Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation

Basis of Presentation

3 Months Ended

Mar. 31, 2012

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2012. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for fair presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to change include assumptions used in determining the fair value of securities owned and non-readily marketable securities.

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the entire year or for any other period.

Restatement of March 31, 2012 Financial Statement: During the Company’s review of the interim financial statements for the three and six months ended June 30, 2012, the Company determined that its preliminary accounting for certain expenses and the needed to be corrected. As a result, a beneficial conversion factor that has previously not been recorded has been recorded as interest expense under ASC Topic 470-20.

In addition, the Company's consolidated statement of cash flows for the three months ended March 31, 2012 has been adjusted to correct the omission of the beneficial conversion feature. The error resulted in no net change to the cash flow statement.

Background

During the Company’s review of the interim financial statements for the three and six months ended June 30, 2012, the Company determined that the financial statements filed for the three month period ended March 31, 2012 contained a misstatement that needed to be corrected. Specifically, the Company failed to record a Beneficial Conversion Feature ("BCF") for the OPKO Notes issued on February 24, 2012, which provide for a rate of conversion that is below market value of the common stock. The BCF results in a charge to interest expense of $5,750,000 that should have been recorded in the quarter ended March 31, 2012. The carrying value of the OPKO Notes has been recorded net of the discount related to the warrants issued with the notes and with no further reduction for the BCF. In addition, while not a cause of the restatement, management believed that certain expense items should be disclosed as a separate line item in the statement of operations and classified as selling expenses, while certain other expenses should be included in the cost of goods sold line item and have been reclassed to those accounts.

Effects of Restatement

The tables below present the effect of the financial statement adjustments related to the restatement of our previously reported financial statements as of and for the three month period ended March 31, 2012. The effect of the restatement on the condensed consolidated balance sheet as of March 31, 2012 is as follows:

March 31, 2012	As Reported			Adjustments			As Restated
Additional paid-in capital	$	3,987,416		$	5,750,000		$	9,737,416
Accumulated deficit		(9,809,513	)		(5,750,000	)		(15,559,513	)

The effect of the restatement on the condensed consolidated income statement for the three months ended March 31, 2012 is as follows:

	As Reported		Adjustments		As Restated
Cost of sales	$	(1,783,066)	$	(281,815)	$	(2,064,881)
Gross Profit		1,726,976		(281,815)		1,445,161
General and administrative expenses		2,096,745		(503,376)		1,593,369
Selling expenses		--		221,561		221,561
Total Operating Expenses		2,318,359		(281,815)		2,036,544
Income (loss) from operations		(591,383)		--		(591,383)
Interest Expense		(3,472,845)		(5,750,000)		9,222,854
Loss before income taxes		(3,646,036)		(5,750,000)		(9,396,036)
Net loss		(3,646,036)		(5,750,000)		(9,396,036)
Net loss per common share	$	(0.06)	$	(0.11)	$	(0.17)

The effect of the restatements on the condensed consolidated statement of cash flows for the three months ended March 31, 2012 is as follows:

2012	As Reported		Adjustments		As Restated
Net loss	$	(3,646,036)		(5,750,000)		(9,396,036)
Non-cash interest expense		27,397		5,750,000		5,777,397

The effect of the restatement on the condensed consolidated income statement for the three months ended March 31, 2011 is as follows:

	As Reported		Adjustments		As Restated
Cost of sales	$	(1,106,485)	$	(392,973)	$	(1,499,458)
Gross Profit		1,690,983		(392,973)		1,298,010
General and administrative expenses		1,523,225		(531,061)		992,164
Selling expenses		--		138,088		138,088
Total Operating Expenses		1,588,092		(392,973)		1,195,119
Income (loss) from operations		102,891		--		102,891