----

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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 June 30, 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      |   | Smaller reporting company                 | þ |
|                                          |   |   |  (Do not check if a smaller reporting company) |   |

| Class                                   |   | Outstanding at August 13, 2010 |
|-----------------------------------------|--------|--------------------------------|
| Common Stock, $0.01 par value per share |   | 137,620,838 shares             |

----

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|                                 |                                                                                        | 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 |   |   | 25 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 3.                              | Qualitative and Quantitative Disclosures about Market Risk                                  |   |   | 35 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 4.                              | Controls and Procedures                                                                     |   |   | 35 |   |
|                                 |                                                                                        |   |   |   |   |
| PART II – OTHER INFORMATION    |                                                                                        |   |   |   |
|                                 |                                                                                        |   |   |   |
| Item 1.                              | Legal Proceedings                                                                           |   |   | 36 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 1A.                             | Risk Factors                                                                                |   |   | 36 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 2.                              | Unregistered Sales of Equity Securities and Use of Proceeds                                 |   |   | 36 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 3.                              | Defaults Upon Senior Securities                                                             |   |   | 37 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 4.                              | (Removed and Reserved)                                                                      |   |   | 37 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 5.                              | Other Information                                                                           |   |   | 37 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 6.                              | Exhibits                                                                                    |   |   | 37 |   |
|                                 |                                                                                        |   |   |   |   |
| SIGNATURES                           |                                                                                        |   | 39     |   |

----

| ITEM 1.  FINANCIAL STATEMENTS |
|------------------------------------|

|  ECOSPHERE TECHNOLOGIES, INC. AND SUBSIDIARIES |
|-----------------------------------------------------|
| CONDENSED CONSOLIDATED BALANCE SHEETS               |

|                                                                                                                                                                                  |   | June 30,    |            |   | December 31, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-----------------|--------|--------------|--------|
|                                                                                                                                                                                  |   | 2010        |            |   | 2009         |   |
|                                                                                                                                                                                  |   | (Unaudited) |            |   |         |   |
| Current Assets                                                                                                                                                                        |   |        |            |   |         |   |
| Cash                                                                                                                                                                                  |   | $           | 47,171          |   |         | $      | 1,089,238 |   |
| Restricted cash                                                                                                                                                                       |   |        | -               |   |         |   | 425,000 |   |
| Accounts receivable                                                                                                                                                                   |   |        | 674,375         |   |         |   | 701,999 |   |
| Prepaid expenses and other current assets                                                                                                                                             |   |        | 161,968         |   |         |   | 30,656 |   |
| Total current assets                                                                                                                                                                  |   |        | 883,514         |   |         |   | 2,246,893 |   |
|        Property and equipment, net                                                                                                                 |   |        | 7,461,827       |   |         |   | 7,174,919 |   |
|        Construction in progress                                                                                                                    |   |        | 1,458,555       |   |         |   | 764,229 |   |
|        Patents, net                                                                                                                                |   |        | 47,274          |   |         |   | 37,891 |   |
|        Deposits                                                                                                                                    |   |        | 22,205          |   |         |   | 22,205 |   |
| Total assets                                                                                                                                                                          |   | $           | 9,873,375       |   |         | $      | 10,246,137 |   |
|  Liabilities, Redeemable Convertible Cumulative Preferred Stock and                                                                                                              |   |        |            |   |         |   |   |   |
| Stockholders’ Deficit                                                                                                                                                           |   |        |            |   |         |   |   |   |
| Current Liabilities                                                                                                                                                                   |   |        |            |   |         |   |   |   |
| Accounts payable                                                                                                                                                                      |   | $           | 1,794,145       |   |         | $      | 1,759,308 |   |
| Accounts payable - related parties                                                                                                                                                    |   |        | 32,082          |   |         |   | - |   |
| Accrued liabilities                                                                                                                                                                   |   |        | 725,766         |   |         |   | 705,510 |   |
| Insurance premium finance contract                                                                                                                                                    |   |        | 77,785          |   |         |   | - |   |
| Vehicle financing                                                                                                                                                                     |   |        | 77,642          |   |         |   | 41,339 |   |
| Capital lease obligations                                                                                                                                                             |   |        | -               |   |         |   | 13,080 |   |
| Due to affiliate                                                                                                                                                                      |   |        | 2,000           |   |         |   | 2,000 |   |
| Deferred revenue                                                                                                                                                                      |   |        | 96,000          |   |         |   | 672,000 |   |
| Notes payable – related parties (net of discount) – current portion                                                                                                       |   |        | 1,067,111       |   |         |   | 1,795,376 |   |
| Notes payable – third parties (net of discount) – current portion                                                                                                         |   |        | 50,000          |   |         |   | 1,616,078 |   |
| Fair value of liability for warrant derivative instruments                                                                                                                            |   |        | 1,858,215       |   |         |   | 6,315,631 |   |
| Fair value of liability for embedded conversion option derivative instruments                                                                                                         |   |        | -               |   |         |   | 1,084,908 |   |
| Total current liabilities                                                                                                                                                             |   |        | 5,780,746       |   |         |   | 14,005,230 |   |
|        Restructuring reserve                                                                                                                       |   |        | 79,099          |   |         |   | 123,436 |   |
|        Notes payable - related parties - less current portion                                                                                      |   |        | 2,000,000       |   |         |   | 2,000,000 |   |
| Total Liabilities                                                                                                                                                                     |   |        | 7,859,845       |   |         |   | 16,128,666 |   |
| Redeemable convertible cumulative preferred stock series A                                                                                                                            |   |        |            |   |         |   |   |   |
| 11 shares authorized; 6 shares issued and outstanding, $25,000 per share redemption amount plus dividends in arrears ($1,124,744 at June 30, 2010)                                    |   |        | 1,124,744  |   |         |   | 1,137,556  |   |
| Redeemable convertible cumulative preferred stock series B                                                                                                                            |   |        |            |   |         |   |   |   |
| 484 shares authorized; 330 and 355 shares issued and outstanding, respectively, $2,500 per share redemption amount plus dividends in arrears ($2,721,301  at June 30, 2010) |   |        | 2,721,301  |   |         |   | 2,742,239  |   |
| Commitments and Contingencies (Note 13)                                                                                                                                               |   |        |            |   |         |   |   |   |
|                                                                                                                                                                                  |   |        |            |   |         |   |   |   |
| Ecosphere Technologies, Inc. Stockholders’ Deficit                                                                                                                              |   |        |            |   |         |   |   |   |
| Common stock, $0.01 par value; 300,000,000 shares authorized; 134,925,557 and 116,830,850 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively          |   |        | 1,349,256       |   |         |   | 1,168,308 |   |
| Common stock issuable, $0.01 par value, 1,811,626 and 630,089 issuable at June 30, 2010 and December 31, 2009, respectively                                                           |   |        | 18,116          |   |         |   | 6,301 |   |
| Additional paid-in capital                                                                                                                                                            |   |        | 92,287,903      |   |         |   | 66,349,999 |   |
| Accumulated deficit                                                                                                                                                                   |   |        | (106,287,083    | )      |         |   | (87,893,515 | ) |
| Total Ecosphere Technologies, Inc. stockholders’ deficit                                                                                                                        |   |        | (12,631,808     | )      |         |   | (20,368,907 | ) |
| Non-controlling interest in consolidated subsidiary                                                                                                                                   |   |        | 10,799,293      |   |         |   | 10,606,583 |   |
| Total stockholder' deficit                                                                                                                                                            |   |        | (1,832,515      | )      |         |   | (9,762,324 | ) |
| Total liabilities, redeemable convertible cumulative preferred stock,                                                                                                                 |   | $           | 9,873,375       |   |         | $      | 10,246,137 |   |
|  and stockholders’ deficit                                                                                                                                                 |
|                                                                                                                                                                                  |   |

----

| ECOSPHERE TECHNOLOGIES, INC. AND SUBSIDIARIES   |
|-------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Unaudited)                                     |

|                                                                                       |   | For The Three Months Ended June 30, |        |   | For The Six Months EndedJune 30, |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------|-------------|--------|----------------------------------|--------|
|                                                                                       |   | 2010                                |        |   | 2009                             |   |   | 2010 |   |   | 2009 |   |
| Revenues                                                                                   |   | $                                   | 2,138,386   |   |                             | $      | 154,041 |   |   | $ | 4,239,253 |   |   | $ | 348,309 |   |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues                                                                           |   |                                | 792,236     |   |                             |   | 121,272 |   |   |   | 1,538,770 |   |   |   | 254,749 |   |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                                               |   |                                | 1,346,150   |   |                             |   | 32,769 |   |   |   | 2,700,483 |   |   |   | 93,560 |   |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                                         |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative                                                        |   |                                | 3,082,364   |   |                             |   | 2,602,351 |   |   |   | 5,887,410 |   |   |   | 4,488,562 |   |
| Restructuring charge                                                                       |   |                                | -           |   |                             |   | 548,090 |   |   |   | - |   |   |   | 548,090 |   |
| Total operating expenses                                                                   |   |                                | 3,082,364   |   |                             |   | 3,150,441 |   |   |   | 5,887,410 |   |   |   | 5,036,652 |   |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Loss from operations                                                                       |   |                                | (1,736,214  | )      |                             |   | (3,117,672 | ) |   |   | (3,186,927 | ) |   |   | (4,943,092 | ) |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense):                                                                    |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Other income                                                                               |   |                                | 152         |   |                             |   | 1,378 |   |   |   | 242 |   |   |   | 2,756 |   |
| Other expense                                                                              |   |                                | -           |   |                             |   | (1,605 | ) |   |   | - |   |   |   | (1,605 | ) |
| Gain (loss) on conversion, net                                                             |   |                                | (115,505    | )      |                             |   | (688,796 | ) |   |   | (133,604 | ) |   |   | (689,249 | ) |
| Interest expense                                                                           |   |                                | (327,394    | )      |                             |   | (2,465,474 | ) |   |   | (845,330 | ) |   |   | (4,001,142 | ) |
| Change in fair value of derivative instruments                                             |   |                                | 7,009,612   |   |                             |   | (12,202,160 | ) |   |   | (14,035,239 | ) |   |   | (5,739,159 | ) |
| Total other income (expense)                                                               |   |                                | 6,566,865   |   |                             |   | (15,356,657 | ) |   |   | (15,013,931 | ) |   |   | (10,428,399 | ) |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                          |   |                                | 4,830,651   |   |                             |   | (18,474,329 | ) |   |   | (18,200,858 | ) |   |   | (15,371,491 | ) |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock dividends                                                                  |   |                                | (26,250     | )      |                             |   | (30,000 | ) |   |   | (53,750 | ) |   |   | (60,000 | ) |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) applicable to common stock                                               |   |                                | 4,804,401   |   |                             |   | (18,504,329 | ) |   |   | (18,254,608 | ) |   |   | (15,431,491 | ) |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Less: Net (income) loss applicable to non-controlling interest in consolidated subsidiary  |   |                                | (83,315     | )      |                             |   | - |   |   |   | (192,710 | ) |   |   | - |   |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) applicable to Ecosphere Technologies, Inc. common stock                  |   | $                                   | 4,721,086   |   |                             | $      | (18,504,329 | ) |   | $ | (18,447,318 | ) |   | $ | (15,431,491 | ) |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per common share applicable to Ecosphere Technologies, Inc. common stock |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                      |   | $                                   | 0.04        |   |                             | $      | (0.20 | ) |   | $ | (0.15 | ) |   | $ | (0.17 | ) |
| Diluted                                                                                    |   | $                                   | 0.03        |   |                             | $      | (0.20 | ) |   | $ | (0.15 | ) |   | $ | (0.17 | ) |
|                                                                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of common shares outstanding                                       |   |                                |        |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                      |   |                                | 130,212,522 |   |                             |   | 93,684,476 |   |   |   | 124,907,969 |   |   |   | 89,282,459 |   |
| Diluted                                                                                    |   |                                | 170,733,321 |   |                             |   | 93,684,476 |   |   |   | 124,907,969 |   |   |   | 89,282,459 |   |

----

| ECOSPHERE TECHNOLOGIES, INC. AND SUBSIDIARIES   |
|-------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited)                                     |

|                                                                                          |   | For the Six Months Ended June 30, |        |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------|-------------|
|                                                                                          |   | 2010                              |        |   | 2009 |   |
| OPERATING ACTIVITIES:                                                                         |   |                              |        |   |   |   |
| Net (loss) income applicable to Ecosphere Technologies, Inc, common stock                     |   | $                                 | (18,447,318 | ) |   | $ | (15,431,491 | ) |
| Adjustments to reconcile net income (loss) to net cash used in operating activities:          |   |                              |        |   |   |   | . |   |
| Accrued preferred stock dividends                                                             |   |                              | 53,750      |   |   |   | 60,000 |   |
| Depreciation and amortization                                                                 |   |                              | 922,345     |   |   |   | 252,459 |   |
| Amortization of debt issue costs                                                              |   |                              | -           |   |   |   | 243,792 |   |
| Shares issued for settlement                                                                  |   |                              | 114,000     |   |   |   | - |   |
| Accretion of discount on notes payable                                                        |   |                              | 538,712     |   |   |   | 1,738,481 |   |
| Loss on conversion of accrued interest to stock                                               |   |                              | 19,604      |   |   |   | 689,248 |   |
| Non-cash compensation expense                                                                 |   |                              | 1,896,553   |   |   |   | 2,185,949 |   |
| Interest expense for warrant derivative liability related to new warrants                     |   |                              | -           |   |   |   | 638,048 |   |
| Interest expense for embedded conversion option derivative liability of new convertible notes |   |                              | -           |   |   |   | 932,924 |   |
| Expense related to warrant modifications                                                      |   |                              | 93,735      |   |   |   | - |   |
| Increase (decrease) in fair value of warrant derivative liability                             |   |                              | 10,020,019  |   |   |   | 3,291,151 |   |
| Increase (decrease) in fair value of embedded conversion option derivative liability          |   |                              | 4,015,220   |   |   |   | 2,448,008 |   |
| Noncontrolling interest in consolidated subsidiary                                            |   |                              | 192,710     |   |   |   | - |   |
| Changes in operating assets and liabilities                                                   |   |                              | -           |   |   |   |   |   |
| Decrease in accounts receivable                                                               |   |                              | 27,624      |   |   |   | 80,323 |   |
| (Increase) decrease in prepaid expenses and other current assets                              |   |                              | 43,355      |   |   |   | 59,245 |   |
| (Increase) in debt issue costs and other non-current assets                                   |   |                              | (12,006     | ) |   |   | (2,737 | ) |
| Increase (decrease) in accounts payable                                                       |   |                              | 80,687      |   |   |   | 319,568 |   |
| Increase in accounts payable - related parties                                                |   |                              | 32,082      |   |   |   | 15,015 |   |
| (Decrease) in restructuring reserve                                                           |   |                              | (44,337     | ) |   |   | 264,472 |   |
| Increase in deferred rent                                                                     |   |                              | -           |   |   |   | 3,094 |   |
| (Decrease) in deferred revenue                                                                |   |                              | (576,000    | ) |   |   | - |   |
| Increase in accrued expenses                                                                  |   |                              | 45,782      |   |   |   | 771,013 |   |
| Net cash used in operating activities                                                         |   |                              | (983,483    | ) |   |   | (1,441,438 | ) |
| INVESTING ACTIVITIES:                                                                         |   |                              |        |   |   |   |   |   |
| Redemption of restricted cash                                                                 |   |                              | 425,000     |   |   |   | - |   |
| Construction in process purchases                                                             |   |                              | (100,128    | ) |   |   | (201,632 | ) |
| Purchase of property and equipment                                                            |   |                              | (1,800,828  | ) |   |   | (5,792 | ) |
| Net cash used in investing activities                                                         |   |                              | (1,475,956  | ) |   |   | (207,424 | ) |
| FINANCING ACTIVITIES:                                                                         |   |                              |        |   |   |   |   |   |
| Proceeds from issuance of notes payable and warrants                                          |   |                              | -           |   |   |   | 325,000 |   |
| Proceeds from loan advances                                                                   |   |                              | -           |   |   |   | 862,500 |   |
| Warrant modifications in exchange for cash                                                    |   |                              | 756,968     |   |   |   | - |   |
| Proceeds from new vehicle financing                                                           |   |                              | 42,000      |   |   |   | - |   |
| Proceeds from issuance of notes payable                                                       |   |                              | -           |   |   |   | 45,500 |   |
| Proceeds from issuance of notes payable to related parties                                    |   |                              | -           |   |   |   | 80,000 |   |
| Proceeds from warrant exercises                                                               |   |                              | 1,020,321   |   |   |   | 75,938 |   |
| Repayments of notes payable and insurance financing                                           |   |                              | (96,882     | ) |   |   | (46,311 | ) |
| Repayments of notes payable to related parties                                                |   |                              | (286,258    | ) |   |   | (30,000 | ) |
| Repayments of vehicle financing                                                               |   |                              | (5,697      | ) |   |   | - |   |
| Principal payments on capital leases                                                          |   |                              | (13,080     | ) |   |   | (18,595 | ) |
| Net cash provided by financing activities                                                     |   |                              | 1,417,372   |   |   |   | 1,294,032 |   |
| Net (decrease) in cash                                                                        |   |                              | (1,042,067  | ) |   |   | (354,830 | ) |
| Cash, beginning of period                                                                     |   |                              | 1,089,238   |   |   |   | 461,514 |   |
| Cash, end of period                                                                           |   | $                                 | 47,171      |   |   | $ | 106,684 |   |

----

| ECOSPHERE TECHNOLOGIES, INC. AND SUBSIDIARIES   |
|-------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited)                                     |

| SUPPLEMENTAL CASH FLOW INFORMATION                                                                          |   |                                    |       |
|-------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|
|                                                                                                        |   | For The Six Months Ended  June 30, |       |
|                                                                                                        |   | 2010                                    |       |   | 2009 |   |
| Cash paid for interest                                                                                      |   | $                                       | 124,388    |   |   | $ | 129,496 |   |
| Cash paid for income taxes                                                                                  |   | $                                       | -          |   |   | $ | - |   |
|                                                                                                        |   |                                    |       |   |   |   |   |   |
| Non-cash investing and financing activities:                                                                |   |                                    |       |   |   |   |   |   |
| Accrued preferred stock dividends                                                                           |   | $                                       | 53,750     |   |   | $ | 60,000 |   |
| Conversion of convertible debentures to common stock                                                        |   | $                                       | —    |   |   | $ | 697,442 |   |
| Conversion of convertible notes  to common stock                                                  |   | $                                       | 1,986,667  |   |   | $ | 1,290,002 |   |
| Conversion of related party debt to common stock                                                            |   | $                                       | 539,948    |   |   | $ | 1,050,000 |   |
| Reduction of derivative liability for embedded conversion options from conversion of convertible debentures |   | $                                       | 5,100,128  |   |   | $ | 1,268,042 |   |
| Reduction of derivative liability for warrants from exercise and modification of warrants                   |   | $                                       | 14,571,170 |   |   | $ | 4,809,072 |   |
| Common stock issued as payment of accrued interest                                                          |   | $                                       | 30,462     |   |   | $ | 343,354 |   |
| Common stock issued in payment of services or accounts payable                                              |   | $                                       | 60,518     |   |   | $ | 85,814 |   |
| Series A Redeemable Convertible Cumulative Preferred Stock converted to common stock                        |   | $                                       | 25,000     |   |   | $ | — |   |
| Series B Redeemable Convertible Cumulative Preferred Stock converted to common stock                        |   | $                                       | 62,500     |   |   | $ | 122,500 |   |
|                                                                                                        |   |                                    |       |   |   |   |   |   |

----

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

----

----

| Table 1                     |   | Black Scholes Inputs                                              |            |
|-----------------------------|--------|-------------------------------------------------------------------|-----------------|
| Warrants                    |   |                                                              |            |   |   |   |   |   |   |
|                        |   | Warrants Exercised During the Six Months Ended June 30, 2010 |            |   | As of March 31, 2010 |   |   | As of June 30, 2010 |   |
| Volatility                  |   |                                                              | 83.96% - 110.94 | % |   |   | 99.19 | % |   |   | 106.04 | % |
| Expected Term               |   | 1.00 - 4.52years                                                  |            |   | 1.13 - 4.58 years |   |   | 0.89 - 3.78 years |   |
| Risk Free Interest Rate     |   |                                                              | 0.35% - 2.24    | % |   |   | 0.45% - 2.31 | % |   |   | 0.28% - 1.31 | % |
|                        |   |                                                              |            |   |   |   |   |   |   |   |   |   |
|                        |   |                                                              |            |   |   |   |   |   |   |   |   |   |
| Embedded Conversion Options |   |                                                              |            |   |   |   |   |   |   |   |   |   |
|                        |   | Notes Converted During the Six Months Ended June 30, 2010    |            |   | As of March 31, 2010 |   |   | As of June 30, 2010 |   |
| Volatility                  |   |                                                              | 83.5% - 110.94  | % |   |   | 99.19 | % |   |   | N/A |   |
| Expected Term               |   | 0.001 - 0.4 years                                                 |            |   | 0.001 - 0.6 years |   |   |   | N/A |   |
| Risk Free Interest Rate     |   |                                                              | 0.001% - 0.20   | % |   |   | 0.001 - 0.23 | % |   |   | N/A |   |

|                                                                          |   | Balance atJune 30, 2010 |      | Quoted Prices inActive Marketsfor IdenticalAssets |   | SignificantOtherObservableInputs |    | SignificantUnobservableInputs |   |
|-------------------------------------------------------------------------------|--------|-------------------------|-----------|---------------------------------------------------|--------|----------------------------------|---------|-------------------------------|--------|
|                                                                          |   |                    |      | (Level 1)                                         |   | (Level 2)                        |    | (Level 3)                     |   |
| Fair value of liability for warrant derivative instruments                    |   | $                       | 1,858,215 |                                              |   | $                                | — |                          |   | $ | — |   |   | $ | 1,858,215 |   |
| Fair value of liability for embedded conversion option derivative instruments |   |                    | —   |                                              |   |                             | — |                          |   |   | — |   |   |   | — |   |
| Total Financial Liabilities                                                   |   | $                       | 1,858,215 |                                              |   | $                                | — |                          |   | $ | — |   |   | $ | 1,858,215 |   |

----

|                                                       |   | Fair Value of Liability For Warrant Derivative Instruments |        |   | Fair Value of Liability For Embedded Conversion Option Derivative Instruments |   |       | Total  |   |
|------------------------------------------------------------|--------|------------------------------------------------------------|-------------|--------|-------------------------------------------------------------------------------|--------|------------|--------|--------|
| Balance December 31, 2009                                  |   | $                                                          | 6,315,631   |   |                                                                          | $      | 1,084,908  |   |   | $ | 7,400,539 |   |
| Fair value of new warrants and embedded conversion options |   |                                                       | 93,735      |   |                                                                          |   | -          |   |   |   | 93,735 |   |
| Adjustments for exercises and conversions                  |   |                                                       | (14,571,170 | )      |                                                                          |   | (5,100,128 | )      |   |   | (19,671,298 | ) |
| Change in fair value included in other (income) loss       |   |                                                       | 10,020,019  |   |                                                                          |   | 4,015,220  |   |   |   | 14,035,239 |   |
| Balance at June 30, 2010                                   |   | $                                                          | 1,858,215   |   |                                                                          | $      | -          |   |   | $ | 1,858,215 |   |

----

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

| 3. | PROPERTY AND EQUIPMENT |
|----|------------------------|

----

| 4. | NOTES PAYABLE |
|----|---------------|

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

----

| Restructuring Reserve     |   |   |     |
|---------------------------|--------|--------|----------|
|                      |   |   |     |
| Balance December 31, 2009 |   | $      | 123,436  |   |
| Rent payments             |   |   | (100,815 | ) |
| Sublease payment received |   |   | 56,478   |   |
| Balance June 30, 2010     |   | $      | 79,099   |   |

| 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. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a)   | 1,983,024 shares of common stock were issued to convert $713,889 of secured convertible notes payable. |
|----------------|--------------------------------------------------------------------------------------------------------|

----

| b)   | 24,000 shares of common stock were issued upon the conversion of one share of Series A Preferred Stock.  Accordingly, $25,000 was reclassified to equity from temporary equity. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | 4,175 shares of common stock were issued upon the conversion of 5 shares of Series B Preferred Stock.  Accordingly, $12,500 was reclassified to equity from temporary equity. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d)   | 3,148,251 shares of common stock were issued upon exercise of warrants and options at exercise prices ranging from $0.07 to $0.75 per share resulting in proceeds to the Company of $652,548. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e)  | 7,010,011 shares of common stock were issued upon the cashless exercise of 10,898,688 warrants at exercise prices ranging from $0.15 to $1.25 per share and based upon market prices of the Company’s common stock ranging from $0.80 to $1.73 per share. |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f)  | 35,776 shares of common stock upon the exercise of options to purchase 35,776 shares at an exercise price of $0.41 per share in lieu of receiving wages of $14,668. |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g)   | 36,975 shares of common stock were issued to a director in exchange for a payable to the director in the amount of $45,850.  The number of shares issued was based upon the fair market value of the Company’s common stock of $1.24 on the date of the settlement. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| h) | 100,000 shares of common stock were issued as settlement of an agreement for consulting services.  The Company recorded a loss on settlement of $114,000 based upon a fair market value of the Company’s common stock on the date of settlement of $1.14. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| i)  | 30,160 shares of common stock, with fair market value of $1.01 per share, were issued in payment of accrued interest of $10,858, resulting in a loss on conversion of $19,604. |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               | Shares  |   | Weighted Average Grant-Date Fair-Value |   |
|------------------------------------|---------|--------|-------------------------------------------------------|--------|
| Non-vested at January 1, 2010 | 547,559 |   | $                                                     | 0.47   |   |
| Granted                            | ---     |   | $                                                     | ---    |   |
| Vested                             | 357,140 |   | $                                                     | 0.47   |   |
| Forfeited                          | ---     |   | $                                                     | ---    |   |
|                               |    |   |                                                  |   |   |
| Unvested at June 30, 2010          | 190,419 |   | $                                                     | 0.41   |   |

----

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

|                                       |   | Basic  |        |   | Diluted |   |
|--------------------------------------------|--------|--------|-------------|--------|---------|--------|
| Numerator                                  |   |   |        |   |    |   |
| Net income applicable to common stock      |   | $      | 4,721,086   |   |    | $      | 4,721,086 |   |
| Preferred stock dividends                  |   |   | -           |   |    |   | 26,250 |   |
| Convertible debt interest (net of tax)     |   |   | -           |   |    |   | 12,367 |   |
|                                       |   | $      | 4,721,086   |   |    | $      | 4,759,703 |   |
|                                       |   |   |        |   |    |   |   |   |
| Denominator                                |   |   |        |   |    |   |   |   |
| Weighted average common shares outstanding |   |   | 130,212,522 |   |    |   | 130,212,522 |   |
| Restricted stock                           |   |   | -           |   |    |   | 557,559 |   |
| Preferred stock                            |   |   | -           |   |    |   | 422,211 |   |
| Convertible debt                           |   |   | -           |   |    |   | 437,563 |   |
| Warrants and options                       |   |   | -           |   |    |   | 39,103,466 |   |
|                                       |   |   | 130,212,522 |   |    |   | 170,733,321 |   |
|                                       |   |   |        |   |    |   |   |   |
| Net income per share                       |   | $      | 0.04        |   |    | $      | 0.03 |   |

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

|                    |   | For the Six Months EndedJune 30, |
|-------------------------|--------|----------------------------------|
|                    |   | 2010                             |   | 2009 |
| Expected volatility     |   |                             | 104.57% |   | 132.9% - 137/11% |
| Expected lives          |   |                             | 2.5 |   | 5 years |
| Risk-free interest rate |   |                             | 1.22 |   | 1.65% - 2.7% |
| Expected dividend yield |   |                             | None |   | None |

----

| Employee Fixed Plan                                           |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |
|---------------------------------------------------------------|--------|---------------------------------------|------------|--------|----------------------------------------|--------|-----------|--------|--------|--------|---------------------------------|--------|
|                                                          |   | For the Six Months EndedJune 30, 2010 |       |   | For the Six Months Ended June 30, 2009 |   |
|                                                          |   | Shares                                |       |   | Weighted Average Exercise Price        |   |      | Shares |   |   | Weighted Average Exercise Price |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |
| Outstanding at beginning of period                            |   |                                  | 11,468,736 |   |                                   | $      | 0.58      |   |   |   | 6,741,796                       |   |   | $ | 0.69 |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Granted                                                       |   |                                  | -          |   |                                   | $      | -         |   |   |   | 42,425                          |   |   | $ | 0.24 |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Exercised                                                     |   |                                  | (448,667   | )      |                                   | $      | 0.31      |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Forfeited                                                     |   |                                  | -          |   |                                   | $      | -         |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Expired                                                       |   |                                  | -          |   |                                   | $      | -         |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                  | 11,020,069 |   |                                   | $      | 0.59      |   |   |   | 6,784,221                       |   |   | $ | 0.68 |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                  | 10,845,650 |   |                                   | $      | 0.60      |   |   |   | 6,450,887                       |   |   | $ | 0.69 |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Outstanding                                                   |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                  |       |   |                                   |   | 3.40      |   |   |   |                            |   |   |   | 3.78 |   |
|    Aggregate intrinsic value                   |   |                                  |       |   |                                   | $      | 7,574,741 |   |   |   |                            |   |   | $ | 209,580 |   |
|    Weighted average grant date fair value      |   |                                  |       |   |                                   |   | N/A       |   |   |   |                            |   |   |   | N/A |   |
|                                                          |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Exercisable                                                   |   |                                  |       |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                  |       |   |                                   |   | 3.38      |   |   |   |                            |   |   |   | 3.76 |   |
|    Aggregate intrinsic value                   |   |                                  |       |   |                                   | $      | 7,433,462 |   |   |   |                            |   |   | $ | 206,247 |   |

----

| Employee Fixed Non-Plan                                       |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |
|---------------------------------------------------------------|--------|----------------------------------------|------------|--------|----------------------------------------|--------|------------|--------|--------|--------|---------------------------------|--------|
|                                                          |   | For the Six Months Ended June 30, 2010 |       |   | For the Six Months Ended June 30, 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                                                       |   |                                   | 6,200,000  |   |                                   | $      | 0.99       |   |   |   | 500,000                         |   |   | $ | 0.41 |   |
|                                                          |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
| Exercised                                                     |   |                                   | (850,423   | )      |                                   | $      | 0.34       |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
| Forfeited                                                     |   |                                   | (202,020   | )      |                                   | $      | 1.00       |   |   |   | (1,000,000                      | )      |   | $ | 0.98 |   |
|                                                          |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
| Expired                                                       |   |                                   | -          |   |                                   | $      | -          |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                   | 38,262,971 |   |                                   | $      | 0.55       |   |   |   | 32,716,667                      |   |   | $ | 0.45 |   |
|                                                          |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                   | 27,214,082 |   |                                   | $      | 0.45       |   |   |   | 20,421,666                      |   |   | $ | 0.46 |   |
|                                                          |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
| Outstanding                                                   |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                   |       |   |                                   |   | 3.48       |   |   |   |                            |   |   |   | 3.99 |   |
|    Aggregate intrinsic value                   |   |                                   |       |   |                                   | $      | 26,303,300 |   |   |   |                            |   |   | $ | 3,688,267 |   |
|    Weighted average grant date fair value      |   |                                   |       |   |                                   | $      | 0.26       |   |   |   |                            |   |   |   | N/A |   |
|                                                          |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
| Exercisable                                                   |   |                                   |       |   |                                   |   |       |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                   |       |   |                                   |   | 3.16       |   |   |   |                            |   |   |   | 4.00 |   |
|    Aggregate intrinsic value                   |   |                                   |       |   |                                   | $      | 18,996,011 |   |   |   |                            |   |   | $ | 3,176,378 |   |

----

| Non-Employee Fixed Non-Plan                                   |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |
|---------------------------------------------------------------|--------|----------------------------------------|-----------|--------|----------------------------------------|--------|-----------|--------|--------|--------|---------------------------------|--------|
|                                                          |   | For the Six Months Ended June 30, 2010 |      |   | For the Six Months Ended June 30, 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                                                       |   |                                   | -         |   |                                   | $      | -         |   |   |   | 500,000                         |   |   | $ | 0.44 |   |
|                                                          |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Exercised                                                     |   |                                   | (193,548  | )      |                                   | $      | 1.00      |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Forfeited                                                     |   |                                   | (806,452  | )      |                                   | $      | 1.00      |   |   |   | (500,000                        | )      |   | $ | 0.42 |   |
|                                                          |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Expired                                                       |   |                                   | (300,000  | )      |                                   | $      | 1.02      |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                   | 2,503,741 |   |                                   | $      | 0.37      |   |   |   | 3,803,741                       |   |   | $ | 0.59 |   |
|                                                          |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                   | 2,488,832 |   |                                   | $      | 0.37      |   |   |   | 3,364,428                       |   |   | $ | 0.61 |   |
|                                                          |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Outstanding                                                   |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                   |      |   |                                   |   | 1.50      |   |   |   |                            |   |   |   | 1.95 |   |
|    Aggregate intrinsic value                   |   |                                   |      |   |                                   | $      | 2,167,565 |   |   |   |                            |   |   | $ | 2,242,040 |   |
|    Weighted average grant date fair value      |   |                                   |      |   |                                   |   | N/A       |   |   |   |                            |   |   |   | N/A |   |
|                                                          |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
| Exercisable                                                   |   |                                   |      |   |                                   |   |      |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                   |      |   |                                   |   | 1.49      |   |   |   |                            |   |   |   | 1.57 |   |
|    Aggregate intrinsic value                   |   |                                   |      |   |                                   | $      | 2,149,112 |   |   |   |                            |   |   | $ | 2,218,790 |   |

----

| Warrants                                    |   | For the Six Months EndedJune 30, 2010 |        |   | For the Six Months EndedJune 30, 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                                     |   |                                  | -           |   |                                  | $      | - |   |   |   | 2,218,500 |   |   | $ | 0.22 |   |
|                                        |   |                                  |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Exercised                                   |   |                                  | (10,226,711 | )      |                                  | $      | 0.25 |   |   |   | (759,375 | ) |   | $ | 0.10 |   |
|                                        |   |                                  |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Forfeited                                   |   |                                  | (2,508,734  | )      |                                  | $      | 0.81 |   |   |   | - |   |   | $ | - |   |
|                                        |   |                                  |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Exchanged, net                              |   |                                  | 2,063,000   |   |                                  | $      | 0.67 |   |   |   | - |   |   | $ | - |   |
|                                        |   |                                  |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Expired                                     |   |                                  | (1,957,272  | )      |                                  | $      | 1.10 |   |   |   | (612,125 | ) |   | $ | - |   |
|                                        |   |                                  |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at end of period                |   |                                  | 19,958,490  |   |                                  | $      | 0.46 |   |   |   | 39,979,197 |   |   | $ | 0.50 |   |
|                                        |   |                                  |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable at end of period                |   |                                  | 19,958,490  |   |                                  | $      | 0.46 |   |   |   | 39,979,197 |   |   | $ | 0.50 |   |
|                                        |   |                                  |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding and exercisable                 |   |                                  |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average remaining contractual term |   |                                  |        | 2.00   |                                  |   |   |   |   |   |   | 2.32 |   |
|    Aggregate intrinsic value |   |                                  |        |   |                                  | $      | 15,532,067 |   |   |   |   |   |   | $ | 7,845,269 |   |

----

| 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. |
|--------|---------|--------------------------------------------------------|

|   | ● | Ecosphere Energy Services, Inc., which conducted our water processing for the oil and gas industry using the Ecosphere Ozonix® technology until July 2009. Beginning July 2009, this business has been operated by Ecosphere Energy Services, LLC, which is owned 52.6% by the Company. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Ecosphere Envirobotic Solutions, Inc., which operates our coating removal business for all three dimensional objects other than ships; and, |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | Ecosphere Systems, Inc. which operates our non-Ozonix water filtration system business; |
|--------|---------|----------------------------------------------------------------------------------------------|

----

| The table below presents certain financial information by business segment for the six months ended June 30, 2010: |
|--------------------------------------------------------------------------------------------------------------------|

|                                                         |   | Ecosphere    |      |   | Ecosphere      |   |    | Ecosphere            |   |   | Ecosphere |   |   |    |    |   |            |   |      |         |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------|----------------|--------|---------|----------------------|--------|--------|-----------|--------|--------|---------|---------|--------|-----------------|--------|-----------|--------------|--------|
|                                                         |   | Energy       |      |   | Energy         |   |    | Envirobotic          |   |   | Systems,  |   |   | Segment |    |   |            |   |      | Consolidated |   |
|                                                         |   | Services LLC |      |   | Services, Inc. |   |    | Solutions, Inc. |   |   | Inc.      |   |   | Totals  |    |   |  Corporate |   |      | Totals       |   |
|                                                         |   |         |      |   |           |   |    |                 |   |   |      |   |   |    |    |   |            |   |      |         |   |
| Revenue from external customers                              |   | $            | 4,239,253 |   |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | 4,239,253 |         |   | $ | — |   |   | $ | 4,239,253 |   |
| Interest expense and amortization of debt discount           |   | $            | (219,829  | )      |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | (219,829  | )            |   | $ | (625,501 | ) |   | $ | (845,330 | ) |
| Change in fair value of liability for derivative instruments |   | $            | —   |   |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | —   |         |   | $ | (14,035,239 | ) |   | $ | (14,035,239 | ) |
| Depreciation and amortization                                |   | $            | (829,640  | )      |           | $      | — |                 |   | $      | (490      | )      |   | $       | (57,128 | )      |            | $      | (887,258  | )            |   | $ | (35,087 | ) |   | $ | (922,345 | ) |
| Income tax expense                                           |   | $            | —   |   |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | —   |         |   | $ | — |   |   | $ | — |   |
| Net income (loss)                                            |   | $            | 192,710   |   |           | $      | — |                 |   | $      | (490      | )      |   | $       | (57,128 | )      |            | $      | 135,092   |         |   | $ | (18,582,410 | ) |   | $ | (18,447,318 | ) |
|                                                         |   |         |      |   |           |   |    |                 |   |   |      |   |   |    |    |   |            |   |      |         |   |   |   |   |   |   |   |   |
| Segment fixed assets & construction in process           |   | $            | 8,505,844 |   |           | $      | — |                 |   | $      | 25,824    |   |   | $       | 865,375 |   |            | $      | 9,397,043 |         |   | $ | 2,655,813 |   |   | $ | 12,052,856 |   |
| Fixed asset additions (disposals) (net)                      |   | $            | 953,478   |   |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | 953,478   |         |   | $ | 808,657 |   |   | $ | 1,762,135 |   |
| Total Assets                                                 |   | $            | 8,313,532 |   |           | $      | — |                 |   | $      | 578       |   |   | $       | 141,167 |   |            | $      | 8,455,277 |         |   | $ | 1,418,098 |   |   | $ | 9,873,375 |   |

| The table below presents certain financial information by business segment for the six months ended June 30, 2009: |
|--------------------------------------------------------------------------------------------------------------------|

|                                                        |   |   |   |    | Ecosphere |           |      | Ecosphere |                 |   | Ecosphere |     |   |   |    |   |   |      |      |       |         |
|-------------------------------------------------------------|--------|--------|--------|---------|-----------|----------------|-----------|-----------|----------------------|--------|-----------|----------|--------|--------|---------|--------|--------|-----------|-----------|------------|--------------|
|                                                        |   |   |   |    |      | Energy         |      |      | Envirobotic          |   |      | Systems, |   |   | Segment |   |   |      |      |       | Consolidated |   |
|                                                        |   |   |   |    |      | Services, Inc. |      |      | Solutions, Inc. |   |      | Inc.     |   |   | Totals  |   |   | Corporate |      |       | Totals       |   |
|                                                        |   |   |   |    |      |           |      |      |                 |   |      |     |   |   |    |   |   |      |      |       |         |   |
| Revenue from external customers                             |   |   |   |    |      | $              | 348,309   |      |                 | $      | —   |     |   | $      | — |   |   | $         | 348,309   |       |         | $ | — |   |   | $ | 348,309 |   |
| Interest expense and amortization of debt discount          |   |   |   |    |      | $              | (658      | )         |                 | $      | —   |     |   | $      | — |   |   | $         | (658      | )          |         | $ | (4,000,484 | ) |   | $ | (4,001,142 | ) |
| Change in fair value of liability forderivative instruments |   |   | $      | — |      |           | $         | —   |                 |   | $         | —  |   |   | $       | -      |   |      | $         | (5,739,159 | )            |   | $ | (5,739,159 | ) |
| Depreciation and amortization                               |   |   |   |    |      | $              | (161,022  | )         |                 | $      | (563      | )        |   | $      | (57,128 | )      |   | $         | (218,713  | )          |         | $ | (33,746 | ) |   | $ | (252,459 | ) |
| Income tax expense                                          |   |   |   |    |      | $              | —   |      |                 | $      | —   |     |   | $      | — |   |   | $         | —   |       |         | $ | — |   |   | $ | — |   |
| Net income (loss)                                           |   |   |   |    |      | $              | (249,477  | )         |                 | $      | (563      | )        |   | $      | (57,128 | )      |   | $         | (307,168  | )          |         | $ | (15,064,323 | ) |   | $ | (15,371,491 | ) |
|                                                        |   |   |   |    |      |           |      |      |                 |   |      |     |   |   |    |   |   |      |      |       |         |   |   |   |   |   |   |   |
| Segment fixed assets & construction in process          |   |   |   |    |      | $              | 2,058,670 |      |                 | $      | 25,824    |     |   | $      | 865,375 |   |   | $         | 2,949,869 |       |         | $ | 1,013,358 |   |   | $ | 3,963,227 |   |
| Fixed asset additions (disposals) (net)                     |   |   |   |    |      | $              | 152,336   |      |                 | $      | —   |     |   | $      | — |   |   | $         | 152,336   |       |         | $ | 3,170 |   |   | $ | 155,506 |   |
| Total assets                                                |   |   |   |    |      | $              | 1,821,680 |      |                 | $      | 6,635     |     |   | $      | 250,016 |   |   | $         | 2,078,331 |       |         | $ | 358,686 |   |   | $ | 2,437,017 |   |

----

| The table below presents certain financial information by business segment for the three months ended June 30, 2010: |
|----------------------------------------------------------------------------------------------------------------------|

|                                                         |   | Ecosphere    |      |   | Ecosphere      |   |    | Ecosphere            |   |   | Ecosphere |   |   |    |    |   |            |   |      |         |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------|----------------|--------|---------|----------------------|--------|--------|-----------|--------|--------|---------|---------|--------|-----------------|--------|-----------|--------------|--------|
|                                                         |   | Energy       |      |   | Energy         |   |    | Envirobotic          |   |   | Systems,  |   |   | Segment |    |   |            |   |      | Consolidated |   |
|                                                         |   | Services LLC |      |   | Services, Inc. |   |    | Solutions, Inc. |   |   | Inc.      |   |   | Totals  |    |   |  Corporate |   |      | Totals       |   |
|                                                         |   |         |      |   |           |   |    |                 |   |   |      |   |   |    |    |   |            |   |      |         |   |
| Revenue from external customers                              |   | $            | 2,138,386 |   |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | 2,138,386 |         |   | $ | — |   |   | $ | 2,138,386 |   |
| Interest expense and amortization of debt discount           |   | $            | (100,391  | )      |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | (100,391  | )            |   | $ | (227,003 | ) |   | $ | (327,394 | ) |
| Change in fair value of liability for derivative instruments |   | $            | —   |   |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | —   |         |   | $ | 7,009,612 |   |   | $ | 7,009,612 |   |
| Depreciation and amortization                                |   | $            | (432,028  | )      |           | $      | — |                 |   | $      | (245      | )      |   | $       | (28,564 | )      |            | $      | (460,837  | )            |   | $ | (18,312 | ) |   | $ | (479,149 | ) |
| Income tax expense                                           |   | $            | —   |   |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | —   |         |   | $ | — |   |   | $ | — |   |
| Net income (loss)                                            |   | $            | 83,315    |   |           | $      | — |                 |   | $      | (245      | )      |   | $       | (28,564 | )      |            | $      | 54,506    |         |   | $ | 4,666,580 |   |   | $ | 4,721,086 |   |
|                                                         |   |         |      |   |           |   |    |                 |   |   |      |   |   |    |    |   |            |   |      |         |   |   |   |   |   |   |   |   |
| Segment fixed assets & construction in process           |   | $            | 8,505,844 |   |           | $      | — |                 |   | $      | 25,824    |   |   | $       | 865,375 |   |            | $      | 9,397,043 |         |   | $ | 2,655,813 |   |   | $ | 12,052,856 |   |
| Fixed asset additions (disposals) (net)                      |   | $            | 56,236    |   |           | $      | — |                 |   | $      | —   |   |   | $       | — |   |            | $      | 56,236    |         |   | $ | 638,090 |   |   | $ | 694,326 |   |
| Total Assets                                                 |   | $            | 8,313,532 |   |           | $      | — |                 |   | $      | 578       |   |   | $       | 141,167 |   |            | $      | 8,455,277 |         |   | $ | 1,418,098 |   |   | $ | 9,873,375 |   |

| The table below presents certain financial information by business segment for the three months ended June 30, 2009: |   |
|----------------------------------------------------------------------------------------------------------------------|--------|

|                                                        |   |   |   |    | Ecosphere      |   |      | Ecosphere            |   |   | Ecosphere |    |   |    |    |    |      |   |      |         |   |
|-------------------------------------------------------------|--------|--------|--------|---------|----------------|--------|-----------|----------------------|--------|--------|-----------|---------|--------|---------|---------|---------|-----------|--------|-----------|--------------|--------|
|                                                        |   |   |   |    | Energy         |   |      | Envirobotic          |   |   | Systems,  |    |   | Segment |    |    |      |   |      | Consolidated |   |
|                                                        |   |   |   |    | Services, Inc. |   |      | Solutions, Inc. |   |   | Inc.      |    |   | Totals  |    |    | Corporate |   |      | Totals       |   |
|                                                        |   |   |   |    |           |   |      |                 |   |   |      |    |   |    |    |    |      |   |      |         |   |
| Revenue from external customers                             |   |   |   |    |           | $      | 154,041   |                 |   | $      | —   |    |   | $       | — |    |      | $      | 154,041   |         |   | $ | — |   |   | $ | 154,041 |   |
| Interest expense and amortization of debt discount          |   |   |   |    |           | $      | (658      | )                    |   | $      | —   |    |   | $       | — |    |      | $      | (658      | )            |   | $ | (2,464,816 | ) |   | $ | (2,465,474 | ) |
| Change in fair value of liability forderivative instruments |   |   | $      | — |           |   | $         | —              |   |   | $         | — |   |    | $       | — |      |   | $         | (12,202,160  | )      |   | $ | (12,202,160 | ) |
| Depreciation and amortization                               |   |   |   |    |           | $      | (82,824   | )                    |   | $      | (318      | )       |   | $       | (28,564 | )       |      | $      | (111,706  | )            |   | $ | (20,309 | ) |   | $ | (132,015 | ) |
| Income tax expense                                          |   |   |   |    |           | $      | —   |                 |   | $      | —   |    |   | $       | — |    |      | $      | —   |         |   | $ | — |   |   | $ | — |   |
| Net income (loss)                                           |   |   |   |    |           | $      | (244,844  | )                    |   | $      | (318      | )       |   | $       | (28,564 | )       |      | $      | (273,726  | )            |   | $ | (18,200,603 | ) |   | $ | (18,474,329 | ) |
|                                                        |   |   |   |    |           |   |      |                 |   |   |      |    |   |    |    |    |      |   |      |         |   |   |   |   |   |   |   |   |
| Segment fixed assets & construction in process          |   |   |   |    |           | $      | 2,058,670 |                 |   | $      | 25,824    |    |   | $       | 865,375 |    |      | $      | 2,949,869 |         |   | $ | 1,013,358 |   |   | $ | 3,963,227 |   |
| Fixed asset additions (disposals) (net)                     |   |   |   |    |           | $      | —   |                 |   | $      | —   |    |   | $       | — |    |      | $      | —   |         |   | $ | — |   |   | $ | — |   |
| Total Assets                                                |   |   |   |    |           | $      | 1,821,680 |                 |   | $      | 6,635     |    |   | $       | 250,016 |    |      | $      | 2,078,331 |         |   | $ | 358,686 |   |   | $ | 2,437,017 |   |

----

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

----

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

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

----

----

| ● | As evidence that the Ecosphere Ozonix® 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. Patent numbers 7,699,994 and 7,699,988. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | Our revenues of $2.1 million for the first quarter and $2.1 million for the second quarter were records for operating revenues in any quarter, a 981% increase compared to the first quarter of 2009 and a 1,288% increase compared to the second quarter of 2009. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ● | We converted all of our remaining convertible debt, a reduction of $2.5 million since December 31, 2009 |
|---------|---------------------------------------------------------------------------------------------------------|

| ● | We filed additional patents for applying our Ecosphere Ozonix® technology in the clean up of offshore oil spills.  |
|---------|------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                                                       |   | For the Three Months Ended June 30, 2010 |       |
|------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|
|                                                                                                       |   |                                     |       |   |   |   |   | Change |   |
|                                                                                                       |   | 2010                                     |       |   | 2009 |   |   |  $ |   |   |   | % |   |
|                                                                                                       |   |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                                   |   | $                                        | 2,138,386  |   |   | $ | 154,041 |   |   | $ | 1,984,345 |   |   |   | 1288 | % |
| Cost of revenues                                                                                           |   |                                     | 792,236    |   |   |   | 121,272 |   |   |   | 670,964 |   |   |   | 553 | % |
| Gross profit                                                                                               |   |                                     | 1,346,150  |   |   |   | 32,769 |   |   |   | 1,313,381 |   |   |   | 4008 | % |
| Operating expenses                                                                                         |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Salaries and employee benefits                                   |   |                                     | 1,756,669  |   |   |   | 1,948,191 |   |   |   | (191,522 | ) |   |   | -10 | % |
|        Administrative and selling                                       |   |                                     | 502,778    |   |   |   | 256,594 |   |   |   | 246,184 |   |   |   | 96 | % |
|        Professional fees                                                |   |                                     | 280,417    |   |   |   | 263,256 |   |   |   | 17,161 |   |   |   | 7 | % |
|        Depreciation and amortization                                    |   |                                     | 479,149    |   |   |   | 132,310 |   |   |   | 346,839 |   |   |   | 262 | % |
|        Research and development                                         |   |                                     | 63,351     |   |   |   | 2,000 |   |   |   | 61,351 |   |   |   | 3068 | % |
|            Total selling general and administrative |   |                                     | 3,082,364  |   |   |   | 2,602,351 |   |   |   | 480,013 |   |   |   | 18 | % |
|        Restructuring charge                                             |   |                                     | -          |   |   |   | 548,090 |   |   |   | (548,090 | ) |   |   | -100 | % |
| Total operating expenses                                                                                   |   |                                     | 3,082,364  |   |   |   | 3,150,441 |   |   |   | (68,077 | ) |   |   | -2 | % |
| Loss from operations                                                                                       |   |                                     | (1,736,214 | ) |   |   | (3,117,672 | ) |   |   | 1,381,458 |   |   |   | 62 | % |
| Other income (expense):                                                                                    |   |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense)                                                                                     |   |                                     | 152        |   |   |   | (227 | ) |   |   | 379 |   |   |   | 167 | % |
| Gain (loss) on conversion                                                                                  |   |                                     | (115,505   | ) |   |   | (688,796 | ) |   |   | 573,291 |   |   |   | 83 | % |
| Interest expense                                                                                           |   |                                     | (327,394   | ) |   |   | (2,465,474 | ) |   |   | 2,138,080 |   |   |   | 87 | % |
|         Change in fair value of derivative instruments             |   |                                     | 7,009,612  |   |   |   | (12,202,160 | ) |   |   | 19,211,772 |   |   |   | -274 | % |
| Total other income (expense)                                                                               |   |                                     | 6,566,865  |   |   |   | (15,356,657 | ) |   |   | 21,923,522 |   |   |   | -143 | % |
| Net (loss) income                                                                                          |   |                                     | 4,830,651  |   |   |   | (18,474,329 | ) |   |   | 23,304,980 |   |   |   | 126 | % |
| Preferred stock dividends                                                                                  |   |                                     | 26,250     |   |   |   | 30,000 |   |   |   | 3,750 |   |   |   | -13 | % |
| Net income (loss) applicable to common stock                                                               |   |                                     | 4,804,401  |   |   |   | (18,504,329 | ) |   |   | 23,308,730 |   |   |   | 126 | % |
| Net (income) loss applicable to noncontrolling interest of consolidated subsidiary                         |   |                                     | (83,315    | ) |   |   | - |   |   |   | (83,315 | ) |   |   | 100 | % |
| Net income (loss) applicable to Ecosphere Technologies, Inc. common stock                                  |   | $                                        | 4,721,086  |   |   | $ | (18,504,329 | ) |   | $ | 23,225,415 |   |   |   | 126 | % |

----

----

----

|                                                                                                       |   | For the Six Months Ended June 30, 2010 |        |
|------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|-------------|
|                                                                                                       |   |                                   |        |   |   |   |   | Change |   |
|                                                                                                       |   | 2010                                   |        |   | 2009 |   |   |  $ |   |   |   | % |   |
|                                                                                                       |   |                                   |        |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                                   |   | $                                      | 4,239,253   |   |   | $ | 348,309 |   |   | $ | 3,890,944 |   |   |   | 1117 | % |
| Cost of revenues                                                                                           |   |                                   | 1,538,770   |   |   |   | 254,749 |   |   |   | 1,284,021 |   |   |   | 504 | % |
| Gross profit                                                                                               |   |                                   | 2,700,483   |   |   |   | 93,560 |   |   |   | 2,606,923 |   |   |   | 2786 | % |
| Operating expenses                                                                                         |   |                                   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Salaries and employee benefits                                   |   |                                   | 3,490,345   |   |   |   | 3,220,297 |   |   |   | 270,048 |   |   |   | 8 | % |
|        Administrative and selling                                       |   |                                   | 936,198     |   |   |   | 567,948 |   |   |   | 368,250 |   |   |   | 65 | % |
|        Professional fees                                                |   |                                   | 448,787     |   |   |   | 435,718 |   |   |   | 13,069 |   |   |   | 3 | % |
|        Depreciation and amortization                                    |   |                                   | 922,345     |   |   |   | 253,049 |   |   |   | 669,296 |   |   |   | 264 | % |
|        Research and development                                         |   |                                   | 89,735      |   |   |   | 11,550 |   |   |   | 78,185 |   |   |   | 677 | % |
|            Total selling general and administrative |   |                                   | 5,887,410   |   |   |   | 4,488,562 |   |   |   | 1,398,848 |   |   |   | 31 | % |
|        Restructuring charge                                             |   |                                   | -           |   |   |   | 548,090 |   |   |   | (548,090 | ) |   |   | 100 | % |
| Total operating expenses                                                                                   |   |                                   | 5,887,410   |   |   |   | 5,036,652 |   |   |   | 850,758 |   |   |   | 17 | % |
| Loss from operations                                                                                       |   |                                   | (3,186,927  | ) |   |   | (4,943,092 | ) |   |   | 1,756,165 |   |   |   | 62 | % |
| Other income (expense):                                                                                    |   |                                   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income                                                                                               |   |                                   | 242         |   |   |   | 1,151 |   |   |   | (909 | ) |   |   | 79 | % |
| Gain (loss) on conversion                                                                                  |   |                                   | (133,604    | ) |   |   | (689,249 | ) |   |   | 555,645 |   |   |   | 81 | % |
| Interest expense                                                                                           |   |                                   | (845,330    | ) |   |   | (4,001,142 | ) |   |   | 3,155,812 |   |   |   | 79 | % |
|         Change in fair value of derivative instruments             |   |                                   | (14,035,239 | ) |   |   | (5,739,159 | ) |   |   | (8,296,080 | ) |   |   | -59 | % |
| Total other income (expense)                                                                               |   |                                   | (15,013,931 | ) |   |   | (10,428,399 | ) |   |   | (4,585,532 | ) |   |   | 44 | % |
| Net (loss) income                                                                                          |   |                                   | (18,200,858 | ) |   |   | (15,371,491 | ) |   |   | (2,829,367 | ) |   |   | -18 | % |
| Preferred stock dividends                                                                                  |   |                                   | 53,750      |   |   |   | 60,000 |   |   |   | 6,250 |   |   |   | -10 | % |
| Net income (loss) applicable to common stock                                                               |   |                                   | (18,254,608 | ) |   |   | (15,431,491 | ) |   |   | (2,823,117 | ) |   |   | -18 | % |
| Net (income) loss applicable to noncontrolling interest of consolidated subsidiary                         |   |                                   | (192,710    | ) |   |   | - |   |   |   | (192,710 | ) |   |   | 100 | % |
| Net income (loss) applicable to Ecosphere Technologies, Inc. common stock                                  |   | $                                      | (18,447,318 | ) |   | $ | (15,431,491 | ) |   | $ | (3,015,827 | ) |   |   | -20 | % |

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| ·   | Continued generation of revenue by EES from our existing customer relationships; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | A new EES agreement from an existing or new customer through which Ecosphere generates manufacturing profits; |
|--------------------|---------------------------------------------------------------------------------------------------------------|

| ·   | Favorable financing terms to enable Ecosphere to finance the manufacturing of new units needed to meet orders from existing customers and for any new agreements; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | New paid pilots throughout the 12 months; |
|--------------------|-------------------------------------------|

| ·   | 2010 distributions of profits and priority distributions from EES. |
|--------------------|--------------------------------------------------------------------|

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| Name or Class of Investor | Date Sold                   | No. of Securities | Consideration                                                                                        |
|--------------------------------|-----------------------------|------------------------|------------------------------------------------------------------------------------------------------|
| Warrant holders (1)            | 4/20/2010 through 5/20/10   | 160,000                | Exercise of warrants at $0.28 per share                                                              |
| Warrant holders (1)            | 4/1/2010 through 6/17/2010  | 300,000                | Exercise of warrants at $0.15 per share                                                              |
| Warrant holders (2)            | 4/1/2010 through 6/17/2010  | 451,250                | Exercise of warrants at $0.15 per share                                                              |
| Former Employee (2)            | 4/7/2010                    | 125,000                | Service as employee                                                                                  |
| Note holders (3)               | 4/20/2010                   | 30,160                 | Conversion of note interest at $0.36 per share                                                       |
| Note holders (3)               | 4/8/2010 through 6/7/2010   | 1,983,024              | Conversion of notes at $0.36 per share                                                               |
| Warrant and Option holders (3) | 4/8/2010 through 6/30/2010  | 7,010,011              |  Cashless exercise of warrants and options with exercise prices ranging from $0.15 - $1.25 |
| Option holders (1)             | 4/19/2010 through 6/30/10   | 142,000                | Exercise of stock options at $0.28 per share                                                         |
| Warrant holders (1)            | 4/23/2010 through 6/28/10   | 877,500                | Exercise of warrants at $0.07 per share                                                              |
| Warrant holders (1)            | 4/23/2010 through 4/29/2010 | 100,000                | Exercise of warrants at $0.20 per share                                                              |
| Service Provider (2)           | 4/28/2010                   | 100,000                | Settlement Agreement                                                                                 |
| Warrant holders (1)            | 4/20/2010 through 6/21/10   | 50,000                 | Exercise of warrants at $0.25 per share                                                              |
| Warrant holders (2)            | 4/20/2010 through 6/21/10   | 250,834                | Exercise of warrants at $0.25 per share                                                              |
| Series A Holder (3)            | 5/4/2010                    | 24,000                 | Conversion of Series A PS                                                                            |
| Series B Holder (3)            | 5/5/2010 & 5/28/2010    | 4,175                  | Conversion of Series B PS                                                                            |
| Warrant holders (1)            | 6/24/2010                   | 100,000                | Exercise of warrants at $0.60 per share                                                              |
| Warrant holders (1)            | 6/24/2010                   | 100,000                | Exercise of warrants at $0.75 per share                                                              |

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| 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 adopted June 17, 2008                                                   |   | 10-Q                      |   | 11/13/08           |   |   | 3.3 |   |   |
| 3.6     |   | Amendment to the Bylaws adopted August 12, 2010                                                 |   |                      |   |               |   |   |   |   | Filed |
| 10.1    |   | Amended and Restated 2006 Equity Incentive Plan*                                                |   |                      |   |               |   |   |   |   | Filed |
| 10.2    |   | Secured Line of Credit Agreement dated May 12, 2008                                             |   | 10-Q                      |   | 11/13/08           |   |   | 10.1 |   |   |
| 10.3    |   | Secured Line of Credit Agreement dated August 28, 2008                                          |   | 10-Q                      |   | 11/13/08           |   |   | 10.2 |   |   |
| 10.4    |   | Form of Executive Option Agreement dated December 22, 2009*                                     |   |                      |   |               |   |   |   |   | Filed |
| 10.5    |   | Form of Executive Option Agreement dated July 1, 2009*                                          |   |                      |   |               |   |   |   |   | Filed |
| 10.6    |   | Form of Director Option Agreement dated July 1, 2009                                            |   |                      |   |               |   |   |   |   | Filed |
| 10. 7   |   | Summary of McGuire option grant dated April 21, 2010*                                           |   |                      |   |               |   |   |   |   | Filed |
| 10.8    |   | Vinick Consulting Agreement*                                                                    |   | 10-K                      |   | 3/25/09            |   |   | 10.24 |   |   |
| 10.9    |   | Sterner Note                                                                                    |   |                      |   |               |   |   |   |   | Filed |
| 10.10   |   | Summary of Haskell Severance Agreement*                                                         |   |                      |   |               |   |   |   |   | Filed |
| 10.11   |   | Summary of Haskell Loan*                                                                        |   |                      |   |               |   |   |   |   | Filed |
| 10.12   |   | Technology License Agreement                                                                    |   |                      |   |               |   |   |   |   | Filed |
| 10.13   |   | Form of Director Restricted Stock Agreement dated July 1, 2009                                  |   |                      |   |               |   |   |   |   | Filed |
| 10.14   |   | Form of Director Option Agreement – Initial Grant                                         |   |                      |   |               |   |   |   |   | Filed |
| 10.15   |   | Form of Director Restricted Stock Agreement - Initial Grant                                     |   |                      |   |               |   |   |   |   |   |
| 10.16   |   | Southwestern Energy Services Agreement***                                                       |   |                      |   |               |   |   |   |   | Filed |
| 10.17   |   | Newfield Exploration Services Agreement ***                                                     |   |                      |   |               |   |   |   |   | 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 |

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|            |         | ECOSPHERE TECHNOLOGIES, INC.                         |   |
|-----------------|--------------|------------------------------------------------------|--------|
|            |         |                                                 |   |
| August 16, 2010 |    | /s/ Dennis McGuire                              |   |
|            |         | Dennis McGuire                                       |   |
|            |         | Chief Executive Officer(Principal Executive Officer) |   |
|            |         |                                                 |   |
| August 16, 2010 |         | /s/ Adrian Goldfarb                             |   |
|            |         | Adrian Goldfarb                                      |   |
|            |         | Chief Financial Officer(Principal Financial Officer) |   |