----

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| þ                                                              |   | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  |
|---------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------|
|                                                                |   |                                                                                     |
| For the quarterly period ended March 31, 2010                       |
|                                                                |   |                                                                                     |
| OR                                                                  |
|                                                                |   |                                                                                     |
| o                                                                   |   | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                |   |                                                                                     |
| For the transition period from ________________ to ________________ |

|  Ecosphere Technologies, Inc.                           |
|--------------------------------------------------------------|
|  (Exact name of registrant as specified in its charter) |

| Delaware                                                     |   | 20-350286                |
|--------------------------------------------------------------|--------|--------------------------|
| (State or other jurisdiction of          |   | (I.R.S. Employer    |
| incorporation or organization)                     |   | Identification No.) |
|                                                         |   |                     |
| 3515 S.E. Lionel Terrace, Stuart, Florida                    |   | 34997                    |
| (Address of principal executive offices) |   | (Zip Code)          |

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

| Class                                   |   | Outstanding at May 14, 2010 |
|-----------------------------------------|--------|-----------------------------|
| Common Stock, $0.01 par value per share |   | 129,033,849 shares     |

----

----

----

|                                 |                                                                                        | Page   |   |
|--------------------------------------|---------------------------------------------------------------------------------------------|--------|--------|
| PART I – FINANCIAL INFORMATION |                                                                                        |
|                                 |                                                                                        |   |   |
| Item 1.                              | Condensed Consolidated Financial Statements (unaudited)                                     |   |   | 1 |   |
|                                 |                                                                                        |   |   |   |   |
|                                 | Condensed Consolidated Balance Sheets (unaudited)                                           |   |   | 1 |   |
|                                 |                                                                                        |   |   |   |   |
|                                 | Condensed Consolidated Statements of Operations (unaudited)                                 |   |   | 2 |   |
|                                 |                                                                                        |   |   |   |   |
|                                 | Condensed Consolidated Statements of Cash Flows (unaudited)                                 |   |   | 3 |   |
|                                 |                                                                                        |   |   |   |   |
|                                 | Notes to Condensed Consolidated  Financial Statements (unaudited)                 |   |   | 5 |   |
|                                 |                                                                                        |   |   |   |
| Item 2.                              | Management’s Discussion and Analysis of Financial Condition and Results of Operations |   |   | 18 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 3.                              | Qualitative and Quantitative Disclosures about Market Risk                                  |   |   | 24 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 4.                              | Controls and Procedures                                                                     |   |   | 24 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 4T.                             | Controls and Procedures                                                                     |   |   | 24 |   |
|                                 |                                                                                        |   |   |   |   |
| PART II – OTHER INFORMATION    |                                                                                        |
|                                 |                                                                                        |   |   |   |
| Item 1.                              | Legal Proceedings                                                                           |   |   | 25 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 1A.                             | Risk Factors                                                                                |   |   | 25 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 2.                              | Unregistered Sales of Equity Securities and Use of Proceeds                                 |   |   | 25 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 3.                              | Defaults Upon Senior Securities                                                             |   |   | 26 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 4.                              | (Removed and Reserved)                                                                      |   |   | 26 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 5.                              | Other Information                                                                           |   |   | 26 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 6.                              | Exhibits                                                                                    |   |   | 26 |   |
|                                 |                                                                                        |   |   |   |   |
| SIGNATURES                           |                                                                                        |   | 27     |   |

----

|                                                                                                                                                                                                                                                 |   | March 31,2010 |         |   | December 31,2009 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|--------------|--------|------------------|--------|
|                                                                                                                                                                                                                                                 |   | (Unaudited)   |         |   |             |   |
| Current Assets                                                                                                                                                                                                                                       |   |          |         |   |             |   |
| Cash                                                                                                                                                                                                                                                 |   | $             | 302,274      |   |             | $      | 1,089,238 |   |
| Restricted cash                                                                                                                                                                                                                                      |   |          | 75,000       |   |             |   | 425,000 |   |
| Accounts receivable                                                                                                                                                                                                                                  |   |          | 605,832      |   |             |   | 701,999 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                            |   |          | 228,095      |   |             |   | 30,656 |   |
| Total current assets                                                                                                                                                                                                                                 |   |          | 1,211,201    |   |             |   | 2,246,893 |   |
|        Property and equipment, net                                                                                                                                                                                |   |          | 7,839,069    |   |             |   | 7,174,919 |   |
|        Construction in progress                                                                                                                                                                                   |   |          | 804,309      |   |             |   | 764,229 |   |
|        Patents, net                                                                                                                                                                                               |   |          | 42,132       |   |             |   | 37,891 |   |
|        Deposits                                                                                                                                                                                                   |   |          | 22,205       |   |             |   | 22,205 |   |
| Total assets                                                                                                                                                                                                                                         |   | $             | 9,918,916    |   |             | $      | 10,246,137 |   |
| Liabilities, Redeemable Convertible Cumulative Preferred Stock and                                                                                                                                                                                   |   |          |         |   |             |   |   |   |
|  Stockholders’ Deficit                                                                                                                                                                                                                    |   |          |         |   |             |   |   |   |
| Current Liabilities                                                                                                                                                                                                                                  |   |          |         |   |             |   |   |   |
| Accounts payable                                                                                                                                                                                                                                     |   | $             | 1,402,179    |   |             | $      | 1,759,308 |   |
| Accrued liabilities                                                                                                                                                                                                                                  |   |          | 713,479      |   |             |   | 705,510 |   |
| Insurance premium finance contract                                                                                                                                                                                                                   |   |          | 135,914      |   |             |   | - |   |
| Vehicle financing                                                                                                                                                                                                                                    |   |          | 80,585       |   |             |   | 41,339 |   |
| Capital lease obligations                                                                                                                                                                                                                            |   |          | 2,403        |   |             |   | 13,080 |   |
| Due to affiliate                                                                                                                                                                                                                                     |   |          | 2,000        |   |             |   | 2,000 |   |
| Deferred revenue                                                                                                                                                                                                                                     |   |          | 384,000      |   |             |   | 672,000 |   |
| Notes payable – related parties (net of discount) – current portion                                                                                                                                                                      |   |          | 1,267,110    |   |             |   | 1,795,376 |   |
| Notes payable – third parties (net of discount) – current portion                                                                                                                                                                        |   |          | 434,735      |   |             |   | 1,616,078 |   |
| Fair value of liability for warrant derivative instruments   (Note 1, Change in Accounting Principal)                                                                                                                                           |   |          | 22,190,062   |   |             |   | 6,315,631 |   |
| Fair value of liability for embedded conversion option derivative instruments   (Note 1, Change in Accounting Principal)                                                                                                                        |   |          | 2,263,288    |   |             |   | 1,084,908 |   |
| Total current liabilities                                                                                                                                                                                                                            |   |          | 28,875,755   |   |             |   | 14,005,230 |   |
|        Restructuring reserve                                                                                                                                                                                      |   |          | 105,901      |   |             |   | 123,436 |   |
|        Notes payable - related parties - less current portion                                                                                                                                                     |   |          | 2,000,000    |   |             |   | 2,000,000 |   |
| Total Liabilities                                                                                                                                                                                                                                    |   |          | 30,981,656   |   |             |   | 16,128,666 |   |
|                                                                                                                                                                                                                                                 |   |          |         |   |             |   |   |   |
| Redeemable convertible cumulative preferred stock series A                                                                                                                                                                                           |   |          | 1,144,119    |   |             |   | 1,137,556 |   |
|       11 shares authorized; 7 shares issued and outstanding, $25,000 per share redemption amount plus       dividends in arrears ($1,144,119 at March 31, 2010)                                    |   |          |         |   |             |   |   |   |
| Redeemable convertible cumulative preferred stock series B                                                                                                                                                                                           |   |          | 2,713,177    |   |             |   | 2,742,239 |   |
|       484 shares authorized; 335 and 355 shares issued and outstanding, respectively, $2,500 per share       redemption amount plus dividends in arrears ($2,713,177  at March 31, 2010) |   |          |         |   |             |   |   |   |
|                                                                                                                                                                                                                                                 |   |          |         |   |             |   |   |   |
| Commitments and Contingencies (Note 13)                                                                                                                                                                                                              |   |          |         |   |             |   |   |   |
|                                                                                                                                                                                                                                                 |   |          |         |   |             |   |   |   |
| Ecosphere Technologies, Inc. Stockholders’ Deficit                                                                                                                                                                                             |   |          |         |   |             |   |   |   |
| Common stock, $0.01 par value; 300,000,000 shares authorized; 123,728,864 and 116,830,850 shares issued    and outstanding at March 31, 2010 and December 31, 2009, respectively                                                           |   |          | 1,237,289    |   |             |   | 1,168,308 |   |
| Common stock issuable, $0.01 par value, 278,810 and 630,089 issuable at March 31, 2010 and    December 31, 2009, respectively                                                                                                              |   |          | 2,788        |   |             |   | 6,301 |   |
| Additional paid-in capital                                                                                                                                                                                                                           |   |          | 74,122,130   |   |             |   | 66,349,999 |   |
| Accumulated deficit                                                                                                                                                                                                                                  |   |          | (110,998,221 | )      |             |   | (87,893,515 | ) |
| Total Ecosphere Technologies, Inc. stockholders’ deficit                                                                                                                                                                                       |   |          | (35,636,014  | )      |             |   | (20,368,907 | ) |
| Noncontrolling interest in consolidated subsidiary                                                                                                                                                                                                   |   |          | 10,715,978   |   |             |   | 10,606,583 |   |
| Total stockholder' deficit                                                                                                                                                                                                                           |   |          | (24,920,036  | )      |             |   | (9,762,324 | ) |
| Total liabilities, redeemable convertible cumulative preferred stock, and stockholders’ deficit                                                                                                                                                |   | $             | 9,918,916    |   |             | $      | 10,246,137 |   |

----

|                                                                                       |   | For The Three Months EndedMarch 31, |                                                                                                                |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|                                                                                       |   | 2010                                |                                                                                                                |   |   | 2009 |   |
| Revenues                                                                                   |   | $                                   |       2,100,867                                                                       |   |   | $ |           194,268 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Cost of revenues                                                                           |   |                                |          746,534                                                       |   |   |   |           133,477 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Gross profit                                                                               |   |                                |       1,354,333                                                                       |   |   |   |             60,791 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Operating expenses                                                                         |   |                                |                                                                                                                |   |   |   |   |   |
| Selling, general and administrative                                                        |   |                                | 2,805,046                                                                                                           |   |   |   | 1,886,211 |   |
| Total operating expenses                                                                   |   |                                | 2,805,046                                                                                                           |   |   |   | 1,886,211 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Loss from operations                                                                       |   |                                |     (1,450,713)                                                                                 |   |   |   |      (1,825,420) |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Other income (expense):                                                                    |   |                                |                                                                                                                |   |   |   |   |   |
| Other income                                                                               |   |                                |                   90      |   |   |   |               1,378 |   |
| Gain on debt settlement                                                                    |   |                                |            18,099                                            |   |   |   |                    - |   |
| Loss on conversion                                                                         |   |                                |                    - |   |   |   |                (453) |   |
| Interest expense                                                                           |   |                                |        (517,936)                                                                 |   |   |   |      (1,535,668) |   |
| Change in fair value of derivative instruments (Note 1, Change in Accounting Principal)    |   |                                |   (21,044,851)                                                                                            |   |   |   |        6,463,001 |   |
| Total other income (expense)                                                               |   |                                |   (21,544,598)                                                                                            |   |   |   |        4,928,258 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Net  income (loss)                                                               |   |                                |   (22,995,311)                                                                                            |   |   |   |        3,102,838 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Preferred stock dividends                                                                  |   |                                |          (27,500)                                                      |   |   |   |           (30,000) |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Net income (loss) applicable to common stock                                               |   |                                |   (23,022,811)                                                                                            |   |   |   |        3,072,838 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Less: Net (income) loss applicable to noncontrolling interest in consolidated subsidiary   |   |                                |   (109,395)                                                                                               |   |   |   |  - |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Net income (loss) applicable to Ecosphere Technologies, Inc. common stock                  | $      |   (23,132,206)            |                                                                                                                |   | $ |        3,072,838 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Net income (loss) per common share applicable to Ecosphere Technologies, Inc. common stock |   |
| Basic                                                                                      |   | $                                   |              (0.19)                                |   |   | $ |                 0.04 |   |
| Diluted                                                                                    |   | $                                   |              (0.19)                                |   |   | $ |                 0.03 |   |
|                                                                                       |   |                                |                                                                                                                |   |   |   |   |   |
| Weighted average number of common shares outstanding                                       |   |                                |                                                                                                                |   |   |   |   |
| Basic                                                                                      |   |                                | 119,544,476                                                                                                         |   |   |   | 84,831,530 |   |
| Diluted                                                                                    |   |                                | 119,544,476                                                                                                         |   |   |   | 124,601,790 |   |

----

|                                                                                                         |   | For the Three Months Ended March 31, |        |
|--------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                                                                         |   | 2010                                 |        |   | 2009 |   |
| OPERATING ACTIVITIES:                                                                                        |   |                                 |        |   |   |   |
| Net (loss) income before preferred dividends and after noncontrolling interest                               |   | $                                    | (23,104,706 | ) |   | $ | 3,102,838 |   |
|     Adjustments to reconcile net income (loss) to net cash used in operating activities: |   |                                 |        | . |   |
| Depreciation and amortization                                                                                |   |                                 | 443,196     |   |   |   | 120,444 |   |
| Amortization of debt issue costs                                                                             |   |                                 | -           |   |   |   | 187,855 |   |
| Amortization of prepaid expenses                                                                             |   |                                 | -           |   |   |   | 21,686 |   |
| Accretion of discount on notes payable                                                                       |   |                                 | 143,142     |   |   |   | 1,145,417 |   |
| Loss on conversion of accrued interest to stock                                                              |   |                                 | -           |   |   |   | 453 |   |
| Non-cash compensation expense                                                                                |   |                                 | 1,005,212   |   |   |   | 741,668 |   |
| Increase (decrease) in fair value of warrant derivative liability                                            |   |                                 | 16,391,765  |   |   |   | (2,730,739 | ) |
| Increase (decrease) in fair value of embedded conversion option derivative liability                         |   |                                 | 4,653,085   |   |   |   | (3,732,262 | ) |
| Noncontrolling interest in consolidated subsidiary                                                           |   |                                 | 109,395     |   |   |   | - |   |
| Changes in operating assets and liabilities                                                                  |   |                                 | -           |   |   |   |   |   |
| Decrease in accounts receivable                                                                              |   |                                 | 96,167      |   |   |   | 99,119 |   |
| (Increase) decrease in prepaid expenses and other current assets                                             |   |                                 | (22,772     | ) |   |   | 1,370 |   |
| (Increase) in debt issue costs and other non-current assets                                                  |   |                                 | -           |   |   |   | (2,610 | ) |
| Increase (decrease) in accounts payable                                                                      |   |                                 | (357,129    | ) |   |   | 364,965 |   |
| Increase in accounts payable - related parties                                                               |   |                                 | -           |   |   |   | 13,015 |   |
| (Decrease) in restructuring reserve                                                                          |   |                                 | (17,535     | ) |   |   | - |   |
| Increase in deferred rent                                                                                    |   |                                 | -           |   |   |   | 3,094 |   |
| (Decrease) in deposit                                                                                        |   |                                 | (5,085      | ) |   |   | - |   |
| (Decrease) in deferred revenue                                                                               |   |                                 | (288,000    | ) |   |   | - |   |
| Increase in accrued expenses                                                                                 |   |                                 | 7,969       |   |   |   | 283,859 |   |
| Net cash used in operating activities                                                                        |   |                                 | (945,296    | ) |   |   | (379,828 | ) |
| INVESTING ACTIVITIES:                                                                                        |   |                                 |        |   |   |   |   |   |
| Redemption of restricted cash                                                                                |   |                                 | 350,000     |   |   |   | - |   |
| Construction in process purchases                                                                            |   |                                 | (40,080     | ) |   |   | (152,336 | ) |
| Purchase of property and equipment                                                                           |   |                                 | (1,106,502  | ) |   |   | (3,170 | ) |
| Net cash used in investing activities                                                                        |   |                                 | (796,582    | ) |   |   | (155,506 | ) |
| FINANCING ACTIVITIES:                                                                                        |   |                                 |        |   |   |   |   |   |
| Proceeds from issuance of notes payable and warrants                                                         |   |                                 | -           |   |   |   | 45,500 |   |
| Warrant modifications in exchange for cash                                                                   |   |                                 | 617,168     |   |   |   | - |   |
| Proceeds from new vehicle financing                                                                          |   |                                 | 42,000      |   |   |   | - |   |
| Proceeds from issuance of notes payable to related parties                                                   |   |                                 | -           |   |   |   | 65,000 |   |
| Proceeds from warrant exercises                                                                              |   |                                 | 367,773     |   |   |   | - |   |
| Repayments of notes payable and insurance financing                                                          |   |                                 | (58,596     | ) |   |   | (27,216 | ) |
| Repayments of vehicle financing                                                                              |   |                                 | (2,754      | ) |   |   | - |   |
| Principal payments on capital leases                                                                         |   |                                 | (10,677     | ) |   |   | (9,169 | ) |
| Net cash provided by financing activities                                                                    |   |                                 | 954,914     |   |   |   | 74,115 |   |
| Net (decrease) in cash                                                                                       |   |                                 | (786,964    | ) |   |   | (461,219 | ) |
| Cash, beginning of period                                                                                    |   |                                 | 1,089,238   |   |   |   | 461,514 |   |
| Cash, end of period                                                                                          |   | $                                    | 302,274     |   |   | $ | 295 |   |

----

|                                                                                                        |   | For The Three Months Ended |      |
|-------------------------------------------------------------------------------------------------------------|--------|----------------------------|-----------|
| Suppletemtal Cash Flow Information                                                                          |   | March 31,                  |      |
|                                                                                                        |   | 2010                       |      |   | 2009 |   |
| Cash paid for interest                                                                                      |   | $                          | 215,576   |   |   | $ | 54,496 |   |
| Cash paid for income taxes                                                                                  |   | $                          | —   |   |   | $ | — |   |
|                                                                                                        |   |                       |      |   |   |   |   |   |
| Non-cash investing and financing activities:                                                                |   |                       |      |   |   |   |   |   |
| Accrued preferred stock dividends                                                                           |   | $                          | 27,500    |   |   | $ | 30,000 |   |
| Conversion of convertible debentures to common stock                                                        |   | $                          | —   |   |   | $ | 228,745 |   |
| Conversion of convertible notes  to common stock                                                  |   | $                          | 1,552,778 |   |   | $ | 50,000 |   |
| Conversion of related party debt to common stock                                                            |   | $                          | 259,948   |   |   | $ | — |   |
| Reduction of derivative liability for embedded conversion options from conversion of convertible debentures |   | $                          | 3,474,705 |   |   | $ | — |   |
| Reduction of derivative liability for warrants from exercise of warrants                                    |   | $                          | 517,334   |   |   | $ | — |   |
| Common stock issued as payment of accrued interest                                                          |   | $                          | —   |   |   | $ | 1,036 |   |
| Common stock issued in payment of services or accounts payable                                              |   | $                          | —   |   |   | $ | 78,314 |   |
| Series B Redeemable Convertible Cumulative Preferred Stock converted to common stock                        |   | $                          | 50,000    |   |   | $ | 122,500 |   |
|                                                                                                        |   |                       |      |   |   |   |   |   |
| The accompanying unaudited notes are an integral part of these condensed consolidated financial statements. |   |

----

| 1. | NATURE OF OPERATIONS,  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|----|-------------------------------------------------------------------------------------------------------|

----

| Convertible Debt                                                   |   |           |   |              |   |
|--------------------------------------------------------------------|--------|----------------|--------|-------------------|--------|
|                                                               |   | ConversionRate |   | PrincipalAmount   |   |
| 2006 Convertible Debentures                                        |   | $              | 0.15   |              |   | $ | 1,151,876 |   |
| 2008 Secured Convertible Notes                                     |   | $              | 0.15   |              |   |   | 2,415,000 |   |
| 2008 Secured Convertible Original Issue Discount Notes             |   | $              | 0.36   |              |   |   | 1,851,111 |   |
|    Total                                            |   |           |   |              |   | $ | 5,417,987 |   |
|                                                               |   |           |   |              |   |   |   |   |
| Warrants                                                           |   |           |   |              |   |   |   |   |
|                                                               |   | ExercisePrice  |   | Number ofWarrants |   |
| Warrants attached to 2006 Convertible Debentures                   |   | $              | 0.15   |              |   |   | 10,162,602 |   |
| Warrants attached to 2008 Secured Convertible Notes                |   | $              | 0.15   |              |   |   | 4,985,000 |   |
| Warrants issued as Finder's Fee for 2008 Secured Convertible Notes |   | $              | 0.15   |              |   |   | 2,415,000 |   |
| Warrrants issued along with $1 million of Secured Promissory Notes |   | $              | 0.15   |              |   |   | 1,000,000 |   |
| Warrrants issued along with $2 million of Secured Promissory Notes |   | $              | 0.25   |              |   |   | 666,667 |   |
|    Total                                            |   |           |   |              |   |   | 19,229,269 |   |

| Warrants                    |   | Black Scholes Inputs        |            |
|-----------------------------|--------|-----------------------------|-----------------|
|                        |   | Issuance of Warrant         |            | As of December 31,2008 |   | As of March 31,2009 |   |
| Volatility                  |   |                        | 92.54% - 140.96 | % |   |   | 135.81 | % |   |   | 133.81 | % |
| Expected Term               |   | 3 - 5 years                 |            |   | 2.37 - 4.5 years |   |   | 2.13 - 4.3 years |   |
| Risk Free Interest Rate     |   |                        | 1.15% - 4.21    | % |   |   | 0.75% - 1.40 | % |   |   | 0.85% - 1.47 | % |
|                        |   |                        |            |   |   |   |   |   |   |   |   |   |
| Embedded Conversion Options |   |                        |            |   |   |   |   |   |   |
|                        |   | Issuance ofConvertible Note |            | As of December 31,2008 |   | As of March 31,2009 |   |
| Volatility                  |   |                        | 94.9% - 140.96  | % |   |   | 135.81 | % |   |   | 133.81 | % |
| Expected Term               |   | 1 - 2.19 years              |            |   | .21 - .96 years |   |   | .001 - .71 years |   |
| Risk Free Interest Rate     |   |                        | 0.45% - 4.15    | % |   |   | 0.10% - 0.37 | % |   |   | 0.01% - 0.47 | % |

----

|                        |   | Black Scholes Inputs                                         |            |
|-----------------------------|--------|--------------------------------------------------------------|-----------------|
| Warrants                    |   |                                                         |            |   |   |   |
|                        |   | Warrants Exercised During theThree MonthsEndedMarch 31, 2010 |            |   | As of March 31, 2010 |   |
| Volatility                  |   |                                                         | 99.19% - 110.94 | % |   |   | 99.19 | % |
| Expected Term               |   | 1.13 - 4.52 years                                            |            |   | 1.13 - 4.58 years |   |
| Risk Free Interest Rate     |   |                                                         | 0.45% - 2.24    | % |   |   | 0.45% - 2.31 | % |
|                        |   |                                                         |            |   |   |   |   |   |
|                        |   |                                                         |            |   |   |   |   |   |
| Embedded Conversion Options |   |                                                         |            |   |   |   |   |   |
|                        |   | Notes ConvertedDuring theThree MonthsEndedMarch 31, 2010     |            |   | As of March 31, 2010 |   |
| Volatility                  |   |                                                         | 98.22% - 110.94 | % |   |   | 99.19 | % |
| Expected Term               |   | 0.001 - 0.29 years                                           |            |   | 0.001 - 0.6 years |   |
| Risk Free Interest Rate     |   |                                                         | 0.001% - 0.20   | % |   |   | 0.001 - 0.23 | % |

----

| Level 1:  | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.                                                                                                                                                     |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |                                                                                                                                                                                                                                                                 |
| Level 2:  | Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
|           |                                                                                                                                                                                                                                                                 |
| Level 3:  | Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.                                                                          |

|                                                                          |   | Balance atMarch 31, 2010 |       | Quoted Prices inActive Marketsfor IdenticalAssets |   | SignificantOtherObservableInputs |    | SignificantUnobservableInputs |   |
|-------------------------------------------------------------------------------|--------|--------------------------|------------|---------------------------------------------------|--------|----------------------------------|---------|-------------------------------|--------|
|                                                                          |   |                     |       | (Level 1)                                         |   | (Level 2)                        |    | (Level 3)                     |   |
| Fair value of liability for warrant derivative instruments                    |   | $                        | 22,190,062 |                                              |   | $                                | — |                          |   | $ | — |   |   | $ | 22,190,062 |   |
| Fair value of liability for embedded conversion option derivative instruments |   |                     | 2,263,288  |                                              |   |                             | — |                          |   |   | — |   |   |   | 2,263,288 |   |
| Total Financial Liabilities                                                   |   | $                        | 24,453,350 |                                              |   | $                                | — |                          |   | $ | — |   |   | $ | 24,453,350 |   |

|                                                 |   | Fair Value ofLiability ForWarrantDerivativeInstruments |       |   | Fair Value ofLiability ForEmbeddedConversionOptionDerivativeInstruments |   |
|------------------------------------------------------|--------|--------------------------------------------------------|------------|--------|-------------------------------------------------------------------------|--------|
| Balance December 31, 2009                            |   | $                                                      | 6,315,631  |   |                                                                    | $      | 1,084,908 |   |
| Adjustments for exercises and conversions            |   |                                                   | (517,334   | )      |                                                                    |   | (3,474,705 | ) |
| Change in fair value included in other (income) loss |   |                                                   | 16,391,765 |   |                                                                    |   | 4,653,085 |   |
| Balance at March 31, 2010                            |   | $                                                      | 22,190,062 |   |                                                                    | $      | 2,263,288 |   |

----

| 2. | GOING CONCERN |
|----|---------------|

|                                                                    |   |      |      |   |                |   |     |                 |   |
|-------------------------------------------------------------------------|--------|-----------|-----------|--------|---------------------|--------|----------|----------------------|--------|
|                                                                    |   | Principal |      |   | UnamortizedDiscount |   |     | Debt, Net ofDiscount |   |
| Unrelated parties                                                       |   |      |      |   |                |   |     |                 |   |
| Convertible & non-convertible notes payable                         |   | $         | 563,889   |   |                | $      | (129,154 | )                    |   | $ | 434,735 |   |
| Less current portion                                                    |   |      | 563,889   |   |                |   | (129,154 | )                    |   |   | 434,735 |   |
| Convertible & non-convertible notes payable, net of current portion |   | $         | -         |   |                | $      | -        |                 |   | $ | - |   |
|                                                                    |   |      |      |   |                |   |     |                 |   |   |   |   |
| Related parties                                                         |   |      |      |   |                |   |     |                 |   |   |   |   |
| Convertible & non-convertible notes payable                         |   | $         | 3,267,110 |   |                | $      | -        |                 |   | $ | 3,267,110 |   |
| Less current portion                                                    |   |      | 1,267,110 |   |                |   | -        |                 |   |   | 1,267,110 |   |
| Convertible & non-convertible notes payable, net of current portion |   | $         | 2,000,000 |   |                | $      | -        |                 |   | $ | 2,000,000 |   |

----

| 5. | RESTRUCTURING RESERVE |
|----|-----------------------|

| Restructuring Reserve     |   |   |    |
|---------------------------|--------|--------|---------|
|                      |   |   |    |
| Balance December 31, 2009 |   | $      | 123,436 |   |
| Rent payments             |   |   | (43,207 | ) |
| Sublease payment received |   |   | 25,672  |   |
| Balance March 31, 2010    |   | $      | 105,901 |   |

| 6. | REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK |
|----|---------------------------------------------------|

| 7. | COMMON STOCK |
|----|--------------|

----

| a)   | 5,035,348 shares of common stock were issued to convert $1,812,726 of secured convertible notes payable. |
|----------------|----------------------------------------------------------------------------------------------------------|

| b)   | 16,700 shares of common stock were issued upon the conversion of 20 shares of Series B Preferred Stock.  Accordingly, $50,000 was reclassified to equity from temporary equity. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | 1,525,112 shares of common stock were issued upon exercise of warrants and options at exercise prices ranging from $0.15 to $0.44 per share resulting in proceeds to the Company of $367,773. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | Shares |    |   | Weighted Average Grant-Date Fair-Value |   |
|------------------------------------|--------|--------|---------|--------|-------------------------------------------------------|--------|
| Non-vested at January 1, 2010 |   |   | 547,559 |   |                                                  | $      | 0.47 |   |
| Granted                            |   |   | ---     |   |                                                  | $      | --- |   |
| Vested                             |   |   | ---     |   |                                                  | $      | --- |   |
| Forfeited                          |   |   | ---     |   |                                                  | $      | --- |   |
|                               |   |   |    |   |                                                  |   |   |   |
| Unvested at March 31, 2010         |   |   | 547,559 |   |                                                  | $      | 0.47 |   |

| 8. | NET INCOME (LOSS) PER SHARE |
|----|-----------------------------|

----

|                                       |   | Basic  |       |   | Diluted |   |
|--------------------------------------------|--------|--------|------------|--------|---------|--------|
| Numerator                                  |   |   |       |   |    |   |
| Net income applicable to common stock      |   | $      | 3,072,838  |   |    | $      | 3,072,838 |   |
| Preferred stock dividends                  |   |   | -          |   |    |   | 30,000 |   |
| Convertible debt interest (net of tax)     |   |   | -          |   |    |   | 88,312 |   |
|                                       |   | $      | 3,072,838  |   |    | $      | 3,191,150 |   |
|                                       |   |   |       |   |    |   |   |   |
| Denominator                                |   |   |       |   |    |   |   |   |
| Weighted average common shares outstanding |   |   | 84,831,530 |   |    |   | 84,831,530 |   |
| Restricted stock                           |   |   | -          |   |    |   | 742,506 |   |
| Preferred stock                            |   |   | -          |   |    |   | 496,582 |   |
| Convertible debt                           |   |   | -          |   |    |   | 28,329,288 |   |
| Warrants and options                       |   |   | -          |   |    |   | 10,201,884 |   |
|                                       |   |   | 84,831,530 |   |    |   | 124,601,790 |   |
|                                       |   |   |       |   |    |   |   |   |
| Net income per share                       |   | $      | 0.04       |   |    | $      | 0.03 |   |

| 9. | STOCK OPTIONS AND WARRANTS |
|----|----------------------------|

|                    |   | For the Three Months EndedMarch 31, |    |
|-------------------------|--------|------------------------------------------|---------|
|                    |   | 2010                                     |    |   | 2009 |   |
| Expected volatility     |   |                                     | 104.57% |   |   |   | N/A |   |
| Expected lives          |   |                                     | 2.5     |   |   |   | N/A |   |
| Risk-free interest rate |   |                                     | 1.22    |   |   |   | N/A |   |
| Expected dividend yield |   | None                                     |    |   | None |   |

----

| Employee Fixed Plan                                           |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |
|---------------------------------------------------------------|--------|-------------------------------------------|------------|--------|-------------------------------------------|--------|------------|--------|--------|--------|-------------------------------------------|--------|
|                                                          |   | For the Three Months Ended March 31, 2010 |       |   | For the Three Months Ended March 31, 2009 |   |
|                                                          |   | Shares                                    |       |   | Weighted Average Exercise Price |   |       | Shares |   |   | Weighted Average Exercise Price |   |
| Outstanding at beginning of period                            |   |                                      | 11,468,736 |   |                                      | $      | 0.58       |   |   |   | 6,471,796                                 |   |   | $ | 0.69 |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Granted                                                       |   |                                      | -          |   |                                      | $      | -          |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Exercised                                                     |   |                                      | (340,000   | )      |                                      | $      | 0.29       |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Forfeited                                                     |   |                                      | -          |   |                                      | $      | -          |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Expired                                                       |   |                                      | -          |   |                                      | $      | -          |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                      | 11,128,736 |   |                                      | $      | 0.59       |   |   |   | 6,471,796                                 |   |   | $ | 0.69 |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                      | 7,199,317  |   |                                      | $      | 0.68       |   |   |   | 5,913,669                                 |   |   | $ | 0.89 |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Outstanding                                                   |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                      |       |   |                                      |   | 3.66       |   |   |   |                                      |   |   |   | 4.03 |   |
|    Aggregate intrinsic value                   |   |                                      |       |   |                                      | $      | 10,172,273 |   |   |   |                                      |   |   | $ | - |   |
|    Weighted average grant date fair value      |   |                                      |       |   |                                      |   | N/A        |   |   |   |                                      |   |   |   | N/A |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Exercisable                                                   |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                      |       |   |                                      |   | 3.07       |   |   |   |                                      |   |   |   | 4.43 |   |
|    Aggregate intrinsic value                   |   |                                      |       |   |                                      | $      | 5,967,795  |   |   |   |                                      |   |   | $ | - |   |

| Employee Fixed Non-Plan                                       |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |
|---------------------------------------------------------------|--------|-------------------------------------------|------------|--------|-------------------------------------------|--------|------------|--------|--------|--------|-------------------------------------------|--------|
|                                                          |   | For the Three Months Ended March 31, 2010 |       |   | For the Three Months Ended March 31, 2009 |   |
|                                                          |   | Shares                                    |       |   | Weighted Average Exercise Price |   |       | Shares |   |   | Weighted Average Exercise Price |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |
| Outstanding at beginning of period                            |   |                                      | 33,115,414 |   |                                      | $      | -          |   |   |   | 33,216,667                                |   |   | $ | 0.45 |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Granted                                                       |   |                                      | 200,000    |   |                                      | $      | 0.43       |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Exercised                                                     |   |                                      | (166,667   | )      |                                      | $      | 0.23       |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Forfeited                                                     |   |                                      | -          |   |                                      | $      | -          |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Expired                                                       |   |                                      | -          |   |                                      | $      | -          |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                      | 33,148,747 |   |                                      | $      | 0.45       |   |   |   | 33,216,667                                |   |   | $ | 0.45 |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                      | 18,965,412 |   |                                      | $      | 0.43       |   |   |   | 17,025,000                                |   |   | $ | 0.46 |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Outstanding                                                   |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                      |       |   |                                      |   | 3.62       |   |   |   |                                      |   |   |   | 4.29 |   |
|    Aggregate intrinsic value                   |   |                                      |       |   |                                      | $      | 34,631,268 |   |   |   |                                      |   |   | $ | 51,567 |   |
|    Weighted average grant date fair value      |   |                                      |       |   |                                      | $      | 0.26       |   |   |   |                                      |   |   |   | N/A |   |
|                                                          |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
| Exercisable                                                   |   |                                      |       |   |                                      |   |       |   |   |   |                                      |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                      |       |   |                                      |   | 3.42       |   |   |   |                                      |   |   |   | 4.22 |   |
|    Aggregate intrinsic value                   |   |                                      |       |   |                                      | $      | 14,231,266 |   |   |   |                                      |   |   | $ | 51,567 |   |

----

| Non-Employee Fixed Non-Plan                                   |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |
|---------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|-------------------------------------------|--------|-----------|--------|--------|--------|-------------------------------------------|--------|
|                                                          |   | For the Three Months Ended March 31, 2010 |      |   | For the Three Months Ended March 31, 2009 |   |
|                                                          |   | Shares                                    |      |   | Weighted Average Exercise Price |   |      | Shares |   |   | Weighted Average Exercise Price |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |
| Outstanding at beginning of period                            |   |                                      | 3,803,741 |   |                                      | $      | -         |   |   |   | 3,803,741                                 |   |   | $ | 0.59 |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
| Granted                                                       |   |                                      | -         |   |                                      | $      | -         |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
| Exercised                                                     |   |                                      | -         |   |                                      | $      | -         |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
| Forfeited                                                     |   |                                      | -         |   |                                      | $      | -         |   |   |   | (500,000                                  | )      |   | $ | 0.42 |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
| Expired                                                       |   |                                      | (300,000  | )      |                                      | $      | 1.02      |   |   |   | -                                         |   |   | $ | - |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                      | 3,503,741 |   |                                      | $      | 0.55      |   |   |   | 3,303,741                                 |   |   | $ | 0.61 |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                      | 3,360,856 |   |                                      | $      | 0.56      |   |   |   | 3,068,000                                 |   |   | $ | 0.63 |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
| Outstanding                                                   |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                      |      |   |                                      |   | 1.32      |   |   |   |                                      |   |   |   | 1.75 |   |
|    Aggregate intrinsic value                   |   |                                      |      |   |                                      | $      | 3,318,531 |   |   |   |                                      |   |   | $ | - |   |
|    Weighted average grant date fair value      |   |                                      |      |   |                                      |   | N/A       |   |   |   |                                      |   |   |   | N/A |   |
|                                                          |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
| Exercisable                                                   |   |                                      |      |   |                                      |   |      |   |   |   |                                      |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                      |      |   |                                      |   | 1.20      |   |   |   |                                      |   |   |   | 1.53 |   |
|    Aggregate intrinsic value                   |   |                                      |      |   |                                      | $      | 3,166,744 |   |   |   |                                      |   |   | $ | - |   |

| Warrants                                                      |   | For the Three Months Ended March 31, 2010 |       |   | For the Three Months Ended March 31, 2009 |   |
|---------------------------------------------------------------|--------|-------------------------------------------|------------|--------|-------------------------------------------|--------|
|                                                          |   | Shares                                    |       |   | Weighted Average Exercise Price |   |   | Shares |   |   | Weighted Average Exercise Price |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |
| Outstanding at beginning of year                              |   |                                      | 32,588,207 |   |                                      | $      | 0.51 |   |   |   | 39,132,197 |   |   | $ | 0.51 |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Granted                                                       |   |                                      | -          |   |                                      | $      | - |   |   |   | - |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Exercised                                                     |   |                                      | (1,018,445 | )      |                                      | $      | 0.23 |   |   |   | - |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Forfeited                                                     |   |                                      | -          |   |                                      | $      | - |   |   |   | - |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Exchanged, net                                                |   |                                      | 1,558,000  |   |                                      | $      | 0.67 |   |   |   | - |   |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Expired                                                       |   |                                      | (1,080,000 | )      |                                      | $      | 1.12 |   |   |   | (180,000 | ) |   | $ | - |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                      | 32,047,762 |   |                                      | $      | 0.45 |   |   |   | 38,952,197 |   |   | $ | 0.51 |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                      | 32,047,762 |   |                                      | $      | 0.45 |   |   |   | 38,952,197 |   |   | $ | 0.51 |   |
|                                                          |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding and exercisable                                   |   |                                      |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                      |       | 2.29   |                                      |   |   |   |   |   |   | 2.58 |   |
|    Aggregate intrinsic value                   |   |                                      |       |   |                                      | $      | 33,588,847 |   |   |   |   |   |   | $ | 353,557 |   |

----

| 11. | OPERATING SEGMENTS |
|-----|--------------------|

|   | ● | A business activity from which the Company may earn revenue and incur expenses; |
|--------|---------|---------------------------------------------------------------------------------|

|   | ● | Whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | For which discrete financial information is available. |
|--------|---------|--------------------------------------------------------|

|   | ● | ESI which we organized in April 2005 to operate our non-Ozonix water filtration system business; |
|--------|---------|-------------------------------------------------------------------------------------------------------|

|   | ● | Ecosphere Envirobotic Solutions, Inc., formerly UltraStrip Envirobotic Solutions, Inc., which we organized in October 2005 to operate our coating removal business; and, |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | EES, Inc., which we organized in November 2006, conducted our water processing for the oil and gas industry using the Ecosphere Ozonix® technology until July 2009, when the assets and liabilities of EES, Inc. were contributed in the formation of EES LLC.  As of March 31, 2010, the Company has a 52.6% ownership position in EES LLC. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                         |   | Ecosphere |    |   | Ecosphere            |   |    | Ecosphere      |   |   | Ecosphere    |   |   |                |      |   |      |   |      |         |   |
|--------------------------------------------------------------|--------|-----------|---------|--------|----------------------|--------|---------|----------------|--------|--------|--------------|--------|--------|---------------------|-----------|--------|-----------|--------|-----------|--------------|--------|
|                                                         |   | Systems,  |    |   | Envirobotic          |   |    | Energy         |   |   | Energy       |   |   |                |      |   |      |   |      | Consolidated |   |
|                                                         |   | Inc.      |    |   | Solutions, Inc. |   |    | Services, Inc. |   |   | Services LLC |   |   | Segment Totals |      |   | Corporate |   |      | Totals       |   |
| Revenue from external customers                              |   | $         | — |   |                 | $      | — |           |   | $      | —      |   |   | $                   | 2,100,867 |   |      | $      | 2,100,867 |         |   | $ | — |   |   | $ | 2,100,867 |   |
| Interest expense and amortization of debt discount           |   | $         | — |   |                 | $      | — |           |   | $      | —      |   |   | $                   | (119,438  | )      |      | $      | (119,438  | )            |   | $ | (398,498 | ) |   | $ | (517,936 | ) |
| Change in fair value of liability for derivative instruments |   | $         | — |   |                 | $      | — |           |   | $      | —      |   |   | $                   | —   |   |      | $      | —   |         |   | $ | (21,044,851 | ) |   | $ | (21,044,851 | ) |
| Depreciation and amortization                                |   | $         | (28,564 | )      |                 | $      | (245    | )              |   | $      | —      |   |   | $                   | (397,612  | )      |      | $      | (426,421  | )            |   | $ | (16,775 | ) |   | $ | (443,196 | ) |
| Income Tax Expense                                           |   | $         | — |   |                 | $      | — |           |   | $      | —      |   |   | $                   | —   |   |      | $      | —   |         |   | $ | — |   |   | $ | — |   |
| Net Income (loss)                                            |   | $         | (28,564 | )      |                 | $      | (245    | )              |   | $      | —      |   |   | $                   | 109,395   |   |      | $      | 80,586    |         |   | $ | (23,212,792 | ) |   | $ | (23,132,206 | ) |
|                                                         |   |      |    |   |                 |   |    |           |   |   |         |   |   |                |      |   |      |   |      |         |   |   |   |   |   |   |   |   |
| Segment fixed assets & construction in process           |   | $         | 865,375 |   |                 | $      | 25,824  |           |   | $      | —      |   |   | $                   | 8,564,946 |   |      | $      | 9,456,145 |         |   | $ | 1,978,523 |   |   | $ | 11,434,668 |   |
| Fixed asset additions (disposals) (net)                      |   | $         | — |   |                 | $      | — |           |   | $      | —      |   |   | $                   | 1,012,580 |   |      | $      | 1,012,580 |         |   | $ | 131,367 |   |   | $ | 1,143,947 |   |
| Total Assets                                                 |   | $         | 169,731 |   |                 | $      | 823     |           |   | $      | —      |   |   | $                   | 8,251,341 |   |      | $      | 8,421,895 |         |   | $ | 1,497,021 |   |   | $ | 9,918,916 |   |
|                                                         |   |      |    |   |                 |   |    |           |   |   |         |   |   |                |      |   |      |   |      |         |   |   |   |   |   |   |   |   |

|                                               |   | Ecosphere |    |   | Ecosphere            |   |   | Ecosphere      |   |   |                |   |   |      |      |   |         |   |
|----------------------------------------------------|--------|-----------|---------|--------|----------------------|--------|--------|----------------|--------|--------|---------------------|--------|--------|-----------|-----------|--------|--------------|--------|
|                                               |   | Systems,  |    |   | Envirobotic          |   |   | Energy         |   |   |                |   |   |      |      |   | Consolidated |   |
|                                               |   | Inc.      |    |   | Solutions, Inc. |   |   | Services, Inc. |   |   | Segment Totals |   |   | Corporate |      |   | Totals       |   |
| Revenue from external customers                    |   | $         | -       |   |                 | $      | -      |           |   | $      | 194,268             |   |   | $         | 194,268   |   |         | $      | - |   |   | $ | 194,268 |   |
| Interest expense and amortization of debt discount |   | $         | -       |   |                 | $      | -      |           |   | $      | -                   |   |   | $         | -         |   |         | $      | (1,535,668 | ) |   | $ | (1,535,668 | ) |
| Depreciation and amortization                      |   | $         | (28,564 | )      |                 | $      | (245   | )              |   | $      | (78,196             | )      |   | $         | (107,005  | )      |         | $      | (12,914 | ) |   | $ | (119,919 | ) |
| Income Tax Expense                                 |   | $         | -       |   |                 | $      | -      |           |   | $      | -                   |   |   | $         | -         |   |         | $      | - |   |   | $ | - |   |
| Net Income (loss)                                  |   | $         | (28,564 | )      |                 | $      | (245   | )              |   | $      | (131,928            | )      |   | $         | (160,737  | )      |         | $      | 3,263,575 |   |   | $ | 3,102,838 |   |
|                                               |   |      |    |   |                 |   |   |           |   |   |                |   |   |      |      |   |         |   |   |   |   |   |   |   |
| Segment fixed assets & construction in process |   | $         | 865,375 |   |                 | $      | 25,824 |           |   | $      | 1,976,948           |   |   | $         | 2,868,147 |   |         | $      | 1,013,358 |   |   | $ | 3,881,505 |   |
| Fixed asset additions (disposals) (net)            |   | $         | -       |   |                 | $      | -      |           |   | $      | 152,336             |   |   | $         | 152,336   |   |         | $      | 3,170 |   |   | $ | 155,506 |   |
| Total Assets                                       |   | $         | 278,580 |   |                 | $      | 4,330  |           |   | $      | 1,852,394           |   |   | $         | 2,135,304 |   |         | $      | 389,972 |   |   | $ | 2,525,276 |   |

| 12. | RELATED PARTY TRANSACTIONS |
|-----|----------------------------|

----

| 13. | COMMITMENT AND CONTINGENCIES |
|-----|------------------------------|

| 14.   | NONCONTROLLING INTEREST |
|-----------------|-------------------------|

----

| ● | As evidence that the Ecosphere Ozoniz® process is breakthrough technology, we received two patents for our Ecosphere Ozonix® process from the U.S Patent and Trademark Office under the new Green Tech Fast Track program. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | Our revenues of $2.1 million were a record for operating revenues in any quarter, a 981% increase compared to the first quarter of 2009. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------|

| ● | In January and February we performed a successful paid pilot program for British Petroleum treating produced water in Wyoming. |
|---------|--------------------------------------------------------------------------------------------------------------------------------|

| ● | Our loss from operations declined for the third consecutive quarter. |
|---------|----------------------------------------------------------------------|

| ● | Our outstanding debt was reduced by $1.8 million during the three months ended March 31, 2010. |
|---------|------------------------------------------------------------------------------------------------|

----

----

|                                                                                           |   |   For the Three Months Ended March 31, |        |
|------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-------------|
|                                                                                           |   |                                        |        |   | Change |   |
|                                                                                           |   | 2010                                        |        |   | 2009 |   |   |  $ |   |   |   | % |   |
|                                                                                           |   |                                        |        |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                       |   | $                                           | 2,100,867   |   |   | $ | 194,268 |   |   | $ | 1,906,599 |   |   |   | 981 | % |
| Cost of revenues                                                                               |   |                                        | 746,534     |   |   |   | 133,477 |   |   |   | 613,057 |   |   |   | 459 | % |
| Gross profit (loss)                                                                            |   |                                        | 1,354,333   |   |   |   | 60,791 |   |   |   | 1,293,542 |   |   |   | 2128 | % |
| Operating expenses                                                                             |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Salaries and employee benefits                       |   |                                        | 1,733,676   |   |   |   | 1,272,162 |   |   |   | 461,514 |   |   |   | 36 | % |
|        Administrative and selling                           |   |                                        | 469,618     |   |   |   | 311,374 |   |   |   | 158,244 |   |   |   | 51 | % |
|        Professional fees                                    |   |                                        | 132,172     |   |   |   | 172,386 |   |   |   | (40,214 | ) |   |   | -23 | % |
|        Depreciation and amortization                        |   |                                        | 443,196     |   |   |   | 120,739 |   |   |   | 322,457 |   |   |   | 267 | % |
|        Research and development                             |   |                                        | 26,384      |   |   |   | 9,550 |   |   |   | 16,834 |   |   |   | 176 | % |
| Total operating expenses                                                                       |   |                                        | 2,805,046   |   |   |   | 1,886,211 |   |   |   | 918,835 |   |   |   | 49 | % |
| Loss from operations                                                                           |   |                                        | (1,450,713  | ) |   |   | (1,825,420 | ) |   |   | 374,707 |   |   |   | 62 | % |
| Other income (expense):                                                                        |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income                                                                                   |   |                                        | 90          |   |   |   | 1,378 |   |   |   | (1,288 | ) |   |   | 93 | % |
| Gain on debt settlement                                                                        |   |                                        | 18,099      |   |   |   | - |   |   |   | 18,099 |   |   |   | 100 | % |
| Gain (loss) on conversion                                                                      |   |                                        | -           |   |   |   | (453 | ) |   |   | 453 |   |   |   | 100 | % |
| Interest expense                                                                               |   |                                        | (517,936    | ) |   |   | (1,535,668 | ) |   |   | 1,017,732 |   |   |   | 66 | % |
|         Change in fair value of derivative instruments |   |                                        | (21,044,851 | ) |   |   | 6,463,001 |   |   |   | (27,507,852 | ) |   |   | -131 | % |
| Total other income (expense)                                                                   |   |                                        | (21,544,598 | ) |   |   | 4,928,258 |   |   |   | (26,472,856 | ) |   |   | -537 | % |
| Net (loss) income                                                                              |   |                                        | (22,995,311 | ) |   |   | 3,102,838 |   |   |   | (26,098,149 | ) |   |   | 841 | % |
| Preferred stock dividends                                                                      |   |                                        | 27,500      |   |   |   | 30,000 |   |   |   | 2,500 |   |   |   | -8 | % |
| Net income (loss) applicable to common stock                                                   |   |                                        | (23,022,811 | ) |   |   | 3,072,838 |   |   |   | (26,095,649 | ) |   |   | 849 | % |
| Net (income) loss applicable to noncontrolling interest of consolidated subsidiary             |   |                                        | (109,395    | ) |   |   | - |   |   |   | (109,395 | ) |   |   | 100 | % |
| Net income (loss) applicable to Ecosphere Technologies common stock                            |   | $                                           | (23,132,206 | ) |   | $ | 3,072,838 |   |   | $ | (26,205,044 | ) |   |   | 853 | % |

----

----

| ● | Continued generation of revenue by EES LLC from our existing long term Agreements;                                          |
|---------|----------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                             |
| ● | A new EES LLC long-term Agreement from an existing or new customer through which Ecosphere generates manufacturing profits; |
|    |                                                                                                                             |
| ● | New paid pilots throughout the 12 months;                                                                                        |
|    |                                                                                                                             |
| ● | 2010 distributions of profits and priority distributions from EES LLC.                                                      |

----

----

----

| Name or Class of Investor | Date Sold                               | No. of Securities                                  | Reason for Issuance                                 |
|--------------------------------|-----------------------------------------|---------------------------------------------------------|-----------------------------------------------------|
|                           |                                    |                                                    |                                                |
| Executive officer (1)          | December 22, 2009                       | 116,279 shares of common stock                          | Service as employee                                 |
| Warrant holder (1)             | January 7, 2010                         | 677,507 shares of common stock                          | Exercise of warrants at $0.45 per share             |
| Note holders (2)               | January 15, 2010 through March 26, 2010 | 5,210,904 shares of common stock                        | Conversion of notes at $0.36 per share              |
| Warrant holders (1)            | January 20, 2010 through March 4, 2010  | 343,945 shares of common stock                          | Exercise of warrants at $0.25 per share             |
| Option holders (1)             | January 20, 2010 through March 30, 2010 | 136,000 shares of common stock                          | Exercise of stock options at $0.28 per share        |
| Series B holder (2)            | January 29, 2010                        | 16,700 shares of common stock                           | Conversion of 20 shares of Series B Preferred Stock |
| Warrant holder (1)             | February 8, 2010                        | 50,000 shares of common stock                           | Exercise of warrants at $0.10 per share             |
| Warrant holders (1)            | February 8, 2010 through March 17, 2010 | 152,500 shares of common stock                          | Exercise of warrants at $0.15 per share             |
| Warrant holders (1)            | March 10, 2010 through March 31, 2010   |  3,374,500 warrants exercisable at $0.60 per share | Exchange of previously issued warrants              |
| Warrant holder (1)             | March 10, 2010 through March 31, 2010   |  2,999,000 warrants exercisable at $0.75 per share | Exchange of previously issued warrants              |
| Warrant holder (1)             | March 29, 2010                          | 40,000 shares of common stock                           | Exercise of warrants at $0.28 per share             |

----

| Exhibit |   |                                                                                            |   | Incorporated by Reference |   | Filed or Furnished |
|---------|--------|-------------------------------------------------------------------------------------------------|--------|---------------------------|--------|--------------------|
| No.     |   | Exhibit Description                                                                             |   | Form                      |   | Date               |   | Number |   | Herewith |
|    |   |                                                                                            |   |                      |   |               |   |   |   |   |
| 3.1     |   | Certificate of Incorporation                                                                    |   | 10-QSB                    |   | 12/11/06           |   |   | 3.1 |   |   |
| 3.2     |   | Certificate of Amendment                                                                        |   | 10-K                      |   | 3/25/09            |   |   | 3.2 |   |   |
| 3.3     |   | Certificate of Correction                                                                       |   | 10-K                      |   | 3/25/09            |   |   | 3.3 |   |   |
| 3.4     |   | Bylaws                                                                                          |   | 10-QSB                    |   | 12/11/06           |   |   | 3.2 |   |   |
| 3.5     |   | Amendment to the Bylaws                                                                         |   | 10-Q                      |   | 11/13/08           |   |   | 3.3 |   |   |
| 4.1     |   | Form of Warrant – Exchange Offer                                                          |   |                      |   |               |   |   |   |   | Filed |
| 31.1    |   | Certification of Principal Executive Officer (Section 302)                                 |   |                      |   |               |   |   |   |   | Filed |
| 31.2    |   | Certification of Principal Financial Officer (Section 302)                                 |   |                      |   |               |   |   |   |   | Filed |
| 32.1    |   | Certification of Principal Executive Officer and Principal Financial Officer (Section 906) |   |                      |   |               |   |   |   |   | Furnished |

----

|         |         | ECOSPHERE TECHNOLOGIES, INC.                         |   |
|--------------|--------------|------------------------------------------------------|--------|
|         |         |                                                 |   |
| May 17, 2010 |    | /s/ Dennis McGuire                              |   |
|         |         | Dennis McGuire                                       |   |
|         |         | Chief Executive Officer(Principal Executive Officer) |   |
|         |         |                                                 |   |
| May 17, 2010 |         | /s/ Adrian Goldfarb                             |   |
|         |         | Adrian Goldfarb                                      |   |
|         |         | Chief Financial Officer(Principal Financial Officer) |   |