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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) formOF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

| Delaware                                                       | 86-0515678                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

| 25 Fairchild Avenue - Suite 250, Plainview, New York | 11803      |
|------------------------------------------------------|------------|
| (Address of principal executive offices)             | (Zip Code) |

| Large accelerated filer  o                                             | Accelerated filer  o         |
|----------------------------------------------------------------------------------|----------------------------------------|
| Non-accelerated filer  o (Do not check if a smaller reporting company) | Smaller reporting company  x |

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Table of Contents

| PART I   |   |                                                                                             | 2  |
|----------|--------|--------------------------------------------------------------------------------------------------|----|
| Item 1.  |   | Business.                                                                                        | 2  |
| Item 1A. |   | Risk Factors.                                                                                    | 8  |
| Item 1B. |   | Unresolved Staff Comments.                                                                       | 10 |
| Item 2.  |   | Properties.                                                                                      | 10 |
| Item 3.  |   | Legal Proceedings.                                                                               | 10 |
| Item 4.  |   | Reserved.                                                                                        | 10 |
| PART II  |   |                                                                                             | 10 |
| Item 5.  |   | Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | 10 |
| Item 6.  |   | Selected Financial Data.                                                                         | 12 |
| Item 7.  |   | Management’s Discussion and Analysis of Financial Condition and Results of Operations.     | 13 |
| Item 7A. |   | Quantitative and Qualitative Disclosures About Market Risk.                                      | 18 |
| Item 8.  |   | Financial Statements and Supplementary Data.                                                     | 18 |
| Item 9.  |   | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.            | 67 |
| Item 9A. |   | Controls and Procedures.                                                                         | 67 |
| PART III |   |                                                                                             | 69 |
| Item 10. |   | Directors, Executive Officers and Corporate Governance.                                          | 69 |
| Item 11. |   | Executive Compensation.                                                                          | 72 |
| Item 12. |   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.  | 77 |
| Item 13. |   | Certain Relationships and Related Transactions, and Director Independence.                       | 78 |
| Item 14. |   | Principal Accountand Fees and Services.                                                          | 81 |
| PART IV  |   |                                                                                             | 82 |
| Item 15. |   | Exhibits and Financial Statement Schedules                                                       | 82 |

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| ● | our ability to raise capital to finance our research and development and operations, when needed and on terms advantageous to us; |
|---------|-----------------------------------------------------------------------------------------------------------------------------------|

| ● | our ability to manage growth, profitability and marketability of our products; |
|---------|--------------------------------------------------------------------------------|

| ● | general economic and business conditions; |
|---------|-------------------------------------------|

| ● | the effect on our business of recent credit-tightening throughout the United States and the world, especially with respect to federal, state, local and foreign government procurement agencies, as well as quasi-public, charitable and private emergency response organizations; |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | the effect on our business of recently reported losses within the financial, banking and other industries and the effect of such losses on the income and financial condition of our potential clients; |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | the impact of developments and competition within the industries in which we intend to compete |
|---------|------------------------------------------------------------------------------------------------|

| ● | adverse results of any legal proceedings; |
|---------|-------------------------------------------|

| ● | the impact of current, pending or future legislation and regulation on water safety, including, but not limited to, changes in zoning and environmental laws and regulations within our target areas of operations; |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | our ability to maintain and enter into relationships with suppliers, vendors and contractors of acceptable quality of goods and services on terms advantageous to us; |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | the volatility of our operating results and financial condition; |
|---------|------------------------------------------------------------------|

| ● | our ability to attract and retain qualified senior management personnel; and |
|---------|------------------------------------------------------------------------------|

| ● | the other risks and uncertainties detailed in this Form 10-K and, from time to time, in our other filings with the Securities and Exchange Commission. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

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PART I

Business.

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|   | 1. | The first are those which are essentially very large, not very mobile, almost “fixed” installation units used primarily for long term solutions with a significant amount of lead time.  They include:   GE, Siemens, and Severn Trent, all of which manufacture large containerized systems. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The second group includes those products that are smaller, cheaper, lighter in weight, but still unable to respond quickly because of their limited purification capabilities (the unit needs to be prepared in advance for the type of contamination it will face.)  These are: Ecospheres Technology, Lenntech, Testa/Viwa and Lifekeeper. None of these systems would fall in to the first responder category. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | The third group is the  category made up of specialty units designed to be either much lower cost, use only green power (with the significant limitations caused by that), or meet a specialized and limited need.  This list includes Mobile MaxPure, Bi Pure Water and Rodi which, while they have a trailer mounted system, have no on board power source. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | The fourth group includes those companies which have similar claims and design characteristics as PureSafe System but have shortfalls in their application to the first responder market. These companies include: Global Water Group which manufactures different size systems with options which include the trailer, generator, treatment, and salinity options. Nirosoft manufactures systems capable of processing different sources, but has limitations on fuel storage and output. LifeStream has limitations on the inbound source and has a soft side trailer which provides no security from the elements for the components. Aquapura Tempest has different types of units depending on the source. None of these companies stock units ready to deploy, none have distribution/packaging capability, none have built in redundant systems, and few have the capability of field service training and support. Some require previous source definition and when ordering require additional decisions on option selections which can be complicated and confusing especially when dealing with the unknown. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | ● | The Domestic US market. The entry into the US market will be our primary target during the first year of production of the PureSafe FRWS. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | International Markets. The entry into foreign markets will require strategic partnerships with well established companies, as well as relartionships with foreign governments. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | ● | Strategic Alliances – We intend to enter into strategic alliances with special advisors and organizations already integrated in the water industry both domestically and internationally. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Direct Marketing and Sales – Our Chief Operating Officer, Gerard Stoehr, has extensive experience as a marketing executive.  We are currently searching for a seasoned sales professional to represent our product domestically.  Chief Peter Hayden (Ret), formerly Chief of the New York City Fire Department, is serving as  Vice President-Senior Government Liaison. Chief Hayden has extensive relationships in the first responder communities. The Company will be marketing directly and through representatives to local municipalities, first responders, national public emergency management agencies and military organizations that are responsible for first response emergency situations, including those involved in planning emergency preparedness plans. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Advertising – We plan to advertise in a number of leading trade magazines, such as Fire Chief, Fire House, SIGNAL Magazine, Homeland First Response, Journal and Disaster Management and Response. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Trade Show Participations –We have participated in the following conferences and trade shows in 2010: |
|--------|---------|-------------------------------------------------------------------------------------------------------------|

|   | 1. | Long Island New York Emergency Management Conference –Melville, NY June 2-3 |
|--------|----|-----------------------------------------------------------------------------------|

|   | 2. | Firehouse Expo- Baltimore, MD July 20-25 |
|--------|----|------------------------------------------|

|   | 3. | WEFTEC- New  Orleans, LA October 4-6 |
|--------|----|------------------------------------------------|

|   | 4. | EMEX-San Antonio, TX Nov 1-3 |
|--------|----|------------------------------|

|   | 1. | Governor’s Hurricane Conference – Fort Lauderdale, Fl May 15-20 |
|--------|----|-----------------------------------------------------------------------------|

|   | 2. | Rotary International Conference – New Orleans, LA May 21-25 |
|--------|----|-------------------------------------------------------------------|

|   | ● | Onsite Demonstration- We plan to conduct onsite demonstrations with potential clients as required and when feasible. The Company has a fully functional prototype unit available for demonstrations, as well as production units. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Web Based Marketing – We will utilize pay-per-click as well as natural Search Engine Optimization (SEO) optimization techniques to generate traffic to our website, www.puresafewatersystems.com.  We also plan to publish our website address in our public relations campaigns.  This strategy is expected to generate leads from potential clients for follow up by our direct sales organization.  The contents of our website do not constitute a part of this Annual Report on Form 10-K. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Clear Branding Message – We plan to convey clear differentiating brand marketing messages to highlight our brand and product attributes on our website and in our promotional campaigns.  The marketing messages will be designed for decision makers in our targeted markets. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | ● | Public and Investor Relations Campaign – We plan to implement an active public and investor relations campaign as part of our over-all marketing plan.  We recognize that a well coordinated public relations campaign is as valuable as or more valuable than paid advertising with no organized campaign. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Risk Factors

|   | ● | expand and enhance our administrative infrastructure; |
|--------|---------|-------------------------------------------------------|

|   | ● | improve our management, financial and information systems and controls; |
|--------|---------|-------------------------------------------------------------------------|

|   | ● | expand, train and manage our employees effectively; |
|--------|---------|-----------------------------------------------------|

|   | ● | successfully retain and recruit additional employees; and |
|--------|---------|-----------------------------------------------------------|

|   | ● | develop a world class manufacturing capability using lean principles, ERP systems, strategic outsourcing and advanced supply chain management. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------|

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Unresolved Staff Comments.

Properties.

Legal Proceedings

Reserved.

PART II

Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

----

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| Quarter Ended      |   | High Bid Price |   |   | Low Bid Price |   |
|--------------------|--------|----------------|--------|--------|---------------|--------|
| March 31, 2009     |   | $              | 0.05   |   |          | $      | 0.02 |   |
| June 30, 2009      |   |           | 0.08   |   |          |   | 0.04 |   |
| September 30, 2009 |   |           | 0.08   |   |          |   | 0.04 |   |
| December 31, 2009  |   |           | 0.07   |   |          |   | 0.04 |   |
|               |   |           |   |   |          |   |   |   |
| March 31, 2010     |   |           | 0.053  |   |          |   | 0.053 |   |
| June 30, 2010      |   |           | 0.13   |   |          |   | 0.125 |   |
| September 30, 2010 |   |           | 0.11   |   |          |   | 0.099 |   |
| December 31, 2010  |   |           | 0.14   |   |          |   | 0.13 |   |

| Plan Category                                              |   | Number of securities to be issued upon exercise of outstanding options, warrants and rights(A) |       |   | Weighted-average exercise price of outstanding options, warrants and rights(B) |   |   | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A))(C) |   |
|------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|------------|--------|--------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Equity compensation plans approved by security holders     |   |                                                                                           | 6,500,000  |   |                                                                           | $      | 0.0410 |                                                                                                                                           |   |   | 18,500,000 |   |
|                                                       |   |                                                                                           |       |   |                                                                           |   |   |                                                                                                                                           |   |   |   |   |
| Equity compensation plans not approved by security holders |   |                                                                                           | 12,012,461 |   |                                                                           | $      | 0.0529 |                                                                                                                                           |   |   | 0 |   |
|                                                       |   |                                                                                           |       |   |                                                                           |   |   |                                                                                                                                           |   |   |   |   |
| Total                                                      |   |                                                                                           | 18,512,461 |   |                                                                           | $      | 0.0487 |                                                                                                                                           |   |   | 18,500,000 |   |

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| Date of Grant/Issuance |   | Number of Warrants Granted |   | Exercise Price |   | Expiration Date |   | Name of Holder, if a Director or Executive Officer |
|------------------------|--------|----------------------------|--------|----------------|--------|-----------------|--------|----------------------------------------------------|
| 09/28/07               |   | 2,000,000                  |   | 0.0700         |   | 09/28/10        |   | Director and CFO                                   |
| 03/14/08               |   | 500,000                    |   | 0.0667         |   | 03/14/12        |   | Malcolm Hoenlein, director                         |
| 04/16/08               |   | 45,000                     |   | 0.0853         |   | 04/15/12        |   |                                               |
| 04/16/08               |   | 45,000                     |   | 0.0853         |   | 04/15/12        |   |                                               |
| 07/30/08               |   | 250,000                    |   | 0.0580         |   | 07/30/11        |   |                                               |
| 04/17/09               |   | 4,000,000                  |   | 0.0410         |   | 04/17/14        |   | CEO                                                |
| 09/28/09               |   | 250,000                    |   | 0.0480         |   | 09/27/14        |   |                                               |
| 02/01/10               |   | 25,000                     |   | 0.0510         |   | 01/31/15        |   |                                               |
| 03/08/10               |   | 2,000,000                  |   | 0.0520         |   | 03/07/15        |   | CEO                                                |
| 03/08/10               |   | 2,000,000                  |   | 0.0520         |   | 03/07/15        |   | V.P. of International Markets                      |
| 04/21/10               |   | 423,729                    |   | 0.0590         |   | 04/20/15        |   |                                               |
| 06/21/10               |   | 70,622                     |   | 0.0590         |   | 06/21/15        |   |                                               |
| 06/21/10               |   | 70,622                     |   | 0.0590         |   | 06/20/15        |   |                                               |
| 07/29/10               |   | 70,622                     |   | 0.0590         |   | 07/28/15        |   |                                               |
| 08/05/10               |   | 75,000                     |   | 0.0960         |   | 08/04/13        |   |                                               |
| 08/31/10               |   | 70,622                     |   | 0.0590         |   | 08/30/15        |   |                                               |
| 09/30/10               |   | 70,622                     |   | 0.0590         |   | 09/29/15        |   |                                               |
| 10/29/10               |   | 70,622                     |   | 0.0590         |   | 10/28/15        |   |                                               |
| 12/29/10               |   | 50,000                     |   | 0.1000         |   | 12/28/13        |   |                                               |

| ● | select the persons to whom awards will be granted, |
|---------|----------------------------------------------------|

| ● | grant awards, |
|---------|---------------|

| ● | determine the number of shares to be covered by each award, |
|---------|-------------------------------------------------------------|

| ● | determine the type, nature, amount, pricing, timing and other terms of each award, and |
|---------|----------------------------------------------------------------------------------------|

| ● | interpret, construe and implement the provisions of the 2008 Plan, including the authority to adopt rules and regulations. |
|---------|----------------------------------------------------------------------------------------------------------------------------|

| ● | employees, including officers, |
|---------|--------------------------------|

| ● | directors, |
|---------|------------|

| ● | consultants and |
|---------|-----------------|

| ● | advisors. |
|---------|-----------|

| ● | stock options, |
|---------|----------------|

| ● | stock bonuses, |
|---------|----------------|

| ● | restricted stock, |
|---------|-------------------|

| ● | stock appreciation rights, commonly referred to as “SARs,” |
|---------|------------------------------------------------------------------------|

| ● | performance grants and |
|---------|------------------------|

| ● | other types of awards. |
|---------|------------------------|

Selected Financial Data

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Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results 

|   | ● | Capability of delivering 30,000 gallons of potable water per day rather than the 10,000 capacity of the prototype. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------|

|   | ● | Significant advancement on maintenance requirement.  Maintenance personnel can step into the unit to change filters and provide other maintenance services. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Automatic water bagging machine integrated into the system.  The FRWS can now produce 1,500  1⁄2 liter (16.9 ozs) bags of water automatically. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Filling station integrated into the system.  The bottle filling capability is now inside the system to prevent any type of external damage.  The prototype had a drop down table for this purpose. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Integrated diesel generator.  The diesel generator is an integral part of the system and can operate for up to 90 hours without refueling. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Raising $5 million in capital in two tranches, $2.5 million within the first six months of 2011 and an additional $2.5 million in the fourth quarter of 2011 |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | The completion of 45 commercial PureSafe FRWS units, with full operational capability.  We believe that with acceptable levels of capital, 45 units can be produced of which 35 will be sold and ten will remain in inventory. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Expand production capability to meet the expected demand for the FRWS domestically by a combination of expanding the production facility of PureSafe Manufacturing and Research Corporation, and outsourcing where appropriate. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | ● | Identify strategic partners in specific overseas markets that have the production, distribution, maintenance and training capability to produce, distribute, maintain and train personnel in the operation of our system. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | To enter into field testing programs. |
|--------|---------|---------------------------------------|

|   | ● | Targeting specific countries that have shown an interest in our product at World Water Day at the United Nations. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------|

|   | ● | Filing of all required foreign patent applications for the PureSafe FRWS.  We will identify all the potential markets in which we need patent protection. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Continued participation in water industry conferences relating to target markets |
|--------|---------|----------------------------------------------------------------------------------|

|   | ● | Continued utilization of strategic advisors to target potential customers and applications. |
|--------|---------|---------------------------------------------------------------------------------------------|

|   | ● | To follow our marketing and sales projections by hiring a Vice President of Sales to achieve sales by the second quarter of  2011. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Continue appointments of additional international and domestic distributors and sales representatives. |
|--------|---------|--------------------------------------------------------------------------------------------------------|

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|                    |   | Years Ended December 31, |   |
|-------------------------|--------|-------------------------------|--------|
|                    |   | 2010                          |   |   | 2009 |   |
| Risk-free interest rate |   |                          | 1.00   | % |   |   | 2.00 | % |
| Expected life, in years |   | 3 years                       |   |   | 3years |   |
| Expected volatility     |   |                          | 115    | % |   |   | 83 | % |
| Dividends               |   |                          | 0      | % |   |   | 0 | % |

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Table of Contents

Quantitative and Qualitative Disclosures About Market Risk.

Financial Statements and Supplementary Data.

| Item                                                                                                                                                                                               | Page * |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Report of Independent Registered Public Accounting Firm                                                                                                                                            | 19     |
| Consolidated Balance Sheets as of December 31, 2010 and 2009                                                                                                                                       | 20     |
| Consolidated Statements of Operations for the Years Ended December 31, 2010 and 2009 and for the period January 1, 2002 (date of commencement as a development stage company) to December 31, 2010 | 21     |
| Consolidated Statements of Changes in Stockholders’ Deficiency for the period January 1, 2002 (date of commencement as a development stage company) to December 31, 2010                     | 33-39  |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2010 and 2009 period January 1, 2002 (date of commencement as a development stage company) to December 31, 2010             | 40-41  |
| Notes to Consolidated Financial Statements                                                                                                                                                         | 42-68  |

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|                                                                                                                                                                                                                                           | December 31, |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|
|                                                                                                                                                                                                                                           | 2010         |   | 2009 |
| ASSETS                                                                                                                                                                                                                                         |
| Current Assets:                                                                                                                                                                                                                                |         |   |   |
| Cash                                                                                                                                                                                                                                           |         | $ | 166,758 |   |   | $ | 107,424 |   |
| Inventories                                                                                                                                                                                                                                    |         |   | 442,815 |   |   |   | 97,115 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                      |         |   | 81,697 |   |   |   | 120,083 |   |
| Total Current Assets                                                                                                                                                                                                                           |         |   | 691,270 |   |   |   | 324,622 |   |
|                                                                                                                                                                                                                                           |         |   |   |   |   |   |   |   |
| Property and equipment, net of accumulated depreciation of $68,447 and $33,356, at December 31, 2010 and 2009, respectively                                                                                                                    |         |   | 231,106 |   |   |   | 115,551 |   |
| Patents and trademarks, net of accumulated amortization of $29,608 and $23,504, at December 31, 2010 and 2009, respectively                                                                                                                    |         |   | 62,876 |   |   |   | 68,980 |   |
| Other assets                                                                                                                                                                                                                                   |         |   | 37,280 |   |   |   | 20,500 |   |
| TOTAL ASSETS                                                                                                                                                                                                                                   |         | $ | 1,022,532 |   |   | $ | 529,653 |   |
|                                                                                                                                                                                                                                           |         |   |   |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                                                                                                                                                                                       |
| Current Liabilities:                                                                                                                                                                                                                           |         |   |   |   |   |   |   |   |
| Accounts payable and accrued expenses                                                                                                                                                                                                          |         | $ | 751,262 |   |   | $ | 656,242 |   |
| Accrued compensation                                                                                                                                                                                                                           |         |   | 193,533 |   |   |   | 84,000 |   |
| Accrued consulting and director fees                                                                                                                                                                                                           |         |   | 144,000 |   |   |   | 140,000 |   |
| Convertible notes and notes payable to officers and director (including accrued interest of $47,445 and $14,685 and net of debt discount of $0 and $14,706 at December 31, 2010 and 2009, respectively)                                        |         |   | 534,445 |   |   |   | 99,979 |   |
| Convertible promissory note (including accrued interest of $25,132 and $9,194 and net of debt discount of $241,657 and $104,214, at December 31, 2010 and 2009, respectively)                                                                  |         |   | 428,475 |   |   |   | 279,980 |   |
| Promissory notes payable (including accrued interest of $159,698 and $127,221, at December 31, 2010 and 2009, respectively)                                                                                                                    |         |   | 470,660 |   |   |   | 285,443 |   |
| Fair value of detachable warrants and options                                                                                                                                                                                                  |         |   | -- |   |   |   | 286,100 |   |
| Fair value of embedded conversion options                                                                                                                                                                                                      |         |   | -- |   |   |   | 197,900 |   |
| Accrued dividends payable                                                                                                                                                                                                                      |         |   | 190,328 |   |   |   | 190,328 |   |
| Total Current Liabilities                                                                                                                                                                                                                      |         |   | 2,712,703 |   |   |   | 2,219,972 |   |
|                                                                                                                                                                                                                                           |         |   |   |   |   |   |   |   |
| Long Term Liabilities:                                                                                                                                                                                                                         |         |   |   |   |   |   |   |   |
| Promissory notes payable – Long Term                                                                                                                                                                                                     |         |   | 20,423 |   |   |   | 236,624 |   |
| Notes payable to officers and directors                                                                                                                                                                                                        |         |   | -- |   |   |   | 287,000 |   |
| Total Long Term Liabilities                                                                                                                                                                                                                    |         |   | 20,423 |   |   |   | 523,624 |   |
| TOTAL LIABILITIES                                                                                                                                                                                                                              |         |   | 2,733,126 |   |   |   | 2,743,596 |   |
|                                                                                                                                                                                                                                           |         |   |   |   |   |   |   |   |
| Stockholders' Deficiency:                                                                                                                                                                                                                      |         |   |   |   |   |   |   |   |
| Preferred stock $.001 par value; 10,000,000 shares authorized; 184,144  shares issued and outstanding at December 31, 2010 and 2009, (liquidation preference $2,700,550 and $2,592,250, at December 31, 2010 and 2009, respectively) |         |   | 184 |   |   |   | 184 |   |
| Common stock, $.001 par value; 450,000,000 authorized; 319,026,726 shares issued and 319,022,326 shares outstanding at December 31, 2010; 272,162,945 shares issued and 272,158,545 outstanding at  December 31, 2009                |         |   | 319,026 |   |   |   | 272,162 |   |
| Additional paid-in capital                                                                                                                                                                                                                     |         |   | 37,203,196 |   |   |   | 30,086,795 |   |
| Treasury Stock, at cost, 4,400 shares of common stock                                                                                                                                                                                          |         |   | (5,768 | )  |   |   | (5,768 | )  |
| Subscriptions receivable - related party  (including accrued interest of $53,308 and $33,076, at December 31, 2010 and 2009, respectively)                                                                                           |         |   | (390,508 | )  |   |   | (370,276 | )  |
| Accumulated deficit (including $24,305,128 and $17,665,444 of deficit accumulated during development stage at December 31, 2010 and December 31, 2009, respectively)                                                                           |         |   | (38,836,724 | )  |   |   | (32,197,040 | )  |
| Total Stockholders’ Deficiency                                                                                                                                                                                                           |         |   | (1,710,594 | )  |   |   | (2,213,943 | )  |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                                                                                                                                                                                 |         | $ | 1,022,532 |   |   | $ | 529,653 |   |

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|                                                                                                                                                                                                                          | Years Ended December 31, |   |        | January 1, 2002 to December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------|--------|-------------|-------------------------------------------|--------|
|                                                                                                                                                                                                                          |                          | 2010   |        |                                      | 2009   |   |   | 2010 |   |
| Sales                                                                                                                                                                                                                         |                          | $      | --          |                                      |   | $ | -- |   |   | $ | 471,290 |   |
| Costs and expenses (income):                                                                                                                                                                                                  |                          |   |        |                                      |   |   |   |   |   |   |   |   |
| Cost of Sales                                                                                                                                                                                                                 |                          |   | --          |                                      |   |   | -- |   |   |   | 575,680 |   |
| Selling, general and administrative, including stock-based compensation of $893,073 and $716,313 for the years ended December 31, 2010 and  2009 and $4,271,878 for the period January 1, 2002 to December 31, 2010 |                          |   | 3,305,378   |                                      |   |   | 1,897,639 |   |   |   | 14,126,945 |   |
| Non-dilution agreement termination costs                                                                                                                                                                                      |                          |   | --          |                                      |   |   | -- |   |   |   | 2,462,453 |   |
| Research and development                                                                                                                                                                                                      |                          |   | 234,666     |                                      |   |   | 179,919 |   |   |   | 1,120,353 |   |
| Interest expense - including interest expense to a related party of $305,835 and $86,992 for the years ended December 31, 2010 and 2009, respectively, and $526,600 for the period Jan 1, 2002 to December 31, 2010           |                          |   | 595,801     |                                      |   |   | 144,592 |   |   |   | 2,257,113 |   |
| Financing costs - extension of warrants                                                                                                                                                                                       |                          |   | --          |                                      |   |   | -- |   |   |   | 74,700 |   |
| Interest expense - conversion provision                                                                                                                                                                                       |                          |   | --          |                                      |   |   | -- |   |   |   | 113,000 |   |
| (Gain) loss on settlement of debt                                                                                                                                                                                             |                          |   | (138,261    | )                                         |   |   | (202,717 | ) |   |   | 1,888,925 |   |
| Change in fair value of warrants and embedded conversion option                                                                                                                                                               |                          |   | 2,642,100   |                                      |   |   | 83,000 |   |   |   | 2,157,249 |   |
| Total costs and expenses                                                                                                                                                                                                      |                          |   | 6,639,684   |                                      |   |   | 2,102,433 |   |   |   | 24,776,418 |   |
| Net (loss)                                                                                                                                                                                                                    |                          |   | (6,639,684  | )                                         |   |   | (2,102,433 | ) |   |   | (24,305,128) |   |
| Deemed dividend on preferred stock                                                                                                                                                                                            |                          |   | --          |                                      |   |   | -- |   |   |   | (2,072,296) |   |
| Preferred stock dividends                                                                                                                                                                                                     |                          |   | (108,300    | )                                         |   |   | (108,300 | ) |   |   | (942,723) |   |
|                                                                                                                                                                                                                          |                          |   | (108,300    | )                                         |   |   | (108,300 | ) |   |   | (3,015,019) |   |
| Net loss attributable to common stockholders                                                                                                                                                                                  |                          | $      | (6,747,984  | )                                         |   | $ | (2,210,733 | ) |   | $ | (27,320,147) |   |
| Net loss attributable to common stockholders per common share - Basic and diluted                                                                                                                                             |                          | $      | (0.02       | )                                         |   | $ | (0.01 | ) |   |   |   |   |
| Weighted average number of shares outstanding - Basic and diluted                                                                                                                                                             |                          |   | 295,081,218 |                                      |   |   | 262,016,546 |   |   |   |   |   |

----

Table of Contents

|                                                  |   | Preferred Stock |    |   | Common Stock |   |   | Additional Paid-In |   |   | Treasury Stock, at |   |   | Subscription |   |   | Accumulated |   |       | Total Stockholders’ |   |
|-------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|--------|--------------------|--------|--------|--------------------|--------|--------|--------------|--------|--------|-------------|--------|------------|---------------------------|--------|
|                                                  |   | Shares          |    |   | Amount       |   |   | Shares             |   |   | Amount             |   |   | Capital      |   |   | Cost        |   |       | Receivable                |   |   | Deficit |   |   | Deficiency |   |
| BALANCE - JANUARY 1, 2002                             |   |            | 145,500 |   |         | $      | 146    |               |   |   | 86,614,286         |   |   | $            | 86,614 |   |        | $      | 12,339,469 |                      |   | $ | (5,768 | ) |   | $ | (67,500 | ) |   | $ | (14,531,596 | ) |   | $ | (2,178,635 | ) |
| Extension of life of warrants                         |   |            | --      |   |         |   | --     |               |   |   | --                 |   |   |         | --     |   |        |   | 111,000    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 111,000 |   |
| Proceeds from sale preferred stock ($1.00 per share)  |   |            | 125,000 |   |         |   | 125    |               |   |   | --                 |   |   |         | --     |   |        |   | 117,375    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 117,500 |   |
| Proceeds from sale of common stock ($0.025 per share) |   |            | --      |   |         |   | --     |               |   |   | 2,500,000          |   |   |         | 2,500  |   |        |   | 97,500     |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| Common stock issued for services ($0.08 per share)    |   |            | --      |   |         |   | --     |               |   |   | 450,000            |   |   |         | 450    |   |        |   | 35,550     |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 36,000 |   |
| Collection of subscription receivable                 |   |            | --      |   |         |   | --     |               |   |   | --                 |   |   |         | --     |   |        |   | --         |                      |   |   | -- |   |   |   | 30,200 |   |   |   | -- |   |   |   | 30,200 |   |
| Net loss                                              |   |            | --      |   |         |   | --     |               |   |   | --                 |   |   |         | --     |   |        |   | --         |                      |   |   | -- |   |   |   | -- |   |   |   | (1,589,746 | ) |   |   | (1,589,746 | ) |
| BALANCE - DECEMBER 31, 2002                           |   |            | 270,500 |   |         | $      | 271    |               |   |   | 89,564,286         |   |   | $            | 89,564 |   |        | $      | 12,700,894 |                      |   | $ | (5,768 | ) |   | $ | (37,300 | ) |   | $ | (16,121,342 | ) |   | $ | (3,373,681 | ) |
|                                                  |   |            |    |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from sale of preferred stock:                |   |            |    |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March 31, 2003 ($1.00-$2.00 per share)                |   |            | 62,500  |   |         |   | 63     |               |   |   | --                 |   |   |         | --     |   |        |   | 74,937     |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 75,500 |   |
| June 30, 2003 ($0.50 per share)                       |   |            | 75,000  |   |         |   | 75     |               |   |   | --                 |   |   |         | --     |   |        |   | 37,425     |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 37,500 |   |
| September 30, 2003 ($1.00-$2.40 per share)            |   |            | 163,281 |   |         |   | 163    |               |   |   | --                 |   |   |         | --     |   |        |   | 228,346    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 228,509 |   |
| December 31, 2003 ($1.33-$2.80 per share)             |   |            | 145,450 |   |         |   | 145    |               |   |   | --                 |   |   |         | --     |   |        |   | 258,717    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 258,862 |   |

----

Table of Contents

| Preferred stock issued for services:      |   |   |    |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
|-------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
| March 31, 2003 ($1.00 per share)          |   |   | 30,000  |   |   |   | 30     |   |   |   | --         |   |   |   | --     |   |   |   | 29,970     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 30,000     |   |
| June 30, 2003 ($1.00 per share)           |   |   | 51,250  |   |   |   | 51     |   |   |   | --         |   |   |   | --     |   |   |   | 51,199     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 51,250     |   |
| September 30, 2003 ($1.00 per share)      |   |   | 67,035  |   |   |   | 67     |   |   |   | --         |   |   |   | --     |   |   |   | 66,968     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 67,035     |   |
| December 31, 2003 ($1.88-$4.00 per share) |   |   | 22,150  |   |   |   | 22     |   |   |   | --         |   |   |   | --     |   |   |   | 65,378     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 65,400     |   |
| Collection of subscription receivable     |   |   | --      |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 15,500 |   |   |   | --          |   |   |   | 15,500     |   |
| Write-off of subscription receivable      |   |   | --      |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 21,800 |   |   |   | --          |   |   |   | 21,800     |   |
| Net loss                                  |   |   | --      |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | --     |   |   |   | (3,535,479  | )      |   |   | (3,535,479 | )      |
| BALANCE - DECEMBER 31, 2003               |   |   | 887,166 |   |   | $      | 887    |   |   |   | 89,564,286 |   |   | $      | 89,564 |   |   | $      | 13,513,834 |   |   | $      | (5,768 | )      |   | $      | --     |   |   | $      | (19,656,821 | )      |   | $      | (6,058,304 | )      |
|                                      |   |   |    |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Proceeds from sale of preferred stock:    |   |   |    |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| March 31, 2004 ($2.40-$4.80 per share)    |   |   | 130,077 |   |   |   | 130    |   |   |   | --         |   |   |   | --     |   |   |   | 400,126    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 400,256    |   |
| June 30, 2004 ($0.80 per share)           |   |   | 15,625  |   |   |   | 16     |   |   |   | --         |   |   |   | --     |   |   |   | 12,484     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 12,500     |   |
| Preferred stock issued for services:      |   |   |    |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| March 31, 2004 ($2.00-$4.80 per share)    |   |   | 49,433  |   |   |   | 49     |   |   |   | --         |   |   |   | --     |   |   |   | 158,483    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 158,532    |   |

----

Table of Contents

|                                                 |   | Preferred Stock |     |   | Common Stock |   |   | Additional Paid-In |   |   | Treasury Stock, at |   |   | Subscription |   |   | Accumulated |   |      | Total Stockholders’ |   |
|------------------------------------------------------|--------|-----------------|----------|--------|--------------|--------|--------|--------------------|--------|--------|--------------------|--------|--------|--------------|--------|--------|-------------|--------|-----------|---------------------------|--------|
|                                                 |   | Shares          |     |   | Amount       |   |   | Shares             |   |   | Amount             |   |   | Capital      |   |   | Cost        |   |      | Receivable                |   |   | Deficit |   |   | Deficiency |   |
| Proceeds from sale of common stock:                  |   |            |     |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |      |                      |   |   |   |   |   |   |   |
| September 30,2004 ($0.03-$0.15 per share)            |   |            | --       |   |         |   | --     |               |   |   | 2,541,595          |   |   |         | 2,541  |   |        |   | 205,059   |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 207,600 |   |
| December 31, 2004 ($0.05-$0.10 per share)            |   |            | --       |   |         |   | --     |               |   |   | 2,487,500          |   |   |         | 2,488  |   |        |   | 187,512   |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 190,000 |   |
| Common stock issued for services:                    |   |            |     |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |      |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March 31, 2004 ($0.05 per share)                     |   |            | --       |   |         |   | --     |               |   |   | 477,133            |   |   |         | 477    |   |        |   | 23,380    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 23,857 |   |
| September 30,2004 ($0.05-$0.15 per share)            |   |            | --       |   |         |   | --     |               |   |   | 1,857,800          |   |   |         | 1,858  |   |        |   | 126,792   |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 128,650 |   |
| December 31, 2004 ($0.08-$0.10 per share)            |   |            | --       |   |         |   | --     |               |   |   | 532,500            |   |   |         | 533    |   |        |   | 40,968    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 41,501 |   |
| Preferred stock dividend                             |   |            | --       |   |         |   | --     |               |   |   | --                 |   |   |         | --     |   |        |   | (81,034   | )                         |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | (81,034 | ) |
| Common stock issued for satisfaction of liabilities: |   |            |     |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |      |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| June 30, 2004 ($0.15 per share)                      |   |            | --       |   |         |   | --     |               |   |   | 37,786,629         |   |   |         | 37,787 |   |        |   | 5,635,934 |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 5,673,721 |   |
| December 31, 2004 ($0.134 per share)                 |   |            | --       |   |         |   | --     |               |   |   | 411,100            |   |   |         | 411    |   |        |   | 54,839    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 55,250 |   |
| Preferred stock converted to common stock:           |   |            |     |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |      |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| June 30, 2004                                        |   |            | (133,250 | )      |         |   | (133   | )                  |   |   | 5,108,332          |   |   |         | 5,108  |   |        |   | (4,975    | )                         |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |

----

Table of Contents

| September 30, 2004                                   |   |   | (269,263 | )      |   |   | (269   | )      |   |   | 12,103,854  |   |   |   | 12,104  |   |   |   | (11,835    | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --         |   |
|------------------------------------------------------|--------|--------|----------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|---------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
| December 31, 2004                                    |   |   | (65,375  | )      |   |   | (65    | )      |   |   | 3,015,000   |   |   |   | 3,015   |   |   |   | (2,950     | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --         |   |
| Net loss                                             |   |   | --       |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | --         |   |   |   | --     |   |   |   | --     |   |   |   | (3,757,802  | )      |   |   | (3,757,802 | )      |
| BALANCE - DECEMBER 31, 2004                          |   |   | 614,413  |   |   | $      | 615    |   |   |   | 155,885,729 |   |   | $      | 155,886 |   |   | $      | 20,258,617 |   |   | $      | (5,768 | )      |   | $      | --     |   |   | $      | (23,414,623 | )      |   | $      | (3,005,273 | )      |
|                                                 |   |   |     |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| Proceeds from sale of common stock:                  |   |   |     |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| March 31,2005 ($0.05 per share)                      |   |   | --       |   |   |   | --     |   |   |   | 200,000     |   |   |   | 200     |   |   |   | 9,800      |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 10,000     |   |
| June 30, 2005 ($0.05-$0.06 per share)                |   |   | --       |   |   |   | --     |   |   |   | 700,000     |   |   |   | 700     |   |   |   | 39,300     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 40,000     |   |
| September 30, 2005 ($0.07-$0.10 per share)           |   |   | --       |   |   |   | --     |   |   |   | 2,455,357   |   |   |   | 2,455   |   |   |   | 202,545    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 205,000    |   |
| December 31, 2005 ($0.05-$0.07 per share)            |   |   | --       |   |   |   | --     |   |   |   | 3,879,283   |   |   |   | 3,879   |   |   |   | 236,081    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 239,960    |   |
| Common stock issued for services:                    |   |   |     |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| March 31, 2005 ($0.05-$0.10 per share)               |   |   | --       |   |   |   | --     |   |   |   | 230,000     |   |   |   | 230     |   |   |   | 17,770     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 18,000     |   |
| December 31, 2005 ($0.05-$0.06 per share)            |   |   | --       |   |   |   | --     |   |   |   | 407,500     |   |   |   | 408     |   |   |   | 21,219     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 21,627     |   |
| Preferred stock dividend                             |   |   | --       |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | (66,436    | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | (66,436    | )      |
| Extension of 1,666,667 warrants                      |   |   | --       |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 74,700     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 74,700     |   |
| Common stock issued for satisfaction of liabilities: |   |   |     |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| September 30, 2005 ($0.07 per share)                 |   |   | --       |   |   |   | --     |   |   |   | 571,428     |   |   |   | 571     |   |   |   | 39,429     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 40,000     |   |

----

Table of Contents

|                                       |   | Preferred Stock |     |   | Common Stock |   |   | Additional Paid-In |   |   | Treasury Stock, at |   |   | Subscription |    |   | Accumulated |   |       | Total Stockholders’ |   |
|--------------------------------------------|--------|-----------------|----------|--------|--------------|--------|--------|--------------------|--------|--------|--------------------|--------|--------|--------------|---------|--------|-------------|--------|------------|---------------------------|--------|
|                                       |   | Shares          |     |   | Amount       |   |   | Shares             |   |   | Amount             |   |   | Capital      |    |   | Cost        |   |       | Receivable                |   |   | Deficit |   |   | Deficiency |   |
| December 31, 2005 ($0.142 per share)       |   |            | --       |   |         |   | --     |               |   |   | 100,000            |   |   |         | 100     |   |        |   | 14,100     |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 14,200 |   |
| Preferred stock converted to common stock: |   |            |     |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March 31, 2005                             |   |            | (55,970  | )      |         |   | (56    | )                  |   |   | 2,518,800          |   |   |         | 2,519   |   |        |   | (2,463     | )                         |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| June 30, 2005                              |   |            | (34,020  | )      |         |   | (34    | )                  |   |   | 1,360,800          |   |   |         | 1,361   |   |        |   | (1,327     | )                         |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| September 30, 2005                         |   |            | (286,650 | )      |         |   | (287   | )                  |   |   | 13,382,583         |   |   |         | 13,383  |   |        |   | (13,096    | )                         |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| December 31, 2005                          |   |            | (2,188   | )      |         |   | (2     | )                  |   |   | 87,520             |   |   |         | 87      |   |        |   | (85        | )                         |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| Net loss                                   |   |            | --       |   |         |   | --     |               |   |   | --                 |   |   |         | --      |   |        |   | --         |                      |   |   | -- |   |   |   | -- |   |   |   | (1,168,328 | ) |   |   | (1,168,328 | ) |
| BALANCE - DECEMBER 31, 2005                |   |            | 235,585  |   |         | $      | 236    |               |   |   | 181,779,000        |   |   | $            | 181,779 |   |        | $      | 20,830,154 |                      |   | $ | (5,768 | ) |   | $ | -- |   |   | $ | (24,582,951 | ) |   | $ | (3,576,550 | ) |
|                                       |   |            |     |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from sale of common stock:        |   |            |     |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March 21, 2006 ($0.07 per share)           |   |            | --       |   |         |   | --     |               |   |   | 3,600,000          |   |   |         | 3,600   |   |        |   | 246,400    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 250,000 |   |
| May 8, 2002 ($0.08-$0.10 per share)        |   |            | --       |   |         |   | --     |               |   |   | 3,769,230          |   |   |         | 3,769   |   |        |   | 276,231    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 280,000 |   |
| June 28, 2006 ($0.10 per share)            |   |            | --       |   |         |   | --     |               |   |   | 100,000            |   |   |         | 100     |   |        |   | 9,900      |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 10,000 |   |
| August 17, 2006 ($0.07 per share)          |   |            | --       |   |         |   | --     |               |   |   | 400,000            |   |   |         | 400     |   |        |   | 27,600     |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 28,000 |   |
| Common stock issued for services:          |   |            |     |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March 21, 2006 ($0.06 per share)           |   |            | --       |   |         |   | --     |               |   |   | 250,000            |   |   |         | 250     |   |        |   | 14,750     |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 15,000 |   |
| May 8, 2006 ($0.05 per share)              |   |            | --       |   |         |   | --     |               |   |   | 450,000            |   |   |         | 450     |   |        |   | 22,050     |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 22,500 |   |

----

Table of Contents

| June 6, 2006 ($0.15 per share)                                                                |   |   | --      |   |   |   | --     |   |   |   | 166,666     |   |   |   | 166     |   |   |   | 24,833     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 24,999     |   |
|-----------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|---------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
| Common stock issued for repayment of debt:                                                    |   |   |    |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |        |   |   |   |       |   |
| February 13, 2006 ($0.11 per share)                                                           |   |   | --      |   |   |   | --     |   |   |   | 438,785     |   |   |   | 439     |   |   |   | 48,046     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 48,485     |   |
| April 3, 2006 ($0.08 per share)                                                               |   |   | --      |   |   |   | --     |   |   |   | 614,131     |   |   |   | 614     |   |   |   | 50,790     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 51,404     |   |
| April 6, 2006 ($0.08 per share)                                                               |   |   | --      |   |   |   | --     |   |   |   | 1,959,631   |   |   |   | 1,960   |   |   |   | 154,614    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 156,574    |   |
| June 6, 2006 ($0.10-$0.15 per share)                                                          |   |   | --      |   |   |   | --     |   |   |   | 3,583,334   |   |   |   | 3,583   |   |   |   | 390,517    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 394,100    |   |
| Preferred stock converted to common stock:                                                    |   |   | (46,668 | )      |   |   | (47    | )      |   |   | 1,866,720   |   |   |   | 1,867   |   |   |   | (1,820     | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   |       |   |
| Reclassification of derivative liabilities upon conversion of debt                            |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 368,800    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 368,800    |   |
| 4,000,000 warrants granted for services, May 18, 2006                                         |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 464,000    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 464,000    |   |
| 2,500,000 warrants granted for services, May 24, 2006                                         |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 241,200    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 241,200    |   |
| Reclassification of warrants and embedded conversion option upon issuance of convertible debt |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | (288,900   | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | (288,900   | )      |
| Preferred stock dividend                                                                      |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | (42,401    | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | (42,401    | )      |
| Net loss                                                                                      |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | --         |   |   |   | --     |   |   |   | --     |   |   |   | (2,072,917  | )      |   |   | (2,072,917 | )      |
| BALANCE - DECEMBER 31, 2006                                                                   |   |   | 188,917 |   |   | $      | 189    |   |   |   | 198,977,497 |   |   | $      | 198,977 |   |   | $      | 22,836,764 |   |   | $      | (5,768 | )      |   | $      | --     |   |   | $      | (26,655,868 | )      |   | $      | (3,625,706 | )      |

----

Table of Contents

|                                      |   | Preferred Stock |   |   | Common Stock |   |   | Additional Paid-In |   |   | Treasury Stock, at |   |   | Subscription |   |   | Accumulated |   |    | Total Stockholders’ |   |
|-------------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|--------------------|--------|--------|--------------------|--------|--------|--------------|--------|--------|-------------|--------|---------|---------------------------|--------|
|                                      |   | Shares          |   |   | Amount       |   |   | Shares             |   |   | Amount             |   |   | Capital      |   |   | Cost        |   |    | Receivable                |   |   | Deficit |   |   | Deficiency |   |
| Proceeds from sale of common stock:       |   |            |   |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |    |                      |   |   |   |   |   |   |   |
| May 10, 2007 ($0.090 per share)           |   |            | --     |   |         |   | --     |               |   |   | 1,111,112          |   |   |         | 1,111  |   |        |   | 98,889  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| May 10, 2007 ($0.083 per share)           |   |            | --     |   |         |   | --     |               |   |   | 2,409,640          |   |   |         | 2,409  |   |        |   | 197,591 |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 200,000 |   |
| May 31, 2007 ($0.090 per share)           |   |            | --     |   |         |   | --     |               |   |   | 555,555            |   |   |         | 555    |   |        |   | 49,445  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 50,000 |   |
| June 26, 2007 ($0.083 per share)          |   |            | --     |   |         |   | --     |               |   |   | 1,203,080          |   |   |         | 1,203  |   |        |   | 98,797  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| October 26, 2007 ($0.063 per share)       |   |            | --     |   |         |   | --     |               |   |   | 3,159,558          |   |   |         | 3,159  |   |        |   | 196,841 |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 200,000 |   |
| November 7, 2007 ($0.059 per share)       |   |            | --     |   |         |   | --     |               |   |   | 1,675,978          |   |   |         | 1,676  |   |        |   | 98,324  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| December 5, 2007 ($0.051 per share)       |   |            | --     |   |         |   | --     |               |   |   | 1,948,052          |   |   |         | 1,948  |   |        |   | 98,052  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| December 12, 2007 ($0.050 per share)      |   |            | --     |   |         |   | --     |               |   |   | 1,973,684          |   |   |         | 1,974  |   |        |   | 98,026  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| December 13, 2007 ($0.051 per share)      |   |            | --     |   |         |   | --     |               |   |   | 1,948,052          |   |   |         | 1,948  |   |        |   | 98,052  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| December 20, 2007 ($0.044 per share)      |   |            | --     |   |         |   | --     |               |   |   | 2,255,639          |   |   |         | 2,256  |   |        |   | 97,744  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| Stock for compensation:                   |   |            |   |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   |   |   |
| May 2, 2007 ($0.110 per share)            |   |            | --     |   |         |   | --     |               |   |   | 2,500,000          |   |   |         | 2,500  |   |        |   | 272,500 |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 275,000 |   |
| December 14, 2007 ($0.040 per share)      |   |            | --     |   |         |   | --     |               |   |   | 1,000,000          |   |   |         | 1,000  |   |        |   | 39,000  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 40,000 |   |
| Common stock issued in repayment of debt: |   |            |   |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| February 26, 2007 ($0.132 per share)      |   |            | --     |   |         |   | --     |               |   |   | 195,212            |   |   |         | 195    |   |        |   | 25,534  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 25,729 |   |

----

Table of Contents

| March 8, 2007 ($0.111 per share)           |   |   | --      |   |   |   | --     |   |   |   | 234,165     |   |   |   | 234     |   |   |   | 25,571     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 25,805     |   |
|--------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|---------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|------------|--------|
| March 14, 2007 ($0.111 per share)          |   |   | --      |   |   |   | --     |   |   |   | 256,643     |   |   |   | 257     |   |   |   | 25,587     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 25,844     |   |
| March 19, 2007 ($0.099 per share)          |   |   | --      |   |   |   | --     |   |   |   | 262,650     |   |   |   | 263     |   |   |   | 25,608     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 25,871     |   |
| March 23, 2007 ($0.097 per share)          |   |   | --      |   |   |   | --     |   |   |   | 806,583     |   |   |   | 807     |   |   |   | 76,867     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 77,674     |   |
| April 4, 2007 ($0.095 per share)           |   |   | --      |   |   |   | --     |   |   |   | 546,901     |   |   |   | 547     |   |   |   | 51,354     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 51,901     |   |
| May 1, 2007 ($0.086 per share)             |   |   | --      |   |   |   | --     |   |   |   | 908,885     |   |   |   | 909     |   |   |   | 77,345     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 78,254     |   |
| Stock for late payment penalty:            |   |   |    |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   |       |   |
| May 22, 2007 ($0.100 per share)            |   |   | --      |   |   |   | --     |   |   |   | 100,000     |   |   |   | 100     |   |   |   | 9,900      |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 10,000     |   |
| Preferred stock converted to common stock: |   |   |    |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   | --     |   |   |   |   |   |   |   |        |   |   |   |       |   |
| February 16, 2007                          |   |   | (2,848  | )      |   |   | (3     | )      |   |   | 113,920     |   |   |   | 114     |   |   |   | (111       | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --         |   |
| May 4, 2007                                |   |   | (250    | )      |   |   | --     |   |   |   | 10,000      |   |   |   | 10      |   |   |   | (10        | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --         |   |
| December 12, 2007                          |   |   | (625    | )      |   |   | (1     | )      |   |   | 25,000      |   |   |   | 25      |   |   |   | (24        | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --         |   |
| Cancellation of debt for no consideration  |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 1,327,321  |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 1,327,321  |   |
| Surrender and cancellation of common stock |   |   | --      |   |   |   | --     |   |   |   | (20,000,000 | )      |   |   | (20,000 | )      |   |   | 20,000     |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --         |   |
| Reclassification of derivative liability   |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | (227,300   | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | (227,300   | )      |
| Amortization of warrants for services      |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 311,916    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 311,916    |   |
| Common stock to be issued                  |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 100,000    |   |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | 100,000    |   |
| Preferred stock dividend                   |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | (399       | )      |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | (399       | )      |
| Net loss                                   |   |   | --      |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | --         |   |   |   | --     |   |   |   | --     |   |   |   | (1,701,125  | )      |   |   | (1,701,125 | )      |
| BALANCE - DECEMBER 31, 2007                |   |   | 185,194 |   |   | $      | 185    |   |   |   | 204,177,806 |   |   | $      | 204,177 |   |   | $      | 26,129,184 |   |   | $      | (5,768 | )      |   | $      | --     |   |   | $      | (28,356,993 | )      |   | $      | (2,029,215 | )      |

----

Table of Contents

|                                  |   | Preferred Stock |   |   | Common Stock |   |   | Additional Paid-In |   |   | Treasury Stock, at |   |   | Subscription |   |   | Accumulated |   |    | Total Stockholders’ |   |
|---------------------------------------|--------|-----------------|--------|--------|--------------|--------|--------|--------------------|--------|--------|--------------------|--------|--------|--------------|--------|--------|-------------|--------|---------|---------------------------|--------|
|                                  |   | Shares          |   |   | Amount       |   |   | Shares             |   |   | Amount             |   |   | Capital      |   |   | Cost        |   |    | Receivable                |   |   | Deficit |   |   | Deficiency |   |
| Proceeds from sale of common stock:   |   |            |   |   |         |   |   |               |   |   |               |   |   |         |   |   |        |   |    |                      |   |   |   |   |   |   |   |
| $0.0357 per share - February 29, 2008 |   |            | --     |   |         |   | --     |               |   |   | 1,401,869          |   |   |         | 1,402  |   |        |   | 48,598  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 50,000 |   |
| $0.0350 per share - March 7, 2008     |   |            | --     |   |         |   | --     |               |   |   | 2,857,142          |   |   |         | 2,857  |   |        |   | 97,143  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| $0.0350 per share - March 13, 2008    |   |            | --     |   |         |   | --     |               |   |   | 1,428,571          |   |   |         | 1,429  |   |        |   | 48,571  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 50,000 |   |
| $0.0343 per share - March 13, 2008    |   |            | --     |   |         |   | --     |               |   |   | 2,912,622          |   |   |         | 2,913  |   |        |   | 97,087  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| $0.0900 per share - March 26, 2008    |   |            | --     |   |         |   | --     |               |   |   | 1,666,667          |   |   |         | 1,667  |   |        |   | 148,333 |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 150,000 |   |
| $0.1083 per share - March 26, 2008    |   |            | --     |   |         |   | --     |               |   |   | 461,538            |   |   |         | 462    |   |        |   | 49,538  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 50,000 |   |
| $0.1000 per share - April 11, 2008    |   |            | --     |   |         |   | --     |               |   |   | 1,000,000          |   |   |         | 1,000  |   |        |   | 99,000  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| $0.1083 per share - May 5, 2008       |   |            | --     |   |         |   | --     |               |   |   | 923,077            |   |   |         | 923    |   |        |   | 99,077  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |
| $0.0917 per share - May 15, 2008      |   |            | --     |   |         |   | --     |               |   |   | 545,455            |   |   |         | 545    |   |        |   | 49,455  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 50,000 |   |
| $0.0963 per share - May 15, 2008      |   |            | --     |   |         |   | --     |               |   |   | 519,031            |   |   |         | 519    |   |        |   | 49,481  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 50,000 |   |
| $0.0963 per share - May 12, 2008      |   |            | --     |   |         |   | --     |               |   |   | 1,557,094          |   |   |         | 1,557  |   |        |   | 148,443 |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 150,000 |   |
| $0.1000 per share - May 23, 2008      |   |            | --     |   |         |   | --     |               |   |   | 500,000            |   |   |         | 500    |   |        |   | 49,500  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 50,000 |   |
| $0.0840 per share - June 30, 2008     |   |            | --     |   |         |   | --     |               |   |   | 833,333            |   |   |         | 833    |   |        |   | 69,167  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 70,000 |   |
| $0.0730 per share - July 25, 2008     |   |            | --     |   |         |   | --     |               |   |   | 1,369,863          |   |   |         | 1,370  |   |        |   | 98,630  |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 100,000 |   |

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Table of Contents

| Stock for receivables:                                                                              |   |   |   |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|---------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
| $0.0843 per share - May 12, 2008                                                                    |   |   | --     |   |   |   | --     |   |   |   | 17,000,000  |   |   |   | 17,000  |   |   |   | 1,416,100  |   |   |   | --     |   |   |   | (1,433,100 | )      |   |   | --     |   |   |   | --      |   |
| $0.0843 per share - August 31, 2008                                                                 |   |   | --     |   |   |   | --     |   |   |   | (13,000,000 | )      |   |   | (13,000 | )      |   |   | (1,082,900 | )      |   |   | --     |   |   |   | 1,095,900  |   |   |   | --     |   |   |   | --      |   |
| Accrued interest                                                                                    |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | --         |   |   |   | --     |   |   |   | (12,914    | )      |   |   | --     |   |   |   | (12,914 | )      |
| Stock for compensation:                                                                             |   |   |   |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |
| $0.0500 per share - March 13, 2008                                                                  |   |   | --     |   |   |   | --     |   |   |   | 1,000,000   |   |   |   | 1,000   |   |   |   | 49,000     |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 50,000  |   |
| $0.0400 per share - March 26, 2008                                                                  |   |   | --     |   |   |   | --     |   |   |   | 333,333     |   |   |   | 333     |   |   |   | 13,000     |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 13,333  |   |
| $0.1000 per share - May 29, 2008                                                                    |   |   | --     |   |   |   | --     |   |   |   | 1,000,000   |   |   |   | 1,000   |   |   |   | 99,000     |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 100,000 |   |
| $0.0500 per share – August 6, 2008                                                            |   |   |   |   |   |   |   |   |   |   | 100,000     |   |   |   | 100     |   |   |   | 4,900      |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   | 5,000   |   |
| $0.0500 per share - September 19, 2008                                                              |   |   | --     |   |   |   | --     |   |   |   | 2,050,000   |   |   |   | 2,050   |   |   |   | 100,450    |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 102,500 |   |
| Common stock issued in repayment of debt:                                                           |   |   |   |   |   |   |   |   |   |   |        |   |   |   |    |   |   |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |    |   |
| $0.02943 per share - January 9, 2008                                                                |   |   | --     |   |   |   | --     |   |   |   | 947,119     |   |   |   | 947     |   |   |   | 26,927     |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 27,874  |   |
| $0.02500 per share - January 17, 2008                                                               |   |   | --     |   |   |   | --     |   |   |   | 2,146,324   |   |   |   | 2,146   |   |   |   | 51,512     |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 53,658  |   |
| $0.02212 per share - January 17, 2008                                                               |   |   | --     |   |   |   | --     |   |   |   | 1,250,000   |   |   |   | 1,250   |   |   |   | 48,750     |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 50,000  |   |
| $0.03108 per share - January 22, 2008                                                               |   |   | --     |   |   |   | --     |   |   |   | 6,899,269   |   |   |   | 6,899   |   |   |   | 207,530    |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 214,429 |   |
| $0.02943 per share - February 1, 2008                                                               |   |   | --     |   |   |   | --     |   |   |   | 562,282     |   |   |   | 562     |   |   |   | 15,986     |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 16,548  |   |
| Reclassification of derivative liability                                                            |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 70,766     |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 70,766  |   |
| Amortization of warrants for services                                                               |   |   | --     |   |   |   | --     |   |   |   | --          |   |   |   | --      |   |   |   | 219,856    |   |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | 219,856 |   |
| Issuance of common stock for $100,000 of subscription payable ($0.0443 per share) - January 4, 2008 |   |   | --     |   |   |   | --     |   |   |   | 2,255,639   |   |   |   | 2,256   |   |   |   | (2,256     | )      |   |   | --     |   |   |   | --         |   |   |   | --     |   |   |   | --      |   |

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Table of Contents

|                                                                              |   | Preferred Stock |    |   | Common Stock |   |   | Additional Paid-In |   |   | Treasury Stock, at |   |   | Subscription |    |   | Accumulated |   |       | Total Stockholders’ |   |
|-----------------------------------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|--------|--------------------|--------|--------|--------------------|--------|--------|--------------|---------|--------|-------------|--------|------------|---------------------------|--------|
|                                                                              |   | Shares          |    |   | Amount       |   |   | Shares             |   |   | Amount             |   |   | Capital      |    |   | Cost        |   |       | Receivable                |   |   | Deficit |   |   | Deficiency |   |
| Issuance of shares upon exercise of warrants ($0.0850 per share) - March 26, 2008 |   |            | --      |   |         |   | --     |               |   |   | 110,000            |   |   |         | 110     |   |        |   | 9,240      |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 9,350 |   |
| Preferred stock converted to common stock                                         |   |            | (1,050  | )      |         |   | (1     | )                  |   |   | 42,000             |   |   |         | 42      |   |        |   | (41        | )                         |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| Preferred stock dividend                                                          |   |            | --      |   |         |   | --     |               |   |   | --                 |   |   |         | --      |   |        |   | (57        | )                         |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | (57 | ) |
| Net loss                                                                          |   |            | --      |   |         |   | --     |               |   |   | --                 |   |   |         | --      |   |        |   | --         |                      |   |   | -- |   |   |   | -- |   |   |   | (1,737,614 | ) |   |   | (1,737,614 | ) |
| BALANCE - DECEMBER 31, 2008                                                       |   |            | 184,144 |   |         | $      | 184    |               |   |   | 244,850,034        |   |   | $            | 244,849 |   |        | $      | 28,528,973 |                      |   | $ | (5,768 | ) |   | $ | (350,114 | ) |   | $ | (30,094,607 | ) |   | $ | (1,676,483 | ) |
|                                                                              |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from sale of common stock:                                               |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $0.0330 per share – January 16, 2009                                        |   |            |    |   |         |   |   |               |   |   | 757,576            |   |   |         | 758     |   |        |   | 24,242     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000 |   |
| $0.0320 per share – January 30, 2009                                        |   |            |    |   |         |   |   |               |   |   | 1,562,500          |   |   |         | 1,563   |   |        |   | 48,437     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| $0.0320 per share – February 9, 2009                                        |   |            |    |   |         |   |   |               |   |   | 640,625            |   |   |         | 641     |   |        |   | 19,859     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 20,500 |   |
| $0.0299 per share – February 13, 2009                                       |   |            |    |   |         |   |   |               |   |   | 1,672,241          |   |   |         | 1,672   |   |        |   | 48,328     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| $0.0290 per share – February 17, 2009                                       |   |            |    |   |         |   |   |               |   |   | 1,724,138          |   |   |         | 1,724   |   |        |   | 48,276     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| $0.0410 per share – April 29, 2009                                          |   |            |    |   |         |   |   |               |   |   | 609,756            |   |   |         | 610     |   |        |   | 24,390     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000 |   |
| $0.0440 per share – May 28, 2009                                            |   |            |    |   |         |   |   |               |   |   | 568,182            |   |   |         | 568     |   |        |   | 24,432     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000 |   |
| $0.0420 per share – June 3, 2009                                            |   |            |    |   |         |   |   |               |   |   | 595,238            |   |   |         | 595     |   |        |   | 24,405     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000 |   |

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Table of Contents

| $0.0600 per share – June 17, 2009     |   |   |   |   |   |   |   |   |   |   | 416,667   |   |   |   | 416    |   |   |   | 24,584  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    | 25,000 |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| $0.0700 per share – June 23, 2009     |   |   |   |   |   |   |   |   |   |   | 714,286   |   |   |   | 714    |   |   |   | 49,286  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000  |   |
| $0.0720 per share – August 3, 2009    |   |   |   |   |   |   |   |   |   |   | 277,778   |   |   |   | 278    |   |   |   | 19,722  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 20,000  |   |
| $0.0720 per share – August 3, 2009    |   |   |   |   |   |   |   |   |   |   | 694,444   |   |   |   | 694    |   |   |   | 49,306  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000  |   |
| $0.0730 per share – August 4, 2009    |   |   |   |   |   |   |   |   |   |   | 1,369,863 |   |   |   | 1,370  |   |   |   | 98,630  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| $0.0379 per share – October 5, 2009   |   |   |   |   |   |   |   |   |   |   | 659,631   |   |   |   | 660    |   |   |   | 24,340  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
|                                        |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Common stock issued in repayment of debt:   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
| $0.0547 per share – March 14, 2009    |   |   |   |   |   |   |   |   |   |   | 500,000   |   |   |   | 500    |   |   |   | 26,868  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 27,368  |   |
| $0.0390 per share – April 17, 2009    |   |   |   |   |   |   |   |   |   |   | 2,694,438 |   |   |   | 2,694  |   |   |   | 102,391 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 105,085 |   |
| $0.040 per share – April 17, 2009     |   |   |   |   |   |   |   |   |   |   | 2,605,548 |   |   |   | 2,606  |   |   |   | 101,613 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 104,219 |   |
| $0.059 per share – December 29, 2009  |   |   |   |   |   |   |   |   |   |   | 1,250,000 |   |   |   | 1,250  |   |   |   | 72,500  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 73,750  |   |
|                                        |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Stock Based Compensation:                   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
| $0.0200 per share – February 23, 2009 |   |   |   |   |   |   |   |   |   |   | 1,000,000 |   |   |   | 1,000  |   |   |   | 19,000  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 20,000  |   |
| $0.0410 per share – April 17, 2009    |   |   |   |   |   |   |   |   |   |   | 4,750,000 |   |   |   | 4,750  |   |   |   | 190,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 194,750 |   |
| $0.0350 per share – May 6, 2009       |   |   |   |   |   |   |   |   |   |   | 250,000   |   |   |   | 250    |   |   |   | 8,500   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 8,750   |   |
| $0.0500 per share – December 1, 2009  |   |   |   |   |   |   |   |   |   |   | 2,000,000 |   |   |   | 2,000  |   |   |   | 98,000  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
|                                        |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Reclassification of derivative liability    |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   | 17,900  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 17,900  |   |

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Table of Contents

|                                                                                        |   | Preferred Stock |    |   | Common Stock |   |   | Additional Paid-In Capital |   |   | Treasury Stock, at Cost |   |   | Subscription Receivable |    |   | Accumulated Deficit |   |       | Total Stockholders’ Deficiency |   |
|---------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|--------|----------------------------|--------|--------|-------------------------|--------|--------|-------------------------|---------|--------|---------------------|--------|------------|--------------------------------------|--------|
|                                                                                        |   | Shares          |    |   | Amount       |   |   | Shares                     |   |   | Amount                  |   |   |                    |    |   |                |   |       |                                 |   |   |
| Stock for receivables                                                                       |   |            |    |   |         |   |   |                       |   |   |                    |   |   |                    |    |   |                |   |       |                                 |   |   |   |   |   |   | (20,162 | ) |   |   |   |   |   |   | (20,162 | ) |
|                                                                                        |   |            |    |   |         |   |   |                       |   |   |                    |   |   |                    |    |   |                |   |       |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization of warrants and option over the vesting period for employees and non-employees |   |            |    |   |         |   |   |                       |   |   |                    |   |   |                    |    |   |                |   | 392,813    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 392,813 |   |
|                                                                                        |   |            |    |   |         |   |   |                       |   |   |                    |   |   |                    |    |   |                |   |       |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Loss                                                                                    |   |            |    |   |         |   |   |                       |   |   |                    |   |   |                    |    |   |                |   |       |                                 |   |   |   |   |   |   |   |   |   |   | (2,102,433 | ) |   |   | (2,102,433 | ) |
|                                                                                        |   |            |    |   |         |   |   |                       |   |   |                    |   |   |                    |    |   |                |   |       |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE – DECEMBER 31, 2009                                                           |   |            | 184,144 |   |         |   | 184    |                       |   |   | 272,162,945             |   |   |                    | 272,162 |   |                |   | 30,086,795 |                                 |   |   | (5,768 | ) |   |   | (370,276 | ) |   |   | (32,197,040 | ) |   |   | (2,213,943 | ) |
| Proceeds from sale of common stock:                                                         |   |            |    |   |         |   |   |                       |   |   |                    |   |   |                    |    |   |                |   |       |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $0.0530 per share – January 29, 2010                                                  |   |            |    |   |         |   |   |                       |   |   | 1,886,792               |   |   |                    | 1,887   |   |                |   | 98,113     |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| $0.0530 per share – April 5, 2010                                                     |   |            |    |   |         |   |   |                       |   |   | 471,698                 |   |   |                    | 472     |   |                |   | 24,528     |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000 |   |
| $0.0597 per share – April 15, 2010                                                    |   |            |    |   |         |   |   |                       |   |   | 1,675,042               |   |   |                    | 1,675   |   |                |   | 98,325     |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| $0.0577 per share – April 20, 2010                                                    |   |            |    |   |         |   |   |                       |   |   | 433,276                 |   |   |                    | 433     |   |                |   | 24,567     |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000 |   |
| $0.0630 per share – April 30, 2010                                                    |   |            |    |   |         |   |   |                       |   |   | 793,651                 |   |   |                    | 794     |   |                |   | 49,206     |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| $0.0767 per share – May 13, 2010                                                      |   |            |    |   |         |   |   |                       |   |   | 651,890                 |   |   |                    | 652     |   |                |   | 49,348     |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| $0.1013 per share – May 14, 2010                                                      |   |            |    |   |         |   |   |                       |   |   | 740,375                 |   |   |                    | 740     |   |                |   | 74,260     |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 75,000 |   |

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Table of Contents

| $0.1263 per share – May 17, 2010      |   |   |   |   |   |   |   |   |   |   | 197,941   |   |   |   | 198   |   |   |   | 24,802  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|-------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
| $0.2327 per share – May 26, 2010      |   |   |   |   |   |   |   |   |   |   | 128,922   |   |   |   | 129   |   |   |   | 29,871  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 30,000  |   |
| $0.2293 per share – May 27, 2010      |   |   |   |   |   |   |   |   |   |   | 109,027   |   |   |   | 109   |   |   |   | 24,891  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.2323 per share – June 3, 2010      |   |   |   |   |   |   |   |   |   |   | 107,619   |   |   |   | 108   |   |   |   | 24,892  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.1990 per share – June 4, 2010      |   |   |   |   |   |   |   |   |   |   | 125,628   |   |   |   | 126   |   |   |   | 24,874  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.1580 per share – June 15, 2010     |   |   |   |   |   |   |   |   |   |   | 632,911   |   |   |   | 633   |   |   |   | 99,367  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| $0.2457 per share – June 17, 2010     |   |   |   |   |   |   |   |   |   |   | 432,922   |   |   |   | 433   |   |   |   | 105,918 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 106,351 |   |
| $0.2457 per share – June 17, 2010     |   |   |   |   |   |   |   |   |   |   | 108,230   |   |   |   | 108   |   |   |   | 26,480  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 26,588  |   |
| $0.1083 per share – July 29, 2010     |   |   |   |   |   |   |   |   |   |   | 230,840   |   |   |   | 231   |   |   |   | 24,769  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.1080per share – July 30, 2010      |   |   |   |   |   |   |   |   |   |   | 925,926   |   |   |   | 926   |   |   |   | 99,074  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| $0.0987 per share – August 13, 2010   |   |   |   |   |   |   |   |   |   |   | 253,293   |   |   |   | 253   |   |   |   | 24,747  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.0987 per share – August 13, 2010   |   |   |   |   |   |   |   |   |   |   | 253,293   |   |   |   | 253   |   |   |   | 24,747  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.0887 per share – August 24, 2010   |   |   |   |   |   |   |   |   |   |   | 1,127,395 |   |   |   | 1,127 |   |   |   | 98,873  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| $0.0990 per share – August 27, 2010   |   |   |   |   |   |   |   |   |   |   | 252,525   |   |   |   | 253   |   |   |   | 24,747  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.1133 per share – September 7, 2010 |   |   |   |   |   |   |   |   |   |   | 220,653   |   |   |   | 221   |   |   |   | 24,779  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.1183 per share – September 8, 2010 |   |   |   |   |   |   |   |   |   |   | 211,327   |   |   |   | 211   |   |   |   | 24,789  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.1000 per share – October 11, 2010  |   |   |   |   |   |   |   |   |   |   | 250,000   |   |   |   | 250   |   |   |   | 24,750  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000  |   |
| $0.1060 per share – October 13, 2010  |   |   |   |   |   |   |   |   |   |   | 471,698   |   |   |   | 472   |   |   |   | 49,528  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000  |   |
| $0.1043 per share – October 14, 2010  |   |   |   |   |   |   |   |   |   |   | 479,386   |   |   |   | 479   |   |   |   | 49,521  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000  |   |
| $0.1465 per share – December 13, 2010 |   |   |   |   |   |   |   |   |   |   | 204,802   |   |   |   | 205   |   |   |   | 29,795  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 30,000  |   |

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|                                        |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|
| Common stock issued in repayment of debt:   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
| $0.0510 per share – February 1, 2010  |   |   |   |   |   |   |   |   |   |   | 2,604,608 |   |   |   | 2,605  |   |   |   | 130,230 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 132,835 |   |
| $0.0550per share – February 19, 2010  |   |   |   |   |   |   |   |   |   |   | 1,741,464 |   |   |   | 1,741  |   |   |   | 94,039  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 95,780  |   |
| $0.0350 per share – May 28, 2010      |   |   |   |   |   |   |   |   |   |   | 1,580,967 |   |   |   | 1,581  |   |   |   | 53,753  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 55,334  |   |
| $0.0500 per share – June 2, 2010      |   |   |   |   |   |   |   |   |   |   | 530,278   |   |   |   | 530    |   |   |   | 25,984  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 26,514  |   |
| $0.0350 per share – June 7, 2010      |   |   |   |   |   |   |   |   |   |   | 50,000    |   |   |   | 50     |   |   |   | 1,700   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,750   |   |
| $0.0510 per share – July 1, 2010      |   |   |   |   |   |   |   |   |   |   | 1,764,706 |   |   |   | 1,765  |   |   |   | 88,235  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 90,000  |   |
| $0.070 per share – October 8, 2010    |   |   |   |   |   |   |   |   |   |   | 388,691   |   |   |   | 389    |   |   |   | 26,819  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 27,208  |   |
| $0.0489 per share – November 22, 2010 |   |   |   |   |   |   |   |   |   |   | 3,328,177 |   |   |   | 3,328  |   |   |   | 159,276 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 162,604 |   |
| $0.0490 per share – December 10, 2010 |   |   |   |   |   |   |   |   |   |   | 1,139,086 |   |   |   | 1,139  |   |   |   | 54,653  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 55,792  |   |
| $0.0650 per share – December 15, 2010 |   |   |   |   |   |   |   |   |   |   | 1,476,826 |   |   |   | 1,477  |   |   |   | 94,548  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 96,025  |   |
| $0.0440 per share – December 21, 2010 |   |   |   |   |   |   |   |   |   |   | 636,395   |   |   |   | 636    |   |   |   | 27,365  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 28,001  |   |
| $0.0650 per share – December 29, 2010 |   |   |   |   |   |   |   |   |   |   | 427,885   |   |   |   | 428    |   |   |   | 27,385  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 27,813  |   |
|                                        |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
|                                        |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
| Stock Based Compensation:                   |   |   |   |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |
| $0.0510 per share – February 1, 2010  |   |   |   |   |   |   |   |   |   |   | 2,375,000 |   |   |   | 2,375  |   |   |   | 117,475 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 119,850 |   |
| $0.0570 per share – February 9, 2010  |   |   |   |   |   |   |   |   |   |   | 4,000,000 |   |   |   | 4,000  |   |   |   | 224,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 228,000 |   |
| $0.1188 per share – July 12, 2010     |   |   |   |   |   |   |   |   |   |   | 535,716   |   |   |   | 536    |   |   |   | 74,464  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 75,000  |   |
| $0.1100 per share – October 7, 2010   |   |   |   |   |   |   |   |   |   |   | 681,816   |   |   |   | 682    |   |   |   | 74,318  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 75,000  |   |
| $0.0960 per share – October 12 2010   |   |   |   |   |   |   |   |   |   |   | 150,000   |   |   |   | 150    |   |   |   | 14,250  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 14,400  |   |
| $0.0960 per share – October 19, 2010  |   |   |   |   |   |   |   |   |   |   | 1,341,604 |   |   |   | 1,342  |   |   |   | 127,452 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 128,794 |   |
| $0.0940 per share – December 29, 2010 |   |   |   |   |   |   |   |   |   |   | 50,000    |   |   |   | 50     |   |   |   | 4,650   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,700   |   |
| $0.1490 per share – December 31, 2010 |   |   |   |   |   |   |   |   |   |   | 33,557    |   |   |   | 33     |   |   |   | 4,967   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,000   |   |

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|-------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Shares issued thru exercise of warrants   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $0.2457 per share – June 17, 2010   |   |   |   |   |   |   |   |   |   |   | 843,649 |   |   |   | 844    |   |   |   | (844   | )      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | --     |   |
| $0.0600 per share – June 2, 2010    |   |   |   |   |   |   |   |   |   |   | 100,000 |   |   |   | 100    |   |   |   | 5,900  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,000  |   |
| $0.0580 per share – June 4, 2010    |   |   |   |   |   |   |   |   |   |   | 50,000  |   |   |   | 50     |   |   |   | 2,850  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,900  |   |
| $0.0410 per share – June 4, 2010    |   |   |   |   |   |   |   |   |   |   | 250,000 |   |   |   | 250    |   |   |   | 10,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 10,250 |   |
| $0.0510 per share – June 4, 2010    |   |   |   |   |   |   |   |   |   |   | 50,000  |   |   |   | 50     |   |   |   | 2,500  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,550  |   |
| $0.0412 per share – June 9, 2010    |   |   |   |   |   |   |   |   |   |   | 291,262 |   |   |   | 291    |   |   |   | 11,709 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| $0.0876 per share – June 9, 2010    |   |   |   |   |   |   |   |   |   |   | 273,973 |   |   |   | 274    |   |   |   | 23,726 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 24,000 |   |
| $0.0359 per share – June 9, 2010    |   |   |   |   |   |   |   |   |   |   | 334,448 |   |   |   | 334    |   |   |   | 11,672 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,006 |   |
| $0.0412 per share – June 15, 2010   |   |   |   |   |   |   |   |   |   |   | 291,262 |   |   |   | 291    |   |   |   | 11,709 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| $0.0384 per share – July 26, 2010   |   |   |   |   |   |   |   |   |   |   | 312,500 |   |   |   | 313    |   |   |   | 11,687 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| $0.0532 per share – July 30, 2010   |   |   |   |   |   |   |   |   |   |   | 451,129 |   |   |   | 451    |   |   |   | 23,549 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 24,000 |   |
| $0.1300 per share – July 30, 2010   |   |   |   |   |   |   |   |   |   |   | 92,308  |   |   |   | 92     |   |   |   | 11,908 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| $0.0660 per share – July 30, 2010   |   |   |   |   |   |   |   |   |   |   | 90,908  |   |   |   | 91     |   |   |   | 5,909  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,000  |   |
| $0.1184 per share – August 13, 2010 |   |   |   |   |   |   |   |   |   |   | 50,659  |   |   |   | 51     |   |   |   | 5,947  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,998  |   |
| $0.1184 per share – August 13, 2010 |   |   |   |   |   |   |   |   |   |   | 50,659  |   |   |   | 51     |   |   |   | 5,947  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,998  |   |
| $0.0864 per share – August 13, 2010 |   |   |   |   |   |   |   |   |   |   | 55,557  |   |   |   | 56     |   |   |   | 4,744  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,800  |   |
| $0.0420 per share – August 13, 2010 |   |   |   |   |   |   |   |   |   |   | 285,714 |   |   |   | 286    |   |   |   | 11,714 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| $0.0420 per share – August 13, 2010 |   |   |   |   |   |   |   |   |   |   | 285,714 |   |   |   | 286    |   |   |   | 11,714 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |
| $0.0716 per share – August 13, 2010 |   |   |   |   |   |   |   |   |   |   | 13,966  |   |   |   | 14     |   |   |   | 986    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,000  |   |
| $0.0428 per share – August 19, 2010 |   |   |   |   |   |   |   |   |   |   | 280,374 |   |   |   | 280    |   |   |   | 11,720 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000 |   |

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| $0.0396 per share – August 19, 2010   |   |   |   |   |   |   |   |   |   |   | 151,515 |   |   |   | 152    |   |   |   | 5,848     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,000     |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-----------|--------|
| $0.0576 per share – August 19, 2010   |   |   |   |   |   |   |   |   |   |   | 104,167 |   |   |   | 104    |   |   |   | 5,896     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,000     |   |
| $0.1188 per share – August 27, 2010   |   |   |   |   |   |   |   |   |   |   | 50,505  |   |   |   | 51     |   |   |   | 5,949     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,000     |   |
| $0.0631 per share – October 12, 2010  |   |   |   |   |   |   |   |   |   |   | 760,987 |   |   |   | 761    |   |   |   | 47,234    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 47,995    |   |
| $0.0580 per share – October 14, 2010  |   |   |   |   |   |   |   |   |   |   | 620,910 |   |   |   | 621    |   |   |   | 35,379    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 36,000    |   |
| $0.0840 per share – November 2, 2010  |   |   |   |   |   |   |   |   |   |   | 142,858 |   |   |   | 143    |   |   |   | 11,857    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000    |   |
| $0.0972 per share – November 4, 2010  |   |   |   |   |   |   |   |   |   |   | 308,695 |   |   |   | 308    |   |   |   | 29,692    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 30,000    |   |
| $0.0756 per share – November 8, 2010  |   |   |   |   |   |   |   |   |   |   | 158,730 |   |   |   | 159    |   |   |   | 11,841    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000    |   |
| $0.1023 per share – November 12, 2010 |   |   |   |   |   |   |   |   |   |   | 293,310 |   |   |   | 293    |   |   |   | 29,707    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 30,000    |   |
| $0.1100 per share – November 16, 2010 |   |   |   |   |   |   |   |   |   |   | 109,091 |   |   |   | 109    |   |   |   | 11,891    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,000    |   |
| $0.0801 per share – November 17, 2010 |   |   |   |   |   |   |   |   |   |   | 599,580 |   |   |   | 599    |   |   |   | 47,401    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 48,000    |   |
| $0.0720 per share – November 24, 2010 |   |   |   |   |   |   |   |   |   |   | 83,333  |   |   |   | 83     |   |   |   | 5,917     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,000     |   |
| $0.0618 per share – December 3, 2010  |   |   |   |   |   |   |   |   |   |   | 485,764 |   |   |   | 485    |   |   |   | 29,515    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 30,000    |   |
| $0.0624 per share – December 15, 2010 |   |   |   |   |   |   |   |   |   |   | 96,154  |   |   |   | 96     |   |   |   | 5,904     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,000     |   |
| $0.0760 per share – December 31, 2010 |   |   |   |   |   |   |   |   |   |   | 230,262 |   |   |   | 230    |   |   |   | 17,270    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 17,500    |   |
|                                        |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |      |   |
| Reclassification of derivative liability    |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   | 3,682,600 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 3,682,600 |   |

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|                                                                                        |   | Preferred Stock |    |   | Common Stock |   |   | Additional Paid-In |   |   | Treasury Stock, at |   |   | Subscription |    |   | Accumulated |   |       | Total Stockholders’ |   |
|---------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|--------|--------------------|--------|--------|--------------------|--------|--------|--------------|---------|--------|-------------|--------|------------|---------------------------|--------|
|                                                                                        |   | Shares          |    |   | Amount       |   |   | Shares             |   |   | Amount             |   |   | Capital      |    |   | Cost        |   |       | Receivable                |   |   | Deficit |   |   | Deficiency |   |
|                                                                                        |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock for receivables                                                                       |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   | (20,232 | ) |   |   |   |   |   |   | (20,232 | ) |
|                                                                                        |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization of warrants and option over the vesting period for employees and non-employees |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   | 242,329    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 242,329 |   |
|                                                                                        |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Loss                                                                                    |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   | (6,639,684 | ) |   |   | (6,639,684 | ) |
|                                                                                        |   |            |    |   |         |   |   |               |   |   |               |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE – DECEMBER 31, 2010                                                           |   |            | 184,144 |   |         |   | 184    |               |   |   | 319,026,726        |   |   |         | 319,026 |   |        |   | 37,203,196 |                      |   |   | (5,768 | ) |   |   | (390,508 | ) |   |   | (38,836,724 | ) |   |   | (1,710,594 | ) |

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|                                                                                                                                                                          |   | Years EndedDecember 31, |       |   | For the Period From January 1, 2002 through December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------|--------------------------------------------------------------------|--------|
| Cash Flows from Operating Activities:                                                                                                                                         |   | 2010                    |       |   | 2009                                                               |   |   | 2010 |   |
| Net loss                                                                                                                                                                      |   | $                       | (6,639,684 | )      |                                                               |   | (2,102,433 | ) |   | $ | (24,305,128 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities -                                                                                                  |   |                    |       |   |                                                               |   |   |   |   |   |   |   |
| Loss on Sale of Property and Equipment                                                                                                                                        |   |                    | --         |   |                                                               |   | 8,177 |   |   |   | 8,177 |   |
| Depreciation and amortization                                                                                                                                                 |   |                    | 35,091     |   |                                                               |   | 22,769 |   |   |   | 74,990 |   |
| Amortization of patents and trademarks                                                                                                                                        |   |                    | 6,104      |   |                                                               |   | 5,622 |   |   |   | 28,226 |   |
| Interest expense - amortization of deferred financing                                                                                                                         |   |                    | --         |   |                                                               |   | -- |   |   |   | 22,530 |   |
| Stock based compensation                                                                                                                                                      |   |                    | 893,073    |   |                                                               |   | 716,313 |   |   |   | 4,282,080 |   |
| Interest expense - conversion provision                                                                                                                                       |   |                    | --         |   |                                                               |   | -- |   |   |   | 113,000 |   |
| Interest receivable                                                                                                                                                           |   |                    | (20,232    | )      |                                                               |   | (20,162 | ) |   |   | (53,308 | ) |
| Accretion of debt discount                                                                                                                                                    |   |                    | 465,522    |   |                                                               |   | 118,743 |   |   |   | 1,153,343 |   |
| Change in fair value of warrants and embedded conversion option                                                                                                               |   |                    | 2,642,100  |   |                                                               |   | 83,000 |   |   |   | 2,157,249 |   |
| (Gain)/loss on settlement of debt                                                                                                                                             |   |                    | (138,261   | )      |                                                               |   | (202,717 | ) |   |   | 1,888,926 |   |
| Non-dilution agreement termination cost                                                                                                                                       |   |                    | --         |   |                                                               |   | -- |   |   |   | 2,462,453 |   |
| Inventory reserve                                                                                                                                                             |   |                    | --         |   |                                                               |   | -- |   |   |   | 159,250 |   |
| Write-off of stock subscription receivable                                                                                                                                    |   |                    | --         |   |                                                               |   | -- |   |   |   | 21,800 |   |
| Financing costs - warrant extension                                                                                                                                           |   |                    | --         |   |                                                               |   | -- |   |   |   | 74,700 |   |
| Change in assets and liabilities -                                                                                                                                            |   |                    |       |   |                                                               |   |   |   |   |   |   |   |
| Prepaid expenses and other current assets                                                                                                                                     |   |                    | 38,386     |   |                                                               |   | (66,193 | ) |   |   | (31,453 | ) |
| Inventories                                                                                                                                                                   |   |                    | (345,700   | )      |                                                               |   | (97,115 | ) |   |   | (442,815 | ) |
| Other assets                                                                                                                                                                  |   |                    | (16,780    | )      |                                                               |   | 6,360 |   |   |   | (27,861 | ) |
| Accounts payable, accrued expenses, accrued dividends,  accrued compensation, accrued consulting and director fees, customer deposits and other current liabilities |   |                    | 680,786    |   |                                                               |   | 706,766 |   |   |   | 3,182,506 |   |
| Net Cash Used in Operating Activities                                                                                                                                         |   |                    | (2,399,595 | )      |                                                               |   | (820,870 | ) |   |   | (9,231,334 | ) |
|                                                                                                                                                                          |   |                    |       |   |                                                               |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities:                                                                                                                                         |   |                    |       |   |                                                               |   |   |   |   |   |   |   |
| Purchase of property and equipment                                                                                                                                            |   |                    | (120,712   | )      |                                                               |   | (8,410 | ) |   |   | (288,689 | ) |
| Patent costs                                                                                                                                                                  |   |                    | --         |   |                                                               |   | (12,558 | ) |   |   | (66,429 | ) |
| Proceeds from sale of property & equipment                                                                                                                                |   |                    | --         |   |                                                               |   | 4,350 |   |   |   | 4,350 |   |
| Net Cash Used in Investing Activities                                                                                                                                         |   |                    | (120,712   | )      |                                                               |   | (16,618 | ) |   |   | (350,768 | ) |
|                                                                                                                                                                          |   |                    |       |   |                                                               |   |   |   |   |   |   |   |
| Cash Flows from Financing Activities:                                                                                                                                         |   |                    |       |   |                                                               |   |   |   |   |   |   |   |
| Reduction of stock subscription receivable                                                                                                                                    |   |                    | --         |   |                                                               |   | -- |   |   |   | 65,700 |   |
| Proceeds from sale of preferred stock                                                                                                                                         |   |                    | --         |   |                                                               |   | -- |   |   |   | 1,130,127 |   |
| Proceeds from sale of common stock                                                                                                                                            |   |                    | 1,292,939  |   |                                                               |   | 540,500 |   |   |   | 5,693,999 |   |
| Proceeds from exercise of warrants                                                                                                                                            |   |                    | 494,997    |   |                                                               |   | -- |   |   |   | 504,347 |   |
| Proceeds from sale of common stock to be issued                                                                                                                               |   |                    | --         |   |                                                               |   | -- |   |   |   | 300,000 |   |
| Deferred financing costs                                                                                                                                                      |   |                    | --         |   |                                                               |   | -- |   |   |   | (22,530 | ) |
| Proceeds from convertible promissory note                                                                                                                                     |   |                    | 595,000    |   |                                                               |   | 325,000 |   |   |   | 1,770,000 |   |
| Proceeds from officers and directors convertible loans                                                                                                                        |   |                    | 400,000    |   |                                                               |   | 50,000 |   |   |   | 750,000 |   |
| Repayment of officers and directors convertible loans                                                                                                                         |   |                    | (200,000   | )      |                                                               |   | -- |   |   |   | (200,000 | ) |
| Repayment of notes payables                                                                                                                                                   |   |                    | (3,295     | )      |                                                               |   | -- |   |   |   | (278,293 | ) |
| Net Cash Provided by Financing Activities                                                                                                                                     |   |                    | 2,579,641  |   |                                                               |   | 915,500 |   |   |   | 9,713,349 |   |
|                                                                                                                                                                          |   |                    |       |   |                                                               |   |   |   |   |   |   |   |
| Net increase (decrease) in cash                                                                                                                                               |   |                    | 59,334     |   |                                                               |   | 78,012 |   |   |   | 131,247 |   |

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| Cash at beginning of period                                                                          |   |   | 107,424   |   |   |   | 29,411  |   |   |   | 35,511    |   |
|------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|---------|--------|--------|--------|-----------|--------|
| Cash at end of period                                                                                |   | $      | 166,758   |   |   | $      | 107,424 |   |   | $      | 166,758   |   |
|                                                                                                 |   |   |      |   |   |   |    |   |   |   |      |   |
| Supplemental Disclosure of Cash Flow Information:                                                    |   |   |      |   |   |   |    |   |   |   |      |   |
| Cash paid during the year for interest                                                               |   | $      | 19,041    |   |   | $      | 1,190   |   |   | $      | 390,584   |   |
|                                                                                                 |   |   |      |   |   |   |    |   |   |   |      |   |
| Non-Cash Investing Activities:                                                                       |   |   |      |   |   |   |    |   |   |   |      |   |
| Notes Receivable for common stock issued                                                             |   | $      | --        |   |   | $      | --      |   |   | $      | 337,200   |   |
| Purchase of equipment through long term financing                                                    |   | $      | 29,932    |   |   | $      | --      |   |   | $      | 29,932    |   |
|                                                                                                 |   |   |      |   |   |   |    |   |   |   |      |   |
| Non-Cash Financing Activities:                                                                       |   |   |      |   |   |   |    |   |   |   |      |   |
| Compensation satisfied by issuance of common stock                                                   |   | $      | 174,000   |   |   | $      | --      |   |   | $      | 229,250   |   |
| Common stock issued in satisfaction of liabilities                                                   |   | $      | 625,657   |   |   | $      | 310,422 |   |   | $      | 7,973,950 |   |
| Reclassification of derivative liabilities upon  conversion of debt                        |   | $      | 3,126,100 |   |   | $      | 17,900  |   |   | $      | 3,645,166 |   |
| Reclassification of equity instruments to liabilities upon  issuance of equity instruments |   | $      | --        |   |   | $      | --      |   |   | $      | 48,600    |   |
| Cancellation of debt for no consideration                                                            |   | $      | --        |   |   | $      | --      |   |   | $      | 1,327,321 |   |

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|   | ● | Raising $5 million in capital in two tranches, $2.5 million within the first six months of 2011 and an additional $2.5 million in the fourth quarter of 2011 |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | The completion of 45 commercial PureSafe FRWS units, with full operational capability.  We believe that with acceptable levels of capital, 45 units can be produced of which 35 will be sold and ten will remain in inventory. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Expand production capability to meet the expected demand for the FRWS domestically by a combination of expanding the production facility of PureSafe Manufacturing and Research Corporation, and outsourcing where appropriate. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Identify strategic partners in specific overseas markets that have the production, distribution, maintenance and training capability to produce, distribute, maintain and train personnel in the operation of our system. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | To enter into field testing programs. |
|--------|---------|---------------------------------------|

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|   | ● | Targeting specific countries who have shown an interest in our product at World Water Day at the United Nations. |
|--------|---------|------------------------------------------------------------------------------------------------------------------|

|   | ● | Filing of all required foreign patent applications for the PureSafe FRWS.  We will identify all the potential markets in which we need patent protection. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Continued participation in water industry conferences relating to target markets |
|--------|---------|----------------------------------------------------------------------------------|

|   | ● | Continued utilization of strategic advisors to target potential customers and applications. |
|--------|---------|---------------------------------------------------------------------------------------------|

|   | ● | To follow our marketing and sales projections by hiring a Vice President of Sales  to achieve sales by the second quarter of  2011. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Continue appointments of additional international and domestic distributors and sales representatives. |
|--------|---------|--------------------------------------------------------------------------------------------------------|

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|                    | Years EndedDecember 31, |   |
|-------------------------|-------------------------|--------|
|                    | 2010                    |   | 2009 |   |
| Assumptions:            |                    |   |   |   |
| Risk-free interest rate |                    |   | 1.00 | % |   |   | 2.00 | % |
| Expected life           | 3 years                 |   | 3 years |   |
| Expected volatility     |                    |   | 115 | % |   |   | 83 | % |
| Dividends               |                    |   | 0 | % |   |   | 0 | % |

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|                           |   | As of December 31, |       |
|--------------------------------|--------|-------------------------|------------|
|                           |   | 2010                    |       |   | 2009 |   |
| Warrants                       |   |                    | 27,141,298 |   |   |   | 37,803,695 |   |
| Convertible debt               |   |                    | 10,129,968 |   |   |   | 11,630,791 |   |
| Series F preferred stock       |   |                    | 1,545,760  |   |   |   | 1,545,760 |   |
| Total common stock equivalents |   |                    | 38,817,026 |   |   |   | 50,980,246 |   |

|   | ● | Level 1 – Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 2 – Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Level 3 – Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                    |   | Quoted Prices in Active Markets for Identical Liabilities(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Balance at December 31, 2009 |   |
|-----------------------------------------|--------|--------------------------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------------|--------|--------|-----------------------------------|--------|
| Embedded conversion feature             |   | $                                                                  | -      |   |                                         | $      | -      |                                     |   | $      | 197,900                           |   |   | $ | 197,900 |   |
| Warrant and option  liability |   | $                                                                  | -      |   |                                         | $      | -      |                                     |   | $      | 286,100                           |   |   | $ | 286,100 |   |
| December 31, 2009                       |   | $                                                                  | -      |   |                                         | $      | -      |                                     |   | $      | 484,000                           |   |   | $ | 484,000 |   |

|                                 |   | Warrant Liability |       |   | Embedded Conversion Feature |   |       | Total  |   |
|--------------------------------------|--------|-------------------|------------|--------|-----------------------------|--------|------------|--------|--------|
| Balance January, 1, 2009             |   | $                 | 121,100    |   |                        | $      | 164,900    |   |   | $ | 286,000 |   |
|                                 |   |              |       |   |                        |   |       |   |   |   |   |   |
| Included in (income) expense         |   |              | 53,800     |   |                        |   | 29,200     |   |   |   | 83,000 |   |
| Included in liabilities              |   |              | 71,700     |   |                        |   | (89,600    | )      |   |   | (17,900 | ) |
| Included in stockholder's equity     |   |              | 39,500     |   |                        |   | 93,400     |   |   |   | 132,900 |   |
| Transfers in and /or out of Level 3  |   |              | --         |   |                        |   | --         |   |   |   | -- |   |
| Balance December  31, 2009 |   |              | 286,100    |   |                        |   | 197,900    |   |   |   | 484,000 |   |
|                                 |   |              |       |   |                        |   |       |   |   |   |   |   |
| Included in expense                  |   |              | 1,456,600  |   |                        |   | 1,185,500  |   |   |   | 2,642,100 |   |
| Included in liabilities              |   |              | 157,100    |   |                        |   | 399,400    |   |   |   | 556,500 |   |
| Included in stockholder's equity     |   |              | (1,899,800 | )      |                        |   | (1,782,800 | )      |   |   | (3,682,600 | ) |
| Transfers in and /or out of Level 3  |   |              | --         |   |                        |   | --         |   |   |   | -- |   |
| Balance December  31, 2010 |   | $                 | --         |   |                        | $      | --         |   |   | $ | -- |   |

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|                                  |   | 2010   |    |   | 2009   |   |
|---------------------------------------|--------|--------|---------|--------|--------|--------|
| Leasehold improvement                 |   | $      | 149,700 |   |   | $      | 74,755 |   |
| Furniture and fixtures                |   |   | 49,265  |   |   |   | 34,374 |   |
| Equipment                             |   |   | 100,591 |   |   |   | 39,778 |   |
|                                  |   |   | 299,556 |   |   |   | 148,907 |   |
| Accumulated depreciation amortization |   |   | (68,450 | )      |   |   | (33,356 | ) |
| Property and equipment, net           |   | $      | 231,106 |   |   | $      | 115,551 |   |

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|                        |   | 2010   |    |   | 2009   |   |
|-----------------------------|--------|--------|---------|--------|--------|--------|
| Patents                     |   | $      | 89,764  |   |   | $      | 89,764 |   |
| Trademarks                  |   |   | 2,720   |   |   |   | 2,720 |   |
| Total cost                  |   |   | 92,484  |   |   |   | 92,484 |   |
| Accumulated amortization    |   |   | (29,608 | )      |   |   | (23,504 | ) |
| Patents and trademarks, net |   | $      | 62,876  |   |   | $      | 68,980 |   |

| Year Ended December 31, |   |   |   |
|-------------------------|--------|--------|--------|
| 2011                    |   | $      | 6,104  |   |
| 2012                    |   |   | 6,104  |   |
| 2013                    |   |   | 6,104  |   |
| 2014                    |   |   | 6,104  |   |
| 2015                    |   |   | 6,104  |   |
| 2016 and thereafter     |   |   | 32,356 |   |
|                    |   | $      | 62,876 |   |

|           |   | 2010   |    |   | 2009   |   |
|----------------|--------|--------|---------|--------|--------|--------|
| Raw materials  |   | $      | 188,201 |   |   | $      | 97,115 |   |
| Finished Goods |   |   | 254,614 |   |   |   | -- |   |
| Total          |   | $      | 442,815 |   |   | $      | 97,115 |   |

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|                   |   | December 31, |    |
|------------------------|--------|--------------|---------|
|                   |   | 2010         |    |   | 2009 |   |
|                   |   | $            | --      |   |   |   | 50,986 | (a) |
|                   |   |         | --      |   |   |   | 63,699 | (b) |
|                   |   |         | 333,239 | (c) |   |   | 287,000 | (c) |
|                   |   |         | 201,206 | (d) |   |   | -- |   |
| Total                  |   |         | 534,445 |   |   |   | 406,685 |   |
| Less long-term portion |   |         | --      |   |   |   | (287,000 | ) |
| Less debt discount     |   |         | --      |   |   |   | (14,706 | ) |
| Current Portion        |   |         | 534,445 |   |   | $ | 99,979 |   |

| (a) | In October 2009, each of the Company’s Chief Executive Officer and Chief Financial officer participated in the Company’s Private Placement program by lending $25,000 to the Company.  The Company issued a convertible promissory note in the principal amount of money to each of the Chief Executive Officer and the Chief Financial Officer.  The promissory note matures in one year and bears interest at 10% per annum and is convertible at the option of the holder into shares of common stock. The conversion prices range from $0.048 to $0.05. In addition the Company granted 204,167 warrants to the note holders to purchase an additional 204,167 shares of common stock at an exercise price of $0.0576 to $0.06.  The warrants have a life of 5 years and are fully vested on the date of the grant. The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815 ”Derivatives and Hedging.”  Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period. The gross proceeds from the sales of the notes of $50,000 were recorded net of a discount of $19,600.  The debt discount consisted of $6,600 related to the fair value of the warrants and approximately $13,000 related to the fair value of the embedded conversion option.  The debt discount was charged to interest expense ratably over the term of the convertible note.As of December 31, 2009,   the Company is reflecting a liability of $50,986 which included $986 accrued interest. In December 2010, both the Chief Executive Officer and Chief Financial Officer made requests to convert the loan principal and accrued interest of $55,792 into common stock.  The Company issued a total of 1,139,086 shares in connection with such conversion.  |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | In  March 2007, the Company’s former director made a loan of $50,000 to the Company.  The loan accrued simple interest at the rate of 10% per annum and was due and payable 120 days after funding.  The loan carried an option that, if the loans were not repaid by June 29, 2007, such options would entitle the lender to convert their debt into shares of common stock at a conversion price equal to 50% of the average closing price of the common stock over the three previous business days preceding the date of demand for conversion is made. Under accounting guidance provide by ASC 815, the conversion price of the loans did not have a determinable number of shares the loans could be settled in and as a result, has been presented as a derivative liability.  Accordingly, the conversion option will be marked to market through earnings at the end of each reporting period. In December 2010 the former director converted the note principal and accrued interest of $18,491 into 947,312 shares of common stock.  Such shares were issued on December 31, 2010.  Accordingly, the Company reclassified the derivative liability to equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

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| (c) | In September 2009, the Company entered into agreements with the Chief Executive Officer and Chief Financial Officer together to defer a total of $287,000 in compensation owed to them as of September 30, 2009.  In return, the Company issued to the Chief Executive Officer and Chief Financial Officer each a promissory note for the deferment.  The notes mature in January 2011 and interest will be accrued at 10% per annum compounded monthly. As of December 31, 2010 and 2009, the Company is reflecting a liability of $333,239 and 287,000 which includes $46,239 and$-0- of accrued interest, respectively.  |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | On April 7, 2010, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer each made loans of $100,000 to the Company.  The loans accrue interest at the rate of 7% per annum.  In addition, the Company issued warrants to each officer to purchase 431,034 shares of common stock at an exercise price of $0.059 per share.  The loans are due and payable no later than October 7, 2010.  The interest accrued on the loans are to be paid on the 7th day of each month until the loans mature and paid off.  The loans were evidenced by the promissory notes the Company issued to the two officers which each contain a conversion clause that allow the officers at the officer’s sole option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock.  The conversion price was set at $0.059 per share, which was the closing market price of the common stock as of the closing date of the loans. The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815” Derivatives and Hedging.”  Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period. The gross proceeds from the sales of the notes of $200,000 were recorded net of a discount of $101,600.  The debt discount consisted of $34,800 related to the fair value of the warrants and approximately $66,800 related to the fair value of the embedded conversion option.  The debt discount will be charged to interest expense ratably over the term of the convertible note. As of December 31, 2010, the Company is reflecting a liability of $201,206 which includes $1,206 accrued interest. On October 4, 2010, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer each made loans of $100,000 to the Company.  The loans accrue interest at the rate of 10% per annum.  In addition, the Company issued warrants to each officer to purchase 200,000 shares of common stock at an exercise price of $0.10 per share.  The loans are due and payable by or on November 17, 2010.  The interests accrued on the loans were to be paid on mature day when the principals were repaid.  The loans were evidenced by the promissory notes the Company issued to the two officers which each contain a conversion clause that allow the officers at the officer’s sole option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock.  The conversion price was set at $0.10 per share, which was the closing market price of the common stock as of the closing date of the loans. The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815” Derivatives and Hedging.”  Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period. The gross proceeds from the sales of the notes of $200,000 were recorded net of a discount of $120,000.  The debt discount consisted of $31,800 related to the fair value of the warrants and approximately $88,200 related to the fair value of the embedded conversion option.  The debt discount was charged to interest expense in the fourth quarter of 2010. On December 17, 2010, the Company repaid its Chief Executive Officer and Chief Financial Officer a total of $200,000 loan principal and $4,170 accrued interest. |
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|                   |   | December 31, |    |
|------------------------|--------|--------------|---------|
|                   |   | 2010         |    |   | 2009 |   |
|                   |   | $            | 219,297 | (a) |   | $ | 210,443 | (a) |
|                   |   |         | 75,000  | (b) |   |   | 75,000 | (b) |
|                   |   |         | 170,247 | (c) |   |   | 236,624 | (c) |
|                   |   |         | 26,539  | (d) |   |   | -- | (d) |
|  Total            |   |         | 491,083 |   |   |   | 522,067 |   |
| Less long-term portion |   |         | (20,423 | ) |   |   | (236,624 | ) |
| Current Portion        |   |         | 470,660 |   |   |   | 285,443 |   |

| (a) | These are unsecured notes bearing interest at rates ranging from 10% to 15% per annum, and have no specific due date for repayment.  The outstanding principal amount of $83,222 includes accrued and unpaid interest of $136,076 and $127,221 as of December 31, 2010 and 2009, respectively.  No demands for repayment have been made by the note holders. As of December 31, 2010 and 2009, the Company is not compliant with the repayment terms of the notes and is in technical default.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | In April 2001, the Company issued a $400,000 promissory note bearing interest at the rate of 2% per month.  In consideration for the issuance of this note, 500,000 shares of common stock were issued to the note holder and a $74,000 debt discount was recorded and fully amortized in the year ended December 31, 2001.  The principal balance and accrued interest was payable on September 1, 2001.  The Company did not make such payment and was required to issue an additional 100,000 shares to the note holder as a penalty.  The Company recorded additional interest expense of $12,300 related to the issuance of these penalty shares. In October 2007, the Company entered into a settlement agreement with this note holder.  Under the settlement agreement, the Company became obligated to make payments of $75,000 each on or before December 31, 2007 and June 30, 2008.  The June 20, 2008 payment remains unpaid.  In addition, the Company was obligated to issue 2,500,000 shares of common stock to the note holder as settlement for the remaining balance due under the promissory note of $477,934.  In January 2008, the Company issued 1,250,000 of the 2,500,000 shares. Under the advice of then outside counsel, the Company sent inquiries to various parties claiming an interest in the note and shares. The Company has not received a response from any of the parties contacted.  In December 2009, the Company issued the remaining 1,250,000 shares to the note holder and recognized a gain on settlement of debt of approximately $203,000.  The shares are currently held in an outside attorney’s escrow account for the benefit of the legal owner of the note. At December 31, 2010  and 2009, the Company is reflecting a liability of $75,000, which represents the unpaid settlement payment.  |
| (c) | In September 2009, the Company entered into agreements with three of the Company’s consultants and vendors to defer a total in the aggregate of $236,624 in compensation owed to them.  In return, the Company issued to the three vendors each a promissory note for the deferment.  The notes mature in January 2011 and interest will be accrued at 10% per annum compounded monthly.  As of December 31, 2009 the Company reclassified $236,624 from current liabilities to long term liabilities.In February 2010, one of the above three vendors, requested to convert the note payable of $90,000 principal plus $5,781 accrued interest into the Company’s common stock.  The request was approved by Board of Directors on February 19, 2010 and the conversion price was set at $0.055 which is the closing price published on OTCBB.com on the date of the approval of such request.  On March 2, 2010, 1,741,464 shares were issued for such conversion.As of December 31, 2010 and 2009, the Company is reflecting a liability of 170,247 and 236,624 which includes accrued interest of $23,622 and $0, respectively.  As of December 31, 2010 the Company is not compliant with the repayment terms of the notes and is in technical default.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (d) | In February, 2010, the Company acquired a vehicle for business use.  Cost of the vehicle is approximately $30,000 and the Company financed the entire cost.  The financing term is approximately $500 per month for sixty months based on an annual interest rate of 9%. As of December 31, 2010, the Company is reflecting $26,539 as the unpaid principal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

| For the YearsEnding December 31, |   | Total   |   |
|----------------------------------|--------|---------|--------|
| 2011                             |   |  $ | 5,400  |   |
| 2012                             |   |    | 5,900  |   |
| 2013                             |   |    | 6,400  |   |
| 2014                             |   |    | 7,000  |   |
| 2015                             |   |    | 1,800  |   |
|     Total         |   | $       | 26,500 |   |

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|               |   | December 31, |     |
|--------------------|--------|--------------|----------|
|               |   | 2010         |     |   | 2009 |   |
|               |   | $            | --       | (a) |   |   | 55,208 | (a) |
|               |   |         | 670,132  | (b) |   |   | 328,986 | (b) |
|  Total        |   |         | 670,132  |   |   |   | 384,194 |   |
| Less Debt discount |   |         | (241,657 | ) |   |   | (104,214 | ) |
| Current Portion    |   |         | 428,475  |   |   | $ | 279,980 |   |

| (a) | On December 17, 2008, the Company sold and issued a convertible promissory note in the principal amount of $50,000 bearing interest at 10% per annum and warrants to purchase 285,714 shares of common stock at an exercise price of $0.042 per share.  The convertible note matures on December 17, 2009.  The holder of the note is entitled to convert all or a portion of the convertible note plus any unpaid interest, at the lender’s sole option, into shares of common stock at a conversion price of $0.035 per share. The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815 ”Derivatives and Hedging”.   Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period.  The gross proceeds from the sale of the note $50,000 was recorded net of a discount of $19,500.  The debt discount consisted of approximately $2,800 related to the fair value of the warrants and approximately $16,700 related to the fair value of the embedded conversion option.  The debt discount was being charged to interest expense ratably over the term of the convertible note. As of December 31, 2009, the Company is reflecting a liability of $55,208 which included $5,205 of accrued interest. In April 2010, the lender requested to convert $50,000 plus accrued interest of $7,084 into the Company’s common stock.  The Company issued 1,630,967 shares in connection of such conversion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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| (b) | From January 2009 through December 2009, the Company raised $325,000 through debt financing from multiple lenders.  The Company issued each lender a convertible promissory note in the principal amount of money each lender loaned to the Company.  The promissory note matures in one year and bears interest at 10% per annum and is convertible at the option of the holder in to shares of common stock. The conversion prices range from $0.044 to $0.07. In addition the Company granted 1,278,380 warrants to the note holders. The warrants have a life of 5 years and are fully vested on the date of the grant, the exercise price of the warrants ranges from $0.0528 to $0.0840. The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815”Derivatives and Hedging”.   Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period.  The gross proceeds from the sale of the $325,000 notes were recorded net of a discount of $123,500.  The debt discount consisted of approximately $80,400 related to the fair value of the embedded conversion option and approximately $43,100 related to the fair value of the warrants.  The debt discount was being charged to interest expense ratably over the term of the convertible note. As of December 31, 2009 the outstanding amount owed under the convertible notes, principal and accrued interest was $328,986.  In 2010, the Company raised $595,000 through debt financing from multiple lenders.  The Company issued each lender a convertible promissory note in the principal amount of money lender loaned to the Company.  The promissory note matures in one year and bears interest at 10% per annum and is convertible at the option of the holder in to shares of common stock. The conversion prices range from $0.052 to $0.157.  In addition the Company granted 1,277,307 warrants to the note holders. The warrants have a life of 5 years and are fully vested on the date of the grant, the exercise price of the warrants ranges from $0.0624 to $0.1884. The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815”Derivatives and Hedging”.   Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period.  The gross proceeds from the sale of the note $595,000 was recorded net of a discount of $334,900.  The debt discount consisted of approximately $244,400 related to the fair value of the embedded conversion option and approximately $90,500 related to the fair value of the warrants.  The debt discount was being charged to interest expense ratably over the term of the convertible note. During the year ended December 31, 2010, multiple lenders requested to convert total aggregated $275,000 principal plus accrued interest of $24,675 into the Company’s common stock.  The Company issued total aggregated 5,840,939 shares of common stock in connection with such conversions. As of December 31, 2010, the Company is not in compliance with the repayment terms with certain notes and is currently in technical default. |

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| For the YearsEnding December 31, |   | 25 Fairchild Ave. facility |    |
|----------------------------------|--------|----------------------------|---------|
| 2011                             |   |  $                    | 65,065  |   |
| 2012                             |   |                       | 67,017  |   |
| 2013                             |   |                       | 69,029  |   |
| 2014                             |   |                       | 71,098  |   |
| Thereafter                       |   |                       | 36,074  |   |
|                             |   | $                          | 308,283 |   |

| For the YearsEnding December 31, |   | 160 Dupont St. facility |    |
|----------------------------------|--------|-------------------------|---------|
| 2011                             |   |  $                 | 100,200 |   |
| 2012                             |   |                    | 64,200  |   |
|                             |   | $                       | 164,400 |   |

|   | ● | On February 1, 2010 the Board approved the request of HEI to convert $ 90,000 of debt to 1,764,706 shares of common stock .The conversion price is ($0.051) equals the fair value of the common stock on the date of the approval of such request. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | On February 19, 2010 the Board approved the request of HEI to convert a $ 90,000 promissory note dated September 28, 2009 and $ 5,780.52 of accrued interest into 1,741,464 shares of common stock. The conversion price ($0.055) was the fair value of the common stock on the date of the approval of such request. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 1. | 1,000,000 shares of common stock to a consultant pursuant to the term of a consulting agreement entered into in October 2007.  The Company recorded $20,000 of stock-based compensation in connection with this issuance; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 2. | 500,000 shares of common stock and granted a five-year option to purchase an additional 500,000 shares of common stock to the Company’s Director of Production.  The option was made fully vested and exercisable as of its grant date and has an exercise price of $0.041 per share.  Such stock and option were granted under the Company’s 2008 Equity Incentive Plan. The Company recorded stock-based compensations of $20,500 and $14,200, respectively; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | 250,000 shares of common stock and granted a five-year option to purchase an additional 250,000 shares of common  stock to the Company’s controller.  The option was made fully vested and exercisable as of its grant date and has an exercise price of $0.041 per share.  Such stock and option were granted under the Company’s 2008 Equity Incentive Plan. The Company recorded stock-based compensations of $10,250 and $7,100, respectively |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     |   | Authorized Shares |      |   | Outstanding Shares |   |    | Par Value |   |   | Current Annual Dividend Requirement |   |   | Total Dividend Arrearage |    |   | Dividend Arrearage Per Share |   |      | Liquidation Preference (Including Dividend Arrearage) |   |
|----------|--------|-------------------|-----------|--------|--------------------|--------|---------|-----------|--------|--------|-------------------------------------|--------|--------|--------------------------|---------|--------|------------------------------|--------|-----------|-------------------------------------------------------|--------|
| Series A |   |              | 400,000   |   |               |   | 52,500  |      |   | $      | 53                                  |   |   | $                        | 52,500  |   |                         | $      | 832,600   |                                                  |   | $ | 15.86 |   |   | $ | 1,357,600 |   |
| Series D |   |              | 2,000,000 |   |               |   | 93,000  |      |   |   | 93                                  |   |   |                     | 55,800  |   |                         |   | 808,200   |                                                  |   |   | 8.69 |   |   |   | 1,342,950 |   |
| Series F |   |              | 1,000,000 |   |               |   | 38,644  |      |   |   | 39                                  |   |   |                     | --      |   |                         |   | 190,328   |                                                  |   |   | -- |   |   |   | -- |   |
|     |   |              |      |   |               |   | 184,144 |      |   | $      | 185                                 |   |   | $                        | 108,300 |   |                         | $      | 1,831,128 |                                                  |   |   |   |   |   | $ | 2,700,550 |   |

|     |   | Authorized Shares |      |   | Outstanding Shares |   |    | Par Value |   |   | Current Annual Dividend Requirement |   |   | Total Dividend Arrearage |    |   | Dividend Arrearage Per Share |   |      | Liquidation Preference (Including Dividend Arrearage) |   |
|----------|--------|-------------------|-----------|--------|--------------------|--------|---------|-----------|--------|--------|-------------------------------------|--------|--------|--------------------------|---------|--------|------------------------------|--------|-----------|-------------------------------------------------------|--------|
| Series A |   |              | 400,000   |   |               |   | 52,500  |      |   | $      | 53                                  |   |   | $                        | 52,500  |   |                         | $      | 780,100   |                                                  |   | $ | 14.86 |   |   | $ | 1,305,100 |   |
| Series D |   |              | 2,000,000 |   |               |   | 93,000  |      |   |   | 93                                  |   |   |                     | 55,800  |   |                         |   | 752,400   |                                                  |   |   | 8.09 |   |   |   | 1,287,150 |   |
| Series F |   |              | 1,000,000 |   |               |   | 38,644  |      |   |   | 39                                  |   |   |                     | --      |   |                         |   | 190,328   |                                                  |   |   | -- |   |   |   | -- |   |
|     |   |              |      |   |               |   | 184,144 |      |   | $      | 185                                 |   |   | $                        | 108,300 |   |                         | $      | 1,722,828 |                                                  |   |   |   |   |   | $ | 2,592,250 |   |

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| The year ended December 31, 2009 | 1,482,547 |
|----------------------------------|-----------|
| The year ended December 31, 2010 | 2,210,082 |

| The year ended December 31, 2009 | 11,090,000 |
|----------------------------------|------------|
| The year ended December 31, 2010 | 4,997,461  |

| The year ended December 31, 2009 | 2,452,590 |
|----------------------------------|-----------|
| The year ended December 31, 2010 | 2,675,268 |

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|                             |   | Shares Underlying Warrants |       |   | Weighted Average Exercise Price |   |     | Intrinsic Value |   |
|----------------------------------|--------|----------------------------|------------|--------|---------------------------------|--------|----------|-----------------|--------|
| Outstanding at December 31, 2008 |   |                       | 30,160,910 |   |                            | $      | 0.11     |            |   | $ | -- |   |
|                             |   |                       |       |   |                            |   |     |            |   |   |   |   |
| Granted                          |   |                       | 15,025,137 |   |                            |   | 0.05     |            |   |   | -- |   |
| Expired                          |   |                       | (7,272,352 | )      |                            |   | 0.12     |            |   |   | -- |   |
| Cancelled                        |   |                       |  --   |   |                            |   |  -- |            |   |   | -- |   |
| Outstanding at December 31, 2009 |   |                       | 37,913,695 |   |                            |   | 0.11     |            |   |   | -- |   |
|                             |   |                       |       |   |                            |   |     |            |   |   |   |   |
| Granted                          |   |                       | 9,857,811  |   |                            |   | 0.11     |            |   |   | -- |   |
| Expired                          |   |                       | (8,619,443 | )      |                            |   | 0.11     |            |   |   | -- |   |
| Exercised                        |   |                       | (9,191,081 | )      |                            |   | 0.08     |            |   |   | -- |   |
| Cancelled                        |   |                       | (3,000,000 | )      |                            |   | 0.05     |            |   |   | -- |   |
| Outstanding at December 31, 2010 |   |                       | 26,960,982 |   |                            | $      | 0.09     |            |   |   | -- |   |

|           |   |   | Warrants Outstanding           |   |                                        | Warrants Exercisable |                            |
|----------------|--------|--------|--------------------------------|--------|---------------------------------------------|----------------------|---------------------------------|
| Exercise Price |   |   | Number of Outstanding Warrants |   | Weighted Average Remaining Contractual Life |                 | Weighted Average Exercise Price |   |   | Number of Exercisable Warrants |   |   | Weighted Average Exercise Price |   |
| $              | 0.0348 |   |                           |   | 344,828                                     |                 | 1.1 years                       |   | $ | 0.0348 |   |   |   | 344,828 |   |   | $ | 0.0348 |   |
|           | 0.0384 |   |                           |   | 128,125                                     |                 | 1.1 years                       |   |   | 0.0384 |   |   |   | 128,125 |   |   |   | 0.0384 |   |
|           | 0.0410 |   |                           |   | 10,500,000                                  |                 | 3.3 years                       |   |   | 0.0410 |   |   |   | 10,500,000 |   |   |   | 0.0410 |   |
|           | 0.0420 |   |                           |   | 285,714                                     |                 | 0.2 years                       |   |   | 0.0420 |   |   |   | 285,714 |   |   |   | 0.0420 |   |
|           | 0.0455 |   |                           |   | 131,927                                     |                 | 1.8 years                       |   |   | 0.0455 |   |   |   | 131,927 |   |   |   | 0.0455 |   |
|           | 0.0470 |   |                           |   | 512,820                                     |                 | 2.8 years                       |   |   | 0.0470 |   |   |   | 512,820 |   |   |   | 0.0470 |   |
|           | 0.0480 |   |                           |   | 750,000                                     |                 | 3.2 years                       |   |   | 0.0480 |   |   |   | 750,000 |   |   |   | 0.0480 |   |
|           | 0.0510 |   |                           |   | 25,000                                      |                 | 4.1 years                       |   |   | 0.0510 |   |   |   | 25,000 |   |   |   | 0.0510 |   |
|           | 0.0520 |   |                           |   | 4,000,000                                   |                 | 4.2 years                       |   |   | 0.0520 |   |   |   | 4,000,000 |   |   |   | 0.0520 |   |
|           | 0.0528 |   |                           |   | 340,908                                     |                 | 3.0 years                       |   |   | 0.0528 |   |   |   | 340,908 |   |   |   | 0.0528 |   |
|           | 0.0552 |   |                           |   | 108,696                                     |                 | 3.8 years                       |   |   | 0.0552 |   |   |   | 108,696 |   |   |   | 0.0552 |   |
|           | 0.0576 |   |                           |   | 104,167                                     |                 | 3.8 years                       |   |   | 0.0576 |   |   |   | 104,167 |   |   |   | 0.0576 |   |
|           | 0.0580 |   |                           |   | 250,000                                     |                 | 0.6 years                       |   |   | 0.0580 |   |   |   | 250,000 |   |   |   | 0.0580 |   |
|           | 0.0590 |   |                           |   | 1,709,529                                   |                 | 4.4 years                       |   |   | 0.0590 |   |   |   | 1,709,529 |   |   |   | 0.0590 |   |
|           | 0.0600 |   |                           |   | 100,000                                     |                 | 3.8 years                       |   |   | 0.0600 |   |   |   | 100,000 |   |   |   | 0.0600 |   |
|           | 0.0608 |   |                           |   | 394,737                                     |                 | 2.9 years                       |   |   | 0.0608 |   |   |   | 394,737 |   |   |   | 0.0608 |   |
|           | 0.0624 |   |                           |   | 96,154                                      |                 | 4.0 years                       |   |   | 0.0624 |   |   |   | 96,154 |   |   |   | 0.0624 |   |
|           | 0.0636 |   |                           |   | 188,680                                     |                 | 3.1 years                       |   |   | 0.0636 |   |   |   | 188,680 |   |   |   | 0.0636 |   |
|           | 0.0660 |   |                           |   | 363,636                                     |                 | 4.0 years                       |   |   | 0.0660 |   |   |   | 363,636 |   |   |   | 0.0660 |   |
|           | 0.0667 |   |                           |   | 500,000                                     |                 | 1.2 years                       |   |   | 0.0667 |   |   |   | 500,000 |   |   |   | 0.0667 |   |
|           | 0.0672 |   |                           |   | 89,286                                      |                 | 4.0 years                       |   |   | 0.0672 |   |   |   | 89,286 |   |   |   | 0.0672 |   |
|           | 0.0692 |   |                           |   | 86,655                                      |                 | 2.3 years                       |   |   | 0.0692 |   |   |   | 86,655 |   |   |   | 0.0692 |   |
|           | 0.0700 |   |                           |   | 2,000,000                                   |                 | 0.7 years                       |   |   | 0.0700 |   |   |   | 2,000,000 |   |   |   | 0.0700 |   |

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|           |   |   | Warrants Outstanding           |   |                                        | Warrants Exercisable |                            |
|----------------|--------|--------|--------------------------------|--------|---------------------------------------------|----------------------|---------------------------------|
| Exercise Price |   |   | Number of Outstanding Warrants |   | Weighted Average Remaining Contractual Life |                 | Weighted Average Exercise Price |   |   | Number of Exercisable Warrants |   |   | Weighted Average Exercise Price |   |
|           | 0.0716 |   |                           |   | 321,042                                     |                 | 2.3 years                       |   |   | 0.0716 |   |   |   | 321,042 |   |   |   | 0.0716 |   |
|           | 0.0720 |   |                           |   | 83,333                                      |                 | 1.5 years                       |   |   | 0.0720 |   |   |   | 83,333 |   |   |   | 0.0720 |   |
|           | 0.0780 |   |                           |   | 76,923                                      |                 | 3.9 years                       |   |   | 0.0780 |   |   |   | 76,923 |   |   |   | 0.0780 |   |
|           | 0.0840 |   |                           |   | 71,429                                      |                 | 3.9 years                       |   |   | 0.0840 |   |   |   | 71,429 |   |   |   | 0.0840 |   |
|           | 0.0853 |   |                           |   | 90,000                                      |                 | 1.3 years                       |   |   | 0.0853 |   |   |   | 90,000 |   |   |   | 0.0853 |   |
|           | 0.0864 |   |                           |   | 138,890                                     |                 | 1.6 years                       |   |   | 0.0864 |   |   |   | 138,890 |   |   |   | 0.0864 |   |
|           | 0.0876 |   |                           |   | 273,974                                     |                 | 1.6 years                       |   |   | 0.0876 |   |   |   | 273,974 |   |   |   | 0.0876 |   |
|           | 0.1000 |   |                           |   | 450,000                                     |                 | 4.6 years                       |   |   | 0.1000 |   |   |   | 450,000 |   |   |   | 0.1000 |   |
|           | 0.1008 |   |                           |   | 166,667                                     |                 | 0.5 years                       |   |   | 0.1008 |   |   |   | 166,667 |   |   |   | 0.1008 |   |
|           | 0.1064 |   |                           |   | 225,475                                     |                 | 2.6 years                       |   |   | 0.1064 |   |   |   | 225,475 |   |   |   | 0.1064 |   |
|           | 0.1080 |   |                           |   | 111,111                                     |                 | 0.2 years                       |   |   | 0.1080 |   |   |   | 111,111 |   |   |   | 0.1080 |   |
|           | 0.1156 |   |                           |   | 415,224                                     |                 | 0.3 years                       |   |   | 0.1156 |   |   |   | 415,224 |   |   |   | 0.1156 |   |
|           | 0.1200 |   |                           |   | 150,000                                     |                 | 1.2 years                       |   |   | 0.1200 |   |   |   | 150,000 |   |   |   | 0.1200 |   |
|           | 0.1216 |   |                           |   | 148,075                                     |                 | 2.4 years                       |   |   | 0.1216 |   |   |   | 148,075 |   |   |   | 0.1216 |   |
|           | 0.1252 |   |                           |   | 95,877                                      |                 | 2.8 years                       |   |   | 0.1252 |   |   |   | 95,877 |   |   |   | 0.1252 |   |
|           | 0.1272 |   |                           |   | 94,340                                      |                 | 2.8 years                       |   |   | 0.1272 |   |   |   | 94,340 |   |   |   | 0.1272 |   |
|           | 0.1300 |   |                           |   | 231,353                                     |                 | 2.6 years                       |   |   | 0.1300 |   |   |   | 231,353 |   |   |   | 0.1300 |   |
|           | 0.1360 |   |                           |   | 44,131                                      |                 | 2.7 years                       |   |   | 0.1360 |   |   |   | 44,131 |   |   |   | 0.1360 |   |
|           | 0.1420 |   |                           |   | 42,265                                      |                 | 2.7 years                       |   |   | 0.1420 |   |   |   | 42,265 |   |   |   | 0.1420 |   |
|           | 0.1440 |   |                           |   | 166,666                                     |                 | 4.9 years                       |   |   | 0.1440 |   |   |   | 166,666 |   |   |   | 0.1440 |   |
|           | 0.1516 |   |                           |   | 39,588                                      |                 | 2.4 years                       |   |   | 0.1516 |   |   |   | 39,588 |   |   |   | 0.1516 |   |
|           | 0.1668 |   |                           |   | 143,885                                     |                 | 5.0 years                       |   |   | 0.1668 |   |   |   | 143,885 |   |   |   | 0.1668 |   |
|           | 0.1764 |   |                           |   | 40,816                                      |                 | 2.9 years                       |   |   | 0.1764 |   |   |   | 40,816 |   |   |   | 0.1764 |   |
|           | 0.1896 |   |                           |   | 126,582                                     |                 | 2.5 years                       |   |   | 0.1896 |   |   |   | 126,582 |   |   |   | 0.1896 |   |
|           | 0.2388 |   |                           |   | 25,126                                      |                 | 2.4 years                       |   |   | 0.2388 |   |   |   | 25,126 |   |   |   | 0.2388 |   |
|           | 0.2751 |   |                           |   | 21,805                                      |                 | 2.4 years                       |   |   | 0.2751 |   |   |   | 21,805 |   |   |   | 0.2751 |   |
|           | 0.2788 |   |                           |   | 21,524                                      |                 | 2.4 years                       |   |   | 0.2788 |   |   |   | 21,524 |   |   |   | 0.2788 |   |
|           | 0.2792 |   |                           |   | 25,785                                      |                 | 2.4 years                       |   |   | 0.2792 |   |   |   | 25,785 |   |   |   | 0.2792 |   |
|           | 0.2948 |   |                           |   | 108,230                                     |                 | 2.5 years                       |   |   | 0.2948 |   |   |   | 108,230 |   |   |   | 0.2948 |   |
|           |   |   |                           |   | 26,960,982                                  |                 |                            |   |   |   |   |   |   | 26,960,982 |   |   |   |   |   |

| (a) | In March 2007, the Company’s Chief Executive Officer and a former director each made loans of $50,000 to the Company.  The loans accrue simple interest at the rate of 10% per annum and were due and payable 120 days after funding.  The loans carry an option that, if the loans were not repaid by June 14, 2007 and June 29, 2007, respectively, such options would entitle the lenders to convert their debt into shares of common stock at a conversion price equal to 50% of the average closing price of the common stock over the three previous business days preceding the date of demand for conversion is made.  Under accounting guidance provide by ASC 815, the conversion price of the loans did not have a determinable number of shares the loans could be settled in and as a result, have been presented as a derivative liability.  Accordingly, the conversion option will be marked to market through earnings at the end of each reporting period.  In January 2008, the Chief Executive Officer converted her note plus accrued interest of $53,658 into 2,146,324 shares of common stock.  In December 2010, the Company issued 947,312 shares of common stock to the former director upon his request to convert his 2007 loan principal $50,000 and accrued interest of $18,491. |
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| (b) | In each of 2009 and 2010, a firm in which the Company’s Chief Financial Officer held fifty percent equity position was retained to prepare the Company’s income tax and other returns.  During the years ended December 31, 2010 and 2009, the Company incurred fees totaling $7,364 and $4,768, respectively, with respect to such services rendered. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | In April 2009, the Company granted the Company’s chief executive officer the right to receive a total of 4,000,000 shares of common stock, 2,000,000 of which were issued in April 2009 and the remaining 2,000,000 shares were issued in February 2010.  In addition to such stock grants, the officer was granted a five-year option to purchase an additional 3,000,000 shares of common stock.  The option was made fully vested as of its grant date and has an exercise price of $0.041 per share.  Such stock and option are being issued and were granted under the Company’s 2008 Equity Incentive Plan.  In 2010 and 2009, the Company incurred stock-based compensation for such stock grants were $114,000 and $82,000, respectively and $0 and $84,900, respectively,  in connection with such option grant. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | In April 2009, the Company granted the Company’s chief financial financial the right to receive a total of 4,000,000 shares of common stock, 2,000,000 of which were issued in April 2009 and the remaining 2,000,000 shares were issued in February 2010.  In addition to such stock grants, the officer was granted a five-year option to purchase an additional 3,000,000 shares of common stock.  The option was made fully vested as of its grant date and has an exercise price of $0.041 per share.  Such stock and option are being issued and were granted under the Company’s 2008 Equity Incentive Plan.  In 2010 and 2009, the Company incurred stock-based compensation for such stock grants were $114,000 and $82,000, respectively and $0 and $84,900, respectively, in connection with such option grant. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | In May 2009, the Company issued 250,000 shares of common stock to a director in order to fulfill the Company’s obligation in connection with the appointment of the director effective March 14, 2008.  The Company incurred stock-based compensation of $8,750 in connection with such stock issuance. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | In December 2009, the Company issued 1,000,000 shares of Common Stock to each of the Company’s Chief Executive Officer and Chief Financial Officer and recorded $100,000 of stock-based compensation.  The issuance is in connection with the 2008 award that granted each of the Company’s chief executive officer and chief financial officer 2,000,000 shares of common stock with 1,000,000 shares vesting immediately and 1,000,000 shares vesting in one year provided the officer remains employed by the Company.  The Company incurred $100,000 of stock-based compensation. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | In September 2009, the Company entered into agreements with the Chief Executive Officer and Chief Financial Officer together to defer a total of $239,000 in compensation owed to them as of September 30, 2009.  In return, the Company issued to the Chief Executive Officer and Chief Financial Officer each a promissory note for the deferment.  The notes mature in January 2011 and interest will be accrued at 10% per annum compounded monthly. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (h) | In March 2010, the Company issued to its Chief Executive Officer 1,058,824 shares of common stock in settlement of $54,000 accrued compensation, 588,235 shares to the Company’s Chief Financial Officer in settlement of $30,000 accrued compensation and 500,000 shares to the Company’s Vice President of International Markets in settlement of $25,500 accrued compensation. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (i) | In February 2010, the Company issued 600,000 shares of common stock to each of the Company’s Chief Executive Officer and Chief Financial per grant that was approved by the Company’s Board of Birectors on February 1, 2010.  The shares were fully vested on the date of the grant and accordingly, the Company recorded $61,200 of stock-based compensation in connection with this issuance. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (j) | In February 2010, the Company issued 500,000 shares of common stock to each of the Company’s Vice President of International Markets and Director of Research and Development per grant that was approved by the Company’s Board of Directors on February 1, 2010.  The shares were fully vested on the date of the grant and accordingly, the Company recorded $51,000 of stock-based compensation in connection with this issuance. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (k) | On March 8, 2010, the Company granted 2,000,000 warrants to the Company’s Chief Executive Officer to purchase common stock at a price of $0.052 per share.  The award was approved by Boar of Directors on March 8, 2010.  The warrants have a life of 5 years and were fully vested on the date of the grant.  The Company recorded a charge of approximately $69,600 for the fair value of the grant. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (l) | On March 8, 2010, the Company granted 2,000,000 warrants to the Company’s Vice President of International Markets to purchase common stock at a price of $0.052 per share to a consultant for services provided. The award was approved by Boar of Directors on March 8, 2010.  The warrants have a life of 5 years and were fully vested on the date of the grant. The Company recorded a charge of approximately $69,600 for the fair value of the grant. |
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| (m) | On June 30, 2010, the Company’s Chief Operating Officer requested to convert $25,000 he lent to the Company in October 2009 plus accrued interest $1,514 to the Company’s common stock. The Company issued 530,278 shares of common stock to the designated party the Chief Operating Officer instructed.  In addition, the Chief Operating Officer also exercised 100,000 warrants that he received through the October 2009 loan, at the exercise price of $0.06 per share.  The Company issued 100,000 shares to the Chief Operating Officer and received $6,000 in connection with such warrant exercise. The Company reclassified $10,600 of the derivative liability to equity for the fair value of the embedded conversion option on the date of conversion. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (n) | On April 7, 2010, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer each made loans of $100,000 to the Company.  The loans accrue interest at the rate of 7% per annum.  In addition, the Company issued warrants to each officer to purchase 431,034 shares of common stock at an exercise price of $0.059 per share.  The loans are due and payable by or on October 7, 2010.  The interest accrued on the loans is to be paid on the 7th day of each month until the loans mature and paid off.  The loans were evidenced by the promissory notes the Company issued to the two officers which each contain a conversion clause that allow the officers at the officer’s sole option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock.  The conversion price was set at $0.059 per share, which was the closing market price of the common stock as of the closing date of the loans. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (o) | On July 12, 2010, the Company issued 1,764,706 shares of common stock in settlement of $90,000 of accounts payable due to Hidell-Eyster Technical Services (“Hidell-Eyster”) with whom the Company signed a General Management Agreement with in March 2010.  Hidell-Eyster subsequently transferred all shares to their employees including 419,118 shares to Carroll S. Keim, President and Chief Executive Officer of Hidell-Eyster, who also served as the Company’s President under the March 2010 agreement, and 419,117 shares to Henry R. Hidell, Founder and Chairman of Hidell-Eyster, who also served as the Company’s Chief Operating Officer under the same agreement. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (p) | On October 4, 2010, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer each made loans of $100,000 to the Company.  The loans accrue interest at the rate of 10% per annum.  In addition, the Company issued warrants to each officer to purchase 200,000 shares of common stock at an exercise price of $0.10 per share.  The loans are due and payable by or on November 17, 2010.  The loan and accrued interest were to be paid on the mature date.  The loans were evidenced by the promissory notes the Company issued to the two officers which each contain a conversion clause that allow the officers at the officer’s sole option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock.  The conversion price was set at $0.10 per share, which was the closing market price of the common stock as of the closing date of the loans. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (q) | In July, 2010, the Company issued a total of 178,572 shares of common stock to its Chief Executive Officer and Chief Financial Officer, each of which received 89,286 shares for their third quarter of 2010 director fees.  The issuance is part of the annual compensation that was authorized by the Company’s Board of Directors on May 26, 2010, when the Board approved the annual director fees to be $50,000, paid in shares of common stock, payable quarterly, and valued at the beginning of each quarter. The Company incurred stock-based compensation of $25,000 in connection with the July issuance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (r) | In October, 2010, the Company issued a total of 227,272 shares of common stock to its Chief Executive Officer and Chief Financial Officer, each of which received 113,636 shares for their fourth quarter of 2010 director fees.  The issuance is part of the annual compensation that was authorized by the Company’s Board of Directors on May 26, 2010, when the Board approved the annual director fees to be $50,000, paid in shares of common stock, payable quarterly, and valued at the beginning of each quarter. The Company incurred stock-based compensation of $25,000 in connection with the October issuance. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (s) | On October 19, 2010, the Company issued 670,802 shares to each of the Company’s Chief Executive Officer and Chief Financial Officer. The issuance was approved by the Board of Directors on August 5, 2010 for their efforts in raising capital.  The Company recorded $128,794 stock-based compensation for such issuance. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (t) | On December 30, 2010, the Company issued 557,778 shares of common stock to its chief financial officer upon his request to convert $25,000 of loan principal and $2,889 of accrued interest the Company owed him into common stock based on the terms in the loan agreement the Company entered with the officer on October 23, 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (u) | On December 30, 2010, the Company issued 581,308 shares of common stock to its chief executive officer upon his request to convert $25,000 of loan principal and $2,903 of accrued interest the Company owed her into common stock based on the terms in the loan agreement the Company entered with the officer on October 21, 2009. |
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|                                                                   |   | 2010   |        |   | 2009   |   |
|------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Deferred Tax Asset                                                     |   |   |        |   |   |   |
| Net operating loss carryovers                                          |   | $      | 11,900,000  |   |   | $      | 10,800,000 |   |
| Total deferred tax asset                                               |   |   | 11,900,000  |   |   |   | 10,800,000 |   |
| Valuation allowance                                                    |   |   | (11,900,000 | )      |   |   | (10,800,000 | ) |
|     Deferred tax asset, net of valuation allowance |   |   | --          |   |   |   | -- |   |

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|                           |   | December 31, |
|--------------------------------|--------|--------------|
|                           |   | 2010         |   |   | 2009 |   |
| Federal                        |   |         |   |   |   |   |   |   |
| Current                        |   |         | -- |   |   |   | -- |   |
| Deferred                       |   |         | (900,000 | ) |   |   | (340,000 | ) |
| State and local                |   |         |   |   |   |   |   |   |
| Current                        |   |         |   -- |   |   |   |   -- |   |
| Deferred                       |   |         | (200,000 | ) |   |   | (60,000 | ) |
| Change in valuation allowance  |   |         | 1,100,000 |   |   |   | 400,000 |   |
| Income tax provision (benefit) |   |         | -- |   |   |   | -- |   |

|                                                                             |   | 2010   |   |   | 2009   |   |
|----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Federal statutory rate                                                           |   |   | (34.0  | )%     |   |   | (34.0 | )% |
| State tax benefit, net of federal tax                                            |   |   | (6.0   | )      |   |   | (6.0 | ) |
|     Non-deductible Stock based   compensation |   |   | 5.4    |   |   |   | 13.6 |   |
|     Change in fair value of derivative liability             |   |   | 15.9   |   |   |   | -- |   |
| Other permanent differences                                                      |   |   | 2.7    |   |   |   | (4.4 | ) |
| True up of net operating loss                                                    |   |   | --     |   |   |   | (9.7 | ) |
| Change in valuation allowance                                                    |   |   | 16.0   |   |   |   | 40.5 |   |
| Effective rate                                                                   |   |   | 0.0    | %      |   |   | 0.0 | % |

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Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

Controls and Procedures

| • | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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PART III

Directors, Executive Officers and Corporate Governance

| Name              |   | Age |   | Principal Positions and Offices with our Company |   | Director Since |
|-------------------|--------|-----|--------|--------------------------------------------------|--------|----------------|
| Leslie J. Kessler |   | 63  |   | Chief Executive Officer  and Chairman  |   | 2007           |
| Terry R. Lazar    |   | 67  |   | Chief Financial Officer and Director             |   | 2007           |
| Gerard Stoehr     |   | 57  |   | Chief Operating Officer                          |   | 2011           |
| Malcolm Hoenlein  |   | 67  |   | Director                                         |   | 2008           |
| Paul Goldenberg   |   | 55  |   | Director                                         |   | 2010           |
| Jack Tomarchio    |   | 55  |   | Director                                         |   | 2010           |

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Executive Compensation.

|                                                   |   | Fiscal Year |   | Salary |    |   | Stock Awards |   |    | Option Awards |   |   | All Other Compensation |   |   | Total  |   |
|--------------------------------------------------------|--------|-------------|--------|--------|---------|--------|--------------|--------|---------|---------------|--------|--------|------------------------|--------|--------|--------|--------|
| Leslie J. Kessler,                                     |   | 2010        |   | $      | 180,000 |   |         | $      | 233,997 |          |   | $      | 69,600                 |   |   | $      | 20,000 |   |   | $ | 503,597 |   |
| Chief Executive Officer (1)                            |   | 2009        |   |   | 108,000 |   |         |   | 132,000 |          |   |   | 198,100                |   |   |   | 0      |   |   |   | 438,100 |   |
|                                                   |   |        |   |   |    |   |         |   |    |          |   |   |                   |   |   |   |   |   |   |   |   |   |
| Terry R. Lazar,                                        |   | 2010        |   |   | 140,400 |   |         |   | 169,600 |          |   |   | 64,397                 |   |   |   | 20,000 |   |   |   | 394,397 |   |
| Chief Financial Officer (2)                            |   | 2009        |   |   | 60,000  |   |         |   | 132,000 |          |   |   | 84,900                 |   |   |   |   |   |   |   | 276,900 |   |
|                                                   |   |        |   |   |    |   |         |   |    |          |   |   |                   |   |   |   |   |   |   |   |   |   |
| Henry R. Hidell, III                                   |   | 2010        |   |   |    |   |         |   | 25,000  |          |   |   |                   |   |   |   |   |   |   |   | 25,000 |   |
| Chief Operating Officer (3)                            |   | 2009        |   |   | --      |   |         |   | --      |          |   |   | --                     |   |   |   |   |   |   |   | -- |   |
|                                                   |   |        |   |   |    |   |         |   |    |          |   |   |                   |   |   |   |   |   |   |   |   |   |
| Carroll S. Keim,                                       |   | 2010        |   |   |    |   |         |   |    |          |   |   |                   |   |   |   |   |   |   |   |   |   |
| President (4)                                          |   | 2009        |   |   |    |   |         |   |    |          |   |   |                   |   |   |   |   |   |   |   |   |   |
|                                                   |   |        |   |   |    |   |         |   |    |          |   |   |                   |   |   |   |   |   |   |   |   |   |
| Shaul Kochan,                                          |   | 2010        |   |   | 91,666  |   |         |   | 25,500  |          |   |   | 69,600                 |   |   |   |   |   |   |   | 186,766 |   |
| Vice President of International Markets  (5) |   | 2009        |   |   | 96,000  |   |         |   | 20,000  |          |   |   |                   |   |   |   |   |   |   |   | 116,000 |   |
|                                                   |   |        |   |   |    |   |         |   |    |          |   |   |                   |   |   |   |   |   |   |   |   |   |
| Richard Pellerito,                                     |   | 2010        |   |   |    |   |         |   | 6,500   |          |   |   |                   |   |   |   |   |   |   |   | 6,500 |   |
| Vice President of Technical Sales (6)                  |   | 2009        |   |   |    |   |         |   |    |          |   |   |                   |   |   |   |   |   |   |   |   |   |

| (1) | Ms. Kessler was appointed our President in January 2007 and Chief Executive Officer in February 2007.  From May 2006 to January 2007, she was an outside consultant to our company.  The amounts reflected in the table constitute the total compensation earned by Ms. Kessler during the subject fiscal years, whether or not actually paid to her.  Ms. Kessler elected to defer $90,000 from her 2010 salary.  In 2010, Ms. Kessler was awarded 3,473,724 shares of our common stock.  We recorded $233,997 in stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table.   In addition, Ms Kessler was also awarded warrants to purchase 2 million shares of our common stock at exercise price of $0.052 per share.  We recorded $69,600 in stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mr. Lazar was appointed Chief Financial Officer and a director of our company in September 2007. The amounts reflected in the table constitute the total compensation earned by Mr. Lazar during the subject fiscal years, whether or not actually paid to him.  Mr. Lazar elected to defer $70,200 from his 2010 salary.  Mr. Lazar was awarded 3,473,724 shares of our common stock.  We recorded $233,997 in stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)  | Mr. Hidell was appointed Chief Operating Officer and a director of our company in March 2010 until his resignation in November  2010.  His regular compensation in 2010 was included in the consulting fees incurred by Hidell-Eyster Technical Service Inc. and cannot be segregated for his service. Mr. Hidell was awarded 202,922 shares of our common stock as director fees for third and fourth quarter of 2010.  We recorded 25,000 in stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table. |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Mr. Keim was appointed President of our company in March 2010 until his resignation in November 2010. His regular compensation in 2010 was included in the consulting fees incurred by Hidell-Eyster Technical Service Inc. and cannot be segregated for his service. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Mr. Kochan joined the Company as a consultant in 2007 and was appointed as Vice President of International Markets on March 26, 2010 after his consulting agreement has expired in December 2009.  The amounts reflected in the table constitute the total compensation earned by Mr. Kochan during the subject fiscal years, whether or not actually paid to him. In addition, Mr. Kochan was awarded 500,000. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (6)  | Mr. Pellerito was appointed Vice President of Technical Sales in 2010 until his resignation in November 2010.  His regular compensation in 2010 was included in the consulting fees incurred by Hidell-Eyster Technical Service Inc. and cannot be segregated for his service.  Mr. Pellerito was awarded 50,000 shares of our common stock.  We recorded $6,500 of stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Net Operating Profit Before Income Taxes |   | Performance Bonus |   |
|------------------------------------------|--------|-------------------|--------|
|                                     |   |              |   |
| On the First $10 Million                 |   |              | 0      | % |
|                                     |   |              |   |   |
| On the Next $40 Million                  |   |              | 3.5    | % |
|                                     |   |              |   |   |
| On the Next $50 Million                  |   |              | 2.5    | % |
|                                     |   |              |   |   |
| On all Amounts Over $100 Million         |   |              | 1.5    | % |

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| • | with respect to each option award - |
|---------|-------------------------------------|

|   | • | the number of shares of our common stock issuable upon exercise of outstanding options that have been earned, separately identified by those exercisable and unexercisable; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the number of shares of our common stock issuable upon exercise of outstanding options that have not been earned; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------|

|   | • | the exercise price of such option; and |
|--------|---------|----------------------------------------|

|   | • | the expiration date of such option; and |
|--------|---------|-----------------------------------------|

| • | with respect to each stock award - |
|---------|------------------------------------|

|   | • | the number of shares of our common stock that have been earned but have not vested; |
|--------|---------|-------------------------------------------------------------------------------------|

|   | • | the market value of the shares of our common stock that have been earned but have not vested; |
|--------|---------|-----------------------------------------------------------------------------------------------|

|   | • | the total number of shares of our common stock awarded under any equity incentive plan that have not vested and have not been earned; and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the aggregate market or pay-out value of our common stock awarded under any equity incentive plan that have not vested and have not been earned. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Option Award – |
|--------|----------------------|

| Name                  |   | Number of Securities Underlying Unexercised Options Exercisable |   | Number of Securities Underlying Unexercised Options Unexercisable |   | Equity Incentive Plan Awards:Number of Securities Underlying Unexercised Unearned Options |   | Option Exercise Price |   | Option Expiration Date |
|-----------------------|--------|-----------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|--------|-----------------------|--------|------------------------|
| Leslie J. Kessler (1) |   | $7,000,000                                                      |   |                                                              |   |                                                                                      |   | $                     | 0.041  |                   | 04/17/14 |
|                  |   | 2,000,000                                                       |   |                                                              |   |                                                                                      |   |                  | 0.052  |                   | 03/07/15 |
|                  |   |                                                            |   |                                                              |   |                                                                                      |   |                  |   |                   |   |
| Terry R. Lazar (2)    |   | 2,000,000                                                       |   |                                                              |   |                                                                                      |   | $                     | 0.07   |                   | 09/27/11 |
|                  |   | 3,000,000                                                       |   |                                                              |   |                                                                                      |   |                  | 0.041  |                   | 04/17/14 |
|                  |   |                                                            |   |                                                              |   |                                                                                      |   |                  |   |                   |   |
| Shaul Kochan          |   | 2,000,000                                                       |   |                                                              |   |                                                                                      |   | $                     | 0.052  |                   | 03/17/15 |

|   | (1) | Does not include 1,241,611 shares of our common stock issuable upon exercise of warrants granted to Ms. Kessler in connection with loans she made to the Company between October 2008 and October 2010. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Does not include (a) 1,237,444 shares of our common stock issuable upon exercise of warrants granted to Mr. Lazar in connection with loans he made to the Company between October 2008 and October 2010 and (b) 370,014 shares issuable upon exercise of warrants that were issued in connection with investments Mr. Lazar made in between December 2007 and October 2009. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Name                 |   | Fees Earned or Paid in Cash |   |   | Stock Awards |   | Option Awards |   | All Other Compensation |   | Total  |   |
|----------------------|--------|-----------------------------|--------|--------|--------------|--------|---------------|--------|------------------------|--------|--------|--------|
| Malcolm Hoenlein (1) |   | $                           | 4,000  |   |         | $      | 25,000        |   | $                      |   | $      |   | $ | 33,000 |   |
| Paul Goldenberg      |   |                        |   |   |         |   | 25,000        |   |                   |   |   |   |   | 25,000 |   |
| Jack T. Tomarchio    |   |                        |   |   |         |   | 25,000        |   |                   |   |   |   |   | 25,000 |   |
|                 |   |                        |   |   |         |   |          |   |                   |   |   |   |   |   |   |

| (1) | We have agreed to compensate Malcolm Hoenlein, currently our sole outside director, $8,000 per year for his services as a director of our company until July 1, 2010 when the new director fees became effective.  In addition, in connection with his initial election to our board of directors in March 2008, we issued 250,000 shares of our common stock to Mr. Hoenlein on May 6, 2009, the first anniversary of his appointment to our Board of Directors and granted him an option to purchase an additional 500,000 shares or our common stock, exercisable for a three-year period at $0.0667 per share commencing on such one-year anniversary date. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

| • | each person known by us to beneficially own 5% or more of the outstanding shares of such class of stock, based on filings with the Securities and Exchange Commission and certain other information, |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| • | each of our current “named executive officers” and directors, and |
|---------|-------------------------------------------------------------------------------|

| • | all of our current executive officers and directors as a group. |
|---------|-----------------------------------------------------------------|

| • | we believe that all shares are beneficially owned, and investment and voting power is held by, the persons named as owners, and |
|---------|---------------------------------------------------------------------------------------------------------------------------------|

| • | the address for each beneficial owner listed in the table is c/o Puresafe Water Systems, Inc., 25 Fairchild Avenue, Suite 250, Plainview, New York 11803. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name and Address of Stockholder                                 |   | Amount and Nature of Beneficial Ownership |   |   | Percentage of Class |   |
|-----------------------------------------------------------------|--------|-------------------------------------------|--------|--------|---------------------|--------|
| Jerome and Anne Asher JTWROS (1)                                |   |                                      | 5,000  |   |                |   | 9.5 | % |
| Robert D. Asher (2)                                             |   |                                      | 5,000  |   |                |   | 9.5 |   |
| All executive officers and directors as a group (three persons) |   |                                      | 0      |   |                |   | 0.0 | % |

| (1) | The address for Mr. J. and Ms. Asher is 2701 N. Ocean Boulevard, Apartment E-202, Boca Raton, Florida 33431. |
|-----|--------------------------------------------------------------------------------------------------------------|

| (2) | The address for Mr. R. Asher is 72 Old Farm Road, Concord, Massachusetts 01742. |
|-----|---------------------------------------------------------------------------------|

| Name and Address of Stockholder                                 |   | Amount and Nature of Beneficial Ownership |   |   | Percentage of Class |   |
|-----------------------------------------------------------------|--------|-------------------------------------------|--------|--------|---------------------|--------|
| John A. Borger (1)                                              |   |                                      | 10,000 |   |                |   | 10.8 | % |
| Shirley M. Wan (2)                                              |   |                                      | 6,000  |   |                |   | 6.5 |   |
| All executive officers and directors as a group (three persons) |   |                                      | 0      |   |                |   | 0.0 | % |

| (1) | The address for Mr. Borger is 806 E. Avenida Pico, Suite 1, PMB #262, San Clemente, California 92673. |
|-----|-------------------------------------------------------------------------------------------------------|

| (2) | The address for Ms. Wan is 5455 Chelsen Wood Drive, Duluth, Georgia 30155. |
|-----|----------------------------------------------------------------------------|

| Name and Address of Stockholder                                 |   | Amount and Nature of Beneficial Ownership |   |   | Percentage of Class |   |
|-----------------------------------------------------------------|--------|-------------------------------------------|--------|--------|---------------------|--------|
| Robert Kaszovitz (1)                                            |   |                                      | 10,000 |   |                |   | 25.2 | % |
| C Trade Inc. (2)                                                |   |                                      | 9,375  |   |                |   | 10.4 |   |
| Olsham Grundman Frome Rosenzweig & Wolosky (3)              |   |                                      | 5,000  |   |                |   | 5.6 |   |
| Peter Hoffman (4)                                               |   |                                      | 3,126  |   |                |   | 7.9 |   |
| All executive officers and directors as a group (three persons) |   |                                      | 0      |   |                |   | 0.0 |   |

| (1) | The address for Mr. Kaszovitz is 1621 51st Street, Brooklyn, New York, 11204. |
|-----|-------------------------------------------------------------------------------|

| (2) | The address for C Trade Inc. is 25-40 Shore Boulevard, Suite 9L, Astoria, New York 11102. |
|-----|-------------------------------------------------------------------------------------------|

| (3) | The address for Olsham Grundman Frome Rosenzweig & Wolosky is 65 East 55th Street, New York, New York 10022. |
|-----|------------------------------------------------------------------------------------------------------------------|

| (4) | The address for Mr. Hoffman is 70-35 Vleigh Place, Flushing, New York 11367. |
|-----|------------------------------------------------------------------------------|

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| Name and Address of Stockholder                 |   | Amount and Nature ofBeneficial Ownership |       |   | Percentage of Class |   |
|-------------------------------------------------|--------|------------------------------------------|------------|--------|--------------------------|--------|
| Leslie Kessler (1)                              |   |                                     | 28,609.619 | (2)    |                     |   | 8.45 | % |
| Terry Lazar (3)                                 |   |                                     | 25,809,677 | (4)    |                     |   | 7.66 | % |
| Malcolm Hoenlein (5)                            |   |                                     | 1,043,502  | (6)    |                     |   | 0.32 | % |
| Paul Goldenberg (7)                             |   |                                     | 293,484    |   |                     |   | 0.09 | % |
| Jack Tomarchio (8)                              |   |                                     | 293,484    |   |                     |   | 0.09 | % |
| All executive officers and directors as a group |   |                                     | 64,931,138 | (9)    |                     |   | 18.59 | % |

| (1) | Ms. Kessler is our Chief Executive Officer and a member of our board of directors. |
|-----|------------------------------------------------------------------------------------|

| (2) | Includes (a) 98,400 shares of our common stock held in Ms. Kessler’s IRA account; (b) 10,331,539 shares of our common stock issuable upon exercise of warrants granted to Ms. Kessler or issued to Ms. Kessler in connection with loans made to or investments made in the Company by Ms. Kessler; (c) 2,054,627 shares of our common stock issuable upon conversion of outstanding loans to the Company made by Ms. Kessler to the Company in 2010 and 2011.   All warrants and conversion rights included in this section are exercisable within the next 60 days. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Mr. Lazar is our Chief Financial Officer and a member of our board of directors. |
|-----|----------------------------------------------------------------------------------|

| (4) | Includes (a) 270,000 shares of our common stock owned by Mr. Lazar and his spouse, jointly; (b) 185,000 shares of our common stock held in Mr. Lazar’s IRA account; (c) 205,000 shares of our common stock held in Mr. Lazar’s 401(k) account; (d) 140,000 shares held in an IRA account of Mr. Lazar’s spouse; (e) 25,000 shares of our common stock held in a profit sharing plan trust for the benefit of Mr. Lazar; (f) 476,191 shares of our common stock held by a partnership in which Mr. Lazar holds a one-third (1/3) equity interest; (g) 6,954,899 shares of our common stock issuable upon exercise of warrants previously granted to Mr. Lazar, including 95,238 shares of our common stock issuable upon exercise of warrants sold, in March  2008, to the partnership in which Mr. Lazar holds a one-third (1/3) equity interest; (i) 3,084,681 shares of our common stock issuable upon exercise of warrants granted to Mr. Lazar or issued to Mr. Lazar in connection with loans made to or investments made in the Company by Mr. Lazar.  All warrants and conversion rights included in this section are exercisable within the next 60 days. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  (5) | Mr. Hoenlein is a member of our board of directors. |
|-----------|-----------------------------------------------------|

| (6) | Includes 500,000 shares of our common stock underlying an option granted to Mr. Hoenlein in March 2008, which option is exercisable within the next 60 days. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Mr. Goldenberg was appointed to our board of directors on June 11, 2010. |
|-----|--------------------------------------------------------------------------|

| (8) | Mr. Tomarchio was appointed to our board of directors on June 11, 2010 |
|-----|------------------------------------------------------------------------|

| (9) | Includes those shares beneficially owned by our current executive officers and directors, as set forth in the schedule above. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

Certain Relationships and Related Transactions, and Director Independence.

| (a) | In March 2007, the Company’s Chief Executive Officer and a former director each made loans of $50,000 to the Company.  The loans accrue simple interest at the rate of 10% per annum and were due and payable 120 days after funding.  The loans carry an option that, if the loans were not repaid by June 14, 2007 and June 29, 2007, respectively, such options would entitle the lenders to convert their debt into shares of common stock at a conversion price equal to 50% of the average closing price of the common stock over the three previous business days preceding the date of demand for conversion is made.  Under accounting guidance provide by ASC 815, the conversion price of the loans did not have a determinable number of shares the loans could be settled in and as a result, have been presented as a derivative liability.  Accordingly, the conversion option will be marked to market through earnings at the end of each reporting period.  In January 2008, the Chief Executive Officer converted her note plus accrued interest of $53,658 into 2,146,324 shares of common stock.  In December 2010, the Company issued $947,312 shares of common stock to the former director upon his request to convert his 2007 loan principal $50,000 and accrued interest of $18,491. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (b) | In each of 2009 and 2010, a firm in which the Company’s Chief Financial Officer held fifty percent equity position was retained to prepare the Company’s income tax and other returns.  During the years ended December 31, 2010 and 2009, the Company incurred fees totaling $7,364 and $4,768, respectively, with respect to such services rendered. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | In April 2009, the Company granted the Company’s chief executive officer the right to receive a total of 4,000,000 shares of common stock, 2,000,000 of which were issued in April 2009 and the remaining 2,000,000 shares were issued in February 2010.  In addition to such stock grants, the officer was granted a five-year option to purchase an additional 3,000,000 shares of common stock.  The option was made fully vested as of its grant date and has an exercise price of $0.041 per share.  Such stock and option are being issued and were granted under the Company’s 2008 Equity Incentive Plan.  In 2010 and 2009, the Company incurred stock-based compensation for such stock grants were $114,000 and $82,000, respectively and $0 and $84,900, respectively,  in connection with such option grant. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | In April 2009, the Company granted the Company’s chief financial financial the right to receive a total of 4,000,000 shares of common stock, 2,000,000 of which were issued in April 2009 and the remaining 2,000,000 shares were issued in February 2010.  In addition to such stock grants, the officer was granted a five-year option to purchase an additional 3,000,000 shares of common stock.  The option was made fully vested as of its grant date and has an exercise price of $0.041 per share.  Such stock and option are being issued and were granted under the Company’s 2008 Equity Incentive Plan.  In 2010 and 2009, the Company incurred stock-based compensation for such stock grants were $114,000 and $82,000, respectively and $0 and $84,900, respectively, in connection with such option grant. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | In May 2009, the Company issued 250,000 shares of common stock to a director in order to fulfill the Company’s obligation in connection with the appointment of the director effective March 14, 2008.  The Company incurred stock-based compensation of $8,750 in connection with such stock issuance. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | In December 2009, the Company issued 1,000,000 shares of Common Stock to each of the Company’s Chief Executive Officer and Chief Financial Officer and recorded $100,000 of stock-based compensation.  The issuance is in connection with the 2008 award that granted each of the Company’s chief executive officer and chief financial officer 2,000,000 shares of common stock with 1,000,000 shares vesting immediately and 1,000,000 shares vesting in one year provided the officer remains employed by the Company.  The Company incurred $100,000 of stock-based compensation. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | In September 2009, the Company entered into agreements with the Chief Executive Officer and Chief Financial Officer together to defer a total of $239,000 in compensation owed to them as of September 30, 2009.  In return, the Company issued to the Chief Executive Officer and Chief Financial Officer each a promissory note for the deferment.  The notes mature in January 2011 and interest will be accrued at 10% per annum compounded monthly. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (h) | In March 2010, the Company issued to its Chief Executive Officer 1,058,824 shares of common stock in settlement of $54,000 accrued compensation, 588,235 shares to the Company’s Chief Financial Officer in settlement of $30,000 accrued compensation and 500,000 shares to the Company’s Vice President of International Markets in settlement of $25,500 accrued compensation. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (i) | In February 2010, the Company issued 600,000 shares of common stock to each of the Company’s Chief Executive Officer and Chief Financial per grant that was approved by the Company’s Board of Birectors on February 1, 2010.  The shares were fully vested on the date of the grant and accordingly, the Company recorded $61,200 of stock-based compensation in connection with this issuance. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (j) | In February 2010, the Company issued 500,000 shares of common stock to each of the Company’s Vice President of International Markets and Director of Research and Development per grant that was approved by the Company’s Board of Directors on February 1, 2010.  The shares were fully vested on the date of the grant and accordingly, the Company recorded $51,000 of stock-based compensation in connection with this issuance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (k) | On March 8, 2010, the Company granted 2,000,000 warrants to the Company’s Chief Executive Officer to purchase common stock at a price of $0.052 per share.  The award was approved by Boar of Directors on March 8, 2010.  The warrants have a life of 5 years and were fully vested on the date of the grant.  The Company recorded a charge of approximately $69,600 for the fair value of the grant. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (l) | On March 8, 2010, the Company granted 2,000,000 warrants to the Company’s Vice President of International Markets to purchase common stock at a price of $0.052 per share to a consultant for services provided. The award was approved by Boar of Directors on March 8, 2010.  The warrants have a life of 5 years and were fully vested on the date of the grant. The Company recorded a charge of approximately $69,600 for the fair value of the grant. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (m) | In June 30, 2010, the Company’s Chief Operating Officer requested to convert $25,000 he lent to the Company in October 2009 plus accrued interest $1,514 to the Company’s common stock. The Company issued 530,278 shares of common stock to the designated party the Chief Operating Officer instructed.  In addition, the Chief Operating Officer also exercised 100,000 warrants that he received through the October 2009 loan, at the exercise price of $0.06 per share.  The Company issued 100,000 shares to the Chief Operating Officer and received $6,000 in connection with such warrant exercise. The Company reclassified $10,600 of the derivative liability to equity for the fair value of the embedded conversion option on the date of conversion. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (n) | On April 7, 2010, the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer each made loans of $100,000 to the Company.  The loans accrue interest at the rate of 7% per annum.  In addition, the Company issued warrants to each officer to purchase 431,034 shares of common stock at an exercise price of $0.059 per share.  The loans are due and payable by or on October 7, 2010.  The interest accrued on the loans is to be paid on the 7th day of each month until the loans mature and paid off.  The loans were evidenced by the promissory notes the Company issued to the two officers which each contain a conversion clause that allow the officers at the officer’s sole option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock.  The conversion price was set at $0.059 per share, which was the closing market price of the common stock as of the closing date of the loans. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (o) | On July 12, 2010, the Company issued 1,764,706 shares of common stock in settlement of $90,000 of accounts payable due to Hidell-Eyster Technical Services (“Hidell-Eyster”) with whom the Company signed a General Management Agreement with in March 2010.  Hidell-Eyster subsequently transferred all shares to their employees including 419,118 shares to Carroll S. Keim, President and Chief Executive Officer of Hidell-Eyster, who also served as the Company’s President under the March 2010 agreement, and 419,117 shares to Henry R. Hidell, Founder and Chairman of Hidell-Eyster, who also served as the Company’s Chief Operating Officer under the same agreement. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (p) | On October 4, 2010, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer each made loans of $100,000 to the Company.  The loans accrue interest at the rate of 10% per annum.  In addition, the Company issued warrants to each officer to purchase 200,000 shares of common stock at an exercise price of $0.10 per share.  The loans are due and payable by or on November 17, 2010.  The loan and accrued interest were to be paid on the mature date.  The loans were evidenced by the promissory notes the Company issued to the two officers which each contain a conversion clause that allow the officers at the officer’s sole option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock.  The conversion price was set at $0.10 per share, which was the closing market price of the common stock as of the closing date of the loans. |
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| (q) | In July, 2010, the Company issued a total of 178,572 shares of common stock to its Chief Executive Officer and Chief Financial Officer, each of which received 89,286 shares for their third quarter of 2010 director fees.  The issuance is part of the annual compensation that was authorized by the Company’s Board of Directors on May 26, 2010, when the Board approved the annual director fees to be $50,000, paid in shares of common stock, payable quarterly, and valued at the beginning of each quarter. The Company incurred stock-based compensation of $25,000 in connection with the July issuance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (r) | In October, 2010, the Company issued a total of 227,272 shares of common stock to its Chief Executive Officer and Chief Financial Officer, each of which received 113,636 shares for their fourth quarter of 2010 director fees.  The issuance is part of the annual compensation that was authorized by the Company’s Board of Directors on May 26, 2010, when the Board approved the annual director fees to be $50,000, paid in shares of common stock, payable quarterly, and valued at the beginning of each quarter. The Company incurred stock-based compensation of $25,000 in connection with the October issuance. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (s) | On October 19, 2010, the Company issued 670,802 shares to each of the Company’s Chief Executive Officer and Chief Financial Officer. The issuance was approved by the Board of Directors on August 5, 2010 for their efforts in raising capital.  The Company recorded $128,794 stock-based compensation for such issuance. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (t) | On December 30, 2010, the Company issued 557,778 shares of common stock to its chief financial officer upon his request to convert $25,000 of loan principal and $2,889 of accrued interest the Company owed him into common stock based on the terms in the loan agreement the Company entered with the officer on October 23, 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (u) | On December 30, 2010, the Company issued 581,308 shares of common stock to its chief executive officer upon his request to convert $25,000 of loan principal and $2,903 of accrued interest the Company owed her into common stock based on the terms in the loan agreement the Company entered with the officer on October 21, 2009. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Principal Accountand Fees and Services.

|                   |   | Fiscal Year Ended December 31, |   |
|------------------------|--------|--------------------------------|--------|
| Category               |   | 2010                           |   |   | 2009 |   |
| Audit fees (1)         |   | $                              | 93,500 |   |   | $ | 96,815 |   |
| Audit-related fees (2) |   |                           | 0      |   |   |   | 0 |   |
| Tax fees (3)           |   |                           | 0      |   |   |   | 0 |   |
| All Other Fees (4)     |   |                           | 0      |   |   |   | 0 |   |

| (1) | Consists of fees billed for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Consists of assurance and related services that are reasonably related to the performance of the audit and reviews of our financial statements and are not included in “audit fees” in this table. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Consists of professional services rendered for tax compliance, tax advice and tax planning.  The nature of these tax services is tax preparation. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Marcum provided the following other services during the years ended December 31, 2010 and 2009: none. |
|-----|-------------------------------------------------------------------------------------------------------|

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PART IV

Exhibits and Financial Statement Schedules

| Exhibit Number |   | Exhibit Description                                                                                                                                                                                                                                                                                       |
|----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1            |   | Composite of Certificate of Incorporation of PureSafe Water Systems, Inc., as amended to date.                                                                                                                                                                                                            |
| 3.2            |   | Amended and restated By-laws of PureSafe Water Systems, Inc.  [Incorporated by reference to Exhibit 3(ii)  to Amendment  No. 1 to our Annual Report 10-KSB/A, filed with the SEC on November 17, 2003 (File No.: 0-30544).]                                                 |
| 3.2a           |   | Amended and Restated By-laws of PureSafe Water Systems, Inc., effective June 11, 2009 [Incorporated by reference to Exhibit 3.2a  to our Current Report on Form 8-K, filed with the SEC on June 11, 2009.]                                                                                      |
| 4.5            |   | Series B Warrant to Purchase Common Stock and Allonge to and Amendment and Extension of Common Stock Purchase Warrant.   [Incorporated by reference to Exhibit 4.6 to Amendment No. 1 to our Annual Report on Form 10-KSB/A, filed with the SEC on November 17, 2003 (File No.: 0-30544).] |
| 4.6            |   | Series B Second Allonge to and Amendment and Extension of Common Stock Purchase Warrant.  [Incorporated by reference to Exhibit 4.6 to our Registration statement on Form SB-2, filed with the SEC on January 24, 2005 (File No.: 0-30544).]                                                    |

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| 4.7   |   | Subordinated Debentures.  [Incorporated by reference to Exhibit 4.5 to Amendment No. 1 to our Annual Report on Form 10-KSB, filed with the SEC on November 17, 2003 (File No.: 0-30544).]                                                                                                            |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.4  |   | Warrant Certificate, dated November 16, 2005, issued to Southridge Partners LP.  [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on November 23, 2005 (File No.: 0-30544).]                                                                         |
| 10.5  |   | Loan Agreement, dated as of October 11, 2006, between Water Chef, Inc. and Southridge Partners LP.  .  [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.: 0-30544).]                                          |
| 10.6  |   | Registration Rights Agreement, dated as of October 11, 2006, between Water Chef, Inc. and Southridge Partners LP.  [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.: 0-30544).]                                        |
| 10.7  |   | Promissory Note of Water Chef, Inc., dated October 17, 2006 and in the principal amount of $300,000, issued to Southridge Partners LP.  [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.: 0-30544).]                   |
| 10.8  |   | Warrant Certificate, dated October 11, 2006, issued to Southridge Partners LP.  [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.: 0-30544).]                                                                           |
| 10.9  |   | Securities Purchase Agreement, dated as of August 27, 2007, between Water Chef, Inc., Southridge Partners LP and Southshore Capital Fund Ltd.  [Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]           |
| 10.10 |   | Registration Rights Agreement, dated as of August 27, 2007, between Water Chef, Inc. and Southridge Partners LP.  [Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]                                        |
| 10.11 |   | 10% Convertible Promissory Note of Water Chef, Inc., dated September 7, 2007 and in the principal amount of $200,000, issued to Southridge Partners LP.  [Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).] |

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| 10.12 |   | 10% Convertible Promissory Note of Water Chef, Inc., dated September 7, 2007 and in the principal amount of $50,000, issued to Southshore Capital Fund Ltd.  [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).] |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.13 |   | Warrant Certificate, dated September 7, 2007, issued to Southridge Partners LP.  [Incorporated by reference to Exhibit 99.5 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]                                                                             |
| 10.14 |   | Warrant Certificate, dated September 7, 2007, issued to Southshore Capital Fund Ltd.  [Incorporated by reference to Exhibit 99.6 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]                                                                        |
| 10.15 |   | Private Equity Credit Agreement, dated as of September 7, 2007, between Water Chef, Inc. and Brittany Capital Management Limited.  [Incorporated by reference to Exhibit 99.7 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]                           |
| 10.16 |   | Registration Rights Agreement, dated as of September 7, 2007, between Water Chef, Inc. and Brittany Capital Management Limited.  [Incorporated by reference to Exhibit 99.8 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]                             |
| 10.17 |   | Employment Agreement, dated April 16, 2008 between Water Chef, Inc. and Leslie J. Kessler.  [Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]                                    |
| 10.18 |   | Employment Agreement, dated April 16, 2008, between Water Chef, Inc. and Terry R. Lazar.  [Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]                                      |
| 10.19 |   | Stock Purchase, Loan and Security Agreement, dated April 16, 2008, between Water Chef, Inc. and Leslie J. Kessler.  [Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]            |
| 10.20 |   | Stock Purchase, Loan and Security Agreement, dated April 16, 2008, between Water Chef, Inc. and Terry R. Lazar.  [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]               |
| 10.21 |   | Stock Purchase, Loan and Security Agreement dated April 16, 2008 between Water Chef, Inc. and Shaul Kochan.  [Incorporated by reference to Exhibit 99.5 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]                   |
| 10.22 |   | Letter Agreement, dated August 18, 2008 between Water Chef, Inc. and Leslie J. Kessler.  [Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K (Date of Report: August 18, 2008), filed with the SEC on August 19, 2008 (File No.: 0-30544).]                                     |
| 10.23 |   | Letter Agreement, dated August 18, 2008, between Water Chef, Inc. and Terry R. Lazar.  [Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K (Date of Report: August 18, 2008), filed with the SEC on August 19, 2008 (File No.: 0-30544).]                                       |
| 10.24 |   | Consulting Agreement, dated as of June 6, 2008, by and between Water Chef, Inc., and Hidell-Eyster International.  [Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-QSB, filed with the SEC on August 19, 2008 (File No.: 0-30544).]                                        |
| 10.25 |   | Form of Stock Subscription Agreement utilized in the sale of common stock and warrants from October 26, 2007 through July 18, 2008.  [Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-QSB, filed with the SEC on August 19, 2008 (File No.: 0-30544).]                      |
| 10.26 |   | Form of Warrant issued to investors in connection with the sale of common stock and warrants from October 26, 2007 through July 18, 2008.  [Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-QSB, filed with the SEC on August 19, 2008 (File No.: 0-30544).]                |
| 10.27 |   | Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated October 14, 2008 and in the principal amount of $50,000 issued to Leslie J. Kessler. [Incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]                                 |
| 10.28 |   | Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated November 17, 2008 and in the principal amount of $50,000 issued to Leslie J. Kessler. [Incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]                                |
| 10.29 |   | Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated October 14, 2008 and in the principal amount of $50,000 issued to Terry R. Lazar. [Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]                                    |

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| 10.30        |   | Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated November 17, 2008 and in the principal amount of $50,000 issued to Terry R. Lazar. [Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.] |
|--------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.31        |   | Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated December 17, 2008 and in the principal amount of $50,000 issued to Steve Legum. [Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]    |
| 10.32        |   | Consulting Agreement, dated as of August 6, 2008, by and between Water Chef, Inc., and Designs and Project Development Corp. [Incorporated by reference to Exhibit 10.32 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]                               |
| 10.33        |   | Consulting Agreement, dated as of December 14, 2007, by and between Water Chef, Inc., and Bircon Ltd. [Incorporated by reference to Exhibit 10.33 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]                                                      |
| 10.34        |   | Incentive Stock Option Agreement, dated April 17, 2009, between PureSafe Water Systems, Inc. and Leslie J. Kessler. [Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]                                        |
| 10.35        |   | Incentive Stock Option Agreement, dated April 17, 2009, between PureSafe Water Systems, Inc. and Terry R. Lazar.[Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]                                            |
| 10.36        |   | Incentive Stock Option Agreement, dated April 17, 2009, between PureSafe Water Systems, Inc. and Al Wolter.[Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]                                                 |
| 10.37        |   | Incentive Stock Option Agreement, dated April 17, 2009, between PureSafe Water Systems, Inc. and Al Wolter.[Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]                                                 |
| 10.38        |   | Warrant certificate evidencing 4,000,000 warrants registered in the name of Leslie J. Kessler.[Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]                                                              |
| 10.39        |   | Form of Loan Agreement for the Company’s 2009 private placement. [Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed with the SEC on November 16, 2009.]                                                                                |
| 10.40        |   | Employment Agreement, effective as of January 1, 2010, between the Company and Leslie J. Kessler.[Incorporated by reference to Exhibit 10.40 to our Current Report on Form 8-K, filed with the SEC on February 8, 2010.]                                                         |
| 10.41        |   | Employment Agreement, effective as of January 1, 2010, between the Company and Terry R. Lazar. [Incorporated by reference to Exhibit 10.41 to our Current Report on Form 8-K, filed with the SEC on February 8, 2010.]                                                           |
| 10.42        |   | General Management Services Agreement, effective January 1, 2010, between Hidell-Eyster International and the Company. [Incorporated by reference to Exhibit 10.42 to our Current Report on Form 8-K, filed with the SEC on April 1, 2010.]                                      |
| 10.42a  |   | Modification Agreement, dated October 23, 2010, to General Management Services Agreement, between Hidell—Eyster International and the Company. [Incorporated by reference to Exhibit 10.42a to the Company’s Current Report on Form 8-K, filed November 8, 2010.]    |
| 10.43        |   | Settlement Agreement, dated as of December 29, 2010, between Hidell—Eyster International and the Company. [Incorporated by reference to Exhibit 10.43 to the Company’s Current Report on Form 8-K, filed January 26, 2011.]                                          |
| 10.44        |   | Employment Agreement, dated as of January 1, 2011, between Gerard R. Stoehr and the Company. [Incorporated by reference to Exhibit 10.44 to the Company’s Current Report on Form 8-K, filed January 26, 2011.]                                                             |
| 14.1         |   | Code of Ethics.  [Incorporated by reference to Exhibit 14.1 to our Quarterly Report on Form 10-QSB, filed with the SEC on August 15, 2005.]                                                                                                                            |
| 31.1         |   | Rule 13a-14(a)/15d-14(a) Certification of Leslie J. Kessler, filed herewith.                                                                                                                                                                                                     |
| 31.2         |   | Rule 13a-14(a)/15d-14(a) Certification of Terry R. Lazar, filed herewith.                                                                                                                                                                                                        |
| 32.1         |   | Section 1350 Certification of Leslie J. Kessler, filed herewith.                                                                                                                                                                                                                 |
| 32.2         |   | Section 1350 Certification of Terry R. Lazar, filed herewith.                                                                                                                                                                                                                    |

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| Date:  April 15, 2011 | PURESAFE WATER SYSTEMS, INC.   |
|---------------------------------|--------------------------------|
|                            |                           |   |
|                            |                           |   |
|                            | By:  /s/   | Leslie J. Kessler |
|                            |                           | Leslie J. Kessler, Chief Executive Officer |
|                            |                           |   |
|                            |                           |   |
|                            | By: /s/                   | Terry R. Lazar |
|                            |                           | Terry R. Lazar, Chief Financial and Accounting Officer |

| Signature and Name    |   | Capacities                           |   | Date           |
|-----------------------|--------|--------------------------------------|--------|----------------|
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
| /s/ Leslie J. Kessler |   | Chief Executive Officer and Director |   | April 15, 2011 |
| Leslie J. Kessler     |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
| /s/ Terry R. Lazar    |   | Chief Financial Officer and Director |   | April 15, 2011 |
| Terry R. Lazar        |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
| /s/ Malcolm Hoenlein  |   | Director                             |   | April 15, 2011 |
| Malcolm Hoenlein      |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
| /s/ Paul Goldenberg   |   | Director                             |   | April 15, 2011 |
| Paul Goldenberg       |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
|                  |   |                                 |   |           |
| /s/ Jack T. Tomarchio |   | Director                             |   | April 15, 2011 |
| Jack T. Tomarchio     |   |                                 |   |           |

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