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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB/A

(AMENDMENT NO. 1)



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(Mark One)

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

For the fiscal year ended December 31, 2005



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

Commission file number 0-23897



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EarthFirst Technologies, Incorporated

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 59-3462501                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|2515 E Hanna Ave., Tampa, Florida                              |  | 33610                               
|((Address of principal executive offices)                      |  | (Zip Code)                          

Issuers telephone number: (813) 238-5010



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Securities registered pursuant
to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:



(Title of Class)



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Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports) and (2) has been subject to such filing requirements for the
past 90 days.    Yes  x    No ̈

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes ̈No  x

State issuers revenues for its most recent fiscal year: $ 41,743,320

State the aggregate market value of voting and
non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date (March 16, 2006) within the past 60 days: $
26,527,908

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date
(March 16, 2006) 598,046,693 shares

DOCUMENTS INCORPORATED BY REFERENCE: NONE.



|Transitional | Small Business Disclosure Format (check one):    Yes ̈No  x
|------------ | ----------------------------------------------------------



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EARTHFIRST TECHNOLOGIES, INCORPORATED

FORM 10-KSB/A

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-KSB/A (this Form 10-KSB/A) amends our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005, as
initially filed with the Securities and Exchange Commission (the SEC) on April 3, 2006, and is being filed to reflect a restatement of the comparative data contained in our consolidated statements of operations and cash flows for
the year ended December 31, 2004, as discussed in Note 20 to the consolidated financial statements.

Subsequent to the issuance of its 2005 financial
statements on Form 10KSB, the Company determined that it had not properly classified the results of its 2005 discontinued operation in its comparative 2004 financial statements.

On January 1, 2005, the Company sold its subsidiary, EMEGC, as reported in Note 6. In accordance with SFAS 144, the prior period 2004 amounts relating to the operations and cash flows of the disposed unit are to be
presented as discontinued operations for all periods presented. As a result, the accompanying consolidated statements of operations and cash flows for the year ended December 31, 2004 have been restated.

All relevant information in Managements Discussion and Analysis or Plan of Operation, and the footnotes to the consolidated financial statements has been adjusted
to account for the impact of this restatement.

Except for the amended information required to reflect the effects of the restatement, this Form 10KSB/A
continues to describe conditions as presented in the original report on Form 10-KSB filed on April 3, 2006. This Form 10-KSB/A does not reflect events occurring after the filing of the Form 10-KSB/A on April 3, 2006 or modify or update
these disclosures, including exhibits on the Form 10-KSB affected by subsequent events. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the original filing of the Form 10-KSB on April 3,
2006.

Accordingly, this Form 10-KSB/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the original Form
10-KSB, including any amendments to those filings.



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|         |  |                                                                                                                 |  |     
|-------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                 |  | Page
|         |  | PART I                                                                                                          |  |     
|         |  |                                                                                                                
|Item 1.  |  | Description of Business                                                                                         |  | 3   
|Item 2.  |  | Description of Property                                                                                         |  | 7   
|Item 3.  |  | Legal Proceedings                                                                                               |  | 8   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                             |  | 9   
|         |  |                                                                                                                
|         |  | PART II                                                                                                         |  |     
|         |  |                                                                                                                
|Item 5.  |  | Market for Common Equity and Related Stockholder Matters                                                        |  | 9   
|Item 6.  |  | Managements Discussion and Analysis or Plan of Operation                                                       |  | 12  
|Item 7.  |  | Financial Statements                                                                                            |  | 27  
|Item 8.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 27  
|Item 8A. |  | Controls and Procedures                                                                                         |  | 27  
|Item 8B. |  | Other Information                                                                                               |  | 28  
|         |  |                                                                                                                
|         |  | PART III                                                                                                        |  |     
|         |  |                                                                                                                
|Item 9.  |  | Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act |  | 28  
|Item 10. |  | Executive Compensation                                                                                          |  | 31  
|Item 11. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 33  
|Item 12. |  | Certain Relationships and Related Transactions                                                                  |  | 35  
|Item 13. |  | Exhibits                                                                                                        |  | 36  
|Item 14  |  | Principal Accountant Fees and Services Signatures and Certifications                                            |  | F-42



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PART I

Item 1. Business

EarthFirst Technologies, Incorporated, a Florida Corporation formed in 1997, is a
specialized holding company owning subsidiaries engaged in a number of business activities. EarthFirst Technologies, Incorporated and its subsidiaries (collectively EarthFirst, the Company, we, and
our), is a research-based enterprise committed to the development and commercialization of technologies that will produce economically and environmentally superior products from carbon-rich solid and liquid materials considered wastes.
As part of its efforts, the Company is also attempting to develop and commercialize applications of its technologies for the efficient production of alternative fuels. Additional applications of the Companys technologies are focused on the
environmentally desirable processing, destruction, purification, and / or remediation of harmful liquid and solid wastes.

Through its
subsidiary Electric Machinery Enterprises, Inc., the Company performs services as an electrical contractor and subcontractor in the construction of commercial and municipal projects primarily located in Florida and the Caribbean.

Solid Waste Technologies

Catalytic Activated Vacuum Distillation
Process (CAVD) Reactors

EarthFirst developed the Catalytic Activated Vacuum Distillation Process Reactor. The CAVD Reactor
embodies the results of several years of research and development with respect to disposal of solid wastes. The CAVD Reactor offers a unique solution to the problem of disposing of harmful solid wastes in an environmentally friendly manner and
allows raw materials from the wastes to be recycled and reused.

We believe that the CAVD Reactor can be designed to process a number of
harmful solid waste products. We anticipate that governmental and nongovernmental entities who are faced with the problem of disposing of various types of solid waste products through conventional means will conclude that the CAVD Reactors can
provide a superior, safe and effective means of eliminating these materials.

Initially, we are focusing on the processing of rubber tires.
However, other uses are also being pursued. Such uses include the recycling of carpet materials, the destruction of animal waste and remains, transuranic wastes (e.g. gloves, overalls, tools, etc. that have been exposed to low levels of radiation),
and medical wastes.



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Electrical Contracting - Electric Machinery Enterprises

The Company performs electrical contracting and subcontracting services for commercial and municipal projects primarily in Florida and the Caribbean
through its subsidiary Electric Machinery Enterprises, Inc. (EME). The Company has extensive expertise in performing electrical contracting services for water, sewer, and power generating facilities. EME has provided electrical
contracting services over a broad spectrum of industries and technologies, including projects such as the State Capitol Building in Tallahassee, Florida, utility company buildings, wastewater treatment plants, bridges, pumping stations, seaport
terminals, international airports, hospitals department stores, shopping centers, correctional facilities, large civic centers, hotels and resorts, schools, universities, sports stadiums apartment complexes, condominium buildings, tourism sites and
theme parks.

Electric Machinery Enterprises, and its predecessors, has been in business for over 75 years. The Company acquired EME after
EME had sought protection from creditors under Chapter 11 of the United States Bankruptcy Code. In August of 2004, the Company acquired the stock of EME in exchange for 40 million shares of the Companys common stock. The Bankruptcy Court
subsequently approved the plan of reorganization for EME and that entity has successfully emerged from bankruptcy.

During the third
quarter of 2005, EME expanded into the residential electrical contracting arena, first assessing the new growth opportunity via a limited, small scale roll-out of residential services and support in the Tampa, Florida market. In response to
managements evaluation of early demand from the custom residential home building market, EME formally established Prime Power Residential, Inc., a wholly owned subsidiary in the electrical contracting business of the Company.

Biofuels

In the second quarter of
2005, the Company formed EarthFirst Americas Incorporated (EFA),a wholly owned subsidiary which is primarily focused on facilitating commercial scale production and distribution of biofuels produced from palm oil, soy
and rapeseed in the US, Latin America, the Caribbean and Europe. EFA has organized an international consortium of businesses involved with commercial scale biodiesel production, and is arranging distribution to customers in the United States, Latin
America, the Caribbean and the European Union.

Liquid Waste Technologies

The Company has developed technologies for the treatment of liquid waste products. The technologies involve the use of high temperature plasma through
which the liquid waste products are passed. The harmful properties contained in the liquid waste products are broken down at the molecular level as they pass through the plasma and a clean burning gas is produced.



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Carbon Technologies

The Companys efforts in commercializing the technologies it has developed for carbon products have been slowed due to the current emphasis on our solid waste technologies. The technology developed is promising
and the Company intends to pursue commercialization in the future. We believe that the research and development efforts conducted by the Company have yielded results that may produce superior qualities in a wide range of water treatment

Intellectual Properties

The Company has performed
extensive research and development on various technologies focused on deriving solutions for liquid and solid waste problems and in creating alternative fuels. The Companys efforts have been conducted through the work performed by its
employees and consultants. The Company has developed the technology for the CAVD Reactor.

Management believes that the Company owns all of
the intellectual rights to commercialize and further develop its liquid and solid waste technologies.

The Company engaged outside legal
counsel to review the history of the Companys development of its liquid waste technologies and the contractual arrangements entered into by the Company with respect to such technologies. Legal counsel has advised that it believes that the
Company currently possesses all of the intellectual property rights to commercialize its liquid waste technologies and to further develop these technologies in additional applications.

Legal counsel has also reviewed in detail all aspects of the claims and allegations made by a former consultant with respect to the underwater carbon arc
technology embodied in the Companys technologies. Legal counsel also reviewed the Companys consulting agreements with the former consultant and entities related to this individual.

Based upon its review of these agreements and the relevant law, it is the opinion of outside legal counsel that the former consultant, or entities
related to him, neither own nor control any US patents that are relevant to the Companys technologies, and have no legal standing to assert any claims as to patent infringement or misappropriation of any trade secrets.

The former consultant and an entity affiliated with the former consultant are involved in legal proceedings that were initiated by the Company to resolve
issues of ownership.

Management believes that the Company has taken appropriate steps to protect its intellectual property rights.
However, the steps taken might not prove sufficient to prevent misappropriation of the Companys technology rights. Third-party development of similar technologies using different discoveries remain a risk that could limit the



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Companys legal protection. The laws of certain foreign countries might not protect the Companys services or
intellectual property rights to the same extent as do the laws of the United States.

Third parties could claim infringement by the Company
with respect to current or future uses. As the number of entrants into the market increases, the possibility of an infringement claim against the Company might increase, and the possibility either exists that the Company could, now or in the future,
inadvertently infringe on a third-partys patent. In addition, because patent applications can take many years to allow, it is possible that the Company could, now or in the future, infringe upon a third-partys patent application now
pending of which the Company is unaware. Any infringement claim, whether meritorious or not, could consume a significant amount of managements time and attention, could result in costly litigation, cause service delays or require the Company
to enter into royalty or licensing agreements which might or might not be available on commercially acceptable terms, if at all. As a result, any claim of infringement against the Company could have a material adverse effect upon our business,
financial condition or results of operations.

Research and Development

Research and development costs incurred in 2005 and 2004 aggregated $582,430 and $2,474,949, respectively, and are centered on the aforementioned
technologies. The CAVD plant completion in mid 2004 allowed development to switch from the plant process to the products produced by the plant. Extensive tests were done on the physical and chemical properties of the carbon, oil, and gas.
Application tests were completed at the customers location to assure product acceptance, feasibility, and compliance.

Competition

There are competitors to our solid waste business seeking to develop efficient means of recycling and disposing of various forms of solid and liquid
wastes, as well as the production of alternative fuels. The effect of numerous federal and state environmental regulations has been to encourage the originators of the waste, as well as governmental entities and entrepreneurial enterprises, to seek
to develop more effective and efficient solutions.

The EPA says two to three billion scrap tires fill 2,800 landfills and stockpiles
across the U.S. An additional 250 million scrap tires are generated yearly. Scrap sites are environmental hazards and security threats  they catch fire easily, producing noxious smoke and toxic liquid waste, and they are often breeding
grounds for mosquitoes and rodents. When tires are recycled, they are either shredded for highway construction or playground use, burned in kilns, or destroyed through pyrolysis  burned in the absence of oxygen, at high temperature (around
2,200°) and high pressure. This typically destroys or degrades many valuable components (including carbon, which makes up 40% of a tire) and generates air-polluting emissions.



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Our proprietary tire processing system is unique, in that it produces usable energy and a broad range of
valuable products, including steel, carbon, oil and a high energy gas. Different from our competitors, we burn tires in a vacuum at a third of the typical pyrolysis temperature, preserving tire components and satisfying even the strictest emissions
regulations. Our process relies on a proprietary catalyst to convert tires at rapid rates. We believe that these factors position us in our own market niche. We intend to compete through communication, education and demonstration. Our CAVD plant in
Mobile, Alabama is being utilized not only for demonstrations, but to also generate by-products that can be sold, sampled and tested to validate our technology.

We have limited resources and will likely need substantial infusions of capital in order to effectively commercialize our technologies. There are no assurances that even if such financial resources can be obtained
that our technology will be financially successful.

Employees

As of December 31, 2005, the Company had 273 full-time employees. Management considers its relations with its employees to be satisfactory. None of the employees is represented by a union.

Additional information with respect to EarthFirsts businesses

EarthFirsts periodic reports filed with the Securities and Exchange Commission (the SEC), which include Form 10-KSB, Form 10-QSB, Form 8-K, and amendments thereto, may be accessed by the public free
of charge from the SEC. Electronic copies of these reports can be accessed at the SECs web site at http://www.sec.gov. The public may read or obtain copies of these reports from the SEC at the SECs Public Reference Room in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.

Item 2. Description of Property

Our executive offices are located at 2515 E. Hanna Ave., Tampa, Florida.
This location is also occupied by EME. This lease obligation was assumed pursuant to EMEs reorganization plan for a period of two years, at which time we have the option to re-evaluate. We lease and rent the real property, building, and all
other improvements at this location from Hanna Properties Corp., a related party affiliated with the President of EME. This property consists of 29,680 sq. ft. of office space, 80,320 sq. ft. of warehouse space and 26,992 sq. ft. of garage and
workshop space. Monthly rental including sales tax, but excluding real estate taxes and insurances is $52,133.

We own approximately 25
acres of land located at 1603 Grove Avenue, Haines City, Florida. This property houses various office, warehousing and manufacturing buildings.



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Investment Policies

The Company does not have any limitations on the amounts that may be invested in any one investment or type of investment. The Company has no holdings in real estate, except as described above, or real estate
mortgages and similar securities or publicly traded securities. The Company does not have any investments in persons or companies primarily devoted to such investments, and it is not the policy of the Company to make investments for the purpose of
capital gain or passive income. Presently, all available monies fund day-to-day operations.

Item 3. Legal Proceedings

We are involved in litigation with Ruggero Maria Santilli
(Santilli), The Institute for Basic Research, Inc. (IBR), and Hadronic Press, Inc. (Hadronic) concerning certain aspects of our liquid waste technologies. The matters contemplated above will be referred to as the
Hadronic Suit. Hadronic claims to own the intellectual property rights to one or more aspects of our liquid waste technologies.

Management continues to believe that we own all of the intellectual property rights necessary to commercialize and further develop our liquid and solid waste technologies without resorting to a license from any third parties.

During 2004, we attempted to reach agreement with Santilli and his related parties to resolve the differences between the parties. As of this date, the
parties are continuing their efforts to resolve their differences.

The litigation described above does not involve the technology we are
developing in connection with our efforts for the processing of used automotive tires.

We are also involved in disputes with vendors for
various alleged obligations associated with operations that were discontinued in prior years. Several disputes involve deficiency balances associated with lease obligations for equipment acquired by us for our contract manufacturing and BORS Lift
operations that were discontinued during calendar 2000. The machinery and equipment associated with many of these obligations has been sold with the proceeds paid to the vendor or the equipment has been returned to the vendor. Several of the
equipment leasing entities claim that balances on the leases are still owed.

Included in the balance of accrued expenses and other current
liabilities is our estimate of the amount at which the matters contemplated above will ultimately be resolved. Approximately $300,000 of the balance is attributable to the disputed matters contemplated above.

The Company is currently involved in an adversary proceeding pending in the Bankruptcy Court in the Middle District of Florida, Tampa division. The
action was filed on December 23, 2003 and is entitled Electric Machinery Enterprises, Inc. vs. Hunt,



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Clark/Construct Two, a Joint Venture, and Orange County (Adversary No. 03-00811). In August of 2001, EME was
contracted to perform services on the construction project of Phase V of the Orlando Orange County Convention Center. During the project, various disputes arose relative to the work required, and many unforeseen disruptions not caused by EME
resulted in a severe delay in the prosecution of the work. EME completed the job, and in doing so incurred substantial costs far in excess of estimated. The dollar amount of the claim is approximately $8,600,000. The entire amount is disputed. EME
expects to collect the full amount of this claim plus interest and attorneys fees. The defendants have asserted various technical contract related defenses. Therefore, EME cannot estimate when the recovery if any is expected, as EME cannot
predict whether or not Defendants will appeal any judgment entered in EMEs favor. This amount is not carried as an asset on the balance sheet, and will only be recorded as revenue when the claim is settled.

Other Litigation and Disputes

The Company has other
litigation and disputes that arise in the ordinary course of its business.The Company has accrued amounts for which it believes all of its disputes will ultimately be settled.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Part II

Item 5. Market for Common Equity and Related Stockholder Matters

EarthFirst shares trade on The National
Association of Securities Dealers (NASD) OTC Bulletin Board (the Bulletin Board) under the trading symbol EFTI. The following table sets forth, for the periods indicated, the range of high and low closing bid
quotations as reported by the Bulletin Board for each quarter during the last two fiscal years.



|                                    |  |      |     |     |   |    
|----------------------------------- |  | ---- | --- | --- | - | ---
|                                    |  | High |     | Low
|Fiscal Year Ended December 31, 2004 |  |      |     |     |   |    
|First Quarter                       |  | $    | .16 |     | $ | .10
|Second Quarter                      |  |      | .34 |     |   | .17
|Third Quarter                       |  |      | .24 |     |   | .11
|Fourth Quarter                      |  |      | .17 |     |   | .12
|Fiscal Year Ended December 31, 2005 |  |      |     |     |   |    
|First Quarter                       |  |      | .27 |     |   | .16
|Second Quarter                      |  |      | .30 |     |   | .17
|Third Quarter                       |  |      | .28 |     |   | .14
|Fourth Quarter                      |  |      | .31 |     |   | .17



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On March 16, 2006, the last reported sales price for EarthFirst shares on the Bulletin Board was
$.169 per share. At March 16, 2006, the Company had approximately 464 stockholders of record. The Company estimates that there are approximately 2,500 beneficial owners of its common stock.

The Company has never paid cash dividends on its common stock and it is not expected that any such dividends will be paid in the foreseeable future. The
Company currently intends to retain any future earnings for use in the business. The payment of any future dividends on EarthFirst common stock will be determined by the Board of Directors in light of future conditions then existing, including the
financial condition of the Company, funding requirements for activities, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.

Recent Sales of Unregistered Securities

The securities described below were issued by the Company during the period covered by this report and were not registered under the Securities Act of 1933, as amended. Each of the transactions is claimed to be exempt
from registration pursuant to Section 4 (2) of the Securities Act as transactions not involving a public offering. All of such securities are deemed to be restricted securities for the purposes of the Securities Act. All certificates
representing such issued and outstanding restricted securities have been properly legend, and stop transfer instructions have been issued to the transfer agent with respect to such securities. Except as noted, no commissions were paid in
connection with any of the issuances.

DEBT CONVERSIONS OF SHAREHOLDER LOANS AND CASH INVESTMENTS

In February 2004, the Company issued 49,175,125 shares of the Companys common stock in satisfaction of $3,934,010 of the amount owed under the
related party promissory notes. In August 2004, the Company issued 10,000,001 shares of the Companys common stock in satisfaction of $1,400,000 of the amount owed under the related party promissory notes. In February 2005, the Company issued
189,643,210 shares of the Companys common stock in satisfaction of the balance of amounts owed under the related party promissory notes of $9,204,157.

ISSUANCE OF COMMON SHARES IN WESCO ACQUISITION

On January 30, 2004, the Company entered into an agreement with World Environmental Solutions Company, LLC (WESCO) in which the Company exchanged 15 million of its common shares for a 70%
interest in a recently formed holding company. The Company already owned the remaining 30% interest in the holding company. Additional information concerning this transaction is included in footnote 15 of the accompanying financial statements and is
incorporated by reference.



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ISSUANCE OF COMMON SHARES IN EME ACQUISITION

On August 20, 2004 the Company acquired 100% of the outstanding stock of Electric Machinery Enterprises, Inc. (EME) in exchange for the issuance of
40,000,000 shares of the Companys common stock

LAURUS FINANCING

To obtain funding for general corporate purposes we entered into agreements with Laurus Master Funds, Ltd, a Cayman Islands corporation
(Laurus), pursuant to which we sold convertible debt, an option and a warrant to purchase our common stock to Laurus in a private offering pursuant to exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended. The securities sold to Laurus include the following:



| |  |  | a secured convertible minimum borrowing note and a secured revolving note with an aggregate principal amount not to exceed $5,000,000;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a secured convertible term note with a principal amount of $3,000,000;
| | - |  | ----------------------------------------------------------------------



| |  |  | a common stock purchase warrant to purchase 11,162,790 shares of our common stock, at a purchase price of $0.23 for the first 5,581,395 shares and $0.28 for any additional shares,
exercisable for a period of seven years; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an option to purchase 24,570,668 shares of our common stock, at a purchase price equal to $0.01 per share, exercisable for a period of six years
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

At the closing of the foregoing financing from Laurus, on March 31, 2005, we received $3,000,000 in connection with the convertible term note. In
addition, we are permitted to borrow an aggregate principal amount not to exceed $5,000,000, based upon our eligible accounts receivable and inventory, pursuant to the convertible minimum borrowing note and the revolving note. Accordingly at the
closing, we received an additional $3,600,000 for an aggregate of $6,600,000 in financing from Laurus at that time. On May 15, 2005, we received an additional $1,400,000 utilizing the full amount extended by the financing. As of
December 31. 2005 the principal amount outstanding under the revolving note is $4,000,000 and the principal amount outstanding under the convertible minimum borrowing note is $1,000,000.

The above offerings and sales were exempt under Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was
employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors and transfer was restricted by our company in accordance with the requirements of the Securities Act of
1933. In addition to representations by Laurus, we have made independent determinations that Laurus is an accredited or sophisticated investor and that is was capable of analyzing the merits and risks of its investment, and that it understood the
speculative nature of their investment.



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Furthermore, Laurus was provided with access to our Securities and Exchange Commission filings.

ISSUANCE OF COMMON SHARES AS STOCK BASED COMPENSATION

In August 2005, the Company issued 83,000,000 shares of common stock as stock based compensation to entities affiliated with or controlled by John Stanton, Chairman, CEO and President, for services rendered by him
from the inception of his involvement with the Company through the acquisition and reorganization of EME.

Item 6. Managements Discussion and Analysis or Plan of Operation

The following discussion and
analysis provides information which management believes is relevant for an assessment and understanding of the results of operations and financial condition. The discussion should be read in conjunction with the audited consolidated financial
statements and notes thereto.

Revenue Reporting for Acquired Entities

The revenue from Electric Machinery Enterprises, Inc., included in the accompanying audited financial statements for the year ended December 31, 2004, reflects only those amounts earned from the date of
acquisition (August 20, 2004), and are not representative of an entire year of its operations.

Electrical Contracting  Electric Machinery
Enterprises

The Company performs electrical contracting and subcontracting services on commercial and municipal projects primarily in
Florida and the Caribbean through its subsidiary Electric Machinery Enterprises, Inc. (EME).

EME was profitable in the fourth
quarter of 2004, and each quarter of 2005. Accordingly, we are optimistic about the prospects for EMEs future profitability and believe its recent emergence from the jurisdiction of the Bankruptcy Court will enable it to obtain contracts that
may previously have not been available.

EMEs revenues are generated through three separate sources: Offshore, Domestic, and Domestic
Services.

Offshore work includes electrical contract work performed on commercial properties throughout the Caribbean. The damage caused
throughout the Caribbean during the Hurricane Season of 2004 has resulted in a sharp increase in the contracts obtained by EME and we currently have a backlog of approximately $18 million. During 2004, EME entered into a joint venture agreement to
operate Peleme, Ltd. to perform electrical contracting work in the Cayman Islands. This joint venture is currently performing work on a sizable contract to repair hurricane damage on one of the major hotels in the Caymans. We anticipate that this
joint venture will be able to secure significant additional contract work for the continuing development of the Caymans.



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Domestic work includes electrical contract work performed principally in the State of Florida. The
Company is attempting to improve profitability in this segment of its business by introducing enhanced technology in the bidding process for these contracts and in monitoring the progress with budgeted amounts as work is performed. The Company is
optimistic that these and other enhancements will enable it to be the successful bidder on an increased number of financially attractive contracts.

Domestic services include numerous small projects for electrical contract work on a time and materials basis for commercial projects located in Florida.

During calendar 2005, EME entered the market as an electrical contractor for residential real estate. Initially these services were provided on a small scale to allow the Company to evaluate the economic viability of
this market. In response to managements evaluation of early demand from the custom residential home building market, EME formally established Prime Power Residential, Inc., a wholly owned subsidiary in the electrical contracting
business of the Company, which now manages 15 actively engaged residential crews on the job throughout the State of Florida.

Catalytic Activated Vacuum
Distillation Process (CAVD) Reactors

EarthFirst developed the Catalytic Activated Vacuum Distillation Process Reactor. The
CAVD Reactor offers a unique solution to the problem of disposing of harmful solid wastes in and environmentally friendly manner and allows raw materials from the wastes to be recycled and reused.

We believe that the CAVD Reactor can be designed to process a number of harmful solid waste products. We anticipate that governmental and nongovernmental
entities who are faced with the problem of disposing of various types of solid waste products through conventional means will conclude that the CAVD Reactors can provide a superior, safe and effective means of eliminating these materials.

Initially, we are focusing on the processing of rubber tires. However, other uses are also being pursued. Such uses include the recycling
of carpet materials, the destruction of animal waste and remains, transuranic wastes (e.g. gloves, overalls, tools, etc. that have been exposed to low levels of radiation), and medical wastes.

In general, the Company processes used tires by having shredded tires added to a low pressure, heated, catalytically driven process in the CAVD Reactor.
The tires are converted to a high quality carbon and a light hydrocarbon mix that can be used as a fuel. Scrap steel and gases that can be used as a fuel are also recovered.

Traditionally, tires have been disposed of in landfills, placed in stockpile areas, or recycled using low-level technologies to produce products such as
tire-derived fuel and mulch. Stockpiles of discarded tires are particularly vulnerable to catching fire. Fires at tire dumps are extremely difficult to extinguish and may take years to burn themselves out. Such fires can release significant amounts
of pollution into the atmosphere.



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The owners of these dumping areas have long sought a cost-effective means of disposing of the unwanted
tires. We believe the CAVD Reactor provides a solution for the environmentally safe and efficient problem of the disposal of used tires.

The Companys first CAVD Reactor was constructed at a facility in Mobile, Alabama and processes shredded tires.

During
processing in the CAVD Reactor, carbon, scrap steel, gas and oil are recovered and are available for resale. The processing of a 20-pound tire yields approximately 5.5 to 8.5 pounds of carbon, 1.2 to 2 gallons of fuel oil, 12 to 16 cubic feet of
gas, and .36 pounds of scrap steel. The amounts recovered depend upon the type of tire and the length of time in the reactor.

The
financial viability of the CAVD Reactor for use in processing used tires is dependant upon the successful sale of the by-products recovered.. We believe that the carbon and oil by-products represent the greatest value of this process. With current
oil pricing reaching levels as high as $64 per barrel, the attractiveness of the CAVD technology has grown beyond the prior emphasis on carbon. It is expected that the steel recovered from the process will be sold for scrap and the oil recovered can
be used as an industrial oil or other fuel. Optimal operation of the CAVD Reactor may include the use of a generator with the reactor which can utilize the gas produced from the processing to produce electricity that can be both used by the operator
of the reactor and additional electricity sold to the electrical grid.

Testing of the carbon recovered from our CAVD Reactor has led us to
believe that the carbon has certain unique qualities that will prove valuable in the development of high-performance polymers in various industrial uses. Researchers concluded that due to the unique formation method through the CAVD Reactor, the
carbon can be used as is or economically modified to produce a functionalized polymer that can replace petroleum based chemical polyurethanes with a less expensive recycled product made from reclaimed tires. Work is being conducted to improve the
carbons performance by adding reactive compounds that improve the products ability to bond with the urethane matrix.

As with
most new products, it is time consuming for the end users of the carbon to satisfy themselves as to the advantages of this product over the products that they are currently using. To hasten the acceptance of our carbon in the marketplace, the
Company is working with several potential end users who are conducting substantive testing of the carbon for use in their operations. The Company is currently working with carpet manufacturers, producers of asphalt and shingles, with third parties
in automotive applications, and with producers of other products to prove the advantages of the carbon produced by the CAVD Reactor as a polymer with their products.



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The carbon recovered through the CAVD Reactor is rapidly gaining acceptance with potential end users as a
polymer. We believe that the carbon has unique qualities that may ultimately enable its acceptance as a substitute for certain high-end polymers currently being used in addition to use in the more traditional roles currently being explored.

Provisional Patent Application US60/681,701 filed on May 17, 2005 describes the CAVD technology as a unique process for producing
carbon and other products, and also contains several claims for novel components in the system. The technology is the cumulative result of six years of research and development.

Three new provisional patents are being filed based on the Companys recycled carbon being placed into plastic and rubber as an additive and as a
replacement for the current petrochemical products used.

The Company has several letters of intent with unrelated entities to license the
technology for CAVD Reactors. Based upon our experiences thus far, we expect that there is considerable interest in the CAVD Reactor from potential users. We believe that delays in the creation of definitive agreements with the end users of the CAVD
Reactors have centered around the evaluation of the financial viability of the alternative uses of the carbon product recovered from the process. In addition to the efforts described above, the Company is also seeking to work with one or more
nationally recognized scientific and technology enterprises to further commercialize the technology for the CAVD Reactor for additional uses. It is expected that such an arrangement could allow our technology to gain immediate credibility in the
marketplace with both a variety of potential end users of the CAVD Reactors as well as the end users of carbon products recovered in the process. It is envisioned that joint efforts would include work on adapting the CAVD Reactors to process other
solid waste streams such as municipal solid wastes, animal remains, and certain types of industrial waste products.

Liquid Waste Technologies

The Company is continuing to attempt to identify and implement commercially viable applications of its plasma arc converter
technologies embodied in the BigSpark converter. The Companys BigSpark plasma based technology splits apart the complex molecular bonds of water and hydrocarbon wastes to produce the clean burning, hydrogen-based fuel.
BigSpark compares favorably with conventional combustion technologies used in the disposal of liquid wastes in several significant areas. First, the waste is subjected to higher temperatures for longer periods of time (7,000 degree temperature
of the plasma arc; and materials spend minutes, not seconds, in the reaction zone). Second, BigSpark has a second stage combustion in a very high temperature oxygen flame. Third, BigSpark converters are compact and can be moved to the
source of contaminated waste.

One application of the plasma arc technology that the Company has been investigating involves the
destruction of Poly-Chlorinated Biphenyls, commonly referred



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to as PCBs. PCBs have many stable qualities that led to its use in various industrial applications before it
was learned that long-term exposure to PCBs may increase the risk of cancer in humans.

Preliminary tests have indicated that passing PCB
laden liquids through a plasma arc similar to that found in the BigSpark converters results in the destruction of the PCB molecules. While the results of such tests are encouraging, in order to be commercially successful, the technology will
need to be adapted to destroy PCBs in surroundings where such elements are commonly found and on a sufficient scale to economically address the problems faced in PCB disposal.

The Company is also considering commercial adaptations for the plasma arc converters to develop solutions to issues involving the disposal and / or
remediation of other liquid wastes including waste oils and antifreeze.

Carbon Technologies

The Companys efforts in commercializing the technologies it has developed for carbon products have been slowed due to the current emphasis on our
solid waste technologies. The technology developed is promising and the Company intends to pursue commercialization in the future. We believe that the research and development efforts conducted by the Company have yielded results that may produce
superior qualities in a wide range of water treatment applications.

Prime Power of Tampa, Inc.

EME, a wholly owned subsidiary of EarthFirst, and Triad Companies have consummated the formation of Prime Power of Tampa, Inc. (Prime), a
strategic alliance created by the companies to jointly pursue major utility projects, large offshore projects, and/or major design/build opportunities. Through this strategic alliance, Prime has the unique ability to address large electrical
contracting projects from design through build to maintenance and support, offering a fully integrated contracting solution. Management believes that the combination of the strengths of these two companies will create a competitive advantage when
pursuing work on large projects.

EarthFirst Americas, Incorporated

Through the vast network of business relationships maintained by the Company, management has determined an opportunity relative to the utilization of its CAVD technology in the harvesting and production of African
Palm Oil. To facilitate the pursuit of this endeavor, the Company has formed a new wholly owned subsidiary corporation name EarthFirst Americas Incorporated. Its purpose will be the development of the market opportunities available associated with
palm oil.

Palm oil is an edible oil made from the fruit of the African oil palm, which grows only in regions within 15 degrees from the
equator, where annual rainfall is high. Palm oil, the worlds second largest oilseed crop, is less expensive than soybean or canola oil, principally because the African palm is incredibly productive.



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The principal palm oil producers are Malaysia and Indonesia, with significant production in Central
Africa, Central and South America. The largest palm oil consumers are India, China, and the European Union. Although concerns over saturated fat content have limited sales in the United States in the past, palm oil use is now growing in the U.S.
because the oil is free of trans fats and cholesterol.

Preliminary analysis demonstrates that palm fruit treated by the CAVD
process may result in a higher yield palm oil with significant and productive by-products. If proven applicable to produce palm oil, the CAVD reactor could become a significant American made import to all palm oil producing nations.

FISCAL 2005 COMPARED TO FISCAL 2004

Revenue for the year ended December 31, 2005 increased by $29,476,619, as the revenues for the year ended December 31, 2004 only reflected revenues from Electric Machinery Enterprises, Inc. from its acquisition date on
August 20, 2004.

Cost of Sales for the year ended December 31, 2005 increased by $23,224,788 when compared to 2004, as the cost
of sales for the year ended December 31, 2004 only reflected costs from Electric Machinery Enterprises, Inc. from its acquisition date on August 20, 2004.

Selling, general and administrative expenses for the year ended December 31, 2005 increased to $7,654,036 from $2,992,773 for the year ended December 31, 2004, an increase of approximately 155%. This
increase was due primarily to a full year of operations for EME and WESCO, the creation of new subsidiaries, as well as a general increase in the level of activities undertaken by the Company during 2005.

Related party stock based compensation for the year ended December 31, 2005 in the amount of $18,260,000 was a one time transaction representative
of compensation for the services of John Stanton, Chairman of the Board, Chief Executive Officer and President.

Direct research and
development expenses for the year ended December 31, 2005 decreased to $582,430 from $2,474,949 for the year ended December 31, 2004, a decrease of approximately 76%. This decrease was due primarily to the in progress research and
development purchased with the acquisition of WESCO in the amount of $1,800,000 in 2004 as well as a decrease in the the level of activities undertaken by the Company during 2005 due to the maturity of the CAVD technologies.

Gain on debt restructure increased to $4,163,740 for the year ended December 31, 2005 from $1,298,068 for the year ended December 31, 2004.
These gains are a result of the Plan of Reorganization of Electric Machinery Enterprises, Inc., which was approved by the Bankruptcy Court during the fourth quarter of 2004. Most of the debt restructure took place in 2005.



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Miscellaneous income for the year ended December 31, 2005 and 2004, in the amounts of $397,071 and
$325,961 respectively represent non operational sources of income.

Interest expense for the year ended December 31, 2005 increased to
$2,760,202 from $466,215 for the year ending December 31, 2004, an increase of approximately 492%. This increase was due to the higher balances of debt related to the Companys borrowings from the Laurus fund and the amortization of debt
discount accounted for as interest expense as compared to the revolving line of credit loans from a related party.

Reorganization item,
professional fees related to bankruptcy and pursuit of claims expense for the years ended December 31, 2005 and 2004, in the amounts of $1,919,288 and $1,202,829 represent non-recurring expenses associated with the preparation, presentation and
implementation of the Plan of Reorganization incurred from the date of acquisition of Electric Machinery Enterprises, Inc., and the pursuit of claims.

Majority interest income for the year ended December 31, 2005, in the amount of $377 represents the net effect of the income/expense interests of the Joint Venture Partners in the variable interest entities the
Company has with Peleme, Ltd., and Prime Power of Tampa, Inc. The joint venture partner interests in the net profits of each of these companies are; 30% in Peleme, Ltd., and 49% in Prime Power of Tampa, Inc. For the year ended December 31,
2004, the majority interest expense in the amount of $430,230 represents the expense associated with the 30% interest in profits of the joint venture partner in Peleme, Ltd. incurred from the date of acquisition of Electric Machinery Enterprises,
Inc.

Income (loss) from discontinued operations represents the loss on disposal of EMEGC in 2005 and income from operations in 2004 from
its acquisition date on August 20, 2004

Net loss increased by $15,418,111 to $17,685,100 for the year ended December 31, 2005 from
$2,266,989 for the year ended December 31, 2004. This increased net loss resulted primarily from the previously discussed items, specifically the related party stock based compensation.



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FISCAL 2004 COMPARED TO FISCAL 2003

Revenue for the year ended December 31, 2004 increased by $12,266,701, as there were no revenues for the year ended December 31, 2003. This
increase is due almost exclusively to the acquisition of Electric Machinery Enterprises, Inc. on August 20, 2004.

Cost of Sales for
the year ended December 31, 2004 increased by $8,858,707, as there were no cost of sales for the year ended December 31, 2003. This increase is due almost exclusively to the acquisition of Electric Machinery Enterprises, Inc. on
August 20, 2004.

Selling, general and administrative expenses for the year ended December 31, 2004 increased to $2,992,773 from
$651,948 for the year ended December 31, 2003, an increase of approximately 359%. This increase was due primarily to the acquisitions of EME and WESCO, as well as an increase in the level of activities undertaken by the Company during 2004.

Direct research and development expenses for the year ended December 31, 2004 increased to $2,474,949 from $345,057 for the year
ended December 31, 2003, an increase of approximately 617%. This increase was due primarily to the in progress research and development purchased with the acquisition of WESCO in the amount of $1,800,000, as well as an increase in
the the level of activities undertaken by the Company during 2004.

Settlement expense of $280,000 for 2003 results from preliminary
settlements initiated in the third quarter of 2003. This amount pertains to litigation with Ruggero Santilli and his related parties pertaining to differences surrounding certain of the Companys technologies. During 2003, the Company has
attempted to resolve these differences, and has included this amount in accrued expenses for 2003 based on amounts estimated to ultimately settle the matter. There were no such settlements in the corresponding periods in 2004.

Gain on debt restructure during the year ended December 31, 2004 in the amount of $1,298,068 was a result of the Plan of Reorganization of Electric
Machinery Enterprises, Inc., which was approved by the Bankruptcy Court during the fourth quarter of 2004. During the quarter ended March 31, 2003, the Company realized a gain on cancellation of debt in the amount of $155,000 attributable to
the settlement of invoices incurred primarily during calendar 2000, and an additional amount of $40,000 during the quarter ended September 30, 2003.

Miscellaneous income for the year ended December 31, 2004 in the amount of $325,961 represents non operational sources of income. These revenues pertain to activities within the acquired entity of Electric
Machinery Enterprises, Inc. There were no miscellaneous incomes during the year ended December 31, 2003.

Interest expense for the
year ended December 31, 2004 increased to $466,215 from $373,607 for the year ending December 31, 2003, an increase of approximately 25%. This increase was due the higher balances related to the Companys borrowings pursuant to the
revolving line of credit loans from a related party.



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Reorganization item, professional fees related to bankruptcy and pursuit of claims expense for the year
ended December 31, 2004, in the amount of $1,202,829 represent non-recurring expenses associated with the preparation, presentation and implementation of the Plan of Reorganization incurred from the date of acquisition of Electric Machinery
Enterprises, Inc. There were no expenses of this nature during the year ended December 31, 2003.

Minority interest expense for the
year ended December 31, 2004, in the amount of $430,230 represents the expense associated with the 30% interest in profits of the joint venture partner in Peleme, Ltd. incurred from the date of acquisition of Electric Machinery Enterprises,
Inc. There were no expenses of this nature during the year ended December 31, 2003.

As a result of favorable events in the progress
of the sales and use tax examination, the Company recorded a gain from discontinued operations during fiscal 2003 in the amount of $19,418 since the activities to which these amounts related were discontinued in prior years.

Net loss increased by $830,795 to $2,266,989 for the year ended December 31, 2004 from $1,436,194 for the year ended December 31, 2003. This
increased net loss resulted primarily from the previously discussed items, specifically the purchase of in progress research and development expenses associated with the acquisition of WESCO, and the reorganization related expenses related to the
Plan of Reorganization associated with the acquisition of Electric Machinery Enterprises, Inc.

LIQUIDITY AND CAPITAL
RESOURCES

The Company experienced net losses since its inception and, as such, experienced negative operating cash flows through most of
2004. The Company has historically funded these negative operating cash flows with proceeds from sales of common and preferred stock, as well as notes and convertible debentures payable.

In December 2000 and again in January 2003, the Company entered into multiple revolving line of credit promissory notes with entities related to John
Stanton, the Companys Chairman of the Board, secured by all of the assets of the Company. Each revolving note was a demand loan, which meant that the lender could demand full repayment of the loan at any time. The promissory notes related to
each revolving line of credit merely provided for a loan up to a stated amount. There was no obligation on the part of the related party to make any loans pursuant to these agreements if the loan balance was less than the stated amount. There was no
obligation on the part of the related parties to make any additional loans.



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Historically, the related party lender has periodically agreed to convert portions of the loan balances
into shares of the Companys common stock. During 2004, the related party converted $5,334,010 of these notes into shares of the Companys common stock.

As of December 31, 2004, the Company owed $6,672,519 pursuant to these agreements. Subsequent to December 31, 2004, additional loans were made under these notes to help secure the outcome of the
reorganization of EME. On February 23, 2005 the full balance of notes payable to related parties was converted into 189,643,210 shares of the Companys common stock.

Since the acquisition of EME in August of 2004, the Company is no longer experiencing negative operating cash flows. The Company generated a net income
for the year ended December 31, 2005 of $2,884,336, exclusive of non cash related party stock based compensation of $18,260,000. Working capital as of December 31, 2005 was approximately $6.4 million and stockholders equity was
approximately $26.2 million.

On March 30, 2005, the Company closed an agreement with Laurus Master Funds, Ltd. on a senior credit
facility aggregating up to $8 million, all of which was borrowed as of December 31, 2005. This transaction allowed the Company to take advantage of discounts relative to the settlement of the secured debt in EMEs bankruptcy, as well as
provide working capital

Electrical contracting through EME provides a strong revenue stream for funding future growth in all phases of the
business. EME has been in business for over 75 years and has historically been profitable. The EarthFirst management team coupled with the years of experience embedded in the operations of EME provides potential for a solid consistent company.
Profitability is being improved by the introduction of enhanced technology in the bidding process as well as a timelier monitoring of job progress as work is performed. More efficient data gathering and processing are providing better information
through improved internal reporting models, affording management better information for decision making.

EME has also entered the
residential marketplace as an electrical contractor. It is anticipated that EME may have certain competitive advantages that may allow it to successfully operate profitably in this market. EME is a large contractor and has an established presence in
the State of Florida. According to statistical information published by the Rand Corporation on the internet at www.fl.rand.org/cgi-bin/monthly.cgi, residential single unit construction permits averaged over 14,000 per month during 2004.
Management believes that large home builders that develop residential properties throughout the state would prefer to have a single electrical contracting company to provide services to all of their developments rather than having to contract
individually in each locality. These services are currently being offered on a small scale to prove the economic viability of this endeavor.



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The hurricane seasons of 2004 and 2005, as unfortunate as they were, are providing a large expanse of
work opportunity in the Caribbean islands. EME has a long history of providing services in these geographical areas, and management believes this will be a very strong segment of the Companys business for several years.

The Company is also evaluating potential target acquisitions with strong synergies in the electrical contracting business. Management wants to bring a
higher level of service to customers to not only solidify relationships, but to create a win win scenario of better service at better prices. This will be accomplished through the Companys ability to assist with the design of the construction
projects, rather than just the installation.

On May 10, 2005, in response to the signing of a memorandum of understanding, the
Company, in conjunction with Triad Companies, a New Jersey based, multi-discipline firm specializing in electrical and mechanical systems for petrochemical, industrial, commercial and government agencies, formed Prime Power of Tampa, Inc., a Florida
corporation. The equity of this new company is owned 51% EME and 49% Triad. This company will focus on selected power engineering and construction projects, including large utility projects, large offshore projects and owner-directed design/build
opportunities.

These strategies will afford stability to the electrical contracting business that is anticipated to help to expand the
efforts in the commercialization of the solid and liquid waste technologies. By virtue of this alliance we will be entering into the engineering and design phases of the development of various large projects, many of which will be offshore in places
that are still being developed. These projects, many of which are being driven by substantial clients including regional governments, will require solutions for power generation, fuel supply and waste disposal. Our CAVD technology can supply many of
these solutions both through waste disposal and by-products that can be used for fuel. Several licenses were sold and letters of intent signed during 2004 and 2005, setting the stage for the CAVD technology during 2006.

During the twelve months ended December 31, 2004, the Company received $100,000 from PEPER Holdings, LLC (PEPER), for a License Contract providing
PEPER to secure the exclusive territory of Ciudad Juarez, Chihuahua, Mexico for 18 months, and the city of Guadalajara, Jalisco, Mexico for 6 months. During this period, PEPER intends to initiate construction of Catalytic Activated Vacuum
Distillation (CAVD) plants that process rubber tire chips into usable energy products. The period of the exclusivity allows for environmental, political, and financial details to be finalized by PEPER. PEPER will purchase the plants from EFTI and
own the plants. EFTI will receive a 15% royalty based on gross profit and a technical support contract for continuing services during the life of the plant. The plants will be built by Harmony, LLC, a Turner Industries company that built the
operating plant in Mobile, Alabama.

Based upon extensive work with significant companies in the carpet industry, EFTI is confident that
the carpet industry will be a large market for the carbon by-product of the CAVD process.



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Our technology is gaining acceptance in areas where the sale of the carbon is becoming less important and
the benefit of destroying and / or converting the waste streams into usable by-products without contaminating the environment, is becoming more important.

On March 28, 2006, the Company announced the approval in principle by the Board of Directors of a merger with Cast-Crete Corporation, a private company affiliated with John Stanton, the Companys Chairman of
the Board, Chief Executive Officer and President. The closing of this transaction is subject to due diligence by both Cast-Crete and the Company and a fairness opinion on behalf of EarthFirst. The parties hope to effectuate a merger late in the
second quarter of 2006.

INCOME TAXES

The Company has a net operating loss carry forward for federal income tax purposes of approximately $38,000,000 that is available to offset federal taxable income through fiscal 2024. A 100% valuation allowance has
been provided on deferred tax assets resulting from the net operating loss carry forwards discussed above.

EFFECTS OF
INFLATION

Management does not believe that inflation has had a significant impact on the financial position or results of operations of the
Company since its inception.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that
we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from
what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical to us, in that they are important to the portrayal of our financial
statements and they require our most difficult, subjective or complex judgments in the preparation of our financial statements:

Revenue Recognition:
Revenues from solid waste transactions recognized during the year ended December 31, 2004 are the result of contracted monthly minimum draws against sales commissions on the products of a polymer manufacturing company, and the receipt of
license fees granting the exclusive option to purchase total rights to the CAVD technology for use in certain geographical areas. License revenue is recognized upon receipt as there are no future obligations associated with such revenue.



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The Company uses the percentage-of-completion method of accounting for contract revenue from electrical contracts where
percentage of completion is computed on the cost to total cost method. Under this method, contract revenue is recorded based upon the percentage of total contract costs incurred to date to total estimated contract costs, after giving effect to the
most recent estimates of costs to complete. Revisions in costs and revenue estimates are reflected in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such
losses are determined without regard to the percentage-of-completion. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that these estimates used will change within the near term.

Employee Stock-Based Compensation: The Company accounts for compensation costs associated with stock options issued to employees under the provisions of
Accounting Principles Board Opinion No. 25 (APB 25) whereby compensation is recognized to the extent the market price of the underlying stock at the date of grant exceeds the exercise price of the option granted. Stock-based
compensation to non-employees is accounted for using the fair-value based method prescribed by Financial Accounting Standard No. 123 (FAS 123). The fair-value based method requires management to make estimates regarding the expected
life of the options and warrants and the expected volatility in the Companys stock price during the estimated life of the option/warrant.

Impairment of Goodwill and Long-Lived Assets: In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), and Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the Company reviews its non-amortizable (indefinite lived) long-lived assets, including intangible assets
and goodwill for impairment annually, or sooner whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. Other depreciable or amortizable (finite lived) assets are reviewed when indications of
impairment exist. Upon such an occurrence, recoverability of these assets is determined as follows. For long-lived assets that are held for use, the Company compares the forecasted undiscounted net cash flows to the carrying amount. If the longlived
asset is determined to be unable to recover the carrying amount, then it is written down to fair value. For long-lived assets held for sale, assets are written down to fair value. Fair value is determined based on discounted cash flows, appraised
values or managements estimates, depending upon the nature or the assets. Intangibles with indefinite lives are tested by comparing their carrying amounts to fair value. Impairment of goodwill is tested using a two step method. The first step
is to compare the fair value of the reporting unit to its book value, including goodwill. If the fair value of the unit is less than its book value, the Company than determines the implied fair value of goodwill by deducting the fair value of the
reporting units net assets, exclusive of goodwill, from the fair value of the reporting unit to determine the implied value of goodwill. If the book value of goodwill is greater than its implied fair value, the Company writes down goodwill to
its implied fair value. The Companys goodwill relates to the acquisition of Electric Machinery Enterprises, Inc.

Derivative Financial:

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair
values of its financial instruments. However, certain other financial instruments, such as warrants and embedded conversion features that are indexed to the Companys common stock, are classified as liabilities when either (a) the holder
possesses rights to net-cash settlement or (b) physical or net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the
underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

The caption Derivative Financial Instruments consists of (i) the fair values associated with derivative features embedded in the Laurus Convertible Secured Term
Notes and (ii) the fair values of the detachable warrants and options that were issued in connection with those financing arrangements.



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RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued Statement No. 123R, Accounting for Share Based Payments. Statement 123R establishes revised accounting standards for
employee-stock based compensation measurement that requires employee stock-based compensation be measured at the fair value of the award, replacing the intrinsic approach currently available to companies under Statement 123. Compensation cost
continues to be recognized over the period during which the employee is required to provide service. The provisions of the revised statement are effective for financial statements issued for the first interim or annual reporting period
beginning after December 15, 2005. The Company accounts for options issued to employees using the intrinsic approach. Implementation of this new standard is currently expected to result in increases in future compensation
expense. However, such effect is not currently estimable.

In March 2005, the FASB issued interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN 47), which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the
liabilitys fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is currently evaluation the effect that the adoption of FIN 47 will have on its consolidated
results of operations and financial condition but does not expect it to have a material impact.

In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Correction (SFAS 154), which replaces Accounting Principles Board Opinions No. 20 Accounting Changes and SFAS No 3, Reporting Accounting Changes in Interim Financial Statements
 An Amendment of APB Opinion No. 28. SFAS 154 provides guidance on accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the
required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and
is required to be adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of operations and financial condition, but does not
expect it to have a material impact.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Our disclosure and analysis in this 2005 Form 10-KSB contain some forward-looking statements, within the meaning of the Private Securities Litigation
Reform Act of 1995 (the Act), that set forth anticipated results based on managements plans and assumption. From time to time, we also provide forward-looking statements in other materials we release to the public as well as oral
forward-looking statement. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. We have tried, wherever possible, to identify such



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statements by using words such as anticipate, estimate, expect, project,
intend, plan, believe, will, and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions,
prospective products or product approvals or acceptance, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. These statements are
not guarantees of future performance and the Company has no specific intention to update these statements.

Forward-looking statements
involve known and unknown risks, uncertainties, and other factors, which may cause actual results, performance, or achievements of the Company to materially differ from any future results, performance, or achievements expressed or implied by such
forward-looking statements and to vary significantly from reporting period to reporting period. Actual results may materially differ from those projected in the forward  looking statements as a result of certain risks and uncertainties set
forth in this report including, but not limited to the viability of the solid waste technologies in reclaiming the raw materials from used automotive tires in an environmentally acceptable manner, the ability to develop markets for the by products
reclaimed in this process, environmental remediation and alternative fuel markets for the Companys plasma arc technology as well as the proprietary rights to the Companys intellectual property and the Companys ability to obtain
additional financing to continue operations. Although management believes that the assumptions made and expectations reflected in the forward  looking statements are reasonable, there is no assurance that the underlying assumptions will, in
fact, prove to be correct or that actual future results will not be different from the expectations expressed in this report. You should understand that it is not possible to predict or identify all factors affecting risk. Consequently, you should
not consider the risks and assumptions identified in this report to be a complete discussion of all potential risks or uncertainties affecting the Company.

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTURAL OBLIGATIONS

The following chart summarizes our contractual payment obligations as of December 31, 2004. The long-term and short-term debts are reflected as
liabilities on our balance sheet as of December 31, 2004. Operating leases and real property rentals are accrued and paid on a monthly basis.

The Company conducts its operations in a facility leased from a related corporation owned by stockholders of EarthFirst Technologies, Incorporated. This lease was assumed through the acquisition of EME for a period of two years.



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|                  |  |                        |  |                  |  |                     |  |                  |  |          
|----------------- |  | ---------------------- |  | ---------------- |  | ------------------- |  | ---------------- |  | ---------
|                  |  | Payments Due By Period
|                  |  | Less than One Year     |  | One to Two Years |  | Three to Five Years |  | After Five Years |  | Total    
|Long-term debt    |  | 5,254,401              |  | 1,500,000        |  |                    |  |                 |  | 6,754,401
|Operating leases  |  | 234,501                |  | 439,567          |  | 140,474             |  |                 |  | 814,542  
|Facilities rental |  | 627,063                |  | 627,063          |  |                    |  |                 |  | 1,254,126
|                  |  |                        |  |                  |  |                     |  |                  |  |          
|                  |  | 6,115,965              |  | 2,566,630        |  | 140,474             |  |                 |  | 8,823,069

ITEM 7. FINANCIAL STATEMENTS

The consolidated 2005 financial statements for the Company, including the notes
thereto, together with the report thereon of Aidman, Piser & Company, P.A. is presented beginning at page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been
no changes in or disagreements with accountants on accounting and financial disclosure issues with respect to any financial statements for the Company for 2005 or 2004. Aidman, Piser & Company, P.A. has served as the independent public
accountants for the Company for the 2005 and 2004 audited financial statements.

ITEM 8A. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures. This evaluation was carried out under the supervision and
with the participation of the Companys management, including the Companys Chief Executive Officer / Chief Financial Officer, who concluded that the Companys disclosure controls and procedures are effective. During the last fiscal
quarter (the fourth fiscal quarter in the case of this annual report), there have been no significant changes in the Companys internal control or in other factors, which could significantly affect internal controls.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and



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procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act
is accumulated and communicated to management, including the Companys Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Subsequent to the issuance of its 2005 financial statements on Form 10KSB, the Company determined that it had not properly classified the results of its
2005 discontinued operation in its comparative 2004 financial statements.

On January 1, 2005, the Company sold its subsidiary, EMEGC, as
reported in Note 6. In accordance with SFAS 144, the prior period 2004 amounts relating to the operations and cash flows of the disposed unit are to be presented as discontinued operations for all periods presented, rather than be included in income
from operations. This is an adjusted presentation of the prior periods audited amounts. The net income (loss) is not affected by this revised presentation.

The Company does not believe that the restatements warrant a conclusion that there existed a material weakness in the Companys internal controls over financial reporting, and therefore does not impact the CEO
and the CFOs original conclusions regarding the effectiveness of their disclosure controls and procedures as of December 31, 2005.

ITEM 8B. OTHER INFORMATION

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The
executive officers, directors and other significant employees of the Company, and their ages and positions, are as follows:



|                       |  |     |  |                                                             
|---------------------- |  | --- |  | ------------------------------------------------------------
|Name of Individual     |  | Age |  | Position                                                    
|John D. Stanton        |  | 57  |  | Chairman of the Board, President and Chief Executive
Officer
|Jaime Jurado           |  | 71  |  | Vice Chairman                                               
|Leon Toups             |  | 67  |  | Director                                                    
|Nicholas R. Tomassetti |  | 70  |  | Director                                                    
|Dr. David E. Crow      |  | 61  |  | Director                                                    
|Barry Markowitz        |  | 64  |  | Director                                                    
|Frank W. Barker, Jr.   |  | 50  |  | Chief Financial Officer                                     

The following is a brief description of the professional experience and
background of the directors and officers.

John D. Stanton assumed the role of Chairman of the Board of Directors, President and Chief
Executive Officer on May 15, 2000 in connection with the acquisition of SAC-1. On July 30, 2001, Mr. Stanton brought in James V. Mahoney to assume the role of President and Chief Executive Officer but resumed these roles upon
Mr. Mahoneys resignation in August 2002 until the appointment of Leon H. Toups as President on October 9, 2003. From 1987 through the present, Mr. Stanton has served as the President and Chief Executive Officer of Florida
Engineered Construction Products, Corporation. Since the early 1990s, Mr. Stanton has been, and continues to be, involved in turn-around management for financially distressed companies, providing both management guidance and financing. In
1981, Mr. Stanton assumed the role of Chief



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Financial Officer for Florida Engineered Construction Products, Corporation, a privately held manufacturer of residential
and commercial construction products, located in Tampa, Florida. Mr. Stanton worked as an auditor with the international professional services firm that is now known as Ernst & Young, LLP from 1973 through 1981. Mr. Stanton, a
Vietnam veteran of the United States Army, graduated from the University of South Florida with a Bachelors Degree in Marketing and Accounting in 1972, and with an MBA in 1973. Mr. Stanton earned the designation of Certified Public Accountant in
1974 and was a Sells Award winner in the CPA examination. Mr. Stanton also serves on the Board of Directors of MTS Medication Technologies, Inc. (MPP), Online Sales Strategies, Inc. (OSSG), Hybrid Fuel Systems, Inc. (HYFS), PowerCerv
Corporation (PCRV), and Nanobac Pharmaceuticals, Inc. (NNBP).

Jaime Jurado joined the Board of Directors with the acquisition of EME.
Mr. Jurado began working with EME in 1957 after serving as an electronics specialist in the United States Army. Mr. Jurado became president of EME in 1977 and has served in that capacity ever since. Through Mr. Jurados
leadership, EME grew from $1,000,000 in annual sales to more than $90,000,000 in 1998, and has helped to establish a niche in the Caribbean, Central and South American Markets.

Leon H Toups was a co-founder of the Company in 1997 and served as Chairman, President and CEO until 2000. The company was subsequently sold and
Mr. Toups served as Executive VP for Research and Development and as an advisor to the Chairman through the end of 2001. On October 9, 2003, Mr. Toups accepted the position of President. From 1980 to present, Mr. Toups has served
as President and Chairman of an operational consulting firm working with entrepreneurial enterprises. Prior thereto, from 1973 to 1980, Mr. Toups was employed by Chromalloy American Corporation, where he served in several capacities, first as
President of Chromalloy Natural Resources Company, a diversified oil and gas division, and then as President, COO, as well as Board Member and as a member of the Executive Committee of Chromalloy American.. Chromalloy was an international
conglomerate with over a billion dollars in sales in the industry segments of oil and gas, textile/apparel, consumer products, metal coating, transport-marine and farm and industrial equipment. Chromalloy employed approximately 35,000 people
worldwide and traded on the New York Stock Exchange. Mr. Toups other past associations include Boeing Corporation from 1970 through 1973.\, NASA from 1965 through 1970 and the US Air Force from 1962 through 1964. Mr Toups holds the
following degrees: BS Mechanical Engineering, Georgia Tech; MS Mechanical Engineering, Georgia Tech; MS Aerospace Engineering, University of Florida; and an EAA from MIT which he attended on a NASA Hugh Dryden Fellowship.

Nicholas R. Tomassetti joined the Board of Directors effective August 1, 2001. Mr. Tomassetti has served as the President and Chief Operating
Officer of Airbus Industries of North America, Inc. Mr. Tomassettis former business associations include serving as Vice President and General Manager of Twin-Jet Business Development for McDonnell Douglas Corporation and Vice President
of Pratt & Whitneys Commercial Engine Business Organization. Mr. Tomassetti served with Pratt & Whitney for over 30 years during which time he held various positions including Vice President, Commercial



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Engine Organization and Vice President Sales and Service, Commercial Products Division. In 1987, Mr. Tomassetti was
tapped to serve as President for the International Aero Engines, a five nation consortium formed to develop and market the LAE V2500 aircraft engine. Mr. Tomassetti earned a degree in Engineering from the General Motors Institute and a
Masters Degree in Engineering from MIT. Mr. Tomassetti also serves on the Board of Directors of Pinnacle Airlines Corp. (PNCL)

Dr. David E.. Crow first joined the Company through an appointment to our Technical Advisory Board in 2002 after he left his position as Senior Vice President  Engineering for UTC-Pratt & Whitney. Dr. Crow was
responsible for all technical aspects of commercial and military gas turbine and rocket products. Dr. Crow spent some time working at G.M. Research improving automotive gas turbine combustors to meet stricter emission standards. Much of his
career has been devoted to improving advanced combustion technology with special emphasis on the fluid dynamic characteristics of gases under pressure and at higher temperatures. His work has lead to a number of patents and special honorary
recognitions. Dr. Crow earned a Bachelors Degree in Mechanical Engineering form the University of Missouri-Rolla, a Masters Degree from Rensselaer Polytechnic Institute, and his PhD Degree from the University of Missouri-Rolla.

Barry G. Markowitz was appointed to the Board of Directors on October 3, 2005. Mr. Markowitz founded DTE Energy Services in 1994 and served as
its President from 1994 through 2004, and expanded it to include diversified energy investments (40 projects/facilities) in power generation, on-site energy, and coal-based fuels processing. The company developed, acquired, built, owned and operated
businesses generating over $1 billion in annual revenue and $200 million in net income after taxes. After leaving DTE Energy Services in 2004, Mr. Markowitz worked as an independent consultant. Mr. Markowitz was awarded a Bachelor of Civil
Engineering and Master of Business Administration by City College of New York

Frank W. Barker, Jr. is a Certified Public Accountant
licensed to practice in the State of Florida, and has been in practice since 1978. He was co-founder of the accounting firm of Peel, Barker, Schatzel & Wells, PA in 1979, and went on to form the consulting firm of Frank W. Barker, Jr., CPA
in 1993. Mr. Barker has been providing assistance to us as an independent consultant since May of 2000. From 1993 until the present Mr. Barker has also been providing services as an independent consultant to various other entities in
connection with their design and implementation of reorganization strategies. Mr. Barker received a B.A. in Accounting and Finance from the University of South Florida, Tampa, Florida in 1978

AUDIT COMMITTEE

The
Companys Board of Directors currently does not have an Audit Committee.



30



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COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

Section 16 (a) of the Securities Exchange Act of 1934 requires the Companys officers, directors and persons who own more than ten percent
of the Companys Common Stock, to file reports of ownership and reports of changes in ownership of common stock. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of
all Section 16 (a) forms they file.

Specific due dates for such reports have been established by the Commission and the Company
is required to disclose any failure to file reports by such dates. The Company believes that during the fiscal year ended December 31, 2005, its officers, directors and greater than ten percent stockholders have failed to comply with applicable
Section 16(a) filing requirements.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth information for each of the fiscal years ended
December 31 concerning the compensation paid and awarded to our President and Chief Executive Officer. There were no other executive officers or key employees whose total annual salary and bonus exceeded $100,000 for these periods who remain
with the Company.



|                                                 |  |                     |  |                               |         |         |   |                       |  |                             |            |             |     |              |   |     |  |   |    
|------------------------------------------------ |  | ------------------- |  | ----------------------------- | ------- | ------- | - | --------------------- |  | --------------------------- | ---------- | ----------- | --- | ------------ | - | --- |  | - | ---
|                                                 |  | Annual Compensation |  | Long-term Compensation Awards |         | Payouts
|Name and Principal Position                      |  | Year                |  | Salary                        |         | Bonus   |   | RestrictedStock Award |  | SecuritiesUnderlyingOptions |            | LTIPPayouts |     | AllOtherComp
|John D. Stanton                                  |  | 2005                |  | $                             | 1,000   |         | $ | -0-                   |  | $                           | 18,260,000 |             | -0- |              | $ | -0- |  | $ | -0-
|Chairman of the Board,                           |  | 2004                |  | $                             | 1,000   |         | $ | -0-                   |  | $                           | -0-        |             | -0- |              | $ | -0- |  | $ | -0-
|Chief Executive Officer and President (1)(2)     |  | 2003                |  | $                             | 1,000   |         | $ | -0-                   |  | $                           | -0-        |             | -0- |              | $ | -0- |  | $ | -0-
|                                                 |  |                     |  |                               |         |         |  
|Jaime Jurado                                     |  | 2005                |  | $                             | 188,143 |         | $ | -0-                   |  | $                           | -0-        |             | -0- |              | $ | -0- |  | $ | -0-
|Vice Chairman (4)                                |  | 2004                |  | $                             | 64,764  |         | $ | -0-                   |  | $                           | -0-        |             | -0- |              | $ | -0- |  | $ | -0-
|                                                 |  |                     |  |                               |         |         |  
|Leon H. Toups                                    |  | 2005                |  | $                             | 156,000 |         | $ | -0-                   |  | $                           | -0-        |             | -0- |              | $ | -0- |  | $ | -0-
|Director, and former President (1)(3)            |  | 2004                |  | $                             | 132,000 |         | $ | -0-                   |  | $                           | -0-        |             | -0- |              | $ | -0- |  | $ | -0-
|                                                 |  |                     |  |                               |         |         |  
|Frank W. Barker, Jr. Chief Financial Officer (5) |  | 2005                |  | $                             | 100,000 |         | $ | -0-                   |  | $                           | -0-        |             | -0- |              | $ | -0- |  | $ | -0-

---

|(1) | Mr. Stanton assumed the role of Chief Executive Officer and President as of May 16, 2000. Prior to this date, Mr. Stanton was not employed by the Company. Effective
August 1, 2001, Mr. Stanton relinquished the role of Chief Executive Officer and President retaining his role as the Chairman of the Board of Directors. Mr. Stanton resumed his role as Chief Executive Officer and President upon
Mr. Mahoneys resignation in August 2002. Mr. Stanton relinquished the role of President on October 9, 2003 with the appointment of Leon H. Toups. On February 13, 2006 Mr. Stanton resumed the roles of Chief Executive
Officer and President.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | During 2001, Mr. Stanton was granted options to acquire 2,000,000 shares of the Companys stock at prices ranging from $.195 to $.2145 per share. During 2000,
Mr. Stanton was granted options to acquire 2,000,000 shares of the Companys stock at $1.00 per share.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. Toups assumed the role of President effective October 9, 2003, and on March 1, 2004 commenced receiving annual compensation of $156,000. Prior to that date,
Mr. Toups received compensation from other entities associated with Mr. Stanton. On February 13, 2006 Mr. Toups stepped down as Chief Executive Officer and President.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Mr. Jurado assumed the position of Vice Chairman after the acquisition of Electric Machinery Enterprises, Inc. Prior to that, Mr. Jurado held the position of Electric
Machinery Enterprises, Inc. The compensation stated for 2004 is that amount incurred from the date of acquisition.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Mr. Barker assumed the position of Chief Financial Officer on May 11, 2005, and the compensation stated for 2005 is the amount incurred from that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

No stock options were issued during calendar 2005 or 2004 to any of the individuals identified in the table above. The
following table sets forth, for the individuals named in the Summary Compensation Table above, certain information concerning stock options granted during 2001. The Company has never issued stock appreciation rights. Options were granted at an
exercise price above the fair market value of the common stock at the date of grant. The term of the options is five and ten years from the date of grant.



|                |  |                |  |                                         |   |    |                                       |       |                            |   |                |  |                                                                                                 |  |   |         |  |   |        
|--------------- |  | -------------- |  | --------------------------------------- | - | -- | ------------------------------------- | ----- | -------------------------- | - | -------------- |  | ----------------------------------------------------------------------------------------------- |  | - | ------- |  | - | -------
|Name            |  | OptionsGranted |  | PercentageOf TotalOptionsGrantedIn 2001 |   |    | Exerciseor
basePrice Per Share ($/Sh) |       | MarketPrice onDate ofGrant |   | ExpirationDate |  | Potential Realizable Value At Assumed
Rates Rate of Stock PriceAppreciation For Option Term (1)
|                |  |                |  |                                         |   | 5% |                                       | 10%  
|John D. Stanton |  | 466,200        |  | 13                                      | % |    | $                                     | .2145 |                            | $ | .195           |  | April 2006                                                                                      |  | $ | 127,600 |  | $ | 161,100
|                |  | 1,533,800      |  | 44                                      | % |    | $                                     | .195  |                            | $ | .195           |  | April 2011                                                                                      |  | $ | 463,847 |  | $ | 775,529

---

|(1) | The dollar amounts under this column are the result of calculations at the 5% and 10% rates set by the Commission and therefore are not intended to forecast possible future
appreciation, if any, of the stock price of the Companys common stock. If the price of the Companys stock were in fact to appreciate at the assumed 5% or 10% annual rate for the term of the option, a $1,000 investment in the Common Stock
would be worth $1,276 and $1,611, respectfully, at the end of the 5-year term and $1,629 and $2,594, respectively, at the end of the 10-year term.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following table sets forth, for the individual named in the Summary Compensation Table, certain
information concerning the options exercised during fiscal 2004 and the number of shares subject to exercisable and unexercisable stock options as of December 31, 2005. The values for in-the-money options are calculated by
determining the difference between the fair market value of the securities underlying the options as of December 31, 2005 ($.20 per share) and the exercise price of the options.



|                |  |                                     |                 |                |               |                                         |           |  |    
|--------------- |  | ----------------------------------- | --------------- | -------------- | ------------- | --------------------------------------- | --------- |  | ---
|Name            |  | Number ofSharesacquired on exercise |                 | Value realized |               | Unexercised Options atDecember 31, 2005
|                |  |                                     | Exercisable (1) |                | Unexercisable
|John D. Stanton |  | None                                |                 | $              | 0             |                                         | 2,000,000 |  | -0-

---

|(1) | 1,533,800 shares were in-the-money at December 31, 2005 for $.005 per share or $7,669..
|--- | -----------------------------------------------------------------------------------------

DIRECTORS COMPENSATION

The Company pays cash compensation to directors for serving on the Board based upon participation in board meetings. Board meetings that are attended by each director are paid at $2,500 per meeting. Participation in Telefonic Board meetings
are compensated at $500 per meeting. Each director is elected to serve for a term of 3 years, and is granted options to acquire 300,000 shares of the Companys common stock vested at 100,000 shares per year at an exercise price equal to the
fair market value of the stock on the date of grant.

EMPLOYMENT AGREEMENTS

The Company does not currently have any employee agreements in place.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth
certain information regarding ownership of the Companys common stock as of March 17, 2006 by each person known to us to own beneficially more than 5% of the outstanding common stock of the Company, by each person who is a director, by
each person listed in the Summary Compensation Table and by all directors and officers as a group.

The information reflected in the
following table was furnished by the persons listed therein. The calculations of the percent of shares beneficially owned are based on 598,046,693 shares of common stock outstanding on March 17, 2006 plus, with respect to each such person, the
number of additional shares that will be outstanding upon exercise of the warrants and options exercisable within sixty (60) days set forth herein.



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|                                                                           |  |                     |     |  |                    |  
|-------------------------------------------------------------------------- |  | ------------------- | --- |  | ------------------ | -
|Name and Address of Beneficial Owner                                       |  | BeneficialOwnership |     |  | Percentageof Class |  
|John D. Stanton P.O. Box 24567 Tampa, Florida 33623                        |  | 351,795,260         | (1) |  | 58.82              | %
|                                                                           |  |                    
|Leon H.Toups 418 Harbor View Lane Largo, Fl 33770                          |  | 14,786,949          |     |  | 2.47               | %
|                                                                           |  |                    
|Jaime Jurado 2515 E Hanna Ave Tampa, Fl 33610                              |  | 39,377,897          | (2) |  | 6.58               | %
|                                                                           |  |                    
|Nicholas R. Tomassetti 853 Vanderbilt Beach Rd. Naples, Florida 34108      |  | 1,000,000           | (3) |  | .17                | %
|                                                                           |  |                    
|David E Crow 2515 E Hanna Ave Tampa, Fl 33610                              |  | 600,000             |     |  | .10                | %
|                                                                           |  |                    
|Barry Markowitz 2515 E Hanna Ave Tampa, Fl 33610                           |  | -0-                 |     |  | -0-                |  
|                                                                           |  |                    
|Frank W. Barker, Jr. 10396 57thWay North Pinellas Park, Fl 33782           |  | 1,500,000           |     |  | .25                | %
|                                                                           |  |                    
|Ralph W. Hughes Revocable Family Trust P.O. Box 24567 Tampa, Florida 33623 |  | 32,016,719          | (1) |  | 5.35               | %
|                                                                           |  |                     |     |  |                    |  
|All Officers and Directors (Seven persons)                                 |  | 409,060,106         |     |  | 68.40              | %

---

|(1) | Includes options granted to Mr. Stanton to purchase 2,000,000 shares of Common Stock at prices ranging from $.195 to $.2145 per share. Includes all shares owned by entities with
which Mr. Stanton and the Ralph W. Hughes revocable family trust are affiliated. Of these affiliated entities, Stone Enclosure, Inc., Wade, Inc., Denoument Strategies, Inc. Bunker Positioning, Inc., and White Knight SST, Inc. each own shares in
EFTI in excess of five percent of the Companys outstanding common shares as of December 15, 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | Includes 12,688,949 shares owned by spouse.
|--- | -------------------------------------------

|(3) | Includes options to purchase 100,000 shares of Common Stock at an exercise price of $.20 per share granted in 2001.
|--- | -------------------------------------------------------------------------------------------------------------------

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In December 2000 and again in January 2003, we
entered into multiple revolving line of credit promissory notes with Florida Engineered Construction Products Corporation, an entity in which John Stanton is a majority shareholder, secured by all of our assets. The amount of the December 15,
2000 agreement was $2,500,000 at the time it was made, and the amount of the January 28, 2003 agreement was $2,500,000 at the time it was made. Each revolving note was a demand loan, which meant that the lender could demand full repayment of
the loan at any time. The promissory notes related to each revolving line of credit merely provided for a loan up to a stated amount. There was no obligation on the part of the related party to make any loans pursuant to these agreements if the loan
balance was less than the stated amount. There was no obligation on the part of the related parties to make any additional loans.

Historically, the related party lender has periodically agreed to convert portions of the loan balances into shares of our common stock. During 2004, the related party converted $5,334,010 of these notes into shares of our common stock.

As of December 31, 2004, we owed $6,672,519 pursuant to these agreements. Subsequent to December 31, 2004, additional loans were
made under these notes to help secure the outcome of the reorganization of EME. On February 23, 2005 the full balance of notes payable to related parties was converted into 189,643,210 shares of our common stock, and these agreements were
cancelled.

The Company leases and rents the real property, building, and all other improvements located at 2515 E Hanna Avenue, Tampa,
Florida 33610 from Hanna Properties Inc.., a related party affiliated with Jaime Jurado, the President of EME. Mr. Jurado owns 45.425% of the common stock of Hanna Properties, Inc. This property consists of 29,680 sq. ft. of office space,
80,320 sq. ft. of warehouse space and 26,992 sq. ft. of garage and workshop space. Monthly rental including sales tax, but excluding real estate taxes and insurances is $52,133. This lease obligation was assumed pursuant to EMEs reorganization
plan for a period of two years, at which time EarthFirst has the option to re-evaluate. This location is the corporate headquarters of EarthFirst Technologies Incorporated and its subsidiaries.

On August 29, 2005, the Company issued 83,000,000 shares of common stock as stock based compensation to entities affiliated with or controlled by
John Stanton, Chairman of the Board, for services rendered from the inception of his involvement with the Company through the acquisition and reorganization of EME. Included in this issuance were those shares entitled to be issued by EFTI



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as a plan proponent to the EME bankruptcy, and authorized by the Fourth Amended Plan of Reorganization of EME pursuant to
Section 1145 of the Bankruptcy Code. Compensation expense associated with this transaction, calculated based upon the market price of the Companys stock on the date of grant was $18,260,000.

On November 22, 2005, the Board of Directors approved the issuance of preferred shares of stock to John Stanton, our Chairman of the Board and/or
entities affiliated with or controlled by him in exchange for 120,000,000 common shares. The preferred shares are to be non-voting, non-convertible, and redeemable only at the discretion of the Company.

ITEM 13. EXHIBITS.

FINANCIAL STATEMENTS

EarthFirst Technologies, Incorporated



|                                                                                                        |  |    
|------------------------------------------------------------------------------------------------------- |  | ---
|Index to financial statements:                                                                          |  |    
|                                                                                                        | 
|Report of Independent Registered Public Accounting Firm  Aidman, Piser & Company, P.A.                 |  | F-1
|                                                                                                        | 
|Consolidated Balance Sheet as of December 31, 2005                                                      |  | F-2
|                                                                                                        | 
|Consolidated Statements of Operations for the years ended December 31, 2005 and 2004                    |  | F-3
|                                                                                                        | 
|Consolidated Statement of Stockholders Equity (Deficit) for the years ended December 31, 2005 and 2004 |  | F-4
|                                                                                                        | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004                    |  | F-5
|                                                                                                        | 
|Notes to Consolidated Financial Statements                                                              |  | F-7

Other Exhibits:



|     |  |                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Amendment to Articles of Incorporation filed with the Florida Secretary of State on May 24, 2005. (+)                                              
|     | 
|3.2  |  | By-Laws of the Company. (*)                                                                                                                                    
|     | 
|3.3  |  | Articles of Amendment to Articles of Incorporation filed with the Florida Secretary of State on November 24, 1998. (**)                                        
|     | 
|3.4  |  | Articles of Amendment to Articles of Incorporation filed with the Florida Secretary of State on March 30, 1999. (**)                                           
|     | 
|3.5  |  | Articles of Amendment to Articles of Incorporation filed with the Florida Secretary of State on June 26, 2000. (***)                                           
|     | 
|3.6  |  | Articles of Amendment to Articles of Incorporation filed with the Florida Secretary of State on February 28, 2001. (***)                                       
|     | 
|3.7  |  | Articles of Amendment to Articles of Incorporation filed with the Florida Secretary of State on April 30, 2004. (****)                                         
|     | 
|31.1 |  | Certification of the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|31.2 |  | Certification of the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|32.1 |  | Certification of the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|32.2 |  | Certification of the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



36



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|     |  |                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------
|*    |  | Previously filed as Exhibits to, and incorporated by reference from, the Companys 1997 Form 10-KSB on March 11, 1998.
|     | 
|**   |  | Previously filed as Exhibits to, and incorporated by reference from, the Companys 1999 Form 10-KSB on May 12, 2000.  
|     | 
|***  |  | Previously filed as Exhibits to, and incorporated by reference from, the Companys 2000 Form 10-KSB on April 16, 2001.
|     | 
|**** |  | Previously filed as Exhibits to, and incorporated by reference from, the Companys 2004 Form 10-KSB                   
|     | 
|+    |  | Filed herewith.                                                                                                       

Reports on Form 8-K (incorporated by reference)

On April 6, 2005 the company filed Form 8-K with the Securities and Exchange Commission in which it reported under Item 1.01 the agreements entered into with
Laurus Master Funds, Ltd. whereby the Company sold convertible debt, an option and a warrant to purchase common stock of the Company in a private offering pursuant to exemption from registration under Section 4(2) of the Securities Act of 1933

On May 16, 2005 the Company filed Form 8-K with the Securities and Exchange Commission in which it reported under Item 2.02, the Companys
Results of Operations and Financial Condition for the first quarter of 2005, under Item 5.02, the resignation of John Stanton as Chief Executive Officer and Chief Financial Officer, and the appointment of Leon Toups as Chief Executive Officer
and Frank W. Barker, Jr. as Chief Financial Officer, and under Item 7.01, certain regulation FD Disclosures of items relative to letters of intent and contracts in public press releases.

On October 7, 2005, the Company filed Form 8-K with the Securities and Exchange Commission in which it reported under Item 5.02, the appointment of Barry G.
Markowitz as a member of the Board of Directors of the Company.

On October 13, 2005, the Company filed Form 8-K with the Securities and Exchange
Commission in which it reported under Item 8.01, Other Events encompassing the resignation of Jaime Jurado as President and as a Director of Electric Machinery Enterprises, Inc., (a wholly owned subsidiary) and the appointment of Frank J.
Sierra as President and as a member of its Board of Directors.



37



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##### Table of Contents

On December 2, 2005 the Company filed Form 8-K with the Securities and Exchange Commission in which it reported
under Item 2.02, the Companys Results of Operations and Financial Condition for the third quarter of 2005.

On February 16, 2006 the
Company filed Form 8-K with the Securities and Exchange Commission in which it reported under Item 5.02, the resignation of Leon Toups as Chief Executive Officer and President, and the appointment of John Stanton as Chief Executive Officer and
President.

On March 28, 2006 the Company filed Form 8-K with the Securities and Exchange Commission in which it reported under Item 7.01, a
regulation FD Disclosure of the approval by the Board of Directors in principle of a merger of the Company with Cast-Crete Corporation.



38



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors

EarthFirst Technologies, Incorporated

Tampa, Florida

We have audited the accompanying consolidated balance sheet of EarthFirst Technologies, Incorporated and
Subsidiaries (the Company) as of December 31, 2005 and the related consolidated statements of operations, stockholders equity (deficit) and cash flows for the two years then ended. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the companys internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the consolidated financial position of EarthFirst Technologies, Incorporated and Subsidiaries, at December 31, 2005, and the consolidated results of their
operations and their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying 2004 Financial statements have been restated as described in Note 20.

/s/ Aidman,
Piser & Company, P.A.

March 30, 2006 except for Note 20, for which the date is September 13, 2006.

Tampa, Florida



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2005



|                                                                                                         |  |   |             |  
|-------------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|ASSETS                                                                                                   |  |   |             |  
|                                                                                                         | 
|Current assets:                                                                                          |  |   |             |  
|Cash                                                                                                     |  | $ | 1,202,480   |  
|Accounts receivable  net of allowance for doubtful accounts of $279,500                                 |  |   | 9,232,564   |  
|Cost and estimated earnings in excess of billings on uncompleted contracts                               |  |   | 1,446,326   |  
|Inventory                                                                                                |  |   | 1,613,276   |  
|Prepaid expenses and other current assets                                                                |  |   | 127,735     |  
|                                                                                                         |  |   |             |  
|Total current assets                                                                                     |  |   | 13,622,381  |  
|                                                                                                         | 
|Property and equipment, net                                                                              |  |   | 4,967,408   |  
|Intangible assets                                                                                        |  |   | 15,323,152  |  
|Loan costs and discounts                                                                                 |  |   | 635,813     |  
|Other assets                                                                                             |  |   | 434,577     |  
|                                                                                                         |  |   |             |  
|                                                                                                         |  | $ | 34,983,331  |  
|                                                                                                         |  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                     |  |   |             |  
|                                                                                                         | 
|Current liabilities:                                                                                     |  |   |             |  
|Notes payable                                                                                            |  | $ | 52,403      |  
|Secured convertible notes payable                                                                        |  |   | 2,959,536   |  
|Accounts payable and accrued expenses                                                                    |  |   | 5,782,182   |  
|Billings in excess of cost and estimated earnings on uncompleted contracts                               |  |   | 719,820     |  
|                                                                                                         |  |   |             |  
|Total current liabilities                                                                                |  |   | 9,513,941   |  
|                                                                                                         | 
|Secured convertible notes payable, non current                                                           |  |   | 301,665     |  
|Derivative liabilities                                                                                   |  |   | 4,722,520   |  
|Other liabilities                                                                                        |  |   | 890,172     |  
|                                                                                                         |  |   |             |  
|Total liabilities                                                                                        |  |   | 15,428,298  |  
|                                                                                                         | 
|Majority and minority interests                                                                          |  |   | 853,648     |  
|Commitments and contingencies (note 11)                                                                  |  |   |            |  
|Stockholders equity:                                                                                    |  |   |             |  
|Common stock, par value $.0001, 750,000,000 shares authorized, 598,046,693 shares issued and outstanding |  |   | 59,804      |  
|Additional paid-in capital                                                                               |  |   | 87,584,713  |  
|Accumulated deficit                                                                                      |  |   | (67,675,072 | )
|                                                                                                         |  |   |             |  
|                                                                                                         |  |   | 19,969,445  |  
|Less: treasury stock (1,950,000 shares at cost)                                                          |  |   | (1,268,060  | )
|                                                                                                         |  |   |             |  
|Total stockholders equity                                                                               |  |   | 18,701,385  |  
|                                                                                                         |  |   |             |  
|                                                                                                         |  | $ | 34,983,331  |  
|                                                                                                         |  |   |             |  

See notes to consolidated financial statements.



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|                                                                                                          |  |      |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                          |  | 2005 |             |   | 2004 As Restated |  
|Revenue                                                                                                   |  | $    | 41,743,320  |   |                  | $ | 12,266,701  |  
|Cost of sales                                                                                             |  |      | 32,083,495  |   |                  |   | 8,858,707   |  
|                                                                                                          |  |      |             |   |                  |   |             |  
|Gross profit                                                                                              |  |      | 9,659,825   |   |                  |   | 3,407,994   |  
|                                                                                                          |  |     
|Selling, general and administrative expenses                                                              |  |      | 7,654,036   |   |                  |   | 2,992,773   |  
|Related party stock based compensation                                                                    |  |      | 18,260,000  |   |                  |   |            |  
|Research and development expenses                                                                         |  |      | 582,430     |   |                  |   | 2,474,949   |  
|                                                                                                          |  |      |             |   |                  |   |             |  
|Loss from operations                                                                                      |  |      | (16,836,641 | ) |                  |   | (2,059,728  | )
|                                                                                                          |  |      |             |   |                  |   |             |  
|Other income (expense):                                                                                   |  |      |             |   |                  |   |             |  
|Gain on extinguishment of debt, bankruptcy                                                                |  |      | 4,163,740   |   |                  |   | 1,298,068   |  
|Miscellaneous income, net                                                                                 |  |      | 397,071     |   |                  |   | 325,961     |  
|Derivative loss                                                                                           |  |      | (592,521    | ) |                  |   |            |  
|Interest expense                                                                                          |  |      | (2,760,202  | ) |                  |   | (466,215    | )
|                                                                                                          |  |      |             |   |                  |   |             |  
|Loss before reorganization item, income taxes and majority and minority interests                         |  |      | (15,628,553 | ) |                  |   | (901,914    | )
|Reorganization item, professional fees related to bankruptcy and pursuit of claims                        |  |      | (1,919,288  | ) |                  |   | (1,202,829  | )
|                                                                                                          |  |      |             |   |                  |   |             |  
|Loss before income taxes and majority and minority interests                                              |  |      | (17,547,841 | ) |                  |   | (2,104,743  | )
|                                                                                                          |  |     
|Income tax benefit                                                                                        |  |      |            |   |                  |   |            |  
|                                                                                                          |  |      |             |   |                  |   |             |  
|Loss before majority and minority interests                                                               |  |      | (17,547,841 | ) |                  |   | (2,104,743  | )
|                                                                                                          |  |     
|Majority and minority interests                                                                           |  |      | 377         |   |                  |   | (430,230    | )
|                                                                                                          |  |      |             |   |                  |   |             |  
|Loss from continuing operations                                                                           |  |      | (17,547,464 | ) |                  |   | (2,534,973  | )
|                                                                                                          |  |     
|Income (loss) from operations of discontinued operations (Including loss on disposal of $137,636 in
2005) |  |      | (137,636    | ) |                  |   | 267,984     |  
|                                                                                                          |  |      |             |   |                  |   |             |  
|Net loss                                                                                                  |  | $    | (17,685,100 | ) |                  | $ | (2,266,989  | )
|                                                                                                          |  |      |             |   |                  |   |             |  
|Net loss per common share:                                                                                |  |      |             |   |                  |   |             |  
|Continuing operations                                                                                     |  | $    | (.03        | ) |                  | $ | (.01        | )
|Discontinued operations                                                                                   |  |      |            |   |                  |   |            |  
|                                                                                                          |  |      |             |   |                  |   |             |  
|Net loss                                                                                                  |  | $    | (.03        | ) |                  | $ | (.01        | )
|                                                                                                          |  |      |             |   |                  |   |             |  
|Weighted average shares outstanding, basic and diluted                                                    |  |      | 501,999,049 |   |                  |   | 264,319,455 |  
|                                                                                                          |  |      |             |   |                  |   |             |  

See notes to consolidated financial statements.



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)

YEARS ENDED DECEMBER 31, 2005 AND 2004



|                                                        |  |              |  |                          |        |                    |   |            |               |   |             |       |  |   |            |   |  |   |             |  
|------------------------------------------------------- |  | ------------ |  | ------------------------ | ------ | ------------------ | - | ---------- | ------------- | - | ----------- | ----- |  | - | ---------- | - |  | - | ----------- | -
|                                                        |  | Common Stock |  | AdditionalPaid-inCapital |        | AccumulatedDeficit |   |            | TreasuryStock |   |             | Total | 
|                                                        |  | Shares       |  | Amount                   |        |                    |   |           
|Balances, January 1, 2004                               |  | 187,595,024  |  | $                        | 18,759 |                    | $ | 43,405,591 |               | $ | (47,722,983 | )     |  | $ | (1,268,060 | ) |  | $ | (5,566,693  | )
|Conversion of notes payable, related party to stock     |  | 49,175,125   |  |                          | 4,918  |                    |   | 3,929,092  |               |   |            |       |  |   |           |   |  |   | 3,934,010   |  
|Conversion of notes payable, related party to stock     |  | 10,000,001   |  |                          | 1,000  |                    |   | 1,399,000  |               |   |             |       |  |   |            |   |  |   | 1,400,000   |  
|Issuance of stock to acquire WESCO                      |  | 15,000,000   |  |                          | 1,500  |                    |   | 1,798,500  |               |   |             |       |  |   |            |   |  |   | 1,800,000   |  
|Issuance of stock to acquire EME                        |  | 40,000,000   |  |                          | 4,000  |                    |   | 6,263,000  |               |   |            |       |  |   |           |   |  |   | 6.267.000   |  
|Net loss                                                |  |             |  |                          |       |                    |   |           |               |   | (2,266,989  | )     |  |   |           |   |  |   | (2,266,989  | )
|                                                        |  |              |  |                          |        |                    |   |            |               |   |             |       |  |   |            |   |  |   |             |  
|Balances, December 31, 2004                             |  | 301,770,150  |  |                          | 30,177 |                    |   | 56,795,183 |               |   | (49,989,972 | )     |  |   | (1,268,060 | ) |  |   | 5,567,328   |  
|Conversion of notes payable, related party to stock     |  | 189,643,210  |  |                          | 18,964 |                    |   | 9,185,193  |               |   |             |       |  |   |            |   |  |   | 9,204,157   |  
|Stock issued for professional services                  |  | 4,633,333    |  |                          | 463    |                    |   | 694,537    |               |   |             |       |  |   |            |   |  |   | 695,000     |  
|Stock issued as partial exercise of Laurus Fund Options |  | 19,000,000   |  |                          | 1,900  |                    |   | 188,100    |               |   |             |       |  |   |            |   |  |   | 190,000     |  
|Reclassification of Derivative liabilities to equity    |  |              |  |                          |        |                    |   | 2,470,000  |               |   |             |       |  |   |            |   |  |   | 2,470,000   |  
|Stock issued as compensation for related party          |  | 83,000,000   |  |                          | 8,300  |                    |   | 18,251,700 |               |   |             |       |  |   |            |   |  |   | 18,260,000  |  
|Net loss                                                |  |             |  |                          |       |                    |   |           |               |   | (17,685,100 | )     |  |   |           |   |  |   | (17,685,100 | )
|                                                        |  |              |  |                          |        |                    |   |            |               |   |             |       |  |   |            |   |  |   |             |  
|Balances December 31, 2005                              |  | 598,046,693  |  | $                        | 59,804 |                    | $ | 87,584,713 |               | $ | (67,675,072 | )     |  | $ | (1,268,060 | ) |  | $ | 18,701,385  |  
|                                                        |  |              |  |                          |        |                    |   |            |               |   |             |       |  |   |            |   |  |   |             |  

See notes to consolidated financial statements.



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|                                                                               |  |      |             |   |                  |   |            |  
|------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---------------- | - | ---------- | -
|                                                                               |  | 2005 |             |   | 2004 As Restated |  
|Cash flows from operating activities:                                          |  |      |             |   |                  |   |            |  
|Net loss                                                                       |  | $    | (17,685,100 | ) |                  | $ | (2,266,989 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |      |             |   |                  |   |            |  
|Expenses funded through stock issuance                                         |  |      | 695,000     |   |                  |   | 1,800,000  |  
|Intangible asset impairment                                                    |  |      |             |   |                  |   | 142,900    |  
|Related party compensation funded through stock issuance                       |  |      | 18,260,000  |   |                  |   |            |  
|Majority/minority interest in net income (loss) of consolidated entities       |  |      | (377        | ) |                  |   | 430,230    |  
|Derivative loss                                                                |  |      | 592,521     |   |                  |   |            |  
|Depreciation and amortization                                                  |  |      | 362,098     |   |                  |   | 46,456     |  
|Gain on cancellation of debt                                                   |  |      | (4,163,740  | ) |                  |   | (1,298,068 | )
|(Income) loss from discontinued operations                                     |  |      | 137,636     |   |                  |   | (267,984   | )
|(Gain)/loss on disposal of assets                                              |  |      | (40,039     | ) |                  |   |            |  
|Increase (decrease) in cash due to changes in:                                 |  |      |             |   |                  |   |            |  
|Accounts receivable                                                            |  |      | (720,872    | ) |                  |   | (989,413   | )
|Cost and estimated earnings in excess of billings on uncompleted contracts     |  |      | (460,057    | ) |                  |   | 522,294    |  
|Inventory                                                                      |  |      | (212,641    | ) |                  |   | 311,158    |  
|Prepaid expenses and other assets                                              |  |      | (52,701     | ) |                  |   | 532,132    |  
|Accounts payable and accrued expenses                                          |  |      | (328,958    | ) |                  |   | (2,376,457 | )
|Billings in excess of cost and estimated earnings on uncompleted contracts     |  |      | (327,745    | ) |                  |   | (419,235   | )
|Accrued interest on related party payables                                     |  |      |             |   |                  |   | 244,571    |  
|                                                                               |  |      |             |   |                  |   |            |  
|Net cash flows from operating activities                                       |  |      | (3,944,975  | ) |                  |   | (3,588,405 | )
|                                                                               |  |      |             |   |                  |   |            |  
|Cash flows from investing activities:                                          |  |      |             |   |                  |   |            |  
|Acquisition of property and equipment                                          |  |      | (992,180    | ) |                  |   | (2,258,647 | )
|Cash acquired in business acquisition                                          |  |      |             |   |                  |   | 3,174,317  |  
|                                                                               |  |      |             |   |                  |   |            |  
|Net cash flows from investing activities                                       |  |      | (992,180    | ) |                  |   | 915,670    |  
|                                                                               |  |      |             |   |                  |   |            |  
|Cash flows from financing activities:                                          |  |      |             |   |                  |   |            |  
|Proceeds from notes payable and related party                                  |  |      | 1,791,516   |   |                  |   | 3,987,524  |  
|Proceeds from option exercise                                                  |  |      | 190,000     |   |                  |   |            |  
|Repayment of long term debt                                                    |  |      | (5,324,264  | ) |                  |   | 13,257     |  
|Proceeds from Laurus credit facility                                           |  |      | 8,000,000   |   |                  |   |            |  
|                                                                               |  |      |             |   |                  |   |            |  
|Net cash flows from financing activities                                       |  |      | 4,657,252   |   |                  |   | 4,000,781  |  
|                                                                               |  |      |             |   |                  |   |            |  
|Net change in cash                                                             |  |      | (279,903    | ) |                  |   | 1,328,046  |  
|Cash, beginning of year                                                        |  |      | 1,482,383   |   |                  |   | 3,529      |  
|                                                                               |  |      |             |   |                  |   |            |  
|Cash, end of year                                                              |  | $    | 1,202,480   |   |                  | $ | 1,331,575  |  
|                                                                               |  |      |             |   |                  |   |            |  

See notes to consolidated financial statements.



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31, 2005 AND 2004

Supplemental schedule of cash flow information



|                                           |  |      |         |      |   |        
|------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                           |  | 2005 |         | 2004
|Cash paid during the year for interest     |  | $    | 550,129 |      | $ | 123,632
|                                           |  |      |         |      |   |        
|Cash paid during the year for income taxes |  | $    |        |      | $ |       
|                                           |  |      |         |      |   |        

Supplemental schedule of non-cash financing and investing activities

During 2005, the Company



| |  |  | Converted $9,204,157 of related party debt to 189,643,210 shares of common stock
| | - |  | --------------------------------------------------------------------------------



| |  |  | Loan costs of $390,290 were funded through proceeds of Laurus credit facility
| | - |  | -----------------------------------------------------------------------------



| |  |  | Retired secured creditor in the amount of $1,676,967 through proceeds of Laurus credit facility
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Reduced accounts payable in the amount of $51,848 through proceeds of Laurus credit facility
| | - |  | --------------------------------------------------------------------------------------------

During 2004, the Company



| |  |  | Converted $3,934,010 of related party debt to 49,175,125 shares of common stock
| | - |  | -------------------------------------------------------------------------------



| |  |  | Converted $1,400,000 of related party debt to 10,000,001 shares of common stock
| | - |  | -------------------------------------------------------------------------------



| |  |  | Issued 15,000,000 shares of common stock in acquisition of the remaining 30% interest in a joint venture, the principal asset of which consisted of approximately $1,800,000 of in
progress research and development, which is required to be expensed immediately.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Issued 40,000,000 shares of common stock in exchange for the stock of Electric Machinery Enterprises, Inc. having net assets as follows:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



|                                               |  |   |             |  
|---------------------------------------------- |  | - | ----------- | -
|Cash                                           |  | $ | 3,174,317   |  
|Accounts receivable and other current assets   |  |   | 11,460,476  |  
|Property and equipment                         |  |   | 2,023,364   |  
|Other assets                                   |  |   | 390,289     |  
|Value of goodwill associated with acquisition  |  |   | 15,323,152  |  
|Accounts payable and other current liabilities |  |   | (6,540,682  | )
|Related party borrowings                       |  |   | (4,199,926  | )
|Liabilities subject to compromise              |  |   | (14,540,195 | )
|Minority interest in Cayman joint venture      |  |   | (823,795    | )
|                                               |  |   |             |  
|Value of common stock issued                   |  | $ | 6,267,000   |  
|                                               |  |   |             |  



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|1. | Nature of business, basis of presentation and summary of significant accounting policies:
|-- | -----------------------------------------------------------------------------------------

Basis of presentation:

The financial
statements of EarthFirst Technologies, Incorporated and its subsidiaries (EarthFirst or the Company) that are included herein have been prepared in accordance with accounting principles generally accepted in the United States
of America, and include all the necessary adjustments to fairly present the results of the periods presented.

Principles of
Consolidation:

The financial statements include the consolidated accounts of EarthFirst Technologies Incorporated and all of its
subsidiaries (including the variable interest entity discussed below) (collectively, the Company). All significant intercompany transactions and accounts have been eliminated.

Nature of business:

EarthFirst
Technologies, Incorporated, a Florida Corporation formed in 1997, is a specialized holding company owning subsidiaries engaged in developing and commercializing technologies for the production of alternative fuel sources and the destruction and/or
remediation of liquid and solid waste, and in supplying electrical contracting services internationally.

The Companys solid waste
division, operated through World Environmental Solutions Company, Inc. (WESCO), a wholly owned subsidiary, remained focused on the commercialization of its Solid Waste Remediation Plant in Mobile, Alabama. This unit is known as the
Catalytic Activated Vacuum Distillation Process (CAVD) Reactor. This plant processes rubber tires extracting carbon and other raw materials for resale. This process efficiently disposes of the tires in an environmentally
compliant manner that allows raw materials from those waste products to be recycled and reused.

The Company anticipates providing
additional CAVD plants to customers in various industries. The Company will bring proven technology in replicating its production plants and distribution network for the disposal of the by-products produced in the process.

The Company has developed technologies for the treatment of liquid waste products. The technology involves the use of high temperature plasma through
which the liquid waste products are passed. The harmful properties contained in the liquid waste products are broken down at the molecular level as they pass through the plasma and a clean burning gas is produced.

Through its Electric Machinery Enterprises, Inc. subsidiary (EME), the Company performs services as an electrical contractor and subcontractor in the
construction of commercial and municipal projects primarily located in Florida and the Caribbean. Substantially all of the Companys revenues were generated by EME in 2005 and 2004.



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Variable Interest Entity:

During 2004, the Company entered into a joint venture to operate Peleme, Ltd. (an EME affiliated Cayman company) to perform work in the Cayman Islands.
The Shareholder Agreement provides for EMEs 40% ownership interest; however, it entitles EME to 70% of the net profit of this project and EME is responsible for 100% of the financial support pursuant to the agreement. In accordance with SFAS
Interpretation No. 46R, the Company has accounted for this investment as a variable interest entity and the accompanying financial statements include the assets and liabilities of Peleme and the majority interest in this entity. Accordingly,
the joint venture financial statements have been combined with those of the Company. Further, although organized in the Caymans, Pelemes functional currency is in U.S. Dollars. All invoices are billed in U.S. Dollars and substantially
all invoices paid in U.S. Dollars.

Principles of Consolidation:

The financial statements include the consolidated accounts of EarthFirst Technologies Incorporated and all of its subsidiaries (including the variable
interest entity discussed above) (collectively, the Company). All significant intercompany transactions and accounts have been eliminated.

Accounts Receivable, allowance for doubtful accounts, customer concentrations and foreign revenues:

Accounts receivable are customer obligations due under normal trade terms. Retainage on construction contracts, which aggregate $1,250,150 at December 31, 2005, and are included in accounts receivable, are contractual obligations of
the customer that are withheld from progress billings until project completion and are generally collected within one year. The Company performs continuing credit evaluations of its customers financial condition and does not require
collateral.

Senior management reviews receivables on a weekly basis to determine if any amounts may become uncollectible. Any contract
receivable balances that are determined to be uncollectible, along with a general reserve, are included in the allowance for doubtful accounts. After all reasonable attempts to collect a receivable have failed, the receivable is written off against
the allowance. Based on the information available, the Company believes the allowance for doubtful accounts of $279,500 is adequate as of December 31, 2005.

Accounts receivables from one customer accounted for 31% of the Companys trade accounts receivable balance at December 31, 2005. In addition, revenues from one customer represented approximately 73% and 80%
of all offshore revenues and approximately 37% and 36% of total revenues in 2005 and 2004 respectively. This construction contract is performed in the Cayman Islands.



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Inventory:

Inventory, which consists of electrical and construction supplies, and B-100 biodiesel fuel, is stated at the lower of cost of market, determined by the
first-in, first-out method.

Property and equipment:

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which range from 5-7 years for machinery, computer equipment, office
equipment and furniture. Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the asset. Depreciation relating to the CAVD Reactor will commence when the reactor begins revenue generating operations.

Impairment of goodwill and long-lived assets:

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), and Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the Company reviews its non-amortizable long-lived assets, including intangible assets and goodwill for impairment annually, or sooner
whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. Other depreciable or amortizable assets are reviewed when indications of impairment exist. Upon such an occurrence, recoverability of
these assets is determined as follows. For long-lived assets that are held for use, the Company compares the forecasted undiscounted net cash flows to the carrying amount. If the long-lived asset is determined to be unable to recover the carrying
amount, then it is written down to fair value. For long-lived assets held for sale, assets are written down to fair value. Fair value is determined based on discounted cash flows, appraised values or managements estimates, depending upon the
nature or the assets. Intangibles with indefinite lives are tested by comparing their carrying amounts to fair value. Impairment of goodwill is tested using a two step method. The first step is to compare the fair value of the reporting unit to its
book value, including goodwill. If the fair value of the unit is less than its book value, the Company than determines the implied fair value of goodwill by deducting the fair value of the reporting units net assets from the fair value of the
reporting unit. If the book value of goodwill is greater than its implied fair value, the Company writes down goodwill to its implied fair value. The Companys goodwill relates to the acquisition of Electric Machinery Enterprises, Inc.

Derivative Financial Instruments:

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. However, certain other financial
instruments, such as warrants and embedded conversion features that are indexed to the Companys common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or
net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such
financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

The caption Derivative Financial Instruments consists of (i) the fair values associated with derivative features embedded in the Laurus Convertible Secured Term Notes and (ii) the fair values of the detachable warrants and options
that were issued in connection with those financing arrangements.

Income taxes:

Deferred income tax assets and liabilities are computed annually for differences between the financial statement and federal income tax basis of assets
and liabilities that will result in taxable income or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected to be realized



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Revenue recognition:

Revenues recognized from solid waste transactions during the year ended December 31, 2005 consisted of the sale of by-products. Revenues from solid
waste transactions recognized during the year ended December 31, 2004 are the result of contracted monthly minimum draws against sales commissions on the products of a polymer manufacturing company, and the receipt of license fees granting the
exclusive option to purchase total rights to the CAVD technology for use in certain geographical areas. License revenue is recognized upon receipt as there are no future obligations associated with such revenue.

Revenues recognized from biofuel transactions during 2005 consisted of sales of biodiesel fuel. These revenues are recognized on an accrual basis when
earned.

The Company uses the percentage-of-completion method of accounting for contract revenue from electrical contracts where percentage
of completion is computed on the cost to total cost method. Under this method, contract revenue is recorded based upon the percentage of total contract costs incurred to date to total estimated contract costs, after giving effect to the most recent
estimates of costs to complete. Revisions in costs and revenue estimates are reflected in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined without regard to the percentage-of-completion. Because of the inherent uncertainties in estimating costs, it is possible that the estimates used will change.

Cost of Sales:

The type of costs included in cost of sales consists primarily of items both directly
and indirectly related to the performance of electrical construction contracts. These expenses include labor, materials, freight on the purchase of materials, equipment rentals, equipment repairs, subcontractors, vehicle costs, purchasing, receiving
and warehouse costs. All of these costs are completely accounted for in costs of sales, without any prorations to selling, general and administrative. Costs associated with sale of solid waste by-products and biodiesel fuel include the cost of tires
as raw materials, and the purchase of biodiesel for resale.

Selling, General and Administrative expenses

Selling, general and administrative expenses include those operational expenses associated with sales and marketing, public relations, compliance with
laws and regulations, occupancy, office operations, and all other general administrative expenses necessary to support operations.



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Contract Claims

As of December 31, 2005 the Company has certain contracts and claims in various stages of negotiation, arbitration and litigation in the approximate
amount of $9,000,000. The Company is attempting to resolve these matters, and expects to be successful in recovering these amounts. However, as in all matters in litigation, the outcome is not certain and amounts recovered, if any, could be
materially different than expected. The Company does not record contract claims until such claims are realized pursuant to guidance in Statement of Position 81-1 Accounting for Performance Construction-Type and Certain Production-Type Contracts. The
guidance states that recognition of amounts of additional contract revenue relating to claims is appropriate only if it is probable that the claim will result in additional contract revenue and if the amount can be reliably estimated.
All of the conditions were not present so these claims are considered to be contingent gains and will be recorded when realized. These amounts, which are not carried as assets on the balance sheet, will be recorded as revenue when such claims are
settled.

During the first quarter of 2006, $1,100,000 was collected on these claims, and recognized as revenue at that time.

Use of estimates:

The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

Net loss per share:

The Company
computes loss per share under Statement of Financial Accounting Standards No. 128, Earnings Per Share. The statement requires presentation of two amounts; basic and diluted loss per share. Basic loss per share is computed by
dividing the loss available to common stockholders by the weighted average common shares outstanding. Diluted earnings per share would include all common stock equivalents unless anti-dilutive. The Company has not included the outstanding options
and warrants, or convertible debentures as common stock equivalents because the effect would be anti-dilutive.



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

The following table sets forth the shares issuable upon exercise of outstanding options
and warrants and conversion of debentures that is not included in the basic and diluted net loss per share available to common stockholders:



|                                                      |  |              |  |          
|----------------------------------------------------- |  | ------------ |  | ---------
|                                                      |  | December 31,
|                                                      |  | 2005         |  | 2004     
|Shares issuable upon exercise of outstanding options  |  | 12,570,668   |  | 7,250 000
|Shares issuable upon exercise of outstanding warrants |  | 11,162,790   |  | - 0 -    
|Shares issuable upon conversion of debentures         |  | 33,789,474   |  | - 0 -    
|                                                      |  |              |  |          
|Total                                                 |  | 57,522,932   |  | 7,250,000
|                                                      |  |              |  |          

Recent accounting pronouncements

In December 2004, the FASB issued Statement No. 123R, Accounting for Share Based Payments. Statement 123R establishes revised accounting
standards for employee-stock based compensation measurement that requires employee stock-based compensation be measured at the fair value of the award, replacing the intrinsic approach currently available to companies under Statement
123. Compensation cost continues to be recognized over the period during which the employee is required to provide service. The provisions of the revised statement are effective for financial statements issued for the first interim or
annual reporting period beginning after December 15, 2005. The Company accounts for options issued to employees using the intrinsic approach. Implementation of this new standard is currently expected to result in increases in future
compensation expense. However, such effect is not currently estimable.

In March 2005, the FASB issued interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN 47), which requires an entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liabilitys fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is currently evaluation the effect that the adoption of FIN 47
will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

In May 2005,
the FASB issued SFAS No. 154, Accounting Changes and Error Correction (SFAS 154), which replaces Accounting Principles Board Opinions No. 20 Accounting Changes and SFAS No 3, Reporting Accounting Changes
in Interim Financial Statements  An Amendment of APB Opinion No. 28. SFAS 154 provides guidance on accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the
latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of operations and
financial condition, but does not expect it to have any impact.



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|2. | Laurus Credit Facility
|-- | ----------------------

On March 30, 2005, the
Company entered into agreements with Laurus Master Funds, Ltd, a Cayman Islands corporation (Laurus), pursuant to which the Company sold convertible debt and an option and a warrant to purchase common stock of the Company to Laurus in a
private offering pursuant to exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The securities being sold to Laurus include the following:



| |  |  | a secured convertible minimum borrowing note and a secured revolving note with an aggregate principal amount not to exceed $5,000,000;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a secured convertible term note with a principal amount of $3,000,000;
| | - |  | ----------------------------------------------------------------------



| |  |  | a common stock purchase warrant to purchase 11,162,790 shares of common stock of the Company, at a purchase price of $0.23 for the first 5,581,395 shares and $0.28 for any
additional shares, exercisable for a period of seven years; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an option to purchase 24,570,668 shares of common stock of the Company, at a purchase price equal to $0.01 per share, exercisable for a period of six years
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

At the closing of the foregoing financing from Laurus, on March 31, 2005, the Company received $3,000,000 in connection
with the convertible term note. In addition, the Company is permitted to borrow an amount based upon its eligible accounts receivable and inventory, pursuant to the convertible minimum borrowing note and the revolving note. Accordingly, the Company
received an additional $3,600,000 at closing, and $1,400,000 on May 15, 2005 for an aggregate of $8,000,000 in financing from Laurus.

The Company must pay certain fees in the event the facility is terminated prior to expiration. The Companys obligations under the notes are secured by all of the assets of the Company, including but not limited to inventory, accounts
receivable and a pledge of the stock of Electric Machinery Enterprises, Inc., EarthFirst Resources, Inc., World Environmental Solutions Company, Inc., EarthFirst Investments, Inc., EM Enterprise Resources, Inc. and EME Modular Structures, Inc., the
active subsidiaries of the Company. The notes mature on March 30, 2008. Annual interest on the convertible minimum borrowing note and the revolving note is equal to the prime rate published in The Wall Street Journal from time to
time, plus 2.0%, provided, that, such annual rate of interest may not be less than 7.0%, subject to certain downward adjustments resulting from certain increases in the market price of the Companys common stock. Annual interest on the
convertible term note is equal to the prime rate published in The Wall Street Journal from time to time, plus 2.5%, subject to certain downward adjustments resulting from certain increases in the market price of the Companys common
stock.



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

The principal amount of the secured convertible term note is repayable at the rate of
$100,000 per month together with accrued but unpaid interest, commencing on October 1, 2005. Such amounts may be paid, at the holders option (i) in cash with a 2% premium; or (ii) in shares of common stock, assuming the shares
of common stock are registered under the Securities Act of 1933. If paid in shares of common stock the number of shares to be issued shall equal the total amount due, divided by $0.19. If the average closing price of the common stock for five
consecutive trading days prior to an amortization date is equal to or greater than $.209, the Company may require the holder to convert into common stock an amount of principal, accrued interest and fees due under the term note equal to a maximum of
25% of the aggregate dollar trading volume of the common stock for the 22 consecutive trading days prior to a notice of conversion. The Company in cash may redeem the term note by paying the holder 125% of the principal amount, plus accrued interest
during the first year of the note, 115% of the principal amount, plus accrued interest during the second year of the note and 110% of the principal amount, plus accrued interest thereafter. The holder of the term note may require the Company to
convert all or a portion of the term note, together with interest and fees thereon at any time. The number of shares to be issued shall equal the total amount to be converted, divided by $0.19.

The principal amount of the secured convertible minimum borrowing note, together with accrued interest thereon is payable on April 1, 2008. The
secured convertible minimum borrowing note may be redeemed by the Company in cash by paying the holder 103% of the principal amount, plus accrued interest during the first year of the note, 102% of the principal amount, plus accrued interest during
the second year of the note and 101% of the principal amount, plus accrued interest thereafter. The holder of the term note may require the Company to convert all or a portion of the term note, together with interest and fees thereon at any time.
The number of shares to be issued shall equal the total amount to be converted, divided by $0.19.

Upon an issuance of new shares of common
stock below the fixed conversion price, the fixed conversion price of the notes will be reduced accordingly. The conversion price of the secured convertible notes may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide
or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution.

120% of the full principal amount of the convertible notes are due upon default under the terms of convertible notes. Laurus has contractually agreed to restrict its ability to convert pursuant to the terms of the
convertible notes to an amount that would be convertible into that number of Conversion shares which would exceed the difference between 4.99% of the outstanding shares of Common Stock, and the number of shares of Common stock beneficially owned by
the holder and issuable to the holder upon the exercise of the warrant and the option held by such holder. The intent is that at no time shall Laurus own more than 4.99% of the outstanding Common Stock of the Company.

The Company is obligated to file a registration statement registering the resale of shares of the Companys common stock issuable upon conversion of
the convertible notes, exercise of the warrant and exercise of the option. If the registration statement is not filed by May 30, 2005, or



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

declared effective by January 31, 2006, or if the registration is suspended other
than as permitted, in the registration rights agreement between the Company and Laurus, the Company is obligated to pay Laurus certain fees and the obligations may be deemed to be in default. The Company has filed this registration statement and has
responded to two rounds of comments, and is preparing a response to the third round of comments from the SEC.

The Company paid a fee at
closing to Laurus Capital Management LLC, the manager of the Laurus Master Funds, Ltd., equal to 3.6% of the total maximum funds to be borrowed under the Companys agreements with Laurus.

The following table reflects balances of the secured convertible notes at December 31, 2005:



|                                                                                                                                                                                             |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- | -
|Face value $2,700,000 Secured Convertible Term Note, variable rate of prime plus 2% (9.25% at December 31, 2005), due in stated monthly
payments of $100,000 November 2005 to December 2006. |  | $ | 407,481    |  
|Face value $1,000,000 Secured Convertible Minimum Note, variable rate of prime plus 2%, subject to 7% floor (9.25% at December 31, 2005)
due at maturity on March 31, 2008.                  |  |   | 75,287     |  
|Face value $4,000,000 Secured Convertible Revolving Note, variable rate of prime plus 2%, subject to 7% floor (9.25% at December 31,
2005), due at maturity on March 31, 2008.               |  |   | 2,778,433  |  
|                                                                                                                                                                                             |  |   |            |  
|                                                                                                                                                                                             |  |   | 3,261,201  |  
|Less current maturities                                                                                                                                                                      |  |   | (2,959,536 | )
|                                                                                                                                                                                             |  |   |            |  
|                                                                                                                                                                                             |  | $ | 301,665    |  
|                                                                                                                                                                                             |  |   |            |  
|Scheduled maturities of face values for the years ending December 31 are as follows:                                                                                                         |  |   |            |  
|2006                                                                                                                                                                                         |  | $ | 5,200,000  |  
|2007                                                                                                                                                                                         |  |   | 1,200,000  |  
|2008                                                                                                                                                                                         |  |   | 1,300,000  |  
|                                                                                                                                                                                             |  |   |            |  
|                                                                                                                                                                                             |  | $ | 7,700,000  |  
|                                                                                                                                                                                             |  |   |            |  



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

The Laurus Financings included registration rights and certain other terms and conditions
related to share settlement of the embedded conversion features and the warrants that the Company has determined are not within its control. In addition, certain features associated with the financings, such as anti-dilution protection afforded the
financing agreements render the number of shares issuable to be indeterminate. In these instances, EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, requires
allocation of the proceeds between the various instruments and the derivative elements carried at fair values. The following tabular presentation reflects the allocation of the proceeds on the financings date:



|                             |  |           |            |   |             |   |           |               |  |   |            |  
|---------------------------- |  | --------- | ---------- | - | ----------- | - | --------- | ------------- |  | - | ---------- | -
|                             |  | Term Note |            |   | MinimumNote |   |           | RevolvingNote | 
|Allocation:                  |  |           |            |   |             |   |           |               |  |   |            |  
|Warrants and options         |  | $         | 3,578,591  |   |             | $ | 1,192,864 |               |  | $ | 2,600,000  |  
|Embedded derivative features |  |           | 1,932,632  |   |             |   | 644,211   |               |  |   | 3,101,445  |  
|Debt instrument              |  |           |           |   |             |   |          |               |  |   |           |  
|Derivative loss              |  |           | (2,511,222 | ) |             |   | (837,074  | )             |  |   | (3,101,445 | )
|                             |  |           |            |   |             |   |           |               |  |   |            |  
|Total proceeds               |  | $         | 3,000,000  |   |             | $ | 1,000,000 |               |  | $ | 4,000,000  |  
|                             |  |           |            |   |             |   |           |               |  |   |            |  

Derivative losses arose in connection with the allocation of proceeds to derivative financial
instruments at their respective fair values, which amounts exceed amounts received by the Company in connection with the financing arrangement. See Fair Value of Financial Instruments, below, for additional information about the Companys
financial instruments. No proceeds were allocated to the secured convertible notes and therefore discounts of $3,000,000, $1,000,000 and $4,000,000 were recorded.

The discount to the debt instruments resulting from the aforementioned allocation is being amortized through periodic charges to interest expense using the effective method for the Term and Minimum Notes and the
straight-line method for the Revolving Note.

The following tabular presentation reflects the amortization of the debt discounts included in
interest for each instrument:



|                             |  |           |         |             |   |               |  |       |           |  |   |          
|---------------------------- |  | --------- | ------- | ----------- | - | ------------- |  | ----- | --------- |  | - | ---------
|                             |  | Term Note |         | MinimumNote |   | RevolvingNote |  | Total
|Year ended December 31, 2005 |  | $         | 798,421 |             | $ | 75,287        |  | $     | 1,378,434 |  | $ | 2,252,142
|                             |  |           |         |             |   |               |  |       |           |  |   |          



|3. | Fair Value of Financial Instruments
|-- | -----------------------------------

The carrying
values of cash, accounts receivable, accounts payable, accrued expenses, acquisition consideration payable and bank borrowings generally approximate the respective fair values of these instruments due to their current nature.



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

The fair values of convertible notes for disclosure purposes only are estimated based upon
the present value of the estimated cash flows at credit risk adjusted interest rates, ranging from 10.63% to 11.54% for convertible instruments. As of December 31, 2005, estimated fair values and respective carrying values for debt instruments
are as follows:



|                                                         |  |            |           |               |   |          
|-------------------------------------------------------- |  | ---------- | --------- | ------------- | - | ---------
|Debt Instrument                                          |  | Fair Value |           | CarryingValue
|$2,700,000 Face Value Convertible Secured Term Note      |  | $          | 2,551,292 |               | $ | 407,481  
|                                                         |  |            |           |               |   |          
|$1,000,000 Face Value Convertible Secured Minimum Note   |  | $          | 962,493   |               | $ | 75,287   
|                                                         |  |            |           |               |   |          
|$4,000,000 Face Value Convertible Secured Revolving Note |  | $          | 3,849,975 |               | $ | 2,778,433
|                                                         |  |            |           |               |   |          



|4. | Derivative Financial Instruments
|-- | --------------------------------

The Company
generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. However, certain other financial instruments, such as warrants and embedded
conversion features that are indexed to the Companys common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within the control of
the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair
value and subsequently adjusted to fair value at the close of each reporting period.

The caption Derivative Financial Instruments consists
of (i) the fair values associated with derivative features embedded in the Laurus Convertible Secured Term Notes and (ii) the fair values of the detachable warrants and options that were issued in connection with those financing
arrangements.

On July 27, 2005, Laurus Master Fund exercised common stock options for the purchase of 19,000,000 shares of common
stock at the strike price of $0.01 per share. On that date, the fair value of the freestanding derivative associated with the stock options exercised, amounting to $2,470,000 was reclassified to stockholders equity.

The following tabular presentation reflects the components of Derivative financial instruments on the Companys balance sheet at December 31,
2005:



|                                                |  |      |          
|----------------------------------------------- |  | ---- | ---------
|Liabilities:                                    |  | 2005
|Embedded derivative instruments                 |  | $    | 2,492,000
|Freestanding derivatives (warrants and options) |  |      | 2,230,520
|                                                |  |      |          
|                                                |  | $    | 4,722,520
|                                                |  |      |          



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

The following tabular presentation reflects the number of common shares into which the
aforementioned derivatives are indexed at December 31, 2005:



|                                                |  |           
|----------------------------------------------- |  | ----------
|                                                |  | 2005      
|Common shares indexed:                          |  |           
|Embedded derivative instruments                 |  | 44,000,000
|Freestanding derivatives (warrants and options) |  | 16,733,458
|                                                |  |           
|                                                |  | 60,733,458
|                                                |  |           

Income (expense) for the year ended December 31, 2005 associated with adjustments recorded to
reflect the aforementioned derivatives at fair value amounted to $592,521.

Fair value considerations for derivative financial instruments:

Freestanding derivative instruments, consisting of warrants and options that arose from the Laurus financing are valued using the
Black-Scholes-Merton valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions included in this model as of December 31, 2005 are as
follows:



|                |  |             |  |        
|--------------- |  | ----------- |  | -------
|Holder          |  | Laurus      |  | Laurus 
|Instrument      |  | Warrants    |  | Options
|Exercise prices |  | $0.23$0.28 |  | $0.01  
|Term (years)    |  | 5.3         |  | 1.0    
|Volatility      |  | 59.09%      |  | 59.09% 
|Risk-free rate  |  | 4.88%       |  | 4.88%  

Embedded derivative instruments consist of multiple individual features that were embedded in the
convertible debt instruments. The Company evaluated all significant features of the hybrid instruments and, where required under current accounting standards, bifurcated features for separate report classification. These features were, as
attributable to each convertible note, aggregated into one compound derivative financial instrument for financial reporting purposes. The compound embedded derivative instruments are valued using the Flexible Monte Carlo methodology because that
model embodies certain relevant assumptions (including, but not limited to, interest rate risk, credit risk, and Company-controlled redemption privileges) that are necessary to value these complex derivatives.

Significant assumptions included in this model as of December 31, 2005 are as follows:



|                         |  |        |  |         |  |         
|------------------------ |  | ------ |  | ------- |  | --------
|Holder                   |  | Laurus |  | Laurus  |  | Laurus  
|Instrument               |  | Term   |  | Minimum |  | Revolver
|Conversion prices        |  | $3.12  |  | $2.70   |  | $2.92   
|Actual term (years)      |  | 2.1    |  | 2.2     |  | 2.5     
|Equivalent volatility    |  | 45.29% |  | 45.29%  |  | 45.29%  
|Equivalent interest rate |  | 2.14%  |  | 2.14%   |  | 2.14%   
|Equivalent yield rate    |  | 11.39% |  | 11.39%  |  | 11.39%  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Equivalent amounts reflect the net results of multiple modeling simulations that the Monte
Carlo Simulation methodology applies to underlying assumptions.



|5. | Acquisitions and intangible assets
|-- | ----------------------------------

EME 
2004

As discussed in Note 1, on August 20, 2004 the Company acquired 100% of the outstanding stock of EME in exchange for the
issuance of 40,000,000 shares of the Companys common stock in a transaction accounted for as a purchase. Accordingly, the results of EME are included in the accompanying consolidated financial statements only from the acquisition date through
December 31, 2004. The recorded cost of this acquisition was based upon the fair market value of the Company acquired based on an independent valuation. An intangible asset for goodwill has been recorded in the amount of $ 15,323,152. Generally
accepted accounting principles do not allow the amortization of goodwill, but instead require an annual evaluation of the amount for impairment.

The fair values of assets acquired and liabilities assumed in connection with this acquisition, which was accounted for as a purchase, are as follows:



|                                                           |  |     |           
|---------------------------------------------------------- |  | --- | ----------
|                                                           |  | EME
|Cash                                                       |  | $   | 3,174,317 
|Accounts receivable                                        |  |     | 7,464,139 
|Costs and earnings in excess of billings                   |  |     | 1,606,854 
|Inventory                                                  |  |     | 1,737,155 
|Prepaid expenses and other current assets                  |  |     | 652,328   
|Property and equipment                                     |  |     | 2,023,364 
|Construction in process Goodwill                           |  |     | 15,323,152
|Purchased in-process research and development Other assets |  |     | 390,289   
|                                                           |  |     |           
|Total assets acquired                                      |  |     | 32,371,598
|Less current liabilities assumed                           |  |     | 11,409,920
|Less long-term debt assumed                                |  |     | 14,694,678
|                                                           |  |     |           
|                                                           |  | $   | 6,267,000 
|                                                           |  |     |           

Proforma results of operations for the year ended December 31, 2004 as though this acquisition
had taken place at January 1, 2004 are as follows:



|                   |  |                               |            |  
|------------------ |  | ----------------------------- | ---------- | -
|                   |  | Years Ended December 31, 2004 |           
|Revenue            |  | $                             | 40,046,786 |  
|                   |  |                               |            |  
|Net loss           |  | $                             | (1,578,082 | )
|                   |  |                               |            |  
|Net loss per share |  | $                             | (.01       | )
|                   |  |                               |            |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

WESCO  2004

In January 2004, the Company acquired a 100% interest in World Environmental Solutions Company (WESCO) through the issuance of 15,000,000
shares of stock and the assumption of $725,000 in obligations. The acquisition price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values. (The fair value of the stock was determined based on the
trading price of the stock).



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

For accounting purposes, the transaction was treated as an acquisition of assets and not a
business combination because WESCO did not meet the definition of a business under EITF 98-3, Determination Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business. The purchase price was allocated to assets
acquired and liabilities assumed based on managements analysis and estimates of fair values. Managements estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.
The acquired in-process research and development (IPR&D) (principally associated with the Catalytic Activated Vacuum Distillation process) was valued at $1.8 million, based on the consideration given up. The remaining purchase price was the
assumption of obligations associated with the property and equipment of $725,000 and was therefore specifically allocated to those assets. As such the acquisition of the intellectual property, which was funded by non-monetary assets (EarthFirst
stock) was written off as IPR & D and the construction in process for the pilot plant was recorded based on the liabilities assumed and EarthFirst took over the construction contract, paying all further costs of said construction directly
to the contractor. The pilot plant was capitalizable since it was of a scale economically feasible for commercial production. The amounts assigned to IPR&D assets were written off at the date of acquisition in accordance with FASB Interpretation
No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.



|6. | Sale of Subsidiary
|-- | ------------------

On March 23, 2005, the
Company closed on the sale of EM Enterprises General Contractors, Inc., a subsidiary of EME for $900,000. Pursuant to the EMEGC Stock Sale Agreement, the transaction has been accounted for with an effective date of January 1, 2005. The
proceeds of the sale went to the secured creditor as a part of accomplishing the satisfaction of the secured debt.



|7. | Contracts in Progress
|-- | ---------------------

Uncompleted contracts are
summarized as follows at December 31, 2005:



|                                            |  |   |             |  
|------------------------------------------- |  | - | ----------- | -
|Costs incurred on uncompleted contracts     |  | $ | 20,404,956  |  
|Estimated earnings on uncompleted contracts |  |   | 3,047,325   |  
|                                            |  |   |             |  
|                                            |  |   | 23,452,281  |  
|Less billings to date                       |  |   | (22,725,775 | )
|                                            |  |   |             |  
|                                            |  | $ | 726,506     |  
|                                            |  |   |             |  

The components of this amount are included on the balance sheet under the following captions:



|                                                                            |  |   |           |  
|--------------------------------------------------------------------------- |  | - | --------- | -
|Costs and estimated earnings in excess of billings on Uncompleted contracts |  | $ | 1,446,326 |  
|Billings in excess of costs and estimated earnings on uncompleted contracts |  |   | (719,820  | )
|                                                                            |  |   |           |  
|                                                                            |  | $ | 726,506   |  
|                                                                            |  |   |           |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|8. | Property, Plant and Equipment
|-- | -----------------------------

Property, plant and
equipment consisted of the following at December 31, 2005:



|                              |  |   |            |  
|----------------------------- |  | - | ---------- | -
|Land                          |  | $ | 52,244     |  
|Buildings                     |  |   | 1,267,139  |  
|Construction in progress      |  |   | 2,273,719  |  
|Leasehold improvements        |  |   | 832,900    |  
|Equipment                     |  |   | 1,982,876  |  
|Vehicles                      |  |   | 1,059,491  |  
|Furniture, fixtures and other |  |   | 116,316    |  
|                              |  |   |            |  
|                              |  |   | 7,584,685  |  
|Less accumulated depreciation |  |   | (2,617,277 | )
|                              |  |   |            |  
|                              |  | $ | 4,967,408  |  
|                              |  |   |            |  



|9. | Notes Payable
|-- | -------------

Notes payable consisted of the
following at December 31, 2005:



|                                                                                                                                                                                   |  |   |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------
|Promissory note payable to vendor in lieu of payment on administrative claim, no accrued interest; bi monthly payments of $7,500, with final payment of $25,638 by January 1,
2006 |  | $ | 25,638
|Insurance premium finance agreement, payable in nine monthly payments of $6,403, bearing interest at 8.25%, to premium assignment corporation                                      |  |   | 18,753
|Installment notes payable to a finance company, with monthly payments of approximately $848.00 including interest at 13.4% secured by equipment                                    |  |   | 8,010 
|                                                                                                                                                                                   |  |   |       
|                                                                                                                                                                                   |  | $ | 52,401
|                                                                                                                                                                                   |  |   |       



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|10. | EME Bankruptcy and Plan of Reorganization Obligations
|--- | -----------------------------------------------------

On May 29, 2003, (Petition Date), Electric Machinery Enterprises, Inc. (the Debtor) filed a petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle
District of Florida (the Bankruptcy Court). Under Chapter 11, certain claims against the debtor in existence prior to the filing of the petitions for relief under the Bankruptcy Code were stayed while the Debtor continued business
operations as Debtor-In-Possession.

The Plan of Reorganization (the Plan) filed on behalf of Electric Machinery Enterprises,
Inc. was confirmed by the Bankruptcy Court on December 9, 2004. The plan provides for the restructure of debt, and orderly discharge of pre-petition priority and administrative claims. The balance remaining of the restructured obligations under
the Plan as of December 31, 2005 is included on the balance sheet in accounts payable and accrued expenses and consisted of the following:



|                                                                           |  |   |       
|-------------------------------------------------------------------------- |  | - | ------
|Administrative debt                                                        |  |   |       
|Costs and legal expenses for the administration of the reorganization case |  | $ | 63,611
|                                                                           |  |   |       

On March 31, 2005, with the closing of the Laurus Credit Facility, the Company was able to
take advantage of discounts available through the approved reorganization plan for its wholly owned subsidiary, EME., and completely satisfy all remaining obligations associated with the secured debt, resulting in a gain on extinguishment of debt in
the amount of $4,163,740 during the year ended December 31, 2005.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|11. | Commitments and Contingencies
|--- | -----------------------------

Lease
obligations:

The Company leases vehicles and certain office equipment under noncancellable operating leases for periods up to four
years. In addition, the Company conducts its operations in a facility leased from a related corporation owned by certain stockholders of the Company.

The total rent expense for the years ended December 31, 2005 and 2004 were approximately $953,516 and $247,709, of which approximately $657,996 and $228,012 respectively, were for the facility leased from the
related corporation.

Approximate future minimum rentals on noncancellable leases at December 31, 2005 are as follows:



|                         |  |   |          
|------------------------ |  | - | ---------
|Year ending December 31, |  |  
|2006                     |  | $ | 927,610  
|2007                     |  |   | 220,905  
|2008                     |  |   | 218,661  
|2009                     |  |   | 140,474  
|                         |  |   |          
|                         |  | $ | 1,507,650
|                         |  |   |          

Legal proceedings:

The Company is involved in litigation with Ruggero Maria Santilli (Santilli), The Institute for Basic Research, Inc. (IBR), and
Hadronic Press, Inc. (Hadronic) concerning certain aspects of the Companys liquid waste technologies.

The matters
contemplated above will be referred to as the Santilli Suit and the Hadronic Suit. Hadronic claims to own the intellectual property rights to one or more aspects of the Companys liquid waste technologies. Management
continues to believe that the Company owns all of the intellectual property rights necessary to commercialize and further develop its liquid and solid waste technologies without resorting to a license from any third parties.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

During 2004, the Company attempted to reach agreement with Santilli and his related
parties to resolve the differences between the parties. As of this date, the Company is still interested in resolving these differences.

The litigation described above does not involve the technology the Company is developing in connection with its efforts for the processing of used automotive tires.

The Company is also involved in disputes with vendors for various alleged obligations associated with operations that were discontinued in prior years.
Several disputes involve deficiency balances associated with lease obligations for equipment acquired by the Company for its contract manufacturing and BORS Lift operations that were discontinued during calendar 2000. The machinery and equipment
associated with many of these obligations has been sold with the proceeds paid to the vendor or the equipment has been returned to the vendor. Several of the equipment leasing entities claim that balances on the leases are still owed.

The Company has other litigation and disputes that arise in the ordinary course of its business. The Company has accrued amounts for which it believes all
of its disputes will ultimately be settled.



|12. | Retirement Plan
|--- | ---------------

EFTI adopted the EarthFirst
Technologies, Incorporated 401(k) Savings Plan effective October 1, 2005. The Plan covers all employees of the Company employed on October 1, 2005 who have attained the age of 21. Otherwise, eligibility to participate in the Plan is
established after having completed six months of service and having attained age 21. The Plan provides for a matching contribution equal to 25% of the amount of salary reduction deferral elected by the employee up to 4% of the employees annual
payroll compensation. The Company incurred no expense for the year ended December 31, 2005.

EME adopted a 401(k) savings plan effective
January 1, 1997. The Plan covered all employees who were at least 18 years of age with one or more years of service. The Company did not make any discretionary contributions for the years ended December 31, 2005 or 2004. Effective
November 1, 2005, the Electric Machinery Enterprises, Inc. 401(k) Savings Plan was merged into the EarthFirst Technologies, Incorporated 401(k) Savings.



|13. | Employee Stock Ownership Plan and Trust
|--- | ---------------------------------------

On
December 12, 2004, Electric Machinery Enterprises, Inc. (EME) terminated the EME Employee Stock Ownership Plan (the Plan). All employees who were not fully vested became 100% vested as of December 12, 2004.
Participants of the Plan have received a distribution of their respective shares of stock of EarthFirst Technologies,



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Inc. that was held in the EME Employee Stock Ownership Trust on their behalf. EME has no
obligation for the repurchase of the stock distributed to the participants of the Plan because the shares are publicly traded and as such, there is a market available in which the participants may sell their shares.



|14. | Related Party Transactions
|--- | --------------------------

Material related party
transactions that have been entered into by the Company that are not otherwise in these notes are summarized below:

On February 23,
2005, the entire remaining balance of amounts due to the Companys principal stockholder in the amount of $9,204,157 was converted into 189,643,210 shares of the Companys common stock. As of December 31, 2005 there are no remaining
amounts due to related parties.

The Company leases and rents the real property, building, and all other improvements located at 2515 E
Hanna Avenue, Tampa, Florida 33610 from Hanna Properties, Inc., a related party affiliated with Jaime Jurado, the Vice Chairman of EFTI. Mr. Jurado owns 45.425% of the common stock of Hanna Properties, Inc. This property consists of 29,680 sq.
ft. of office space, 80,320 sq. ft. of warehouse space and 26,992 sq. ft. of garage and workshop space. Monthly rental including sales tax, but excluding real estate taxes and insurances is $52,133. This lease obligation was assumed pursuant to
EMEs reorganization plan for a period of two years, at which time EarthFirst has the option to re-evaluate. This location is the corporate headquarters of EarthFirst Technologies Incorporated and its subsidiaries.

On August 29, 2005, the Company issued 83,000,000 shares of common stock as stock based compensation to entities affiliated with or controlled by
John Stanton, Chairman of the Board, for services rendered from the inception of his involvement with the Company through the acquisition and reorganization of EME. Included in this issuance were those shares entitled to be issued by EFTI as a plan
proponent to the EME



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

bankruptcy, and authorized by the Fourth Amended Plan of Reorganization of EME pursuant to
Section 1145 of the Bankruptcy Code. Compensation expense associated with this transaction, calculated based upon the market price of the Companys stock on the date of grant was $18,260,000.



|15. | Stockholders equity
|--- | -------------------

On July 27, 2005, Laurus
Master Funds, Ltd. exercised its option to purchase 19,000,000 common shares at $.01 per share, or $190,000. The original option granted to Laurus at the closing of its credit facility on March 30, 2005, entitled Laurus to purchase 24,570,668
common shares. After this transaction, Laurus still has the option to purchase an additional 5,570,668 common shares at this price.

On
June 21, 2005, the Company paid certain professional fees related to pursuit of claims in the total amount of $893,000. The payment of this amount included the issuance of 4,633,333 unrestricted common shares, representing $695,000 of the
total. The balance was paid in cash.

On April 29, 2005, the Company filed Schedule 14C, preliminary information statement in
connection with certain actions to be taken pursuant to the written consent of the stockholders of the Company holding a majority of the outstanding shares of common stock in lieu of a special meeting.

This information statement was filed for the purpose of amending the articles of incorporation to increase the number of authorized shares of common stock
to 750,000,000.

On January 26, 2004, the Company finalized a letter of understanding (LOU) with World Environmental
Solutions Company, LLC (WESCO), Harmony, LLC and Turner Industries (Harmony/Turner) wherein the Company agreed to form a new company (Holdings), to commercialize certain Solid Waste Technology. Pursuant to the
LOU, Holdings agreed to fund $50,000 in engineering costs and provide management and expertise to create an operational plant. The agreement further specifies that Harmony, LLC and Turner Industries (Company whose Chairman is related to a Director
of the Company) agree to a cost plus construction contract to build the Solid Waste Remediation Plant and to maintain the capability to build four additional plants in the near term with a total of 43 plants projected within a 5 year period.

On January 30, 2004, the Company and WESCO entered into a separate agreement whereby in exchange for 70% of Holdings (bringing the
Companys ownership to 100% of this newly created joint venture holding company) the Company issued 15,000,000 shares of the Companys stock in exchange for certain solid waste technology (in-process research and development), which was
paid to WESCOs remaining stakeholders (Solid Waste). This transaction was valued at the common stock trading market value of $0.12 per share on the date of the agreement. Future stock issuances to the principals of WESCO
contemplated under the agreement are as follows:



|                                    |  |                        
|----------------------------------- |  | -----------------------
|Upon sale of first 13 reactors      |  | 5 million common shares
|Upon sale of 13 additional reactors |  | 5 million common shares



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Stock Options:

In 2001, the Board of Directors approved the 2001 Equity Incentive Plan. The total number of shares to which options may be granted under the plan is
20,000,000 shares. Generally the option price is fixed at no less than 100% of the fair market value of the shares at the date the option is granted and expire on the earlier of three months after termination of employment or ten years from the date
of grant.

On March 30, 2005, the Company issued options to purchase 24,570,668 shares of the Companys common stock in
conjunction with the credit facility with the Laurus Master Fund. On July 27, 2005, Laurus Master Funds, Ltd. exercised its option to purchase 19,000,000 common shares at $.01 per share.

A summary of the status of the Companys outstanding stock options as of December 31, 2005 and 2004, and the changes during the years ending on
those dates, is presented below:



|                                                                     |  |             |   |  |                                 |     
|-------------------------------------------------------------------- |  | ----------- | - |  | ------------------------------- | ----
|                                                                     |  | Shares      |   |  | Weighted Average Exercise Price
|Options outstanding, January 1, 2004                                 |  | 9,250,000   |   |  | $                               | .32 
|Options granted in 2004                                              |  |            |   |  |                                 |    
|Options canceled in 2004                                             |  | (2,000,000  | ) |  |                                 | 1.00
|                                                                     |  |             |   |  |                                 |     
|Options outstanding, December 31, 2004                               |  | 7,250,000   |   |  |                                 | .32 
|                                                                     |  |            
|Options granted in 2005                                              |  | 24,570,668  |   |  |                                 | .01 
|Options exercised in 2005                                            |  | (19,000,000 | ) |  |                                 | .01 
|Options expired in 2005                                              |  | (250,000    | ) |  |                                 | .05 
|                                                                     |  |             |   |  |                                 |     
|Options outstanding, December 31, 2005, all of which are exercisable |  | 12,570,668  |   |  | $                               | .08 
|                                                                     |  |             |   |  |                                 |     

The following table summarizes information for options outstanding and exercisable at
December 31, 2005.



|                 |  |                                     |  |                              |  |                              |    
|---------------- |  | ----------------------------------- |  | ---------------------------- |  | ---------------------------- | ---
|                 |  | Options Outstanding and Exercisable
|Range of Prices  |  | Number                              |  | Weighted Avg. Remaining Life |  | Weighted Avg. Exercise Price
|$      0.01-1.00 |  | 12,570,668                          |  | 5.08 years                   |  | $                            | .08
|                 |  |                                     |  |                              |  |                              |    



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Weighted average grant date fair values of options granted during 2005 are as follows:



|                 |  |                   |  |                |     |                       |   |    
|---------------- |  | ----------------- |  | -------------- | --- | --------------------- | - | ---
|                 |  | Number of Options |  | Exercise Price |     | Grant date fair value
|Exercise price:  |  |                   |  |                |     |                       |   |    
|Less than market |  | 24,570,668        |  | $              | .01 |                       | $ | .23

Common stock warrants:

On March 30, 2005, the Company issued warrants to purchase 11,162,790 shares of the Companys common stock in conjunction with the credit
facility with the Laurus Master Fund at a purchase price of $.23 for the first 5,581,395 shares and $.28 for the remaining 5,581,395 shares, exercisable for a period of seven years.

There were no warrants granted during 2004. During 2004, warrants to acquire 3,800,000 shares of common stock at $.40 per share expired.

Stock issuances for services:

During
2005 and 2004, the Company issued shares of unregistered common stock to settle certain disputes. The shares issued have been valued at market price on the date of issue.



|16. | Managements plans regarding liquidity and capital resources:
|--- | -------------------------------------------------------------

The Company experienced recurring net losses since its inception and, as such, experienced negative operating cash flows through most of 2004. The Company has historically funded these negative operating cash flows
with proceeds from sales of common and preferred stock, as well as notes and convertible debentures payable.

In December 2000 and again in
January 2003, the Company entered into multiple revolving line of credit promissory notes with entities related to John Stanton, the Companys Chairman of the Board, Chief Executive Officer and President, secured by all of the assets of the
Company. Each revolving note was a demand loan, which meant that the lender could demand full repayment of the loan at any time. The promissory notes related to each revolving line of credit merely provided for a loan up to a stated amount. There
was no obligation on the part of the related party to make any loans pursuant to these agreements if the loan balance was less than the stated amount. There was no obligation on the part of the related parties to make any additional loans.

Historically, the related party lender has periodically agreed to convert portions of the loan balances into shares of the Companys
common stock. During 2004, the related party converted $5,334,010 of these notes into shares of the Companys common stock.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

As of December 31, 2004, the Company owed $6,672,519 pursuant to these agreements.
Subsequent to December 31, 2004, additional loans were made under these notes to help secure the outcome of the reorganization of EME. On February 23, 2005 the full balance of notes payable to related parties was converted into 189,643,210
shares of the Companys common stock.

Since the acquisition of EME in August of 2004, the Company is no longer experiencing negative
operating cash flows. Working capital as of December 31, 2005 was approximately $4.1 million and stockholders equity was approximately $18.7 million.

The Company generated income from operations in 2005 exclusive of stock based compensation of $1,423,359.

On March 30, 2005, the Company closed an agreement with Laurus Master Funds, Ltd. on a senior credit facility aggregating up to $8 million. The initial funding under this agreement was $6.6 million. This transaction allowed the Company
to take advantage of discounts relative to the settlement of the secured debt in EMEs bankruptcy, as well as provide working capital.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

The company may pursue an expansion of its Laurus credit facility or borrowings from
related parties to fund anticipated growth; however management believes that current working capital levels and expected positive operating cash flows in 2006 will provide cash flows sufficient to fund the companys obligations in the ordinary
course of business.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|17. | Segment Information
|--- | -------------------

Commencing with the
Companys acquisition of EME in the fourth quarter of 2004, and the establishment of EarthFirst Americas in 2005, the Company operates in three business segments. The waste disposal segment is focused on research and development and bringing
the existing technologies to commercial realization. The Contracting segment operates electrical contracting and subcontracting services on commercial and municipal construction projects primarily in Florida and the Caribbean. The Caribbean projects
are all denominated in U.S. currency. The Biofuels segment is focused on the importing and producing of biodiesel fuels.



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

SEGMENT INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2005 IS AS FOLLOWS:



|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|-------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | ----------- | - | ---------- | -------- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                             |  | Waste Disposal |            |   | Contracting |   |            | Biofuels |  |   | Total       |  
|Revenue                                                                                      |  | $              | 11,770     |   |             | $ | 41,562,369 |          |  | $ | 169,181     |   |  | $ | 41,743,320 |  
|Cost of Sales                                                                                |  |                |            |   |             |   | 31,872,678 |          |  |   | 171,526     |   |  |   | 32,044,204 |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Gross profit (loss)                                                                          |  |                | 11,770     |   |             |   | 9,689,691  |          |  |   | (2,345      | ) |  |   | 9,699,116  |  
|Selling, general and administrative expenses                                                 |  |                | 857,403    |   |             |   | 4,843,957  |          |  |   | 510,034     |   |  |   | 6,211,394  |  
|Research and development expenses                                                            |  |                | 408,205    |   |             |   |            |          |  |   |             |   |  |   | 408,205    |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Income (loss) from operations before reorganization item, income taxes and majority interest |  |                | (1,253,838 | ) |             |   | 4,845,734  |          |  |   | (512,379    | ) |  |   | 3,079,517  |  
|Other income (expense)                                                                       |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Gain on extinguishment of debt, bankruptcy                                                   |  |                |            |   |             |   | 4,163,740  |          |  |   |             |   |  |   | 4,163,740  |  
|Loss on disposal of assets                                                                   |  |                |            |   |             |   | (97,597    | )        |  |   |             |   |  |   | (97,597    | )
|Interest expense                                                                             |  |                | (64,670    | ) |             |   | (22,064    | )        |  |   |             |   |  |   | (86,734    | )
|Miscellaneous income                                                                         |  |                |            |   |             |   | 266,975    |          |  |   |             |   |  |   | 266,975    |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Income (loss) before reorganization item, Income taxes and majority interest                 |  |                | (1,318,508 | ) |             |   | 9,156,788  |          |  |   | (512,379    | ) |  |   | 7,325,901  |  
|Reorganization item, professional fees related to bankruptcy and pursuit of claims           |  |                |            |   |             |   | (1,224,288 | )        |  |   |             |   |  |   | (1,224,288 | )
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Income (loss) before majority interest                                                       |  |                | (1,318,508 | ) |             |   | 7,932,500  |          |  |   | (512,379    | ) |  |   | 6,101,613  |  
|Majority interest                                                                            |  |                |            |   |             |   | 377        |          |  |   |             |   |  |   | 377        |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Income (loss) from continuing operations                                                     |  |                | (1,318,508 | ) |             |   | 7,932,877  |          |  |   | (512,379    | ) |  |   | 6,101,990  |  
|Loss on disposal of discontinued operations                                                  |  |                |            |   |             |   | (137,636   | )        |  |   |             |   |  |   | (137,636   | )
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Net Income (loss)                                                                            |  | $              | (1,318,508 | ) |             | $ | 7,795,241  |          |  | $ | (512,379    | ) |  | $ | 5,964,354  |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Total Assets                                                                                 |  | $              | 2,812,764  |   |             | $ | 29,767,990 |          |  | $ | 612,271     |   |  | $ | 33,193,025 |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Goodwill                                                                                     |  |                |            |   |             | $ | 15,323,152 |          |  |   |             |   |  | $ | 15,323,152 |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|                                                                                            
|Reconciliation of Segment Amounts Reported to Condensed Consolidated Amounts                 | 
|Revenue                                                                                      |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Total revenues for reportable segments                                                       |  |                |            |   |             |   |            |          |  | $ | 41,743,320  |   |  |   |            |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Total consolidated revenue                                                                   |  |                |            |   |             |   |            |          |  | $ | 41,743,320  |   |  |   |            |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Net income (loss)                                                                            |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Total income (loss for reportable segments                                                   |  |                |            |   |             |   |            |          |  | $ | 5,964,354   |   |  |   |            |  
|Unallocated amounts relating to corporate operations                                         |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Miscellaneous income                                                                         |  |                |            |   |             |   |            |          |  |   | 188,402     |   |  |   |            |  
|Selling, general and administrative expenses                                                 |  |                |            |   |             |   |            |          |  |   | (1,442,642  | ) |  |   |            |  
|Research and development expense                                                             |  |                |            |   |             |   |            |          |  |   | (174,225    | ) |  |   |            |  
|Interest expense                                                                             |  |                |            |   |             |   |            |          |  |   | (2,673,468  | ) |  |   |            |  
|Derivative loss                                                                              |  |                |            |   |             |   |            |          |  |   | (592,521    | ) |  |   |            |  
|Professional fees - pursuit of claims                                                        |  |                |            |   |             |   |            |          |  |   | (695,000    | ) |  |   |            |  
|Related party stock based compensation                                                       |  |                |            |   |             |   |            |          |  |   | (18,260,000 | ) |  |   |            |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Total consolidated net loss                                                                  |  |                |            |   |             |   |            |          |  | $ | (17,685,100 | ) |  |   |            |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Assets                                                                                       |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Total assets for reportable segments                                                         |  |                |            |   |             |   |            |          |  | $ | 33,193,025  |   |  |   |            |  
|Corporate investments and other assets                                                       |  |                |            |   |             |   |            |          |  |   | 1,790,306   |   |  |   |            |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  
|Total consolidated assets                                                                    |  |                |            |   |             |   |            |          |  | $ | 34,983,331  |   |  |   |            |  
|                                                                                             |  |                |            |   |             |   |            |          |  |   |             |   |  |   |            |  

SEGMENT INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2004 IS AS FOLLOWS:



|                                    |  |                |           |             |   |            |  |   |           
|----------------------------------- |  | -------------- | --------- | ----------- | - | ---------- |  | - | ----------
|                                    |  | Waste Disposal |           | Contracting |   | Total     
|Revenue                             |  | $              | 140,000   |             | $ | 12,126,701 |  | $ | 12,266,701
|Cost of Sales                       |  |                |           |             |   | 8,858,707  |  |   | 8,858,707 
|                                    |  |                |           |             |   |            |  |   |           
|Gross margin                        |  |                | 140,000   |             |   | 3,267,994  |  |   | 3,407,994 
|Selling, general and administrative |  |                | 1,063,682 |             |   | 1,929,091  |  |   | 2,992,773 
|Research and development            |  |                | 2,474,949 |             |   |            |  |   | 2,474,949 



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|18. | Quarterly information (unaudited):
|--- | ----------------------------------



|                  |  |       |            |   |      |   |           |           |  |   |             |   |  |   |            |  
|----------------- |  | ----- | ---------- | - | ---- | - | --------- | --------- |  | - | ----------- | - |  | - | ---------- | -
|                  |  | March |            |   | June |   |           | September |  |   | December    |  
|2005              |  |       |            |   |      |   |           |           |  |   |             |   |  |   |            |  
|Revenues          |  | $     | 8,168,099  |   |      | $ | 9,753,062 |           |  | $ | 10,526,009  |   |  | $ | 13,597,937 |  
|Net income (loss) |  | $     | (4,403,379 | ) |      | $ | 8,691,108 |           |  | $ | (19,954,550 | ) |  | $ | (2,018,279 | )
|EPS               |  | $     | (.012      | ) |      | $ | .018      |           |  | $ | (.041       | ) |  | $ | (.003      | )
|                  |  |       |            |  
|                  |  | March |            |   | June |   |           | September |  |   | December    |  
|2004              |  |       |            |   |      |   |           |           |  |   |             |   |  |   |            |  
|Revenues          |  | $     | 15,000     |   |      | $ | 115,000   |           |  | $ | 3,376,936   |   |  | $ | 8,759,765  |  
|Net income (loss) |  | $     | (2,082,861 | ) |      | $ | (436,844  | )         |  | $ | (843,420    | ) |  | $ | 1,096,136  |  
|EPS               |  | $     | (.009      | ) |      | $ | (.002     | )         |  | $ | (.003       | ) |  | $ | .004       |  

Note that Electric Machinery Enterprises, Inc. was acquired August 20, 2004. EMEGC, a wholly
owned Subsidiary of Electric Machinery was disposed of in January 2005. The 2004 revenues presented here do not include any amounts from the disposed unit.



|19. | Quarterly restatements
|--- | ----------------------

During the fourth quarter
of 2005, the Company reevaluated its accounting for the convertible note financing transactions discussed in Note 2. During the three, six and nine months ended March 31, June 30 and September 30, 2005, the Company accounted for
the free standing warrants, embedded beneficial conversion options, and other derivative financial instruments associated with the convertible notes as equity. During the fourth quarter of 2005, management determined that these derivatives should be
recorded as liabilities at fair value and thereafter adjusted to fair value at each subsequent reporting period until certain conditions are met, at which time such derivative liabilities can be classified into equity. As such, the unaudited
quarterly financial information as previously reported has been restated as follows:



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Restatements for the three months ended March 31, 2005;



|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|-------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ----------- | - | ---------- | ----------- |  | - | ----------- | -
|                                                                           |  | BALANCE SHEET March 31, 2005 |            
|                                                                           |  | As Originally Reported       |             |   | Adjustments |   |            | As Restated | 
|ASSETS                                                                     |  |                              |             |   |             |   |            |             |  |   |             |  
|Current assets:                                                            |  |                              |             |   |             |   |            |             |  |   |             |  
|Cash                                                                       |  | $                            | 6,639,765   |   |             | $ |           |             |  | $ | 6,639,765   |  
|Accounts receivable - net                                                  |  |                              | 5,700,077   |   |             |   |            |             |  |   | 5,700,077   |  
|Cost and estimated earnings in excess of billings on uncompleted contracts |  |                              | 1,236,719   |   |             |   |            |             |  |   | 1,236,719   |  
|Inventory                                                                  |  |                              | 1,391,827   |   |             |   |            |             |  |   | 1,391,827   |  
|Prepaid expenses and other current assets                                  |  |                              | 223,519     |   |             |   |            |             |  |   | 223,519     |  
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|Total current assets                                                       |  |                              | 15,191,907  |   |             |   |           |             |  |   | 15,191,907  |  
|                                                                           |  |                              |            
|Property and equipment - net                                               |  |                              | 4,107,426   |   |             |   |            |             |  |   | 4,107,426   |  
|Investments - at cost                                                      |  |                              | 300,000     |   |             |   |            |             |  |   | 300,000     |  
|Intangible assets                                                          |  |                              | 15,323,152  |   |             |   |            |             |  |   | 15,323,152  |  
|Loan costs and discounts                                                   |  |                              | 390,290     |   |             |   |            |             |  |   | 390,290     |  
|Other assets                                                               |  |                              | 276,897     |   |             |   |            |             |  |   | 276,897     |  
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|                                                                           |  | $                            | 35,589,672  |   |             | $ |           |             |  | $ | 35,589,672  |  
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                       |  |                              |             |   |             |   |            |             |  |   |             |  
|Current liabilities:                                                       |  |                              |             |   |             |   |            |             |  |   |             |  
|Current maturities of long term debt                                       |  | $                            | 71,786      |   |             | $ |           |             |  | $ | 71,786      |  
|Secured convertible notes payable                                          |  |                              | 1,582,073   |   |             |   | (1,582,073 | )           |  |   |            |  
|Accounts payable and accrued expenses                                      |  |                              | 4,804,583   |   |             |   |            |             |  |   | 4,804,583   |  
|Billings in excess of cost and estimated earnings on uncompleted contracts |  |                              | 1,742,696   |   |             |   |           |             |  |   | 1,742,696   |  
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|Total current liabilities                                                  |  |                              | 8,201,138   |   |             |   | (1,582,073 | )           |  |   | 6,619,065   |  
|                                                                           |  |                              |            
|Secured convertible notes payable, non current                             |  |                              | 1,672,591   |   |             |   | (1,672,591 | )           |  |   |            |  
|Derivative liabilities                                                     |  |                              |             |   |             |   | 13,049,742 |             |  |   | 13,049,742  |  
|Plan of reorganization obligations                                         |  |                              | 3,393,359   |   |             |   |            |             |  |   | 3,393,359   |  
|Other liabilities                                                          |  |                              | 959,400     |   |             |   |            |             |  |   | 959,400     |  
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                              | 14,226,488  |   |             |   | 9,795,078  |             |  |   | 24,021,566  |  
|Majority interest                                                          |  |                              | 1,200,000   |   |             |   |            |             |  |   | 1,200,000   |  
|Commitments and contingencies                                              |  |                              |            |   |             |   |            |             |  |   |            |  
|Stockholders equity:                                                       |  |                              |             |   |             |   |            |             |  |   |             |  
|Common stock                                                               |  |                              | 49,141      |   |             |   |            |             |  |   | 49,141      |  
|Additional paid -in-capital                                                |  |                              | 72,580,376  |   |             |   | (6,600,000 | )           |  |   | 65,980,376  |  
|Accumulated deficit                                                        |  |                              | (51,198,273 | ) |             |   | (3,195,078 | )           |  |   | (54,393,351 | )
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                              | 21,431,244  |   |             |   | (9,795,078 | )           |  |   | 11,636,166  |  
|Less treasury stock (1,950,000 shares at cost)                             |  |                              | (1,268,060  | ) |             |   |            |             |  |   | (1,268,060  | )
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                              | 20,163,184  |   |             |   | (9,795,078 | )           |  |   | 10,368,106  |  
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  
|                                                                           |  | $                            | 35,589,672  |   |             | $ |           |             |  | $ | 35,589,672  |  
|                                                                           |  |                              |             |   |             |   |            |             |  |   |             |  



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|-------------------------------------------------------------------------------------------- |  | --------------------------------------------------------- | ----------- | - | ----------- | - | ---------- | ----------- |  | - | ----------- | -
|                                                                                             |  | STATEMENT OF OPERATIONS Three Months Ended March 31, 2005 |            
|                                                                                             |  | As Originally Reported                                    |             |   | Adjustments |   |            | As Restated | 
|Revenue                                                                                      |  | $                                                         | 8,168,099   |   |             | $ |           |             |  | $ | 8,168,099   |  
|Cost of sales                                                                                |  |                                                           | 6,247,451   |   |             |   |            |             |  |   | 6,247,451   |  
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Gross profit                                                                                 |  |                                                           | 1,920,648   |   |             |   |            |             |  |   | 1,920,648   |  
|                                                                                             |  |                                                           |            
|Selling, general and administrative expenses                                                 |  |                                                           | 1,203,087   |   |             |   |            |             |  |   | 1,203,087   |  
|Research and development expenses                                                            |  |                                                           | 193,327     |   |             |   |            |             |  |   | 193,327     |  
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Income (loss) from operations before reorganization item, income taxes and majority interest |  |                                                           | 524,234     |   |             |   |           |             |  |   | 524,234     |  
|                                                                                             |  |                                                           |            
|Other income (expense):                                                                      |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Gain on extinguishment of debt, bankruptcy                                                   |  |                                                           | 2,178,568   |   |             |   |            |             |  |   | 2,178,568   |  
|Miscellaneous income (expense)                                                               |  |                                                           | 30,263      |   |             |   |            |             |  |   | 30,263      |  
|Derivative gain (loss)                                                                       |  |                                                           |             |   |             |   | (6,449,742 | )           |  |   | (6,449,742  | )
|Interest expense                                                                             |  |                                                           | (3,334,094  | ) |             | $ | 3,254,664  |             |  |   | (79,430     | )
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Income (loss) before reorganization item, income taxes and majority interest                 |  |                                                           | (601,029    | ) |             |   | (3,195,078 | )           |  |   | (3,796,107  | )
|                                                                                             |  |                                                           |            
|Reorganization item, professional fees related to bankruptcy and pursuit of claims           |  |                                                           | (323,661    | ) |             |   |            |             |  |   | (323,661    | )
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Loss before income taxes and majority interest                                               |  |                                                           | (924,690    | ) |             |   | (3,195,078 | )           |  |   | (4,119,768  | )
|                                                                                             |  |                                                           |            
|Income tax benefit                                                                           |  |                                                           |             |   |             |   |            |             |  |   |            |  
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Loss before majority interest                                                                |  |                                                           | (924,690    | ) |             |   | (3,195,078 | )           |  |   | (4,119,768  | )
|                                                                                             |  |                                                           |            
|Majority interest                                                                            |  |                                                           | (145,975    | ) |             |   |            |             |  |   | (145,975    | )
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Loss from continuing operations                                                              |  |                                                           | (1,070,665  | ) |             |   | (3,195,078 | )           |  |   | (4,265,743  | )
|                                                                                             |  |                                                           |            
|Loss on disposal of discontinued operations                                                  |  |                                                           | (137,636    | ) |             |   |            |             |  |   | (137,636    | )
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Net Loss                                                                                     |  | $                                                         | (1,208,301  | ) |             | $ | (3,195,078 | )           |  | $ | (4,403,379  | )
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Net Loss per common share                                                                    |  | $                                                         | (0.00       | ) |             |   |            |             |  | $ | (0.012      | )
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  
|Weighted average shares outstanding                                                          |  |                                                           | 379,734,581 |   |             |   |            |             |  |   | 379,734,581 |  
|                                                                                             |  |                                                           |             |   |             |   |            |             |  |   |             |  



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EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Restatements for the three months ended June 30, 2005



|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|-------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | ----------- | - | ---------- | ----------- |  | - | ----------- | -
|                                                                           |  | BALANCE SHEET June 30, 2005 |            
|                                                                           |  | As Originally Reported      |             |   | Adjustments |   |            | As Restated | 
|ASSETS                                                                     |  |                             |             |   |             |   |            |             |  |   |             |  
|Current assets:                                                            |  |                             |             |   |             |   |            |             |  |   |             |  
|Cash                                                                       |  | $                           | 2,278,015   |   |             | $ |           |             |  | $ | 2,278,015   |  
|Accounts receivable - net                                                  |  |                             | 8,015,866   |   |             |   |            |             |  |   | 8,015,866   |  
|Cost and estimated earnings in excess of billings on uncompleted contracts |  |                             | 582,196     |   |             |   |            |             |  |   | 582,196     |  
|Inventory                                                                  |  |                             | 1,351,835   |   |             |   |            |             |  |   | 1,351,835   |  
|Prepaid expenses and other current assets                                  |  |                             | 55,975      |   |             |   |            |             |  |   | 55,975      |  
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|Total current assets                                                       |  |                             | 12,283,887  |   |             |   |           |             |  |   | 12,283,887  |  
|                                                                           |  |                             |            
|Property and equipment - net                                               |  |                             | 4,436,241   |   |             |   |            |             |  |   | 4,436,241   |  
|Investments - at cost                                                      |  |                             | 919,914     |   |             |   |            |             |  |   | 919,914     |  
|Intangible assets                                                          |  |                             | 15,323,152  |   |             |   |            |             |  |   | 15,323,152  |  
|Loan costs and discounts                                                   |  |                             | 729,202     |   |             |   |            |             |  |   | 729,202     |  
|Other assets                                                               |  |                             | 456,846     |   |             |   |            |             |  |   | 456,846     |  
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|                                                                           |  | $                           | 34,149,242  |   |             | $ |           |             |  | $ | 34,149,242  |  
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                       |  |                             |             |   |             |   |            |             |  |   |             |  
|Current liabilities:                                                       |  |                             |             |   |             |   |            |             |  |   |             |  
|Current maturities of long term debt                                       |  | $                           | 57,338      |   |             | $ |           |             |  | $ | 57,338      |  
|Secured convertible notes payable                                          |  |                             | 2,376,482   |   |             |   | (720,145   | )           |  |   | 1,656,337   |  
|Plan of reorganization obligations - current                               |  |                             | 97,614      |   |             |   |            |             |  |   | 97,614      |  
|Accounts payable and accrued expenses                                      |  |                             | 3,463,433   |   |             |   |            |             |  |   | 3,463,433   |  
|Billings in excess of cost and estimated earnings on uncompleted contracts |  |                             | 1,128,327   |   |             |   |            |             |  |   | 1,128,327   |  
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|Total current liabilities                                                  |  |                             | 7,123,194   |   |             |   | (720,145   | )           |  |   | 6,403,049   |  
|                                                                           |  |                             |            
|Secured convertible notes payable, non current                             |  |                             | 1,755,701   |   |             |   | (1,681,605 | )           |  |   | 74,096      |  
|Derivative liabilities                                                     |  |                             |             |   |             |   | 5,002,848  |             |  |   | 5,002,848   |  
|Other liabilities                                                          |  |                             | 952,502     |   |             |   |            |             |  |   | 952,502     |  
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                             | 9,831,397   |   |             |   | 2,601,098  |             |  |   | 12,432,495  |  
|Majority interest                                                          |  |                             | 1,962,533   |   |             |   |            |             |  |   | 1,962,533   |  
|Commitments and contingencies                                              |  |                             |            |   |             |   |            |             |  |   |            |  
|Stockholders equity:                                                       |  |                             |             |   |             |   |            |             |  |   |             |  
|Common stock                                                               |  |                             | 49,604      |   |             |   |            |             |  |   | 49,604      |  
|Additional paid -in-capital                                                |  |                             | 74,364,827  |   |             |   | (7,689,914 | )           |  |   | 66,674,913  |  
|Accumulated deficit                                                        |  |                             | (50,791,059 | ) |             |   | 5,088,816  |             |  |   | (45,702,243 | )
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                             | 23,623,372  |   |             |   | (2,601,098 | )           |  |   | 21,022,274  |  
|Less treasury stock (1,950,000 shares at cost)                             |  |                             | (1,268,060  | ) |             |   |            |             |  |   | (1,268,060  | )
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                             | 22,355,312  |   |             |   | (2,601,098 | )           |  |   | 19,754,214  |  
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  
|                                                                           |  | $                           | 34,149,242  |   |             | $ |           |             |  | $ | 34,149,242  |  
|                                                                           |  |                             |             |   |             |   |            |             |  |   |             |  



F-37



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|-------------------------------------------------------------------------------------------- |  | -------------------------------------------------------- | ----------- | - | ----------- | - | ----------- |  | - | ----------- | -
|                                                                                             |  | STATEMENT OF OPERATIONS Three Months Ended June 30, 2005 |            
|                                                                                             |  | As Originally Reported                                   |             |   | Adjustments |   | As Restated | 
|Revenue                                                                                      |  | $                                                        | 9,753,062   |   |             | $ |            |  | $ | 9,753,062   |  
|Cost of sales                                                                                |  |                                                          | 6,377,002   |   |             |   |             |  |   | 6,377,002   |  
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Gross profit                                                                                 |  |                                                          | 3,376,060   |   |             |   |             |  |   | 3,376,060   |  
|                                                                                             |  |                                                          |            
|Selling, general and administrative expenses                                                 |  |                                                          | 2,036,095   |   |             |   |             |  |   | 2,036,095   |  
|Research and development expenses                                                            |  |                                                          | 127,324     |   |             |   |             |  |   | 127,324     |  
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Income (loss) from operations before reorganization item, income taxes and majority interest |  |                                                          | 1,212,641   |   |             |   |            |  |   | 1,212,641   |  
|                                                                                             |  |                                                          |            
|Other income (expense):                                                                      |  |                                                          |             |   |             |   |             |  |   |             |  
|Gain on extinguishment of debt, bankruptcy                                                   |  |                                                          | 1,804,739   |   |             |   |             |  |   | 1,804,739   |  
|Miscellaneous income (expense)                                                               |  |                                                          | 14,631      |   |             |   |             |  |   | 14,631      |  
|Derivative gain (loss)                                                                       |  |                                                          |             |   |             |   | 8,046,893   |  |   | 8,046,893   |  
|Interest expense                                                                             |  |                                                          | (703,247    | ) |             | $ | 237,001     |  |   | (466,246    | )
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Income (loss) before reorganization item, income taxes and majority interest                 |  |                                                          | 2,328,764   |   |             |   | 8,283,894   |  |   | 10,612,658  |  
|                                                                                             |  |                                                          |            
|Reorganization item, professional fees related to bankruptcy and pursuit of claims           |  |                                                          | (1,109,017  | ) |             |   |             |  |   | (1,109,017  | )
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Income before income taxes and majority interest                                             |  |                                                          | 1,219,747   |   |             |   | 8,283,894   |  |   | 9,503,641   |  
|                                                                                             |  |                                                          |            
|Income tax benefit                                                                           |  |                                                          |            |   |             |   |             |  |   |            |  
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Income before majority interest                                                              |  |                                                          | 1,219,747   |   |             |   | 8,283,894   |  |   | 9,503,641   |  
|                                                                                             |  |                                                          |            
|Majority interest                                                                            |  |                                                          | (812,533    | ) |             |   |             |  |   | (812,533    | )
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Income from continuing operations                                                            |  |                                                          | 407,214     |   |             |   | 8,283,894   |  |   | 8,691,108   |  
|                                                                                             |  |                                                          |            
|Loss on disposal of discontinued operations                                                  |  |                                                          |             |   |             |   |             |  |   |            |  
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Net Income                                                                                   |  | $                                                        | 407,214     |   |             | $ | 8,283,894   |  | $ | 8,691,108   |  
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Net income per common share                                                                  |  | $                                                        | 0.001       |   |             |   |             |  | $ | 0.018       |  
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  
|Weighted average shares outstanding                                                          |  |                                                          | 491,922,517 |   |             |   |             |  |   | 491,922,517 |  
|                                                                                             |  |                                                          |             |   |             |   |             |  |   |             |  



F-38



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004

Restatements for the three months ended September 30, 2005



|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|-------------------------------------------------------------------------- |  | -------------------------------- | ----------- | - | ----------- | - | ---------- | ----------- |  | - | ----------- | -
|                                                                           |  | BALANCE SHEET September 30, 2005 |            
|                                                                           |  | As Originally Reported           |             |   | Adjustments |   |            | As Restated | 
|ASSETS                                                                     |  |                                  |             |   |             |   |            |             |  |   |             |  
|Current assets:                                                            |  |                                  |             |   |             |   |            |             |  |   |             |  
|Cash                                                                       |  | $                                | 1,060,763   |   |             | $ |           |             |  | $ | 1,060,763   |  
|Accounts receivable - net                                                  |  |                                  | 8,058,899   |   |             |   |            |             |  |   | 8,058,899   |  
|Cost and estimated earnings in excess of billings on uncompleted contracts |  |                                  | 1,602,100   |   |             |   |            |             |  |   | 1,602,100   |  
|Inventory                                                                  |  |                                  | 1,349,938   |   |             |   |            |             |  |   | 1,349,938   |  
|Prepaid expenses and other current assets                                  |  |                                  | 188,948     |   |             |   |            |             |  |   | 188,948     |  
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|Total current assets                                                       |  |                                  | 12,260,648  |   |             |   |           |             |  |   | 12,260,648  |  
|                                                                           |  |                                  |            
|Property and equipment - net                                               |  |                                  | 4,624,356   |   |             |   |            |             |  |   | 4,624,356   |  
|Investments - at cost                                                      |  |                                  | 798,350     |   |             |   |            |             |  |   | 798,350     |  
|Intangible assets                                                          |  |                                  | 15,323,152  |   |             |   |            |             |  |   | 15,323,152  |  
|Loan costs and discounts                                                   |  |                                  | 706,459     |   |             |   |            |             |  |   | 706,459     |  
|Other assets                                                               |  |                                  | 438,899     |   |             |   |            |             |  |   | 438,899     |  
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|                                                                           |  | $                                | 34,151,864  |   |             | $ |           |             |  | $ | 34,151,864  |  
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                       |  |                                  |             |   |             |   |            |             |  |   |             |  
|Current liabilities:                                                       |  |                                  |             |   |             |   |            |             |  |   |             |  
|Current maturities of long term debt                                       |  | $                                | 85,963      |   |             | $ |           |             |  | $ | 85,963      |  
|Secured convertible notes payable                                          |  |                                  | 2,262,618   |   |             |   | (747,161   | )           |  |   | 1,515,457   |  
|Accounts payable and accrued expenses                                      |  |                                  | 3,940,175   |   |             |   |            |             |  |   | 3,940,175   |  
|Billings in excess of cost and estimated earnings on uncompleted contracts |  |                                  | 800,776     |   |             |   |            |             |  |   | 800,776     |  
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|Total current liabilities                                                  |  |                                  | 7,089,532   |   |             |   | (747,161   | )           |  |   | 6,342,371   |  
|                                                                           |  |                                  |            
|Secured convertible notes payable, non current                             |  |                                  | 1,569,169   |   |             |   | (1,398,327 | )           |  |   | 170,842     |  
|Derivative liabilities                                                     |  |                                  |             |   |             |   | 3,752,609  |             |  |   | 3,752,609   |  
|Other liabilities                                                          |  |                                  | 967,762     |   |             |   |            |             |  |   | 967,762     |  
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                                  | 9,626,463   |   |             |   | 1,607,121  |             |  |   | 11,233,584  |  
|Majority interest                                                          |  |                                  | 2,198,617   |   |             |   |            |             |  |   | 2,198,617   |  
|Commitments and contingencies                                              |  |                                  |            |   |             |   |            |             |  |   |            |  
|Stockholders equity:                                                       |  |                                  |             |   |             |   |            |             |  |   |             |  
|Common stock                                                               |  |                                  | 59,804      |   |             |   |            |             |  |   | 59,804      |  
|Additional paid -in-capital                                                |  |                                  | 92,804,627  |   |             |   | (5,219,914 | )           |  |   | 87,584,713  |  
|Accumulated deficit                                                        |  |                                  | (69,269,587 | ) |             |   | 3,612,793  |             |  |   | (65,656,794 | )
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                                  | 23,594,844  |   |             |   | (1,607,121 | )           |  |   | 21,987,723  |  
|Less treasury stock (1,950,000 shares at cost)                             |  |                                  | (1,268,060  | ) |             |   |            |             |  |   | (1,268,060  | )
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|                                                                           |  |                                  | 22,326,784  |   |             |   | (1,607,121 | )           |  |   | 20,719,663  |  
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  
|                                                                           |  | $                                | 34,151,864  |   |             | $ |           |             |  | $ | 34,151,864  |  
|                                                                           |  |                                  |             |   |             |   |            |             |  |   |             |  



F-39



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | ----------- | - | ----------- | - | ---------- | ----------- |  | - | ----------- | -
|                                                                                             |  | STATEMENT OF OPERATIONS Three Months Ended September 30, 2005 |            
|                                                                                             |  | As Originally Reported                                        |             |   | Adjustments |   |            | As Restated | 
|Revenue                                                                                      |  | $                                                             | 10,526,009  |   |             | $ |           |             |  | $ | 10,526,009  |  
|Cost of sales                                                                                |  |                                                               | 7,879,108   |   |             |   |            |             |  |   | 7,879,108   |  
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Gross profit                                                                                 |  |                                                               | 2,646,901   |   |             |   |            |             |  |   | 2,646,901   |  
|                                                                                             |  |                                                               |            
|Selling, general and administrative expenses                                                 |  |                                                               | 1,947,185   |   |             |   |            |             |  |   | 1,947,185   |  
|Related party stock based compensation                                                       |  |                                                               | 18,260,000  |   |             |   |            |             |  |   | 18,260,000  |  
|Research and development expenses                                                            |  |                                                               | 104,064     |   |             |   |            |             |  |   | 104,064     |  
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Income (loss) from operations before reorganization item, income taxes and majority interest |  |                                                               | (17,664,348 | ) |             |   |           |             |  |   | (17,664,348 | )
|                                                                                             |  |                                                               |            
|Other income (expense):                                                                      |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Gain on extinguishment of debt, bankruptcy                                                   |  |                                                               | 180,433     |   |             |   |            |             |  |   | 180,433     |  
|Miscellaneous income (expense)                                                               |  |                                                               | 59,962      |   |             |   |            |             |  |   | 59,962      |  
|Derivative gain (loss)                                                                       |  |                                                               |             |   |             |   | (1,219,761 | )           |  |   | (1,219,761  | )
|Interest expense                                                                             |  |                                                               | (490,461    | ) |             | $ | (256,261   | )           |  |   | (746,722    | )
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Income (loss) before reorganization item, income taxes and majority interest                 |  |                                                               | (17,914,414 | ) |             |   | (1,476,022 | )           |  |   | (19,390,436 | )
|                                                                                             |  |                                                               |            
|Reorganization item, professional fees related to bankruptcy and pursuit of claims           |  |                                                               | (278,030    | ) |             |   |            |             |  |   | (278,030    | )
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Income before income taxes and majority interest                                             |  |                                                               | (18,192,444 | ) |             |   | (1,476,022 | )           |  |   | (19,668,466 | )
|                                                                                             |  |                                                               |            
|Income tax benefit                                                                           |  |                                                               |            |   |             |   |            |             |  |   |            |  
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Income before majority interest                                                              |  |                                                               | (18,192,444 | ) |             |   | (1,476,022 | )           |  |   | (19,668,466 | )
|                                                                                             |  |                                                               |            
|Majority interest                                                                            |  |                                                               | (286,084    | ) |             |   |            |             |  |   | (286,084    | )
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Income from continuing operations                                                            |  |                                                               | (18,478,528 | ) |             |   | (1,476,022 | )           |  |   | (19,954,550 | )
|                                                                                             |  |                                                               |            
|Loss on disposal of discontinued operations                                                  |  |                                                               |             |   |             |   |            |             |  |   |            |  
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Net Income                                                                                   |  | $                                                             | (18,478,528 | ) |             | $ | (1,476,022 | )           |  | $ | (19,954,550 | )
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Net income per common share                                                                  |  | $                                                             | (0.030      | ) |             |   |            |             |  | $ | (0.041      | )
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  
|Weighted average shares outstanding                                                          |  |                                                               | 535,524,754 |   |             |   |            |             |  |   | 491,922,517 |  
|                                                                                             |  |                                                               |             |   |             |   |            |             |  |   |             |  



F-40



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##### Table of Contents

EARTHFIRST TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005 AND 2004



|20. | Discontinued Operations Restatement
|--- | -----------------------------------

Subsequent to the issuance of
its 2005 financial statements on Form 10KSB, the Company determined that it had not properly classified the results of its 2005 discontinued operation in its comparative 2004 financial statements.

On January 1, 2005, the Company sold its subsidiary, EMEGC, as reported in Note 6. In accordance with SFAS 144, the prior period 2004 amounts relating to the operations
and cash flows of the disposed unit are to be presented as discontinued operations for all periods presented. As a result, the accompanying consolidated statements of operations and cash flows for the year ended December 31, 2004 have been restated
as follows:



|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------- | ---------- | - | ----------- | - | ---------- | ----------- |  | - | ---------- | -
|                                                                                                          |  | STATEMENT OF OPERATIONS Year Ended December 31, 2004 |           
|                                                                                                          |  | As Originally Reported                               |            |   | Adjustments |   |            | As Restated | 
|                                                                                                          |  |                                                     
|Revenue                                                                                                   |  | $                                                    | 15,314,892 |   |             | $ | (3,048,191 | )           |  | $ | 12,266,701 |  
|Cost of sales                                                                                             |  |                                                      | 11,209,802 |   |             |   | (2,351,095 | )           |  |   | 8,858,707  |  
|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  
|Gross profit                                                                                              |  |                                                      | 4,105,090  |   |             |   | (697,096   | )           |  |   | 3,407,994  |  
|                                                                                                          |  |                                                      |           
|Selling, general and administrative expenses                                                              |  |                                                      | 3,425,839  |   |             |   | (433,066   | )           |  |   | 2,992,773  |  
|Research and development expenses                                                                         |  |                                                      | 2,474,949  |   |             |   |            |             |  |   | 2,474,949  |  
|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  
|Income (loss) from operations before reorganization item, income taxes and majority interest              |  |                                                      | (1,795,698 | ) |             |   | (264,030   | )           |  |   | (2,059,728 | )
|                                                                                                          |  |                                                      |           
|Other income (expense):                                                                                   |  |                                                      |            |   |             |   |            |             |  |   |            |  
|Gain on extinguishment of debt, bankruptcy                                                                |  |                                                      | 1,298,068  |   |             |   |            |             |  |   | 1,298,068  |  
|Miscellaneous income, net                                                                                 |  |                                                      | 333,214    |   |             |   | (7,253     | )           |  |   | 325,961    |  
|Interest expense                                                                                          |  |                                                      | (469,514   | ) |             |   | 3,299      |             |  |   | (466,215   | )
|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  
|Loss before reorganization item, income taxes and majority and minority interests                         |  |                                                      | (633,930   | ) |             |   | (267,984   | )           |  |   | (901,914   | )
|                                                                                                          |  |                                                      |           
|Reorganization item, professional fees related to bankruptcy and pursuit of claims                        |  |                                                      | (1,202,829 | ) |             |   |            |             |  |   | (1,202,829 | )
|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  
|Loss before income taxes and majority interest                                                            |  |                                                      | (1,836,759 | ) |             |   | (267,984   | )           |  |   | (2,104,743 | )
|                                                                                                          |  |                                                      |           
|Income tax benefit                                                                                        |  |                                                      |            |   |             |   |            |             |  |   |           |  
|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  
|Loss before majority interest                                                                             |  |                                                      | (1,836,759 | ) |             |   | (267,984   | )           |  |   | (2,104,743 | )
|                                                                                                          |  |                                                      |           
|Majority and minority interests                                                                           |  |                                                      | (430,230   | ) |             |   |            |             |  |   | (430,230   | )
|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  
|Loss from continuing operations                                                                           |  |                                                      | (2,266,989 | ) |             |   | (267,984   | )           |  |   | (2,534,973 | )
|                                                                                                          |  |                                                      |           
|Income (loss) from operations of discontinued operations (including loss on disposal of $137,636 in 2005) |  |                                                      |           |   |             |   | 267,984    |             |  |   | 267,984    |  
|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  
|Net Loss                                                                                                  |  | $                                                    | (2,266,989 | ) |             | $ |           |             |  | $ | (2,266,989 | )
|                                                                                                          |  |                                                      |            |   |             |   |            |             |  |   |            |  



|                                                                              |  |                              |            |   |             |   |          |             |  |   |            |  
|----------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ----------- | - | -------- | ----------- |  | - | ---------- | -
|                                                                              |  | STATEMENT OF CASH FLOWS      |           
|                                                                              |  | Year Ended December 31, 2004 |           
|                                                                              |  | As Originally                |            |   |             |   |          |             | 
|                                                                              |  | Reported                     |            |   | Adjustments |   |          | As Restated | 
|Cash flows from operating activities:                                         |  |                              |            |   |             |   |          |             |  |   |            |  
|Net loss:                                                                     |  | $                            | (2,266,989 | ) |             |   |          |             |  | $ | (2,266,989 | )
|Adjustments to reconcile net loss to net cash flows from operating activities |  |                              |            |   |             |   |          |             |  |   |            |  
|Expenses funded through stock issuance                                        |  |                              | 1,800,000  |   |             |   |          |             |  |   | 1,800,000  |  
|Intangible asset impairment                                                   |  |                              | 142,900    |   |             |   |          |             |  |   | 142,900    |  
|Majority/minority interest in net income (loss)                               |  |                              | 430,230    |   |             |   |          |             |  |   | 430,230    |  
|Depreciation and amortization                                                 |  |                              | 77,342     |   |             |   | (30,886  | )           |  |   | 46,456     |  
|Gain on cancellation of debt                                                  |  |                              | (1,298,068 | ) |             |   |          |             |  |   | (1,298,068 | )
|(Income) loss from discontinued operations                                    |  |                              |            |   |             |   | (267,984 | )           |  |   | (267,984   | )
|Increase (decrease) in cash due to changes in:                                |  |                              |            |   |             |   |          |             |  |   |            |  
|Accounts receivable                                                           |  |                              | (1,047,553 | ) |             |   | 58,140   |             |  |   | (989,413   | )
|Cost and estimated earnings in excess of billings on uncompleted contracts    |  |                              | 620,585    |   |             |   | (98,291  | )           |  |   | 522,294    |  
|Inventory                                                                     |  |                              | 336,520    |   |             |   | (25,362  | )           |  |   | 311,158    |  
|Prepaid expenses and other assets                                             |  |                              | 395,980    |   |             |   | 136,152  |             |  |   | 532,132    |  
|Accounts payable and accrued expenses                                         |  |                              | (2,636,730 | ) |             |   | 260,273  |             |  |   | (2,376,457 | )
|Billings in excess of cost and estimated earnings on uncompleted contracts    |  |                              | (225,119   | ) |             |   | (194,116 | )           |  |   | (419,235   | )
|Accrued interest on related party payables                                    |  |                              | 244,571    |   |             |   |          |             |  |   | 244,571    |  
|                                                                              |  |                              |            |   |             |   |          |             |  |   |            |  
|Net cash flows from operating activities                                      |  |                              | (3,426,331 | ) |             |   | (162,074 | )           |  |   | (3,588,405 | )
|                                                                              |  |                              |           
|Cash flows from investing activities:                                         |  |                              |            |   |             |   |          |             |  |   |            |  
|Acquisition of property and equipment                                         |  |                              | (2,376,545 | ) |             |   | 117,898  |             |  |   | (2,258,647 | )
|Cash acquired in business acquisition                                         |  |                              | 3,174,317  |   |             |   |          |             |  |   | 3,174,317  |  
|                                                                              |  |                              |            |   |             |   |          |             |  |   |            |  
|Net cash flows from investing activities                                      |  |                              | 797,772    |   |             |   | 117,898  |             |  |   | 915,670    |  
|                                                                              |  |                              |           
|Cash flows from financing activities:                                         |  |                              |            |   |             |   |          |             |  |   |            |  
|Proceeds from notes payable and related party                                 |  |                              | 4,107,413  |   |             |   | (119,889 | )           |  |   | 3,987,524  |  
|Repayment of long term debt                                                   |  |                              |            |   |             |   | 13,257   |             |  |   | 13,257     |  
|                                                                              |  |                              |            |   |             |   |          |             |  |   |            |  
|Net cash flows from financing activities                                      |  |                              | 4,107,413  |   |             |   | (106,632 | )           |  |   | 4,000,781  |  
|                                                                              |  |                              |            |   |             |   |          |             |  |   |            |  
|Net change in cash                                                            |  |                              | 1,478,854  |   |             |   | (150,808 | )           |  |   | 1,328,046  |  
|Cash, beginning of year                                                       |  |                              | 3,529      |   |             |   |         |             |  |   | 3,529      |  
|                                                                              |  |                              |            |   |             |   |          |             |  |   |            |  
|Cash, end of year                                                             |  | $                            | 1,482,383  |   |             | $ | (150,808 | )           |  | $ | 1,331,575  |  
|                                                                              |  |                              |            |   |             |   |          |             |  |   |            |  



F-41



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##### Table of Contents

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees.

The aggregate fees billed by Aidman, Piser & Company, P.A. for professional services rendered for the audit of the Companys annual
financial statements for the years ended December 31, 2005 and 2004, the review of the financial statements included in the Companys Forms 10-QSB and Forms 8K totaled $161,505 and $91,200 as follows:



|                   |  |      |         |      |   |       
|------------------ |  | ---- | ------- | ---- | - | ------
|                   |  | 2005 |         | 2004
|Audit fees         |  | $    | 91,385  |      | $ | 66,850
|Audit related fees |  |      | 70,120  |      |   | 24,350
|Tax fees           |  |      |        |      |   |      
|All others         |  |      |        |      |   |      
|                   |  |      |         |      |   |       
|                   |  | $    | 161,505 |      | $ | 91,200
|                   |  |      |         |      |   |       



F-42