----

----

| þ                                                              | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  |
|---------------------------------------------------------------------|------------------------------------------------------------------------------------------|
|                                                                |                                                                                     |
| For the quarterly period ended March 31, 2011                       |
|                                                                |                                                                                     |
| 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                                                     |   | 20-3502861               |
|--------------------------------------------------------------|--------|--------------------------|
| (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   þ    |
|-----------------------------------------------------------------------------------------------|-----------------------------------------|
|                                                                                          |                                    |
| Non-accelerated filer   o   (Do not check if a smaller reporting company) | Smaller reporting company   o |

| Class                                   |   | Outstanding at May 6, 2011 |
|-----------------------------------------|--------|----------------------------|
| Common Stock, $0.01 par value per share |   | 142,421,093 shares         |

----

----

----

|                                 |                                                                                        | Page   |   |
|--------------------------------------|---------------------------------------------------------------------------------------------|--------|--------|
| PART I – FINANCIAL INFORMATION |                                                                                        |   |   |
|                                 |                                                                                        |   |   |
| Item 1.                              | Condensed Consolidated Financial Statements (unaudited)                                     |   |   | 3 |   |
|                                 |                                                                                        |   |   |   |   |
|                                 | Condensed Consolidated Balance Sheets                                                       |   |   | 3 |   |
|                                 |                                                                                        |   |   |   |   |
|                                 | Condensed Consolidated Statements of Operations (unaudited)                                 |   |   | 4 |   |
|                                 |                                                                                        |   |   |   |   |
|                                 | Condensed Consolidated Statements of Cash Flows (unaudited)                                 |   |   | 5 |   |
|                                 |                                                                                        |   |   |   |   |
|                                 | Notes to Condensed Consolidated  Financial Statements (unaudited)                 |   |   | 7 |   |
|                                 |                                                                                        |   |   |   |
| Item 2.                              | Management’s Discussion and Analysis of Financial Condition and Results of Operations |   |   | 20 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 3.                              | Qualitative and Quantitative Disclosures about Market Risk                                  |   |   | 27 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 4.                              | Controls and Procedures                                                                     |   |   | 27 |   |
|                                 |                                                                                        |   |   |   |   |
| PART II – OTHER INFORMATION    |                                                                                        |   |   |   |
|                                 |                                                                                        |   |   |   |
| Item 1.                              | Legal Proceedings                                                                           |   |   | 28 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 1A.                             | Risk Factors                                                                                |   |   | 28 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 2.                              | Unregistered Sales of Equity Securities and Use of Proceeds                                 |   |   | 38 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 3.                              | Defaults Upon Senior Securities                                                             |   |   | 38 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 4.                              | (Removed and Reserved)                                                                      |   |   | 38 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 5.                              | Other Information                                                                           |   |   | 38 |   |
|                                 |                                                                                        |   |   |   |   |
| Item 6.                              | Exhibits                                                                                    |   |   | 39 |   |
|                                 |                                                                                        |   |   |   |   |
| SIGNATURES                           |                                                                                        |   | 40     |   |

----

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

|                                                                                                                                                                                                                                                                                                                                                     |   | March 31, 2011 |         |   | December 31, 2010 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                     |   | (Unaudited)    |         |   |              |   |
| Current Assets                                                                                                                                                                                                                                                                                                                                           |   |           |         |   |              |   |
| Cash                                                                                                                                                                                                                                                                                                                                                     |   | $              | 365,218      |   |              | $      | 46,387 |   |
| Restricted cash                                                                                                                                                                                                                                                                                                                                          |   |           | 2,140,000    |   |              |   | - |   |
| Accounts receivable                                                                                                                                                                                                                                                                                                                                      |   |           | 689,891      |   |              |   | 703,475 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                                                |   |           | 238,550      |   |              |   | 46,151 |   |
| Total current assets                                                                                                                                                                                                                                                                                                                                     |   |           | 3,433,659    |   |              |   | 796,013 |   |
| Property and equipment, net                                                                                                                                                                                                                                                                                                                              |   |           | 7,293,358    |   |              |   | 7,729,721 |   |
|        Construction in progress                                                                                                                                                                                                                                                                                       |   |           | 521,386      |   |              |   | 389,558 |   |
|        Patents, net                                                                                                                                                                                                                                                                                                   |   |           | 45,150       |   |              |   | 46,145 |   |
|        Deposits                                                                                                                                                                                                                                                                                                       |   |           | 27,645       |   |              |   | 22,205 |   |
| Total assets                                                                                                                                                                                                                                                                                                                                             |   | $              | 11,321,198   |   |              | $      | 8,983,642 |   |
| Liabilities, Redeemable Convertible Cumulative Preferred Stock and Stockholders’ Deficit                                                                                                                                                                                                                                                           |   |           |         |   |              |   |   |   |
| Current Liabilities                                                                                                                                                                                                                                                                                                                                      |   |           |         |   |              |   |   |   |
| Accounts payable                                                                                                                                                                                                                                                                                                                                         |   | $              | 1,228,772    |   |              | $      | 1,953,798 |   |
| Accounts payable - related parties                                                                                                                                                                                                                                                                                                                       |   |           | -            |   |              |   | 15,093 |   |
| Accrued liabilities                                                                                                                                                                                                                                                                                                                                      |   |           | 803,702      |   |              |   | 917,872 |   |
| Vehicle financing                                                                                                                                                                                                                                                                                                                                        |   |           | 66,001       |   |              |   | 69,566 |   |
| Insurance premium financing contract                                                                                                                                                                                                                                                                                                                     |   |           | 117,998      |   |              |   | - |   |
| Due to affiliate                                                                                                                                                                                                                                                                                                                                         |   |           | 2,000        |   |              |   | 2,000 |   |
| Customer deposit                                                                                                                                                                                                                                                                                                                                         |   |           | 2,140,000    |   |              |   | - |   |
| Notes payable – related parties (net of discount) – current portion                                                                                                                                                                                                                                                                          |   |           | 2,291,311    |   |              |   | 2,636,093 |   |
| Notes payable – third parties (net of discount) – current portion                                                                                                                                                                                                                                                                            |   |           | -            |   |              |   | 50,000 |   |
| Fair value of liability for warrant derivative instruments                                                                                                                                                                                                                                                                                               |   |           | 809,403      |   |              |   | 610,642 |   |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                |   |           | 7,459,187    |   |              |   | 6,255,064 |   |
|        Restructuring reserve                                                                                                                                                                                                                                                                                          |   |           | 157,934      |   |              |   | 181,119 |   |
|        Notes payable - related parties - less current portion                                                                                                                                                                                                                                                         |   |           | 136,676      |   |              |   | 136,676 |   |
|        Notes payable - third parties – less current portion                                                                                                                                                                                                                                                     |   |           | 1,519,153    |   |              |   | 313,722 |   |
| Total Liabilities                                                                                                                                                                                                                                                                                                                                        |   |           | 9,272,950    |   |              |   | 6,886,581 |   |
| Redeemable convertible cumulative preferred stock series A                                                                                                                                                                                                                                                                                               |   |           |         |   |              |   |   |   |
|            11 shares authorized; 6 shares issued and outstanding at March 31, 2011 and December 31, 2010,                 $25,000 per share redemption amount plus dividends in arrears ($1,141,619 at March 31, 2011) |   |           | 1,141,619    |   |              |   | 1,135,994 |   |
| Redeemable convertible cumulative preferred stock series B                                                                                                                                                                                                                                                                                               |   |           |         |   |              |   |   |   |
|            484 shares authorized; 322 shares issued and outstanding at March 31, 2011 and December 31, 2010,                 $2,500 per share redemption amount plus dividends in arrears ($2,761,926 at March 31, 2011)    |   |           | 2,761,926    |   |              |   | 2,741,802 |   |
|                                                                                                                                                                                                                                                                                                                                                     |   |           |         |   |              |   |   |   |
| Commitments and Contingencies (Note 13)                                                                                                                                                                                                                                                                                                                  |   |           |         |   |              |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                     |   |           |         |   |              |   |   |   |
| Ecosphere Technologies, Inc. Stockholders’ Deficit                                                                                                                                                                                                                                                                                                 |   |           |         |   |              |   |   |   |
| Common stock, $0.01 par value; 300,000,000 shares authorized; 141,967,359 and 137,430,786 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively                                                                                                                                                                            |   |           | 1,420,772    |   |              |   | 1,374,307 |   |
| Common stock issuable, $0.01 par value, 453,733 and 1,347,915 issuable at March 31, 2011 and December 31, 2010, respectively                                                                                                                                                                                                                             |   |           | 4,538        |   |              |   | 13,480 |   |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                               |   |           | 100,412,209  |   |              |   | 96,778,394 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                                                                      |   |           | (113,799,134 | )      |              |   | (110,025,222 | ) |
| Total Ecosphere Technologies, Inc. stockholders’ deficit                                                                                                                                                                                                                                                                                           |   |           | (11,961,615  | )      |              |   | (11,859,041 | ) |
| Noncontrolling interest in consolidated subsidiary                                                                                                                                                                                                                                                                                                       |   |           | 10,106,318   |   |              |   | 10,078,306 |   |
| Total stockholders' deficit                                                                                                                                                                                                                                                                                                                              |   |           | (1,855,297   | )      |              |   | (1,780,735 | ) |
| Total liabilities, redeemable convertible cumulative preferred stock,                                                                                                                                                                                                                                                                                    |   | $              | 11,321,198   |   |              | $      | 8,983,642 |   |
|  and stockholders’ deficit                                                                                                                                                                                                                                                                                                                    |

----

|                                                                                |   | For the Three Months Ended |        |
|-------------------------------------------------------------------------------------|--------|----------------------------|-------------|
|                                                                                |   | March 31,                  |        |
|                                                                                |   | 2011                       |        |   | 2010 |   |
| Revenues                                                                            |   | $                          | 2,227,641   |   |   | $ | 2,100,867 |   |
|                                                                                |   |                       |        |   |   |   |   |   |
| Cost of revenues                                                                    |   |                       | 621,699     |   |   |   | 746,534 |   |
|                                                                                |   |                       |        |   |   |   |   |   |
| Gross profit                                                                        |   |                       | 1,605,942   |   |   |   | 1,354,333 |   |
|                                                                                |   |                       |        |   |   |   |   |   |
| Operating expenses                                                                  |   |                       |        |   |   |   |   |   |
| Selling, general and administrative                                                 |   |                       | 4,936,150   |   |   |   | 2,805,046 |   |
| Total operating expenses                                                            |   |                       | 4,936,150   |   |   |   | 2,805,046 |   |
|                                                                                |   |                       |        |   |   |   |   |   |
| Loss from operations                                                                |   |                       | (3,330,208  | ) |   |   | (1,450,713 | ) |
|                                                                                |   |                       |        |   |   |   |   |   |
| Other income (expense):                                                             |   |                       |        |   |   |   |   |   |
| Other income                                                                        |   |                       | 143         |   |   |   | 90 |   |
| Gain (loss) on settlement, net                                                      |   |                       | -           |   |   |   | 18,099 |   |
| Gain (loss) on conversion, net                                                      |   |                       | (94,662     | ) |   |   | - |   |
| Interest expense                                                                    |   |                       | (122,412    | ) |   |   | (517,936 | ) |
| Change in fair value of derivative instruments                                      |   |                       | (198,761    | ) |   |   | (21,044,851 | ) |
| Total other income (expense)                                                        |   |                       | (415,692    | ) |   |   | (21,544,598 | ) |
|                                                                                |   |                       |        |   |   |   |   |   |
| Net  loss                                                                 |   |                       | (3,745,900  | ) |   |   | (22,995,311 | ) |
|                                                                                |   |                       |        |   |   |   |   |   |
| Preferred stock dividends                                                           |   |                       | (25,750     | ) |   |   | (27,500 | ) |
|                                                                                |   |                       |        |   |   |   |   |   |
| Net loss applicable to common stock                                                 |   |                       | (3,771,650  | ) |   |   | (23,022,811 | ) |
|                                                                                |   |                       |        |   |   |   |   |   |
| Less: Net (income) applicable to noncontrolling interest in consolidated subsidiary |   |                       | (28,012     | ) |   |   | (109,395 | ) |
|                                                                                |   |                       |        |   |   |   |   |   |
| Net (loss) applicable to Ecosphere Technologies, Inc. common stock                  |   | $                          | (3,799,662  | ) |   | $ | (23,132,206 | ) |
|                                                                                |   |                       |        |   |   |   |   |   |
|                                                                                |   |                       |        |   |   |   |   |   |
| Net income (loss) per common share applicable to common stock                       |   |                       |        |   |   |   |   |   |
| Basic and diluted                                                                   |   | $                          | (0.03       | ) |   | $ | (0.19 | ) |
|                                                                                |   |                       |        |   |   |   |   |   |
| Weighted average number of common shares outstanding                                |   |                       |        |   |   |   |   |   |
| Basic and diluted                                                                   |   |                       | 141,672,563 |   |   |   | 119,544,476 |   |

----

|                                                                                        |   | For the Three Months Ended March 31, |       |
|---------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                                                        |   | 2011                                 |       |   | 2010 |   |
| OPERATING ACTIVITIES:                                                                       |   |                                 |       |   |   |   |
| Net (loss) applicable to Ecosphere Technologies, Inc. common stock                          |   | $                                    | (3,799,662 | ) |   | $ | (23,132,206 | ) |
| Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: |   |                                 |       |   |   |   |   |   |
| Accrued preferred stock dividends                                                           |   |                                 | 25,750     |   |   |   | 27,500 |   |
| Depreciation and amortization                                                               |   |                                 | 528,045    |   |   |   | 443,196 |   |
| Accretion of discount on notes payable                                                      |   |                                 | 46,182     |   |   |   | 143,142 |   |
| Loss on settlement of note and accrued interest for common stock                            |   |                                 | 93,762     |   |   |   | - |   |
| Stock-based compensation expense                                                            |   |                                 | 2,398,474  |   |   |   | 1,005,212 |   |
| Stock options issued for services                                                           |   |                                 | 97,450     |   |   |   | - |   |
| Increase in fair value of warrant derivative liability                                      |   |                                 | 198,761    |   |   |   | 16,391,765 |   |
| Increase in fair value of embedded conversion option derivative liability                   |   |                                 | -          |   |   |   | 4,653,085 |   |
| Restricted stock vesting expense                                                            |   |                                 | 53,748     |   |   |   | - |   |
| Changes in operating assets and liabilities                                                 |   |                                 | -          |   |   |   | - |   |
| Decrease in accounts receivable                                                             |   |                                 | 13,584     |   |   |   | 96,167 |   |
| (Increase ) in prepaid expenses and other current assets                                    |   |                                 | (41,347    | ) |   |   | (22,772 | ) |
| (Increase)  in deposits                                                           |   |                                 | (5,440     | ) |   |   | (5,085 | ) |
| (Increase) in restricted cash                                                               |   |                                 | (2,140,000 | ) |   |   | - |   |
| Increase  in accounts payable                                                     |   |                                 | (725,026   | ) |   |   | (357,129 | ) |
| Increase (decrease) in accounts payable - related parties                                   |   |                                 | (15,093    | ) |   |   | - |   |
| (Decrease) in restructuring reserve                                                         |   |                                 | (23,185    | ) |   |   | (17,535 | ) |
| Increase in customer deposits                                                               |   |                                 | 2,140,000  |   |   |   | - |   |
| Increase (decrease) in deferred revenue                                                     |   |                                 | -          |   |   |   | (288,000 | ) |
| Increase (decrease)  in accrued liabilities                                       |   |                                 | (97,932    | ) |   |   | 7,969 |   |
| Noncontrolling interest in income (loss) of consolidated subsidiary                         |   |                                 | 28,012     |   |   |   | 109,395 |   |
| Net cash provided by (used in) operating activities                                         |   |                                 | (1,223,917 | ) |   |   | (945,296 | ) |
|                                                                                        |   |                                 |       |   |   |   |   |   |
| INVESTING ACTIVITIES:                                                                       |   |                                 |       |   |   |   |   |   |
| Redemption of restricted cash                                                               |   |                                 | -          |   |   |   | 350,000 |   |
| Construction in process purchases                                                           |   |                                 | (131,828   | ) |   |   | (40,080 | ) |
| Purchase of property and equipment                                                          |   |                                 | (90,687    | ) |   |   | (1,106,502 | ) |
| Net cash (used in) investing activities                                                     |   |                                 | (222,515   | ) |   |   | (796,582 | ) |
|                                                                                        |   |                                 |       |   |   |   |   |   |
| FINANCING ACTIVITIES:                                                                       |   |                                 |       |   |   |   |   |   |
| Proceeds from issuance of convertible notes payable and warrants                            |   |                                 | 1,575,000  |   |   |   | - |   |
| Proceeds from modifications of warrrants for cash                                           |   |                                 | -          |   |   |   | 617,168 |   |
| Proceeds from warrant and option exercises                                                  |   |                                 | 571,664    |   |   |   | 367,773 |   |
| Proceeds from vehicle financing                                                             |   |                                 | -          |   |   |   | 42,000 |   |
| Repayments of notes payable and insurance financing                                         |   |                                 | (33,054    | ) |   |   | (58,596 | ) |
| Repayments of notes payable to related parties                                              |   |                                 | (344,782   | ) |   |   | - |   |
| Repayments of vehicle financing                                                             |   |                                 | (3,565     | ) |   |   | (2,754 | ) |
| Principal payments on capital leases                                                        |   |                                 | -          |   |   |   | (10,677 | ) |
| Net cash provided by financing activities                                                   |   |                                 | 1,765,263  |   |   |   | 954,914 |   |
| Net increase (decrease) in cash                                                             |   |                                 | 318,831    |   |   |   | (786,964 | ) |
| Cash, beginning of period                                                                   |   |                                 | 46,387     |   |   |   | 1,089,238 |   |
| Cash, end of period                                                                         |   | $                                    | 365,218    |   |   | $ | 302,274 |   |

----

|                                                                                                                  |   | For the Three Months Ended March 31, |    |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|
| Supplemental Cash Flow Information:                                                                                   |   | 2011                                 |    |   | 2010 |   |
|                                                                                                                  |   |                                 |    |   |   |   |
| Cash paid for interest                                                                                                |   | $                                    | 84,924  |   |   | $ | 215,576 |   |
| Cash paid for income taxes                                                                                            |   | $                                    | — |   |   | $ | — |   |
|                                                                                                                  |   |                                 |    |   |   |   |   |   |
| Non-Cash Investing and Financing Activities:                                                                          |   |                                 |    |   |   |   |   |   |
|                                                                                                                  |   |                                 |    |   |   |   |   |   |
| Accrued preferred stock dividends                                                                                     |   | $                                    | 25,750  |   |   | $ | 27,500 |   |
| Conversion of convertible notes to common stock                                                                       |   | $                                    | — |   |   | $ | 1,552,778 |   |
| Conversion of related party debt to common stock                                                                      |   | $                                    | — |   |   | $ | 259,948 |   |
| Discount related to warrants issued with convertible debt                                                             |   | $                                    | 415,751 |   |   | $ | — |   |
| Reduction of derivative liability for embedded conversion options from conversion of convertible notes and debentures |   | $                                    | — |   |   | $ | 3,474,705 |   |
| Insurance premium finance contract recorded as prepaid asset                                                          |   | $                                    | 151,052 |   |   | $ | — |   |
| Reduction of derivative liability for warrant derivative instruments from warrants exercises and modifications        |   | $                                    | — |   |   | $ | 517,334 |   |
| Common stock issued as settlement of note and accrued interest                                                        |   | $                                    | 66,328  |   |   | $ | — |   |
| Series B Redeemable Convertible Cumulative Preferred Stock converted to common stock                                  |   | $                                    | — |   |   | $ | 50,000 |   |

----

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

----

| Table 1                 |   | Black Scholes Inputs |              |
|-------------------------|--------|----------------------|-------------------|
| Warrants                |   |                 |              |
|                    |   | As of March 31, 2011 |              |
| Volatility              |   |                 | 100.66            | % |
| Expected Term           |   |                 | 0.69 - 3.03       |   |
| Risk Free Interest Rate |   |                 | 0.21% - 1.29 | % |

----

|                                                                          |   | Balance at March 31, 2011 |    | Quoted Prices inActive Marketsfor IdenticalAssets |   | SignificantOtherObservableInputs |    | SignificantUnobservableInputs |   |
|-------------------------------------------------------------------------------|--------|--------------------------------|---------|---------------------------------------------------|--------|----------------------------------|---------|-------------------------------|--------|
|                                                                          |   |                           |    | (Level 1)                                         |   | (Level 2)                        |    | (Level 3)                     |   |
| Fair value of liability for warrant derivative instruments                    |   | $                              | 809,403 |                                              |   | $                                | — |                          |   | $ | — |   |   | $ | 809,403 |   |
| Fair value of liability for embedded conversion option derivative instruments |   |                           | — |                                              |   |                             | — |                          |   |   | — |   |   |   | — |   |
| Total Financial Liabilities                                                   |   | $                              | 809,403 |                                              |   | $                                | — |                          |   | $ | — |   |   | $ | 809,403 |   |

|                                                 |   | Fair Value of Liability For Warrant Derivative Instruments |    |
|------------------------------------------------------|--------|------------------------------------------------------------|---------|
| Balance at December 31, 2010                         |   | $                                                          | 610,642 |   |
| Fair value of new warrants                           |   |                                                       | -       |   |
| Fair value of warrants exercised                     |   |                                                       | -       |   |
| Impact on fair value of warrant modifications        |   |                                                       | -       |   |
| Change in fair value included in other (income) loss |   |                                                       | 198,761 |   |
| Balance at March 31, 2011                            |   | $                                                          | 809,403 |   |

----

----

|                                                                 |   | Principal |      |   | Unamortized Discount |   |     | Debt, Net of Discount |   |
|----------------------------------------------------------------------|--------|-----------|-----------|--------|----------------------|--------|----------|-----------------------|--------|
| Unrelated parties                                                    |   |      |      |   |                 |   |     |                  |   |
| Convertible and non-convertible note payable                         |   | $         | 2,050,000 |   |                 | $      | (530,847 | )                     |   | $ | 1,519,153 |   |
| Less current portion                                                 |   |      | -         |   |                 |   | -        |                  |   |   | - |   |
| Convertible and non-convertible note payable, net of current portion |   | $         | 2,050,000 |   |                 | $      | (530,847 | )                     |   | $ | 1,519,153 |   |
|                                                                 |   |      |      |   |                 |   |     |                  |   |   |   |   |
| Related parties                                                      |   |      |      |   |                 |   |     |                  |   |   |   |   |
| Convertible and non-convertible note payable                         |   | $         | 2,427,987 |   |                 | $      | -        |                  |   | $ | 2,427,987 |   |
| Less current portion                                                 |   |      | 2,291,311 |   |                 |   | -        |                  |   |   | 2,291,311 |   |
| Convertible and non-convertible note payable, net of current portion |   | $         | 136,676   |   |                 | $      | -        |                  |   | $ | 136,676 |   |

----

| Restructuring Reserve        |   | For the Three Months Ended March 31, |    |
|------------------------------|--------|-------------------------------------------|---------|
|                         |   | 2011                                      |    |   | 2010 |   |
| Balance, beginning of period |   | $                                         | 181,119 |   |   | $ | 123,436 |   |
| Rent payments                |   |                                      | (44,755 | ) |   |   | (43,207 | ) |
| Sublease payment received    |   |                                      | 21,570  |   |   |   | 25,672 |   |
| Balance, end of period       |   | $                                         | 157,934 |   |   | $ | 105,901 |   |

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

| a)   | 333,333 shares of common stock were issued to settle a note and accrued interest in the amount of $66,238.  The trading value of the stock on the date of settlement was $0.48 resulting in a loss on settlement of $93,762. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | 2,119,039 shares of common stock were issued upon exercise of warrants and options at exercise prices ranging from $0.15 to $0.28 per share resulting in proceeds to the Company of $571,664. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | 1,219,137 shares of common stock were issued upon the cashless exercise of 2,080,000 warrants with an exercise price of $0.28 per share based upon market prices of the Company’s common stock ranging from $0.60 to $0.68 per share. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | Shares |    |   | Weighted Average Grant-Date Fair-Value |   |
|------------------------------------|--------|--------|---------|--------|-------------------------------------------------------|--------|
| Non-vested at January 1, 2011 |   |   | 269,504 |   |                                                  | $      | 0.89 |   |
| Granted                            |   |   | ---     |   |                                                  | $      | --- |   |
| Vested                             |   |   | ---     |   |                                                  | $      | --- |   |
| Forfeited                          |   |   | ---     |   |                                                  | $      | --- |   |
| Unvested at March 31, 2011         |   |   | 269,504 |   |                                                  | $      | 0.89 |   |

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

----

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

|                    |   | For the Three Months EndedMarch 31, |
|-------------------------|--------|------------------------------------------|
|                    |   | 2011                                     |   | 2010 |
| Expected volatility     |   |                                     | 104.79% - 112.58% |   | 104.5% |
| Expected lives          |   |                                     | 3.0 – 5.0 |   | 2.5 years |
| Risk-free interest rate |   |                                     | 1.05% - 2.06 |   | 1.22% |
| Expected dividend yield |   |                                     | None |   | None |

----

| Employee Fixed Plan                                           |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |
|---------------------------------------------------------------|--------|------------------------------------------------|------------|--------|------------------------------------------------|--------|-----------|--------|--------|--------|---------------------------------|--------|
|                                                          |   | For the Three Months Ended March 31, 2011 |       |   | For the Three Months Ended March 31, 2010 |   |
|                                                          |   | Shares                                         |       |   | Weighted Average Exercise Price                |   |      | Shares |   |   | Weighted Average Exercise Price |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |
| Outstanding at beginning of period                            |   |                                           | 11,730,805 |   |                                           | $      | 0.58      |   |   |   | 11,468,736                      |   |   | $ | 0.58 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Granted                                                       |   |                                           | -          |   |                                           | $      | -         |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Exercised                                                     |   |                                           | (584,000   | )      |                                           | $      | 0.28      |   |   |   | (340,000                        | )      |   | $ | 0.29 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Forfeited                                                     |   |                                           | -          |   |                                           | $      | -         |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Expired                                                       |   |                                           | (97,000    | )      |                                           | $      | 0.75      |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                           | 11,049,805 |   |                                           | $      | 0.58      |   |   |   | 11,128,736                      |   |   | $ | 0.59 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                           | 10,705,685 |   |                                           | $      | 0.57      |   |   |   | 7,199,317                       |   |   | $ | 0.68 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Outstanding                                                   |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                           |       |   |                                           |   | 2.40      |   |   |   |                            |   |   |   | 3.66 |   |
|    Aggregate intrinsic value                   |   |                                           |       |   |                                           | $      | 1,171,123 |   |   |   |                            |   |   | $ | 10,172,273 |   |
|    Weighted average grant date fair value      |   |                                           |       |   |                                           |   | N/A       |   |   |   |                            |   |   |   | N/A |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Exercisable                                                   |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                           |       |   |                                           |   | 2.35      |   |   |   |                            |   |   |   | 3.07 |   |
|    Aggregate intrinsic value                   |   |                                           |       |   |                                           | $      | 1,149,030 |   |   |   |                            |   |   | $ | - |   |

| Employee Fixed Non-Plan                                       |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |
|---------------------------------------------------------------|--------|------------------------------------------------|------------|--------|------------------------------------------------|--------|-----------|--------|--------|--------|---------------------------------|--------|
|                                                          |   | For the Three Months Ended March 31, 2011 |       |   | For the Three Months Ended March 31, 2010 |   |
|                                                          |   | Shares                                         |       |   | Weighted Average Exercise Price                |   |      | Shares |   |   | Weighted Average Exercise Price |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |
| Outstanding at beginning of period                            |   |                                           | 42,719,462 |   |                                           | $      | 0.50      |   |   |   | 33,115,414                      |   |   | $ | 0.45 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Granted                                                       |   |                                           | 10,000,000 |   |                                           | $      | 0.48      |   |   |   | 200,000                         |   |   | $ | 0.43 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Exercised                                                     |   |                                           | (554,239   | )      |                                           | $      | 0.24      |   |   |   | (166,667                        | )      |   | $ | 0.23 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Forfeited                                                     |   |                                           | (750,000   | )      |                                           | $      | 0.82      |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Expired                                                       |   |                                           | -          |   |                                           | $      | -         |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                           | 51,415,223 |   |                                           | $      | 0.53      |   |   |   | 33,148,747                      |   |   | $ | 0.45 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                           | 40,048,557 |   |                                           | $      | 0.50      |   |   |   | 18,965,412                      |   |   | $ | 0.43 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Outstanding                                                   |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                           |       |   |                                           |   | 3.22      |   |   |   |                            |   |   |   | 3.62 |   |
|    Aggregate intrinsic value                   |   |                                           |       |   |                                           | $      | 8,630,157 |   |   |   |                            |   |   | $ | 34,631,268 |   |
|    Weighted average grant date fair value      |   |                                           |       |   |                                           | $      | 0.33      |   |   |   |                            |   |   | $ | 0.26 |   |
|                                                          |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
| Exercisable                                                   |   |                                           |       |   |                                           |   |      |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                           |       |   |                                           |   | 2.94      |   |   |   |                            |   |   |   | 3.42 |   |
|    Aggregate intrinsic value                   |   |                                           |       |   |                                           | $      | 7,435,157 |   |   |   |                            |   |   | $ | 14,231,266 |   |

----

| Non-Employee Fixed Non-Plan                                   |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |
|---------------------------------------------------------------|--------|------------------------------------------------|------------|--------|------------------------------------------------|--------|---------|--------|--------|--------|---------------------------------|--------|
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |
|                                                          |   | For the Three Months Ended March 31, 2011 |       |   | For the Three Months Ended March 31, 2010 |   |
|                                                          |   | Shares                                         |       |   | Weighted Average Exercise Price                |   |    | Shares |   |   | Weighted Average Exercise Price |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |
| Outstanding at beginning of period                            |   |                                           | 2,353,714  |   |                                           | $      | 0.33    |   |   |   | 3,803,714                       |   |   | $ | 0.59 |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
| Granted                                                       |   |                                           | 700,000    |   |                                           | $      | 0.64    |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
| Exercised                                                     |   |                                           | (1,618,000 | )      |                                           | $      | 0.28    |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
| Forfeited                                                     |   |                                           | -          |   |                                           | $      | -       |   |   |   | -                               |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
| Expired                                                       |   |                                           | -          |   |                                           | $      | -       |   |   |   | (300,000                        | )      |   | $ | 1.02 |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                           | 1,435,714  |   |                                           | $      | 0.53    |   |   |   | 3,503,714                       |   |   | $ | 0.55 |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                           | 1,185,714  |   |                                           | $      | 0.51    |   |   |   | 3,360,856                       |   |   | $ | 0.56 |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
| Outstanding                                                   |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                           |       |   |                                           |   | 3.87    |   |   |   |                            |   |   |   | 1.32 |   |
|    Aggregate intrinsic value                   |   |                                           |       |   |                                           | $      | 139,143 |   |   |   |                            |   |   | $ | 3,318,531 |   |
|    Weighted average grant date fair value      |   |                                           |       |   |                                           | $      | 0.50    |   |   |   |                            |   |   |   | N/A |   |
|                                                          |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
| Exercisable                                                   |   |                                           |       |   |                                           |   |    |   |   |   |                            |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                           |       |   |                                           |   | 3.67    |   |   |   |                            |   |   |   | 1.20 |   |
|    Aggregate intrinsic value                   |   |                                           |       |   |                                           | $      | 139,143 |   |   |   |                            |   |   | $ | 3,166,744 |   |

----

| Warrants                                                      |   | For the Three Months Ended March 31, 2011 |       |   | For the Three Months Ended March 31, 2010 |   |
|---------------------------------------------------------------|--------|------------------------------------------------|------------|--------|------------------------------------------------|--------|
|                                                          |   | Shares                                         |       |   | Weighted Average Exercise Price                |   |   | Shares |   |   | Weighted Average Exercise Price |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |
| Outstanding at beginning of period                            |   |                                           | 19,179,489 |   |                                           | $      | 0.43 |   |   |   | 32,588,207 |   |   | $ | 0.51 |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Granted                                                       |   |                                           | 1,160,714  |   |                                           | $      | 0.70 |   |   |   | - |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Exercised                                                     |   |                                           | (1,442,800 | )      |                                           | $      | 0.28 |   |   |   | (1,018,445 | ) |   | $ | 0.23 |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Forfeited                                                     |   |                                           | -          |   |                                           | $      | - |   |   |   | - |   |   | $ | - |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Exchanged, net                                                |   |                                           | -          |   |                                           | $      | - |   |   |   | 1,558,000 |   |   | $ | 0.67 |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Expired                                                       |   |                                           | (649,400   | )      |                                           | $      | 0.51 |   |   |   | (1,080,000 | ) |   | $ | 1.12 |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at end of period                                  |   |                                           | 18,248,003 |   |                                           | $      | 0.46 |   |   |   | 32,047,762 |   |   | $ | 0.45 |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable at end of period                                  |   |                                           | 18,248,003 |   |                                           | $      | 0.46 |   |   |   | 32,047,762 |   |   | $ | 0.45 |   |
|                                                          |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding and exercisable                                   |   |                                           |       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
|    Weighted average remaining contractual term |   |                                           |       |   |                                           |   | 1.86 |   |   |   |   |   |   |   | 2.29 |   |
|    Aggregate intrinsic value                   |   |                                           |       |   |                                           | $      | 3,792,184 |   |   |   |   |   |   | $ | 33,588,847 |   |

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

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

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

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

----

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

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

|   | · | EES, Inc., which we organized in November 2006, conducted our water processing for the oil and gas industry using the Ecosphere Ozonix® technology until July 2009, when the assets and liabilities of EES, Inc. were contributed in the formation of EES.  As of March 31, 2011, the Company has a 52.6% ownership position in EES. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                         |   | EcosphereSystems Inc. |    |   | EcosphereEnvirobotic Solutions, Inc. |   |   |   EcosphereEnergyServices LLC |   |   |  Segment Totals |   |   | Corporate |       |   | Consolidated Totals |   |
|--------------------------------------------------------------|--------|----------------------------|---------|--------|------------------------------------------------|--------|--------|-----------------------------------------|--------|--------|---------------------------|--------|--------|-----------|------------|--------|--------------------------|--------|
|                                                         |   |                       |    |   |                                           |   |   |                                    |   |   |                      |   |   |      |       |   |                     |   |
| Revenue from external customers                              |   | $                          | -       |   |                                           | $      | -      |                                    |   | $      | 2,227,641                 |   |   | $         | 2,227,641  |   |                     | $      | - |   |   | $ | 2,227,641 |   |
| Interest expense and amortization of debt discount           |   | $                          | -       |   |                                           | $      | -      |                                    |   | $      | (63,468                   | )      |   | $         | (63,468    | )      |                     | $      | (58,944 | ) |   | $ | (122,412 | ) |
| Change in fair value of liability for derivative instruments |   | $                          | -       |   |                                           | $      | -      |                                    |   | $      | -                         |   |   | $         | -          |   |                     | $      | (198,761 | ) |   | $ | (198,761 | ) |
| Depreciation and amortization                                |   | $                          | -       |   |                                           | $      | -      |                                    |   | $      | (501,907                  | )      |   | $         | (501,907   | )      |                     | $      | (26,138 | ) |   | $ | (528,045 | ) |
| Income Tax Expense                                           |   | $                          | -       |   |                                           | $      | -      |                                    |   | $      | -                         |   |   | $         | -          |   |                     | $      | - |   |   | $ | - |   |
| Net income (loss) applicable to common stock                 |   | $                          | -       |   |                                           | $      | -      |                                    |   | $      | 28,012                    |   |   | $         | 28,012     |   |                     | $      | (3,799,662 | ) |   | $ | (3,771,650 | ) |
|                                                         |   |                       |    |   |                                           |   |   |                                    |   |   |                      |   |   |      |       |   |                     |   |   |   |   |   |   |   |
| Segment fixed assets & construction in process           |   | $                          | 865,375 |   |                                           | $      | 25,824 |                                    |   | $      | 9,878,900                 |   |   | $         | 10,770,099 |   |                     | $      | 1,813,757 |   |   | $ | 12,583,856 |   |
| Fixed asset additions (disposals) (net)                      |   | $                          | -       |   |                                           | $      | -      |                                    |   | $      | 464                       |   |   | $         | 464        |   |                     | $      | 90,223 |   |   | $ | 90,687 |   |
| Total Assets                                                 |   | $                          | -       |   |                                           | $      | -      |                                    |   | $      | 10,008,923                |   |   | $         | 10,008,923 |   |                     | $      | 1,312,275 |   |   | $ | 11,321,198 |   |

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

----

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

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

----

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

| Noncontrolling Interest in Consolidated Subsidiary |   |
|----------------------------------------------------|--------|
|                                               |   | For the Three Months Ended March 31, |   |
|                                               |   | 2011 |   |   | 2010 |   |
| Balance, beginning of period                       |   | $ | 10,078,306 |   |   | $ | 10,606,583 |   |
| Contributions from noncontrolling members          |   |   | - |   |   |   | - |   |
| Noncontrolling interest in (income) loss           |   |   | 28,012 |   |   |   | 109,395 |   |
| Distributions to noncontrolling members            |   |   | - |   |   |   | - |   |
| Balance, end of period                             |   | $ | 10,106,318 |   |   | $ | 10,715,978 |   |

| 15.   | CONCENTRATIONS |
|-----------------|----------------|

| 16.   | SUBSEQUENT EVENTS |
|-----------------|-------------------|

----

| ● | We began 2011 by announcing the signing of a non-binding terms sheet for the sub-license and sale of up to 16 EF 60 units to a new oil and gas service company for use onshore in the United States. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● |  In March 2011, the Company signed the definitive agreements related to the non-binding terms sheet with Hydrozonix.  Highlights of the agreement include: |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o    | An initial purchase of two EF 60 units, which upon acceptance will permit Hydrozonix to place orders for an additional 14 EF 60 units during the initial two years. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o    | Hydrozonix will have the exclusive license to use the Ecosphere Ozonix® technology onshore oil and gas exploration field of use in the United States.  In order to maintain their exclusivity, in subsequent years Hydrozonix must meet certain minimum equipment purchase quantities which averages at least eight per year. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | Revenues for the three months ended March 31, 2011 increased by $126,774 or 6% over revenues for the three months ended March 31, 2010.  Gross profit increased $251,609 or 18.6%. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                                                       |   | For the Three Months Ended March 31, |       |   |   |   |        |    |   |
|------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|------------|--------|--------|--------|-------------|---------|--------|
|                                                                                                       |   |                                           |       |   |   |   |        | Change  |   |
|                                                                                                       |   | 2011                                           |       |   | 2010   |   |        |  $ |   |   |  % |   |
|                                                                                                       |   |                                           |       |   |   |   |        |    |   |   |   |   |   |
| Revenues                                                                                                   |   | $                                              | 2,227,641  |   |   | $      | 2,100,867   |    |   | $ | 126,774 |   |   |   | 6 | % |
| Cost of revenues                                                                                           |   |                                           | 621,699    |   |   |   | 746,534     |    |   |   | (124,835 | ) |   |   | -17 | % |
| Gross profit (loss)                                                                                        |   |                                           | 1,605,942  |   |   |   | 1,354,333   |    |   |   | 251,609 |   |   |   | 19 | % |
| Operating expenses                                                                                         |   |                                           |       |   |   |   |        |    |   |   |   |   |   |   |   |   |
|        Salaries and employee benefits                                   |   |                                           | 3,486,796  |   |   |   | 1,733,676   |    |   |   | 1,753,120 |   |   |   | 101 | % |
|        Administrative and selling                                       |   |                                           | 329,021    |   |   |   | 433,420     |    |   |   | (104,399 | ) |   |   | -24 | % |
|        Professional fees                                                |   |                                           | 561,833    |   |   |   | 168,370     |    |   |   | 393,463 |   |   |   | 234 | % |
|        Depreciation and amortization                                    |   |                                           | 528,045    |   |   |   | 443,196     |    |   |   | 84,849 |   |   |   | 19 | % |
|        Research and development                                         |   |                                           | 30,455     |   |   |   | 26,384      |    |   |   | 4,071 |   |   |   | 15 | % |
|            Total selling general and administrative |   |                                           | 4,936,150  |   |   |   | 2,805,046   |    |   |   | 2,131,104 |   |   |   | 76 | % |
| Loss from operations                                                                                       |   |                                           | (3,330,208 | )      |   |   | (1,450,713  | )       |   |   | (1,879,495 | ) |   |   | 130 | % |
| Other income (expense):                                                                                    |   |                                           |       |   |   |   |        |    |   |   |   |   |   |   |   |   |
| Other income (expense)                                                                                     |   |                                           | 143        |   |   |   | 90          |    |   |   | 53 |   |   |   | -59 | % |
| Gain (loss) on settlement                                                                                  |   |                                           | -          |   |   |   | 18,099      |    |   |   | (18,099 | ) |   |   | 100 | % |
| Gain (loss) on conversion                                                                                  |   |                                           | (94,662    | )      |   |   | -           |    |   |   | (94,662 | ) |   |   | -100 | % |
| Interest expense                                                                                           |   |                                           | (122,412   | )      |   |   | (517,936    | )       |   |   | 395,524 |   |   |   | 76 | % |
|         Change in fair value of derivative instruments             |   |                                           | (198,761   | )      |   |   | (21,044,851 | )       |   |   | 20,846,090 |   |   |   | -99 | % |
| Total other income (expense)                                                                               |   |                                           | (415,692   | )      |   |   | (21,544,598 | )       |   |   | 21,128,906 |   |   |   | -98 | % |
| Net loss                                                                                                   |   |                                           | (3,745,900 | )      |   |   | (22,995,311 | )       |   |   | 19,249,411 |   |   |   | 84 | % |
| Preferred stock dividends                                                                                  |   |                                           | 25,750     |   |   |   | 27,500      |    |   |   | (1,750 | ) |   |   | 6 | % |
| Net (loss) applicable to common stock                                                                      |   |                                           | (3,771,650 | )      |   |   | (23,022,811 | )       |   |   | 19,251,161 |   |   |   | 84 | % |
| Net (income) applicable to noncontrolling interest of consolidated subsidiary                              |   |                                           | (28,012    | )      |   |   | (109,395    | )       |   |   | (81,383 | ) |   |   | 74 | % |
| Net loss applicable to Ecosphere Technologies, Inc. common stock                                           |   | $                                              | (3,799,662 | )      |   | $      | (23,132,206 | )       |   | $ | 19,332,544 |   |   |   | -84 | % |

----

----

----

----

----

| Contractual obligations: |   |                     |      |   |                     |   |      |       |   |   |    |   |
|--------------------------|--------|--------------------------|-----------|--------|--------------------------|--------|-----------|------------|--------|--------|---------|--------|
|                     |   | Amounts Due              |      |
|                     |   | April 2011 to March 2012 |      |   | April 2012 to March 2013 |   |      | Thereafter |   |   | Total   |   |
|                     |   |                     |      |   |                     |   |      |       |   |   |    |   |
| Debt principal           |   | $                        | 2,085,125 |   |                     | $      | 2,043,100 |       |   | $      | 187,175 |   |   | $ | 4,315,400 |   |
| Interest on debt         |   |                     | 206,654   |   |                     |   | 456,676   |       |   |   | -       |   |   |   | 663,330 |   |
| Operating leases         |   |                     | 298,911   |   |                     |   | 209,532   |       |   |   | 14,983  |   |   |   | 523,426 |   |
| Purchase orders          |   |                     | 498,000   |   |                     |   | -         |       |   |   | -       |   |   |   | 498,000 |   |
|                     |   | $                        | 3,088,690 |   |                     | $      | 2,709,308 |       |   | $      | 202,158 |   |   | $ | 6,000,156 |   |

----

----

|   | · | The loss of anticipated revenue and manufacturing and licensing fees due to the Company and its 52.6 percent subsidiary, EES as well as possible royalties due EES; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Potential future liquidity problems similar to those previously discussed by us in our prior Form 10-Ks; |
|--------|--------|----------------------------------------------------------------------------------------------------------|

|   | · | Negative perceptions with existing and future customers from the disclosure of any problems with Hydrozonix LLC; |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | · | Declines in our stock price from the disclosure of any problems with Hydrozonix LLC; and |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | Increase in operating losses. |
|--------|--------|-------------------------------|

----

----

|   | · | Our ability to convince customers to use our services; |
|--------|--------|--------------------------------------------------------|

|   | · | Our ability to finance the units; |
|--------|--------|-----------------------------------|

|   | · | Our ability to operate units that are built; and |
|--------|--------|--------------------------------------------------|

|   | · | Our ability to manage the operations of our Ecosphere Ozonix® systems at multiple locations. |
|--------|--------|---------------------------------------------------------------------------------------------------|

----

|   | · | Our receipt of orders from existing and new customers; |
|--------|--------|--------------------------------------------------------|

|   | · | The acceptance of the first two EF60 units and subsequent ordering of additional units by our partners |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | The timely availability of components from our suppliers for Ecosphere Ozonix® systems; |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | Operating results from our Ecosphere Ozonix® units and the announcement of future agreements for our Ecosphere Ozonix® units; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our raising working capital (if necessary) and any associated costs which will be charged as expenses to our future results of operations; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our continued ability to develop new technologies; |
|--------|--------|----------------------------------------------------|

|   | · | Pricing pressures; |
|--------|--------|--------------------|

|   | · | General economic and political conditions; |
|--------|--------|--------------------------------------------|

|   | · | Our ability to finance new subsidiaries; |
|--------|--------|------------------------------------------|

|   | · | Sales of assets or technologies similar to the October 2007 sale of the intellectual property and related assets of our ship stripping technology. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | Pending and future patent applications will result in issued patents; |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Patents we own or which are licensed by us will not be challenged by competitors; |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | The patents will be found to be valid or sufficiently broad to protect our technology or provide us with a competitive advantage; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We will be successful in defending against future patent infringement claims asserted against our products. |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

----

|   | · | Our failure to continue to generate increasing revenues; |
|--------|--------|----------------------------------------------------------|

|   | · | The loss of key personnel; |
|--------|--------|----------------------------|

|   | · | Our failure to achieve and maintain profitability; |
|--------|--------|----------------------------------------------------|

|   | · | Actual or anticipated variations in our quarterly results of operations; |
|--------|--------|--------------------------------------------------------------------------|

|   | · | Announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The loss of major customers or product or component suppliers; |
|--------|--------|----------------------------------------------------------------|

|   | · | The loss of significant business relationships; |
|--------|--------|-------------------------------------------------|

|   | · | Our failure to meet financial analysts’ performance expectations; |
|--------|--------|-------------------------------------------------------------------------|

|   | · | Changes in earnings estimates and recommendations by financial analysts; |
|--------|--------|--------------------------------------------------------------------------|

|   | · | Short selling activities; or |
|--------|--------|------------------------------|

|   | · | Changes in market valuations of similar companies. |
|--------|--------|----------------------------------------------------|

----

----

|   | (i)   | we are current in our filings, |
|--------|-----------------|--------------------------------|

|   |
|--------|

|   | (ii)   | certain manner of sale provisions, and |
|--------|------------------|----------------------------------------|

|   |
|--------|

|   | (iii)   | filing of Form 144. |
|--------|-------------------|---------------------|

----

| Name or Class of Investor | Date Sold                   | No. of Securities                                                                                                       | Consideration                                                                                                    |
|--------------------------------|-----------------------------|------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|
| Investors (1)                  | 1/4/2011 through 3/21/2011  | $1,625,000 10% two-year notes convertible at $0.70 per share and 1,160,174 five-year warrants exercisable at $0.70 per share | Investment                                                                                                       |
| Option Holder (2)              | 1/4/2011                    | 1,176,471 shares of common stock                                                                                             | Cashless exercise of 2,000,000 stock options exercisable at $0.28 per share                                      |
| Note Holder (2)                | 1/5/2011                    | 122,857 shares of common stock                                                                                               | Conversion of note at $0.70 per share                                                                            |
| Note Holder (2)                | 1/10/2011                   | 333,333 share of common stock                                                                                                | Conversion of note at $0.15 per share                                                                            |
| Warrant Holder (1)             | 1/13/2011                   | 537,084 shares of common stock                                                                                               | Exercise of 230,834 warrants exercisable at $0.25 per share and 306,250 warrants exercisable at $0.15 per share. |
| Option Holders (3)             | 1/13/2011 through 1/14/2011 | 428,600 shares of common stock                                                                                               | Exercise of stock options at $0.28 per share                                                                     |
| Option Holders (1)             | 1/19/2011 through 2/2/2011  | 214,200 shares of common stock                                                                                               | Exercise of stock options at $0.28 per share                                                                     |

----

| Exhibit |   |                                                                                            |   | Incorporated by Reference |   | Filed or Furnished  |
|---------|--------|-------------------------------------------------------------------------------------------------|--------|---------------------------|--------|---------------------|
| No.     |   | Exhibit Description                                                                             |   | Form                      |   | Date                |   | Number |   | Herewith |
|    |   |                                                                                            |   |                      |   |                |   |   |   |   |
| 3.1     |   | Certificate of Incorporation                                                                    |   | 10-QSB                    |   | 12/11/06            |   | 3.1 |   |   |
| 3.2     |   | Certificate of Amendment                                                                        |   | 10-K                      |   | 3/25/09             |   | 3.2 |   |   |
| 3.3     |   | Certificate of Correction                                                                       |   | 10-K                      |   | 3/25/09             |   | 3.3 |   |   |
| 3.4     |   | Bylaws                                                                                          |   | 10-QSB                    |   | 12/11/06            |   | 3.2 |   |   |
| 3.5     |   | Amendment to the Bylaws adopted June 17, 2008                                                   |   | 10-Q                      |   | 11/13/08            |   | 3.3 |   |   |
| 3.6     |   | Amendment to the Bylaws adopted August 12, 2010                                                 |   | 10-Q                      |   |  8/16/10       |   | 3.6 |   |   |
| 4.1     |   | Amended and Restated 2006 Equity Incentive Plan                                                 |   | 10-Q                      |   |   8/16/10 |   | 10.1 |   |   |
| 4.2     |   | Amendment to the Amended and Restated 2006 Equity Incentive Plan                                |   | S-8                       |   | 3/25/11             |   | 4.2 |   |   |
| 10.1    |   | Summary of Employment Arrangement - Vinick*                                                     |   |                      |   |                |   |   |   | Filed |
| 10. 2   |   | Summary of Employment Arrangement - McGuire*                                                    |   | 10-K                      |   | 3/16/11             |   | 10.2 |   |   |
| 10.3    |   | Hydrozonix Exclusive Product Purchase and Sublicense Agreement**                                |   |                      |   |                |   |   |   | Filed** |
| 10.4    |   | Southwestern Energy Services Agreement**                                                        |   | 10-Q                      |   | 8/16/10             |   | 10.16 |   |   |
| 10.5    |   | Newfield Exploration Services Agreement**                                                       |   | 10-Q                      |   | 8/16/10             |   | 10.17 |   |   |
| 10.6    |   | EES Side Letter Agreement - Hydrozonix**                                                        |   |                      |   |                |   |   |   | Filed** |
| 10.7    |   | Second Amendment to EES LLC 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 |

----

|         |         | ECOSPHERE TECHNOLOGIES, INC.                         |   |
|--------------|--------------|------------------------------------------------------|--------|
|         |         |                                                 |   |
| May 10, 2011 |    | /s/ Charles Vinick                              |   |
|         |         | Charles Vinick                                       |   |
|         |         | Chief Executive Officer(Principal Executive Officer) |   |
|         |         |                                                 |   |
| May 10, 2011 |         | /s/ Adrian Goldfarb                             |   |
|         |         | Adrian Goldfarb                                      |   |
|         |         | Chief Financial Officer(Principal Financial Officer) |   |