 31, 2012</td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" colspan="2" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> December 31, 2011</td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="width: 18%; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 8%; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 16%; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="width: 27%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> $</td>
<td nowrap="nowrap" style="width: 10%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="width: 19%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> $</td>
<td nowrap="nowrap" style="width: 2%; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-top: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt"> Trade accounts payable</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt">                1,680,155</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt">  625,063</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt"> Accrued liabilities</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt">                  242,245</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt">   74,218</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt"> Employee payroll</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt">                    61,458</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt">            -</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" colspan="2" style="padding-right: 5.4pt; padding-left: 5.4pt"> Accrued interest</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt">                    74,698</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt">   89,760</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> Other liabilities</td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">                             -</td>
<td nowrap="nowrap" style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">     5,250</td>
<td nowrap="nowrap" style="border-bottom: windowtext 0.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
<tr style="vertical-align: bottom">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">                2,058,556</td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">  794,291</td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr>
</table>
<p style="font: bold 10pt Times New Roman Bold; margin: 0"><font style="text-transform: uppercase"> </font></p>
<p style="margin: 0pt"></p>