----

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

| £ | 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  £ | Accelerated filer  £    |
|--------|-------------------------------------------|----------------------------------------|
|   | Non-accelerated filer  £   | Smaller reporting company  T |

----

----

----

|                                                                                                                                                                                                                                       |   | September 30, |        |   | December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                                                                                                                                                                                                                                       |   | 2010               |        |   | 2009              |   |
| ASSETS                                                                                                                                                                                                                                     |   |               |        |   |              |   |
| Current Assets:                                                                                                                                                                                                                            |   |               |        |   |              |   |
| Cash                                                                                                                                                                                                                                       |   | $                  | 57,598      |   |              | $      | 107,424 |   |
| Inventories                                                                                                                                                                                                                                |   |               | 337,172     |   |              |   | 97,115 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                  |   |               | 85,666      |   |              |   | 120,083 |   |
| Total Current Assets                                                                                                                                                                                                                       |   |               | 480,436     |   |              |   | 324,622 |   |
|                                                                                                                                                                                                                                       |   |               |        |   |              |   |   |   |
| Property and equipment, net of accumulated depreciation of $55,142 and $33,356,  respectively                                                                                                                                    |   |               | 186,951     |   |              |   | 115,551 |   |
| Patents and trademarks, net of accumulated amortization of $28,082 and $23,504, respectively                                                                                                                                               |   |               | 64,402      |   |              |   | 68,980 |   |
| Other assets                                                                                                                                                                                                                               |   |               | 37,280      |   |              |   | 20,500 |   |
| TOTAL ASSETS                                                                                                                                                                                                                               |   | $                  | 769,069     |   |              | $      | 529,653 |   |
|                                                                                                                                                                                                                                       |   |               |        |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                                                                                                                                                                                   |   |               |        |   |              |   |   |   |
| Current Liabilities:                                                                                                                                                                                                                       |   |               |        |   |              |   |   |   |
| Accounts payable and accrued expenses                                                                                                                                                                                                      |   | $                  | 764,574     |   |              | $      | 656,242 |   |
| Accrued compensation                                                                                                                                                                                                                       |   |               | 141,833     |   |              |   | 84,000 |   |
| Accrued consulting and director fees                                                                                                                                                                                                       |   |               | 144,000     |   |              |   | 140,000 |   |
| Convertible notes payable to officer and director (including accrued interest of $60,311 and $14,685 and net of debt discount of $3,908 and $14,706, respectively)                                                                         |   |               | 643,403     |   |              |   | 99,979 |   |
| Convertible promissory note (including accrued interest of $38,924 and $9,194 and net of debt discount of $34,134 and $104,214, respectively)                                                                                              |   |               | 479,790     |   |              |   | 279,980 |   |
| Promissory notes payable (including accrued interest of $153,299 and $127,221, respectively)                                                                                                                                               |   |               | 311,520     |   |              |   | 285,443 |   |
| Fair value of detachable warrants and options                                                                                                                                                                                              |   |               | 1,084,200   |   |              |   | 286,100 |   |
| Fair value of embedded conversion options                                                                                                                                                                                                  |   |               | 1,087,100   |   |              |   | 197,900 |   |
| Accrued dividends payable                                                                                                                                                                                                                  |   |               | 190,328     |   |              |   | 190,328 |   |
| Total Current Liabilities                                                                                                                                                                                                                  |   |               | 4,846,748   |   |              |   | 2,219,972 |   |
|                                                                                                                                                                                                                                       |   |               |        |   |              |   |   |   |
| Long Term Liabilities:                                                                                                                                                                                                                     |   |               |        |   |              |   |   |   |
| Notes Payable                                                                                                                                                                                                                              |   |               | 28,208      |   |              |   | 236,624 |   |
| Notes payable to officers and directors                                                                                                                                                                                                    |   |               | --          |   |              |   | 287,000 |   |
| Total Long Term Liabilities                                                                                                                                                                                                                |   |               | 28,208      |   |              |   | 523,624 |   |
| TOTAL LIABILITIES                                                                                                                                                                                                                          |   |               | 4,874,956   |   |              |   | 2,743,596 |   |
|                                                                                                                                                                                                                                       |   |               |        |   |              |   |   |   |
|                                                                                                                                                                                                                                       |   |               |        |   |              |   |   |   |
| Commitments and Contingencies                                                                                                                                                                                                              |   |               |        |   |              |   |   |   |
|                                                                                                                                                                                                                                       |   |               |        |   |              |   |   |   |
| Stockholders' Deficiency:                                                                                                                                                                                                                  |   |               |        |   |              |   |   |   |
| Preferred stock $.001 par value; 10,000,000 shares authorized; 184,144  shares issued and outstanding  (liquidation preference $2,673,475 and $2,592,250 as of September 30, 2010 and December 31, 2009, respectively) |   |               | 184         |   |              |   | 184 |   |
| Common stock, $.001 par value; 450,000,000 authorized; 304,077,129 shares issued and 304,072,729 shares outstanding at September 30, 2010; 272,162,945 shares issued and 272,158,545 outstanding at  December 31, 2009           |   |               | 304,076     |   |              |   | 272,162 |   |
| Additional paid-in capital                                                                                                                                                                                                                 |   |               | 33,035,987  |   |              |   | 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 $48,250 and $33,076, respectively)                                                                                                                      |   |               | (385,450    | )      |              |   | (370,276 | ) |
| Accumulated deficit (including $22,518,320 and $17,665,444 of deficit accumulated during development stage at September 30, 2010 and December 31, 2009, respectively)                                                                      |   |               | (37,054,916 | )      |              |   | (32,197,040 | ) |
| Total Stockholders’ Deficiency                                                                                                                                                                                                       |   |               | (4,105,887  | )      |              |   | (2,213,943 | ) |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                                                                                                                                                                             |   | $                  | 769, 069    |   |              | $      | 529,653 |   |

----

|                                                                                                                                                                                                                                                                                   |   | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |   |        | January 1, 2002 To September 30, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-------------|--------|--------------------------------------|--------|-------------|---------------------------------------|--------|
|                                                                                                                                                                                                                                                                                   |   | 2010                                  |        |   | 2009                                 |   |        | 2010                                  |   |   | 2009 |   |   | 2010 |   |
| Sales                                                                                                                                                                                                                                                                                  |   | $                                     | --          |   |                                 | $      | --          |                                  |   | $ | -- |   |   | $ | -- |   |   | $ | 471,290 |   |
| Costs and expenses (income):                                                                                                                                                                                                                                                           |   |                                  |        |   |                                 |   |        |                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of Sales                                                                                                                                                                                                                                                                          |   |                                  | --          |   |                                 |   | --          |                                  |   |   |   |   |   |   |   |   |   |   | 575,680 |   |
| Selling, general and administrative, including stock-based compensation of $155,267 and $16,942 for the three months and $654,351 and $598,946 for the nine months ended September 30, 2010 and 2009, respectively and $3,790,058 for the period January 1, 2002 to September 30, 2010 |   |                                  | 790,238     |   |                                 |   | 252,000     |                                  |   |   | 2,304,436 |   |   |   | 1,546,798 |   |   |   | 13,126,003 |   |
| Non-dilution agreement termination costs                                                                                                                                                                                                                                               |   |                                  | --          |   |                                 |   | --          |                                  |   |   | -- |   |   |   | -- |   |   |   | 2,462,453 |   |
| Research and development                                                                                                                                                                                                                                                               |   |                                  | 5,394       |   |                                 |   | 15,107      |                                  |   |   | 80,842 |   |   |   | 23,143 |   |   |   | 966,529 |   |
| Interest expense - including interest expense to a related party of $14,151 and $1,250 for the three months and $37,779 and $9,583 for the nine months ended September 30, 2010 and 2009, respectively, and $258,544 for the period Jan 1, 2002 to September 30, 2010                  |   |                                  | 135,488     |   |                                 |   | 9,734       |                                  |   |   | 392,498 |   |   |   | 111,611 |   |   |   | 2,053,810 |   |
| Financing costs - extension of warrants                                                                                                                                                                                                                                                |   |                                  | --          |   |                                 |   | --          |                                  |   |   | -- |   |   |   | -- |   |   |   | 74,700 |   |
| Interest expense - conversion provision                                                                                                                                                                                                                                                |   |                                  | --          |   |                                 |   | --          |                                  |   |   | -- |   |   |   | -- |   |   |   | 113,000 |   |
| (Gain) loss on settlement of debt                                                                                                                                                                                                                                                      |   |                                  | --          |   |                                 |   | --          |                                  |   |   | -- |   |   |   | -- |   |   |   | 2,027,186 |   |
| Change in fair value of detachable warrants and, embedded conversion option                                                                                                                                                                                                            |   |                                  | (505,400    | )      |                                 |   | (153,600    | )                                     |   |   | 2,080,100 |   |   |   | 68,300 |   |   |   | 1,595,249 |   |
| Total costs and expenses                                                                                                                                                                                                                                                               |   |                                  | 425,720     |   |                                 |   | 123,241     |                                  |   |   | 4,857,876 |   |   |   | 1,749,852 |   |   |   | 22,994, 610 |   |
| Net (loss)                                                                                                                                                                                                                                                                             |   |                                  | (425,720    | )      |                                 |   | (123,241    | )                                     |   |   | (4,857,876 | ) |   |   | (1,749,852 | ) |   |   | (22,523,320 | ) |
| Deemed dividend on preferred stock                                                                                                                                                                                                                                                     |   |                                  | --          |   |                                 |   | --          |                                  |   |   | -- |   |   |   | -- |   |   |   | (2,072,296 | ) |
| Preferred stock dividends                                                                                                                                                                                                                                                              |   |                                  | (27,075     | )      |                                 |   | (27,075     | )                                     |   |   | (81,225 | ) |   |   | (81,225 | ) |   |   | (915,648 | ) |
|                                                                                                                                                                                                                                                                                   |   |                                  |        |   |                                 |   |        |                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss attributable to common stockholders                                                                                                                                                                                                                                           |   | $                                     | (452,795    | )      |                                 | $      | (150,316    | )                                     |   | $ | (4,939,101 | ) |   | $ | (1,831,077 | ) |   | $ | (25,511,264 | ) |
| Net loss attributable to common stockholders per common share -                                                                                                                                                                                                                        |   |                                  |        |   |                                 |   |        |                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted Net loss attributable to common stockholders per common share (* less than a penny a share)                                                                                                                                                                          |   | $                                     |        | *      |                                 | $      |        | *                                     |   | $ | (0.02 | ) |   | $ | (0.01 | ) |   |   |   |   |
| Weighted average number of shares outstanding                                                                                                                                                                                                                                          |   |                                  | 301,874,648 |   |                                 |   | 249,941,712 |                                  |   |   | 289,782,805 |   |   |   | 250,126,857 |   |   |   |   |   |

----

|                                                                 |   | Preferred Stock |    |   | Common Stock |   |   | Additional Paid-In |   |   | Treasury Stock at |   |   | Subscription |    |   | Accumulated |   |       | Total Stockholders’ |   |
|----------------------------------------------------------------------|--------|-----------------|---------|--------|--------------|--------|--------|--------------------|--------|--------|-------------------|--------|--------|--------------|---------|--------|-------------|--------|------------|---------------------------|--------|
|                                                                 |   | Shares          |    |   | Amount       |   |   | Shares             |   |   | Amount            |   |   | Capital      |    |   | Cost        |   |       | Receivable                |   |   | Deficit |   |   | Deficiency |   |
|                                                                 |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |
| Balance at 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 and warrants:                     |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $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, 2020                               |   |            | --      |   |         |   | --     |               |   |   | 651,890           |   |   |         | 652     |   |        |   | 49,348     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| $0.1013 per share – May 14, 2010                               |   |            | --      |   |         |   | --     |               |   |   | 740,375           |   |   |         | 740     |   |        |   | 74,260     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 75,000 |   |
| $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 |   |
| $0.24566 per share – June 17, 2010                             |   |            | --      |   |         |   | --     |               |   |   | 432,922           |   |   |         | 433     |   |        |   | 105,918    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 106,351 |   |
| $0.24566 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 |   |
| $0.1080 per share – July 30, 2010                              |   |            | --      |   |         |   | --     |               |   |   | 925,926           |   |   |         | 926     |   |        |   | 99,074     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| $0.0987 per share – August 13, 2010                            |   |            | --      |   |         |   | --     |               |   |   | 506,586           |   |   |         | 506     |   |        |   | 49,494     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50,000 |   |
| $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 |   |
|                                                                 |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                 |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued for accrued compensation and settlement of debt: |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $0.0510 per share – February 1, 2010                           |   |            | --      |   |         |   | --     |               |   |   | 2,604,608         |   |   |         | 2,605   |   |        |   | 130,230    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 132,835 |   |
| $0.055 per share – February 19, 2010                           |   |            | --      |   |         |   | --     |               |   |   | 1,741,464         |   |   |         | 1,741   |   |        |   | 94,039     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 95,780 |   |
| $0.0500 per share – June 2, 2010                               |   |            | --      |   |         |   | --     |               |   |   | 530,278           |   |   |         | 530     |   |        |   | 25,984     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 26,514 |   |
| $0.0350 per share – May 28, 2010                               |   |            | --      |   |         |   | --     |               |   |   | 1,580,967         |   |   |         | 1,581   |   |        |   | 53,753     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 55,334 |   |
| $0.0350 per share – June 7, 2010                               |   |            | --      |   |         |   | --     |               |   |   | 50,000            |   |   |         | 50      |   |        |   | 1,700      |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,750 |   |
| $0.80510 per share – July 1,  2010                   |   |            | --      |   |         |   | --     |               |   |   | 1,764,706         |   |   |         | 1,765   |   |        |   | 88,235     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 90,000 |   |
|                                                                 |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued for services                                     |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $0.051 per share – February 1, 2010                            |   |            | --      |   |         |   | --     |               |   |   | 2,375,000         |   |   |         | 2,375   |   |        |   | 117,475    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 119,850 |   |
| $0.057 per share – February  1, 2010                 |   |            | --      |   |         |   | --     |               |   |   | 2,000,000         |   |   |         | 2,000   |   |        |   | 112,000    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 114,000 |   |
| $0.057 per share – February 9, 2010                            |   |            | --      |   |         |   | --     |               |   |   | 2,000,000         |   |   |         | 2,000   |   |        |   | 112,000    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 114,000 |   |
| $0.1188 per share – July 12, 2010                              |   |            | --      |   |         |   | --     |               |   |   | 535,716           |   |   |         | 536     |   |        |   | 74,464     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 75,000 |   |
|                                                                 |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock issued for the exercise of warrants                     |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $0.24566 per share – June 17, 2010 (cashless)                  |   |            | --      |   |         |   | --     |               |   |   | 843,649           |   |   |         | 843     |   |        |   | (843       | )                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | -- |   |
| $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           |   |   |         | 312     |   |        |   | 11,688     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 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                            |   |            | --      |   |         |   | --     |               |   |   | 101,318           |   |   |         | 102     |   |        |   | 11,895     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 11,997 |   |
| $0.0864 per share – August 13, 2010                            |   |            | --      |   |         |   | --     |               |   |   | 55,557            |   |   |         | 56      |   |        |   | 4,744      |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,800 |   |
| $0.042 per share – August 13, 2010                             |   |            | --      |   |         |   | --     |               |   |   | 571,428           |   |   |         | 572     |   |        |   | 23,428     |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 24,000 |   |
| $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 |   |
| $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            |   |   |         | 50      |   |        |   | 5,950      |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6,000 |   |
|                                                                 |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accrued interest                                                     |   |            | --      |   |         |   | --     |               |   |   | --                |   |   |         | --      |   |        |   | --         |                      |   |   | -- |   |   |   | (15,174 | ) |   |   | -- |   |   |   | (15,174 | ) |
| Reclassification of warrants/Conversion to derivative liability, net |   |            | --      |   |         |   | --     |               |   |   | --                |   |   |         | --      |   |        |   | 579,100    |                      |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 579,100 |   |
|                                                                 |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization of detachable warrants for employees and non-employees  |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   | 231,501    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 231,501 |   |
|                                                                 |   |            |    |   |         |   |   |               |   |   |              |   |   |         |    |   |        |   |       |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                             |   |            | --      |   |         |   | --     |               |   |   | --                |   |   |         | --      |   |        |   | --         |                      |   |   | -- |   |   |   |   |   |   |   | (4,857,876 | ) |   |   | (4,857,876 | ) |
| Balance as of September 30, 2010                                     |   |            | 184,144 |   |         |   | 184    |               |   |   | 304,077,129       |   |   |         | 304,076 |   |        | $      | 33,035,987 |                      |   | $ | (5,768 | ) |   | $ | (385,450 | ) |   | $ | (37,054,916 | ) |   | $ | (4,105,887 | ) |

----

|                                                                                                                                                                          |   | Nine Months EndedSeptember 30, |       |   | For the Period From January 1, 2002 through September 30, 2010 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|--------|--------------------------------------------------------------------------|--------|
| Cash Flows from Operating Activities:                                                                                                                                         |   | 2010                                |       |   | 2009                                                                     |   |   |   |   |
| Net loss                                                                                                                                                                      |   | $                                   | (4,857,876 | )      |                                                                     | $      | (1,749,852 | ) |   | $ | (22,523,320 | ) |
| 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                                                                                                                                                 |   |                                | 21,786     |   |                                                                     |   | 17,319 |   |   |   | 61,685 |   |
| Amortization of patents and trademarks                                                                                                                                        |   |                                | 4,578      |   |                                                                     |   | 4,096 |   |   |   | 26,700 |   |
| Interest expense - amortization of deferred financing                                                                                                                         |   |                                | --         |   |                                                                     |   | -- |   |   |   | 22,530 |   |
| Stock based compensation                                                                                                                                                      |   |                                | 654,351    |   |                                                                     |   | 598,946 |   |   |   | 4,043,359 |   |
| Interest expense - conversion provision                                                                                                                                       |   |                                | --         |   |                                                                     |   | -- |   |   |   | 113,000 |   |
| Interest receivable                                                                                                                                                           |   |                                | (15,174    | )      |                                                                     |   | (15,104 | ) |   |   | (48,250 | ) |
| Accretion of debt discount                                                                                                                                                    |   |                                | 267,178    |   |                                                                     |   | 90,501 |   |   |   | 954,999 |   |
| Change in fair value of detachable warrants and embedded conversion option                                                                                                    |   |                                | 2,080,100  |   |                                                                     |   | 68,300 |   |   |   | 1,595,249 |   |
| (Gain)/loss on settlement of debt                                                                                                                                             |   |                                | --         |   |                                                                     |   | -- |   |   |   | 2,027,187 |   |
| 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                                                                                                                                     |   |                                | 34,416     |   |                                                                     |   | 15,639 |   |   |   | (35,423 | ) |
| Inventories                                                                                                                                                                   |   |                                | (240,058   | )      |                                                                     |   | -- |   |   |   | (337,173 | ) |
| Other assets                                                                                                                                                                  |   |                                | (16,780    | )      |                                                                     |   | -- |   |   |   | (27,861 | ) |
| Accounts payable, accrued expenses, accrued dividends,  accrued compensation, accrued consulting and director fees, customer deposits and other current liabilities |   |                                | 362,189    |   |                                                                     |   | 495,828 |   |   |   | 2,863,909 |   |
| Net Cash Used in Operating Activities                                                                                                                                         |   |                                | (1,705,290 | )      |                                                                     |   | (466,150 | ) |   |   | (8,537,029 | ) |
|                                                                                                                                                                          |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities:                                                                                                                                         |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| Purchase of property and equipment                                                                                                                                            |   |                                | (63,253    | )      |                                                                     |   |   |   |   |   | (231,230 | ) |
| Patent costs                                                                                                                                                                  |   |                                | --         |   |                                                                     |   | (12,558 | ) |   |   | (66,429 | ) |
| Proceeds from sale of property & equipment                                                                                                                                |   |                                | --         |   |                                                                     |   | 4,350 |   |   |   | 4,350 |   |
| Net Cash Used in Investing Activities                                                                                                                                         |   |                                | (63,253    | )      |                                                                     |   | (8,208 | ) |   |   | (293,309 | ) |
|                                                                                                                                                                          |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| 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                                                                                                                                            |   |                                | 1,137,939  |   |                                                                     |   | 515,500 |   |   |   | 5,538,999 |   |
| Proceeds from exercise of warrants                                                                                                                                            |   |                                | 207,502    |   |                                                                     |   | -- |   |   |   | 216,852 |   |
| Proceeds from sale of common stock to be issued                                                                                                                               |   |                                | --         |   |                                                                     |   | -- |   |   |   | 300,000 |   |
| Deferred financing costs                                                                                                                                                      |   |                                | --         |   |                                                                     |   | -- |   |   |   | (22,530 | ) |
| Proceeds from convertible promissory note                                                                                                                                     |   |                                | 175,000    |   |                                                                     |   | -- |   |   |   | 1,350,000 |   |
| Proceeds from officers and directors convertible loans                                                                                                                        |   |                                | 200,000    |   |                                                                     |   | -- |   |   |   | 550,000 |   |
| Repayment of notes payable                                                                                                                                                    |   |                                | (1,724     | )      |                                                                     |   | -- |   |   |   | (276,723 | ) |
| Net Cash Provided by Financing Activities                                                                                                                                     |   |                                | 1,718,717  |   |                                                                     |   | 515,500 |   |   |   | 8,852,425 |   |
|                                                                                                                                                                          |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| Net (decrease) increase  in cash                                                                                                                                    |   |                                | (49,826    | )      |                                                                     |   | 41,142 |   |   |   | 22,087 |   |
|                                                                                                                                                                          |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| Cash at beginning of  period                                                                                                                                        |   |                                | 107,424    |   |                                                                     |   | 29,411 |   |   |   | 35,511 |   |
|                                                                                                                                                                          |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| Cash at end of period                                                                                                                                                         |   |                                | 57,598     |   |                                                                     |   | 70,553 |   |   |   | 57,598 |   |
|                                                                                                                                                                          |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| Supplemental Disclosure of Cash Flo w Information:                                                                                                                            |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| Cash paid during the year for interest                                                                                                                                        |   |                                | 7,987      |   |                                                                     |   | 1,088 |   |   |   | 379,530 |   |
|                                                                                                                                                                          |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| 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:                                                                                                                                                |   |                                |       |   |                                                                     |   |   |   |   |   |   |   |
| Accrued compensation satisfied by issuance of common stock                                                                                                                    |   |                                | 174,000    |   |                                                                     |   | -- |   |   |   | 229,250 |   |
| Common stock issued in satisfaction of liabilities                                                                                                                            |   |                                | 228,213    |   |                                                                     |   | 236,672 |   |   |   | 7,576,506 |   |
|                                                                                                                                                                          |   |                                | --         |   |                                                                     |   |   |   |   |   |   |   |
| Reclassification of derivative liabilities                                                                                                                                    |   |                                | 579,100    |   |                                                                     |   | 142,100 |   |   |   | 1,098,167 |   |
| Conversion of current liabilities to notes payable                                                                                                                            |   |                                | --         |   |                                                                     |   | 523,624 |   |   |   | 523,624 |   |
| Cancellation of debt for no consideration                                                                                                                                     |   |                                | --         |   |                                                                     |   | -- |   |   |   | 1,327,321 |   |

----

----

----

|                         |   | September 30, |       |
|------------------------------|--------|---------------|------------|
|                         |   | 2010          |       |   | 2009 |   |
| Warrants                     |   |          | 29,989,389 |   |   |   | 37,071,573 |   |
| Convertible promissory notes |   |          | 14,785,636 |   |   |   | 4,218,053 |   |
| Convertible preferred stock  |   |          | 1,545,760  |   |   |   | 1,545,760 |   |
| Totals                       |   |          | 46,320,785 |   |   |   | 42,835,386 |   |

|   | • | 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. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                    |   | Quoted Prices in Active Markets for Identical Liabilities(Level 1) |   |   | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Balance at September 30, 2010 |   |
|-----------------------------------------|--------|--------------------------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------------|--------|--------|------------------------------------|--------|
| Embedded conversion feature             |   | $                                                                  | -      |   |                                         | $      | -      |                                     |   | $      | 1,087,100                          |   |   | $ | 1,087,100 |   |
| Warrant and option  liability |   | $                                                                  | -      |   |                                         | $      | -      |                                     |   | $      | 1,084,200                          |   |   | $ | 1,084,200 |   |
|                                    |   | $                                                                  | -      |   |                                         | $      | -      |                                     |   | $      | 2,171,300                          |   |   | $ | 2,171,300 |   |

|                                     |   | Embedded Conversion Feature |      |   | Warrant Liability |   |      | Total  |   |
|------------------------------------------|--------|-----------------------------|-----------|--------|-------------------|--------|-----------|--------|--------|
| Balance January 1, 2010                  |   | $                           | 197,900   |   |              | $      | 286,100   |   |   | $ | 484,000 |   |
| Included in income (expense)             |   |                        | 962,700   |   |              |   | 1,117,400 |   |   |   | 2,080,100 |   |
| Included in debt discount                |   |                        | 127,700   |   |              |   | 58,600    |   |   |   | 186,300 |   |
| Reclassification to stockholder's equity |   |                        | (201,200  | )      |              |   | (377,900  | )      |   |   | (579,100 | ) |
| Transfers in and /or out of Level 3      |   |                        | -         |   |              |   | -         |   |   |   | - |   |
| Balance September 30, 2010               |   | $                           | 1,087,100 |   |              | $      | 1,084,200 |   |   | $ | 2,171,300 |   |

----

----

----

| (a) | 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 and 588,235 shares to the Company’s Chief Financial Officer in settlement of $30,000 accrued compensation. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | In February 2010, the Company issued 2,000,000 shares to the Company’s Chief Executive Officer.  The issuance is part of the grant the Company awarded to the officer in April 2009 in which the chief executive officer has the right to receive a total of 4,000,000 shares of common stock, of which 2,000,000 shares were issued in April 2009 and the remaining 2,000,000 shares were to be issued on January 1, 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 exercisable as of its grant date and has an exercise price of $0.041 per share.  The Company incurred stock-based compensation $114,000 in connection with this issuance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | In February 2010, the Company issued 2,000,000 shares to the Company’s Chief Financial Officer.  The issuance is part of the grant the Company awarded to the officer in April 2009 in which the Chief Financial Officer was granted the right to receive a total of 4,000,000 shares of common stock of which 2,000,000 shares were issued in April 2009 and the remaining 2,000,000 shares were to be issued on January 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 exercisable as of its grant date and has an exercise price of $0.041 per share.  The Company incurred stock-based compensation $114,000 in connection with this issuance. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | In February 2010, the Company issued 600,000 shares of common stock to the Company’s Chief Executive Officer 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 $30,600 of stock-based compensation in connection with this issuance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | In February 2010, the Company issued 600,000 shares of common stock to the Company’s Chief Financial Officer 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 $30,600 of stock-based compensation in connection with this issuance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (f) | 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. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | 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. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (h) | 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 serves 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 serves as the Company’s Chief Operating Officer under the same agreement. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (a) | On October 7, 2010, the Company issued a total of 681,816 shares of common stock to its six directors each of which received 113,636 shares for their 4th quarter of 2010 compensation.  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 of $50,000, paid in shares of common stock, payable quarterly, and valued at the beginning of each quarter.  The Company recorded $75,000 stock based compensation in connection with such issuance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | From October 1, 2010 through November 16, 2010, for gross proceeds of $125,000 the Company sold an aggregate of 1,201,084 shares of common stock and warrants to purchase additional 240,217 shares of common stock at an exercise price of $0.12 to $0.1272.  The warrants have a term of three years.  The Company evaluated the transaction under ASC 815 and was not able to determine if the Company had sufficient authorized shares of common stock to settle the warrants.  Accordingly, on the date of closing the transaction the Company recorded the warrants as a derivative liability at their fair value of $16,100 and will be marked to market through earnings at the end of each reporting period. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | From October 1, 2010 through November 16, 2010, the Company issued 2,123,010 shares of common stock for gross proceeds of $151,195 received through exercise of 2,123,010 warrants. On the date of exercise, the Company reclassified to equity $116,400 of the derivative liability related to the fair value of the warrants. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | 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 interest accrued on the loans is to be paid on November 17, 2010 or the last day of each month until the loans are 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 $0.10 per share, which was the closing market price of the common stock as of the closing date of the loans. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (e) | On October 4, 2010, the Company issued 150,000 shares to the Company’s counsel/advisor to the Board of Directors for his services.  The Company recorded $14,400 stock-based compensation for such issuance. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | 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. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | On October 1, 2010, the Company issued 388,691 shares to an investor upon his request to convert a $25,000 principal amount loan and $2,208 accrued interest that was payable to him.  The Company reclassified $22,300 of the derivative liability to equity for the fair value of the embedded conversion option on the date of conversion and expensed the remaining $542 debt discount to interest. |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
|---------|----------------------------------------------------------------------------------------------|

| • | 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; |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| • | 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-Q and, from time to time, in our other filings with the Securities and Exchange Commission. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
|---------|-------------------------------------------------------------|

| Item 4T. | Controls and Procedures. |
|----------|--------------------------|

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| Item 1. | Legal Proceedings |
|---------|-------------------|

| Item 1A. | Risk Factors. |
|----------|---------------|

| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
|---------|--------------------------------------------------------------|

| Date          | Title and Amount(1)                                                | Purchaser        | Principal | Total Offering Price/ Underwriter Underwriting Discounts |
|---------------|--------------------------------------------------------------------|------------------|-----------|----------------------------------------------------------|
|          |                                                               |             |      |                                                     |
| July 26, 2010 | 312,500 shares of common stock issued through exercise of warrants | Private investor | NA        | $0.0384/NA                                               |
| July 30, 2010 | 451,129 shares of common stock issued through exercise of warrants | Private investor | NA        | $0.0532/NA                                               |

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| July 30, 2010   | 92,308 shares of common stock issued through exercise of warrants                                                                     | Private investor | NA | $0.1300/NA |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------|------------------|----|------------|
| July 30, 2010   | 90,908 shares of common stock issued through exercise of warrants                                                                     | Private investor | NA | $0.0660/NA |
| August 13, 2010 | 101,318 shares of common stock issued through exercise of warrants                                                                    | Private investor | NA | $0.1184/NA |
| August 13, 2010 | 55,557 shares of common stock issued through exercise of warrants                                                                     | Private investor | NA | $0.0864/NA |
| August 13, 2010 | 571,428 shares of common stock issued through exercise of warrants                                                                    | Private investor | NA | $0.042/NA  |
| August 13, 2010 | 13,966 shares of common stock issued through exercise of warrants                                                                     | Private investor | NA | $0.0716/NA |
| August 19, 2010 | 280,374 shares of common stock issued through exercise of warrants                                                                    | Private investor | NA | $0.0428/NA |
| August 19, 2010 | 151,515 shares of common stock issued through exercise of warrants                                                                    | Private investor | NA | $0.0396/NA |
| August 19, 2010 | 104,167 shares of common stock issued through exercise of warrants                                                                    | Private investor | NA | $0.0576/NA |
| August 27, 2010 | 50,505 shares of common stock issued through exercise of warrants                                                                     | Private investor | NA | $0.1188/NA |
| July 29, 2010   | 230,840 shares of common stock and three year warrants to purchase 46,168 shares of common stock issued in 2010 private placement.    | Private investor | NA | $0.1083/NA |
| July 30, 2010   | 925,926 shares of common stock and three year warrants to purchase 185,185 shares of common stock issued in 2010 private placement.   | Private investor | NA | $0.1080/NA |
| August 13, 2010 | 253,293 shares of common stock and three year warrants to purchase 50,659 shares of common stock issued in 2010 private placement.    | Private investor | NA | $0.0987/NA |
| August 13, 2010 | 253,293 shares of common stock and three year warrants to purchase 50,659 shares of common stock issued in 2010 private placement.    | Private investor | NA | $0.0987/NA |
| August 24, 2010 | 1,127,395 shares of common stock and three year warrants to purchase 225,479 shares of common stock issued in 2010 private placement. | Private investor | NA | $0.0887/NA |

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| August 27, 2010   | 252,525 shares of common stock and three year warrants to purchase 50,505 shares of common stock issued in 2010 private placement. | Private investor | NA | $0.0990/NA |
|-------------------|------------------------------------------------------------------------------------------------------------------------------------|------------------|----|------------|
| September 4, 2010 | 220,653 shares of common stock and three year warrants to purchase 44,131 shares of common stock issued in 2010 private placement. | Private investor | NA | $0.1133/NA |
| September 7, 2010 | 211,327 shares of common stock and three year warrants to purchase 42,265 shares of common stock issued in 2010 private placement. | Private investor | NA | $0.1183/NA |

| Item 5. | Other Information. |
|---------|--------------------|

| Item 6. | Exhibits. |
|---------|-----------|

| Number | Exhibit Description |
|--------|---------------------|

|   | 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. |
|--------|------|------------------------------------------------------------------------|

|   | 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. |
|--------|------|------------------------------------------------------------------------|

|   | 32.1 | Section 1350 Certification of Principal Executive Officer. |
|--------|------|------------------------------------------------------------|

|   | 32.2 | Section 1350 Certification of Principal Financial Officer. |
|--------|------|------------------------------------------------------------|

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| Dated:  November 19, 2010 | PureSafe Water Systems, Inc. |
|-------------------------------------|------------------------------|
|                                |                         |   |
|                                |                         |   |
|                                | By:                          | /s/ Leslie J. Kessler |
|                                |                         | Leslie J. Kessler |
|                                |                         | Chief Executive Officer |
|                                |                         | (Duly Authorized Officer and Principal Executive Officer) |
|                                |                         |   |
|                                | By:                          | /s/ Terry R. Lazar |
|                                |                         | Terry R. Lazar |
|                                |                         | Chief Financial Officer |
|                                |                         | (Duly Authorized Officer and Principal Financial Officer) |

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