CORPORATE HISTORY

US Global Nanospace, Inc. (referred to in this report as “USGN”, “the Company”, “we”, “us” or “our”) is a development stage company with expertise in the emerging fields of autonomous wide area perimeter security and nanotechnology. Through March 31, 2006, the end of our fiscal year, our operations included designing and developing products and building prototype and demonstration systems for use by defense and health and safety agencies and organizations, both public and private. We are also looking for alliances to assist us with licensing, manufacturing, and marketing our products.

 

We were originally incorporated in the Province of British Columbia in1984 as First West Canada Capital Corporation, or FWCC. On December 20, 1993, FWCC became a Wyoming corporation. On December 23, 1993, FWCC merged into its wholly owned subsidiary, FWCC Merger Corp., which was incorporated in the state of Delaware.

 

On November 4, 1992, Caring Products International, Inc. was incorporated under the laws of the state of Delaware. On December 30, 1993, Caring Products merged with and into FWCC Merger Corp., and FWCC Merger Corp. became the surviving corporation. The name of the surviving entity was changed to Caring Products International, Inc.

 

On September 26, 2002, Caring Products International, Inc. changed its name to US Global Aerospace, Inc. As Caring Products International, Inc., USGN and its subsidiaries designed a line of proprietary urinary incontinence products with disposable liners that were sold under the Rejoice brand name in the U.S., Canada and Europe. Due to a lack of funding necessary to support full retail distribution in chain stores and hospitals, we closed our marketing offices and liquidated our remaining inventory. We discontinued all operations related to the production, marketing and sale of our incontinence products during the fiscal year ended March 31, 2001.

 

On March 30, 2001, we consummated a private placement of 90,000 shares of our common stock to Raymond Bills, a previously unaffiliated accredited investor. Mr. Bills paid $250,000 in consideration for the issuance. After giving effect to the transaction and including 30,563 previously issued and outstanding shares of common stock, Mr. Bills was the beneficial owner of approximately 75% of our issued and outstanding common stock. In connection with the transaction, Mr. Bills joined our board of directors. Concurrently, four of the five members of the board resigned. Ian Rice also joined the board of directors, serving as its chairman.

 

On May 17, 2002, we completed a share exchange with USDR Global Aerospace, Ltd., a Delaware corporation (“USDRGA”), and the USDRGA stockholders. At the closing, we issued an aggregate of 20,000,000 unregistered, restricted shares of our pre-split common stock to the USDRGA stockholders in exchange for all of the issued and outstanding shares of capital stock of USDRGA, consisting of an aggregate of 5,000,000 unregistered, restricted pre-split shares of common stock. The four to one exchange ratio was determined by taking into account the fair market value of USDRGA, which included an evaluation of the assets and liabilities and management expertise of USDRGA. USDRGA stockholders John Robinson and Gerald Wiener exchanged their shares of USDRGA common stock for 12,000,000 and 8,000,000 pre-split shares of our common stock, respectively. At the closing of the share exchange, Robinson and Wiener owned approximately 48% and 32% of our issued and outstanding pre-split shares of common stock, respectively, and USDRGA became our wholly owned subsidiary.

Effective on the closing date, our two officers and directors, Raymond Bills and Ian Rice, resigned as officers and appointed:

John Robinson, the Chairman and Chief Executive Officer of USDRGA,

as our Chairman of the Board and Chief Executive Officer;

Gerald Wiener, the President and Chief Operating Officer of USDRGA,

as our President;

Gaddy Wells, the Secretary of USDRGA, as our Secretary; and

Julie Seaman, the Treasurer and Chief Financial Officer of USDRGA,

as our Treasurer.

In addition, subject to and effective upon compliance with Rule 14f-1 under the Securities Exchange Act of 1934, Rice and Bills resigned as our directors and appointed Robinson, Wiener, Wells and Seaman as our new board of directors. Effective June 14, 2002, Mr. Wells resigned his positions as an officer and future director of USGN, as well as his positions as an officer and director of USDGRA, as a result of issues regarding potential conflicts of interest. Effective June 17, 2002, Ms. Seaman was appointed as Secretary of USGN, in addition to being Treasurer and a director of USGN. Effective July 29, 2002, Mr. Wiener resigned as a director and as President of USGN, and as the President and Chief Operating Officer of USDRGA.

Effective December 31, 2002, USGN filed a Certificate of Ownership with the Secretary of State of Delaware effecting the merger of USDRGA with and into USGN, and USGN assumed all the assets and liabilities of USDRGA.

 

On February 13, 2003, our Board of Directors approved a 3 for 1 forward split of our common stock for shareholders of record as of February 24, 2003. The 3 for 1 stock split became effective on March 5, 2003. Unless otherwise specified, all references to the number of shares and per share data in this report give effect to this stock split.

Effective July 21, 2003, US Global Aerospace, Inc. changed its name to US Global Nanospace, Inc.
On January 14, 2004, our Board of Directors approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the authorized common stock from 100,000,000 to 300,000,000 shares and to increase the authorized preferred stock from 1,000,000 to 10,000,000 shares.

On August 3, 2005, our Board of Directors appointed Carl Gruenler as President and Chief Executive Officer. John Robinson retained the position of Chairman. On December 8, 2005, John Robinson resigned as Chairman. On December 21, 2005, Carl Gruenler was appointed to the Board of Directors as Chairman. On January 7, 2006, Julie Seaman resigned as Chief Financial Officer and the Board of Directors appointed Kevin Cronin, as Chief Financial Officer, Secretary and Treasurer. On May 24, 2006 the Board of Directors resolved to add an additional Director, and appointed Pat Scorzelli to the Board of Directors as Chairman.

OUR BUSINESS

US Global Nanospace, Inc. is a development stage company that specializes in identifying, developing, and commercializing advanced products the core technologies of which are primarily wide area perimeter security based or nanoscience derived. Our primary products include an integrated system to direct autonomous response featuring proprietary software and control elements, and biological and chemical decontaminants. Other products include optimized polymer and organic materials and nanofibers, advanced filtration systems for air, water, and cigarettes, and blast mitigation and fire protection materials. We are currently focusing our efforts on obtaining global partners and/or licensees and marketing the products that we have developed for defense, security, and health and safety applications. Our target customers for these systems, materials, formulas, and processes include agencies or organizations under the direct control of the federal government of the United States, plus domestic and foreign businesses and foreign government agencies or organizations, to the extent permitted by applicable law or regulations.

Our Products

Our products include the following:

MAPSANDS™

The Modular Autonomous Perimeter Security and Non-Lethal Defense System (MAPSANDS™) is a new product in wide area perimeter security. We designed MAPSANDS™ to address the need for autonomous wide-area perimeter security and access denial for sovereign borders, oil/gas/water pipelines, power plants, seaports, ships, airports, oil and gas refineries, water treatment and desalinization facilities, offshore oil rigs and other high value infrastructure. Unlike other wide area security systems, MAPSANDS™ eliminates the need for fences, manned control and dispatch, and response teams.
In July 2004, we filed a provisional patent application, and in June 2005 a utility patent application, with the U.S. Patent and Trademark Office for the entire MAPSANDS™ system. In July 2005, USGN filed a corresponding PCT international patent application. MAPSANDS™ combines USGN-developed proprietary, secure and robust control software plus advanced wireless communications and remote power systems with detection and tracking sensors, directed energy acoustics and a suite of accurately delivered non-lethal and/or lethal munitions. Unlike traditional perimeter security solutions, the MAPSANDS™ system architecture was designed to secure perimeters ranging in length from less than one mile to several hundred continuous miles and to deliver a programmed response based on predetermined rules of engagement. The concept originated from energy company inquiries to use our anti-ballistic material expertise to design a system to protect pipelines. It became apparent that to autonomously protect high value infrastructure over a wide area it would be necessary to develop an integrated system to detect and track, establish intent and engage approaching intruders a safe distance away from any intended target.

MAPSANDS™ is designed to automatically protect and defend high-value remote installations with or without human intervention, eliminating the issues of inadequate manpower or misplaced loyalty that have plagued existing wide-area security endeavors.

MAPSANDS™ incorporates advanced radars capable of detecting, tracking and targeting to aim directional acoustic devices delivering clear verbal warnings and aversive warning tones to area perimeter intruders. These powerful acoustic devices are designed to be effective at operationally significant ranges to help determine an approaching intruder’s intent and affect the intruder’s behavior. In the event an area perimeter intruder fails to heed the increasingly threatening acoustic warnings delivered by MAPSANDS™, the system can be programmed to accurately and autonomously target and disperse non-lethal deterrent munitions, such as flash bang, tear gas, malodorants, or rubber pellets to establish a pre-set area denial perimeter. A variety of advanced tactical options are available based on customer specifications and rules of engagement, subject to compliance with applicable laws, treaties and regulations. Continuous remote location power, another key element of the system, is supplied through advanced, highly reliable solar and wind power configurations.

ALL-CLEAR™

All-Clear™ is designed for the neutralization of chemical and biological weapons and contaminants, and for general disinfection and sterilization of surfaces. All-Clear™ was designed for military decontamination applications, as well as for use by fire/emergency personnel, law enforcement agencies, or other first responders to terrorist, hazardous materials (HAZMAT), or other emergency incidents.

We believe the advantages of All-Clear™ Chem/Bio Decon Foam include the use of fast acting ingredients, non-hazardous residuals, non-oxidizing action, no flight restrictions, and expandability for new applications. To our knowledge, All-Clear™ is the first environmental and surface friendly decontaminant that is highly effective in eliminating chemical and biological warfare agents, such as Sarin and Anthrax. The foam is developed to neutralize agents without the harmful effects that most chlorine and oxidizing decontamination agents have on sensitive apparatus like landing gear and brake assemblies. Unlike other decontamination products that rely on chemical reactions to oxidize agents All-Clear™ uses an enzyme to selectively destroy nerve agents and a biocide mixture to sterilize biological agents, including anthrax spores.
The foam’s active ingredients are not rapidly depleted by reaction with other materials, such as dirt and grease, resulting in a long-lasting product. The foam can be dispensed using commonly available fire-fighting equipment in addition to numerous readily available commercial applicators.

The worldwide market for decontamination solutions is emerging and is expected to become significant as government agencies and emergency services establish contingency plans and preparedness for chemical or biological attack or naturally-occurring infectious diseases that could possibly lead to pandemics. We believe that the commercial market for All-Clear™ can be expanded beyond terrorist response to include treating industrial and infectious waste and the decontamination of aircraft and vehicles arriving from quarantine areas, as well as agricultural applications such as treating livestock areas to destroy and prevent the spread of infectious diseases in animals. We also believe that the consumer market for general disinfectant products could be well served by All-Clear™’s low-toxicity and non-corrosive characteristics.

All-Clear™ has been developed pursuant to the agreement with Kidde Fire Fighting, Inc. and is being marketed internationally to foreign governments, militaries and companies and has been presented to the U.S. Department of Homeland Security and the U.S. Department of Defense. Before it can be marketed and sold in the United States, Environmental Protection Agency (EPA) registration must be obtained. Following the completion of efficacy and toxicity testing, an application for registration of the product was submitted to the EPA in late 2005 by Kidde. Final EPA registration is expected by late 2006. All-Clear™ has successfully passed the Boeing Series D6-17487, Revision P, corrosion test for use of foam on aircraft exteriors. This was required to prove non-corrosive capability and is key for Air Forces and commercial airlines worldwide, as well as for maintaining the integrity of other critical equipment.

RADOME AND RADOMEX IMPACT RESISTANT AIRCRAFT RADOME

Radomes provided our primary source of revenue for the year ending March 31, 2006.

We have developed radomes, a protective fairing typically found on aircraft that is used to protect radar antenna, that are designed to allow efficient radar signal transmission. A fairing is a structure whose primary function is to produce a smooth outline and to reduce drag, for example, as on an airplane. This product is available in limited quantities. We are currently supplying a standard composite radome for the Bell 212/412 and the Agusta AB212/412 series military and commercial helicopters to Agusta Aerospace and Bell Helicopter.
In addition, we have developed materials suitable for producing an impact resistant\ballistic resistant radome, or RadomeX. RadomeX is designed to provide variable threat ballistic protection to the flight crew, the radar equipment and the aircraft while allowing the radar to operate. RadomeX products are currently under development.

NANOFILTERCX

NanoFilterCX is a cigarette filter. It is designed to provide nanofiber-based high-efficiency mechanical filtration for reduction of cigarette smoke toxins. We believe it is superior to current common cigarette filters in that it provides

 
·

the opportunity for cost-effective pricing in comparison to current common cigarette filters,

 
·

feasible integration into the manufacturing process,

 
·

consistent smoking action and taste, and

 
·

a reduction of specific smoke toxin levels.

In addition to the direct benefit to smokers of reducing toxins, we anticipate that NanoFilterCX will be manufactured from a variety of polymers to optimize design and production requirements. The NanoFilterCX is still under development and is not yet being marketed.

NANOFILTER PATHOGEN/ALLERGEN AIR FILTER PURIFICATION SYSTEMS:

The core of USGN’s NanoFilter technology was initially developed for NASA for use during extended crewed space flight applications lasting in excess of 120 days, to provide ultra-fine particulate matter air filtration and purification.

The Nanofilter is comprised of advanced polymeric nanofiber combined with a patented particle stimulation mechanism. The result is an optimized porous nanofilter media that is enveloped with an electronic field causing the airborne particulate matter to move in a churning motion perpendicular to the airflow direction without ionization, thus significantly enhancing the London/Van der Waals force interaction (a type of particle attraction), resulting in a super-efficient air filtration and purification system to effectively capture bacteria, viruses, smoke, dust, odorants, and other sub-micron sized particulate matter.

Unlike traditional filter technology that relies on more restrictive filter elements and reduced flow rates in order to catch smaller particles, nanofilter technology provides less restricted air-flow, minimal pressure drop, and a substantial increase in energy efficiency. Applications for this technology currently exist in industrial, commercial, and residential buildings, as well as mass transit vehicles. This product is still being developed and is not yet being marketed.
The following three products (GARDS-Guardian Antiballistic Replacement Door Skins, SAV-A GUNNER (SAG) HMMWV Turret, and BLAST-X) are not currently being marketed, however, we may decide to market them in the future. We expect to use the anti-ballistic knowledge derived from their development to support additional security system components and capabilities in the future.

GARDS -GUARDIAN ANTIBALLISTIC REPLACEMENT DOOR SKINS

The Guardian Antiballistic Replacement Door Skin (GARDS) for the AM General High Mobility Multipurpose Wheeled Vehicle (“HMMWV”, commonly pronounced Hum-Vee) are lightweight and flexible antiballistic panels designed to protect vehicle occupants in elevated-threat locations.

GARDS are designed to be attached in the field to the interior of the existing HMMWV doorframe, upgrading threat level protection to NIJ Level IIIA or higher, providing for an increase in protection from small arms fire, projectiles, fragmentation and shrapnel when compared to the original equipment fabric doors. GARDS are designed to be installed in fifteen minutes. They weigh as little as six pounds per panel, require no maintenance and as the original door structure and canvas cover remain intact, are intended to be unnoticeable from the outside of the vehicle. GARDS’ strength, durability and low weight is a result of our G-Lam anti-ballistic material. G-Lam is created with a process that results in mechanical properties that, to our knowledge, are far superior to common anti-ballistic composite materials. GARDS are designed to provide maximum protection against specific ballistic threats, fragmentation and shrapnel. G-Lam is also designed to be impervious to petroleum distillates and maintain performance at temperatures in excess of 400 degrees Fahrenheit.

SAV-A GUNNER (SAG) HMMWV TURRET

The S.A.G. Turret has been designed as a durable, lightweight shielded turret offering protection against specific ballistic threats, fragmentation and shrapnel for the HMMWV.

The S.A.G. Turret weighs approximately 160 pounds and offers rapid rotational capability. The S.A.G. Turret is approximately 4 feet in diameter, is designed to interface precisely with military HMMWV rotating turret rings and is designed to be installed by two people in less than one hour using common hand tools. USGN’s proprietary G-Lam material used in the turret is designed to be impervious to petroleum distillates and to maintain performance at temperatures in excess of 400 degrees Fahrenheit.
BLAST-X EXPLOSION MITIGATION MATERIAL

Blast-X is a lightweight blast mitigation material that may be manufactured in various mediums, including flat panels, conformable panels, and cast shapes. Blast-X integrates blast mitigation and containment technologies into a single unit or system of products that are designed to reduce risk to persons and property, preserve forensic evidence, increase safety in work environments, and prevent sympathetic detonation in munitions containers. Sympathetic detonation is the detonation of one explosive item by exploding another explosive item adjacent to it.

Blast-X is comprised of two distinct components; a mitigation medium to attenuate explosive shock waves, reduce initial shock pressure levels and minimize fire as it interacts with the heat and pressure of the blast environment, and a back panel made of USGN’s G-Lam anti-ballistic/anti-fragment material to contain blast fragments and debris.

Blast-Cast is a castable blast mitigation product designed for munitions containers, munitions storage facilities, and any application where blast mitigation and more specifically sympathetic detonations are a concern. Blast-Cast is a custom manufactured solution that can be molded into myriad forms, in accordance with the customer’s specifications.

The components in Blast-X can also be used separately or spaced, depending on the definition of threat while considering new construction or retrofits. The blast mitigation portion of Blast-X is more appropriately placed as near as possible to the blast source, while the fragment barrier portion can be placed closer to the areas that are to be protected (e.g. occupied rooms and critical equipment).

Distribution/Manufacturing

We do not manufacture or distribute our products on a commercial scale and it is currently not our intention to do so. We work with industry suppliers to facilitate the development, manufacture and marketing strategy of our technologies and products.

Under the Development and License Agreement between us and Kidde Fire Fighting, Inc. dated as of August 13, 2004, we agreed with Kidde to develop, produce, market and commercialize decontaminant foam products. This agreement required Kidde to pay us a license fee in the amount of $100,000 and a fee in the amount of $100,000 in consideration for the assignment of the trademark, All-Clear™. These fees were paid in two equal installments. As required by the agreement, the first installment was paid in August 2004 and the second installment was paid in November 2004. Pursuant to the agreement, we are responsible for formulating existing products and Kidde is responsible for developing manufacturing processes relating to the existing products. The term of the agreement began on August 13, 2004 and will continue until the later of 10 years or the date on which the manufacture, use or sale of any product developed pursuant to the agreement would no longer infringe a valid claim of patent rights (if any exist) held by us, alone, or with Kidde. If a competitor develops a similar product that eliminates the possibility that the product we developed can compete with such product, the agreement would be mutually terminated over a six month period. The All-Clear™ product has been developed and tested and is being marketed internationally to foreign governments, militaries and companies and has been presented to the U.S. Department of Homeland Security and the U.S. Department of Defense. Before it can be marketed and sold in the United States other than to the U.S. Department of Defense, an application for registration of the product must be submitted to the EPA specifically necessitating registration either as a sterilant or as a newly proposed anthrax inactivation formula. All efficacy and toxicity testing has been completed and the application was submitted to the EPA in late 2005. We anticipate final EPA registration in late 2006. All-Clear™ has successfully passed the Boeing Series D6-17487, Revision P, corrosion test for use of foam on aircraft exteriors. This proves non-corrosive capability which is a requirement for use by Air Forces and commercial airlines worldwide. Internationally, All-Clear™ has been evaluated by the Canadian DOD and several European, Asian and Middle Eastern countries. If Kidde is able to successfully market the product, we would earn royalties on the number of products sold in a Kidde fiscal year, as defined in the agreement. The royalties are computed on the number of products sold and do not include reductions for expenses associated with the production, marketing and sale of the product.
In addition, we are in the process of negotiating licensing, manufacturing or distribution arrangements with other international companies or independent contractors that have the infrastructure to manufacture, distribute or sell our products or technology on a commercial scale worldwide. We are also in the process of negotiating directly with government agencies and private sector companies for the sale or licensing of our products. We will continue to use consultants knowledgeable in the industries we target to market and obtain orders.

Competition

Large scale security systems for borders and high value infrastructure is a developing and highly competitive market. We believe that the autonomous full engagement capability of MAPSANDS™ is unique in the global market for wide area security systems. To our knowledge, current systems require fences, manned control, and response teams. MAPSANDS™, with its detection, tracking, interrogation, and flexible and robust engagement capability, should eliminate the need for fences, manned control, or response teams to fulfill the area denial mission, Additionally, MAPSANDS™ is designed to consistently and strictly follow established rules of engagement, and is not subject to compromise, such as indecision or shifting allegiances, as are systems requiring human involvement. Furthermore, based on available industry information, we believe that implementation costs for MAPSANDS™ systems should be competitive and operating costs should be lower. As wide area security market education expands and the evaluation of mission effectiveness continues, we believe that MAPSANDS™ will establish a significant presence in the large scale security systems market.

Nanotechnology is an emerging industry. We believe that the global number of development-stage companies involved in the development of nanomaterials will continue to grow and they may represent competitive risks in the future. Some of these development stage companies, especially in other countries, are receiving significant government assistance.
We face current and potential competition from companies that develop products for similar uses, as well as the in-house capabilities of several of our potential customers, such as the military. Many of these competitors are larger, more diversified and better capitalized than we are. Competitive companies pose risks to us because they may have substantially greater financial and technical resources, larger research and development staffs, and greater manufacturing, marketing and distribution capabilities.

We have a continuing need for skilled and professional individuals for the research and development of our products. The demand for individuals with specialized engineering and technical skills is high and we anticipate that it will remain so for the foreseeable future. In our attempt to compete with other companies with similar hiring needs, we may incur increased labor, recruiting or training costs so as to have access to the required skills.

Sources and Availability of Raw Materials

The raw materials used to produce our products are easily obtained from multiple sources at competitive prices. If any of these supply sources becomes unavailable, we believe that we would be able to secure alternate supply sources within a short period of time and with minimal or no disruption.

Intellectual Property

If we consider it to be advantageous, we may apply for patents as our products are developed, or we may enter into license agreements for technologies that we believe are synergistic to our products, or that expand the range of our products. At this time, we do not believe that our business would be materially affected by the expiration of any patents, if they are issued.

On July 30, 2004, we filed a provisional patent application covering the MAPSANDS™ technology. We filed a corresponding non-provisional U.S. patent application on June 1, 2005 and an International (PCT) patent application on July 29, 2005. The U.S. and PCT patent applications remain pending and are awaiting examination by the respective applicable patent offices.

On June 3, 2005, we filed a joint provisional patent application with Kidde directed to a new decontaminant product jointly developed by us and Kidde. On July 30, 2006, we filed a corresponding joint U.S. non-provisional patent application and a joint international (PCT) patent application.

The discoveries or technologies covered by the patent applications may not have commercial value. Also, if patents are issued, they may not provide commercially meaningful protection against competitors. Other parties may be able to design around the issued patents or independently develop technology, having effects similar or identical to our technology. In addition, the scope of the patent applications is subject to uncertainty and competitors or other parties may obtain similar patents of uncertain scope. For example, other parties may discover uses for chemical and/or biological decontamination systems or technology different from the uses covered in our patent applications, and these other uses may be separately patentable.
We have applied for registration of three trademarks, All-Clear™ (word mark), All-Clear™ US Global Nanospace™ (design mark) and MAPSANDS with the United States Patent and Trademark Office. Under the Development and License Agreement between the Company and Kidde Fire Fighting, Inc. dated as of August 13, 2004, we have assigned our interest in the All-Clear™ registration applications to Kidde. On June 14, 2005, the United States Patent and Trademark Office issued a Notice of Allowance for the All-Clear™ word mark and on December 13, 2005, the United States Patent and Trademark Office issued a Notice of Allowance for the All-Clear™ design mark. Both applications are awaiting the filing by Kidde Fire Fighting, Inc. of statements of use. The United States Patent and Trademark Office has notified us that the mark, MAPSANDS, has been approved for publication.

Government Regulation

The development of our products may be subject to government regulation. For example, the use of our All-Clear™ product as a biological decontamination product is regulated by the EPA and requires EPA approval prior to sale and marketing in the U.S., except possibly for sales to the U.S. Department of Defense. The EPA estimates that it may take up to eight months to obtain approval from the date the application is submitted. If All-Clear™ is used as a hospital disinfectant or sterilizer or for other biological contaminants, the registration process with the EPA is estimated to take 120 days from the date the application is submitted. The efficacy and toxicity testing of All-Clear™ has been completed, Kidde Fire and Security submitted the EPA application in late 2005, and we expect EPA approval by the end of 2006.

Additionally, before we could make sales of our MAPSANDS™ system outside of the U.S., we would be required to obtain an export license from the U.S. Department of State. We requested, and we were granted, a temporary license for the demonstration of the system in the Middle East.

Sales of our potential products outside of the U.S. may be governed by the International Traffic in Arms Regulations, the Export Administration Regulations, the Patriot Act and the Bioterrorism Safety Act. Although these laws and regulations do not restrict those present foreign sales programs, there can be no assurance that future changes to these regulatory regimes will not affect or otherwise limit our foreign sales.

Research and Development

Research and development is a critical component of our business and is ongoing. We spent $1,571,022 on research and development during the last fiscal year and $526,746 during the fiscal year ended March 31, 2005. Our research and development costs will continue to be substantial.
Employees

We currently have 2 full-time employees, the company’s officers. Depending on the project, we also retain the services of between 12 and 17 consultants.