Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Management's discussion and analysis of financial condition and results of operations contains various "forward looking statements" within the meaning of
Section 21E of the Exchange Act of 1934, regarding future events or the future financial performance of the Company that involve risk and uncertainties.
Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words included but not limited to " anticipates", "believes", "plans", "expects", "continue", "will", and similar expressions are intended to identify forward- looking statements within the meaning of section 27A of the Securities Act of 1933 and
Section 21E of the Securities act of 1934 regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, operation results and financial position. We caution readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in forward-looking statements.
Readers should carefully review the risk factors and any other cautionary statements contained in the Company's Annual Report on Form 10-KSB and other SEC filings. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, or otherwise.

The following information should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q.

We had a net loss of $1,813,919 during the nine months ended September 30, 2008; a decrease of $352,689 compared to a loss of $2,166,608 for the nine months ended September 30, 2007. The decreased loss primarily resulted from a decrease of approximately $590,000 loss on extinguishment of debt, a decrease of approximately $756,000 in stock option expense, an increase of approximately $74,000 interest income and $88,000 income caused by a change in derivatives, partially offset by an increase in professional fees of approximately $889,000 and an increase in employee compensation of approximately $362,000.

For the three months ended September 30, 2008, the Company had a net loss of $768,169, a decrease of $103,371, compared to a loss of $871,540 for the three months ended September 30, 2007. The decrease in loss resulted primarily from a decrease in stock compensation expense of $410,000, a decrease in license fees of $71,000, a $40,000 charge last year due to the settlement of a lawsuit, and current year income of $89,000 for the change in the fair value of the derivative instrument, partially offset by a $249,000 increase in professional fees, a $203,000 increase in employee compensation and a $52,000 gain on extinguishment of debt last year.

Working capital deficit at September 30, 2008 was $930,539 compared to $198,704 at December 31, 2007. The decline in working capital is primarily the result of an increase in accounts payable due to a cash shortage experienced by the Company.

Our ability to operate profitably depends on generating sales and achieving sufficient gross profit margins. We cannot assure that we will achieve or maintain profitable operations in the future.

Our ability to continue in operation is dependent upon our ability to raise sufficient working capital to cover our expenses. However, there can be no assurance that we will be successful in doing so. Due to our lack of capital and our need for working capital to continue our business, our auditors included an explanatory paragraph as to our ability to continue as a going concern as part of their audit opinion of our financial statements for the year ended December 31, 2007. We have generated approximately $135,000 of revenue since our inception and since inception through the nine months ended September 30, 2008 we incurred a cumulative net loss of $17,484,284 including a net loss of $1,813,919 for the nine months ended September 30, 2008.

Our operations have been primarily funded through the issuance of our common shares. Total cash proceeds for the issuance of common shares totaled $2,125,605 from inception through September 30, 2008, and $185,100 from December 31, 2007 through September 30, 2008. In order to continue in business we must continue to raise capital, as revenue from operations will be insufficient in the short term to meet our working capital needs. However, we cannot assure that any such capital will be available to us. Based upon our current cash resources, we cannot meet our cash requirements or institute our business plan unless we raise additional funds, or unless our revenue grows significantly.

In connection with the Company's agreement to purchase P1, as described in Note 9 to the financial statements, the Company has agreed to provide capital support of approximately three million dollars to P1, in connection with the closing of the transaction. There can be no assurance that the Company will be able to raise the capital in order to do so. In addition, the Company has agreed to guarantee certain of P1's debts and obligations following the closing, which could have an impact on the Company's financial condition, if the transaction closes.

Off-Balance Sheet Arrangements

None.