----

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| x      | QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended JUNE 30, 2010               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                    |
|  ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to_______ |

| Nevada                          | 88-0448626          |
|---------------------------------|---------------------|
| (State or other jurisdiction of | (IRS Employer       |
| incorporation or organization)  | Identification No.) |

----

| Large accelerated filer  ̈ | Accelerated filer  ̈   |
|--------------------------------|----------------------------|
| Non-accelerated filer  ̈   | Smaller reporting companyx |

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|                                                                           |                                                               | Page   |
|--------------------------------------------------------------------------------|--------------------------------------------------------------------|--------|
|                                                                           |                                                               |   |
| Consolidated Balance Sheets at June 30, 2010 (Unaudited) and December 31, 2009 | F-2                                                                |
|                                                                           |                                                               |   |
| Consolidated Statement of Operations for the three and six months ended        |                                                               |
|                                                                           | June 30, 2010 three and six months ended July 31, 2009 (Unaudited) | F-3    |
|                                                                           |                                                               |   |
| Consolidated Statement of Changes in Shareholders' Deficit for the             |                                                               |
|                                                                           | six months ended June 30, 2010 (Unaudited)                         | F-4    |
|                                                                           |                                                               |   |
| Consolidated Statement of Cash Flows for six months ended                      |                                                               |
|                                                                           | June 30, 2010 and the six months ended July 31, 2009 (Unaudited)   | F-5    |
|                                                                           |                                                               |   |
| Notes to Financial Statements                                                  | F-6                                                                |
|                                                                           |                                                               |
| Item 2. Management’s Discussion and Analysis of Financial Condition      |                                                               |
|                                                                           | and Results of Operations                                          | 21     |
|                                                                           |                                                               |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk             | 25                                                                 |
|                                                                           |                                                               |
| Item 4T. Controls and Procedures                                               | 25                                                                 |
|                                                                           |                                                               |
| Part II – Other Information                                              | 26                                                                 |
|                                                                           |                                                               |
| Signatures                                                                     | 28                                                                 |
|                                                                           |                                                               |

----

|                                                            |   | June 30,    |        |   | December 31, |   |
|-----------------------------------------------------------------|--------|-------------|-------------|--------|--------------|--------|
|                                                            |   | 2010        |        |   | 2009         |   |
|                                                            |   | (Unaudited) |        |   | (Audited)    |   |
| Assets                                                          |   |        |        |   |         |   |
| Cash                                                            |   | $           | 31,276      |   |         | $      | 17,262 |   |
| Accounts receivable                                             |   |        | —     |   |         |   | — |   |
| Deposits                                                        |   |        | —     |   |         |   | — |   |
| Prepaid expenses                                                |   |        | 887         |   |         |   | 24,721 |   |
| Notes receivable (Note 5)                                       |   |        | —     |   |         |   | 467 |   |
| Other current assets                                            |   |        | (0          | )      |         |   | 26 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Total current assets                                            |   |        | 32,163      |   |         |   | 42,476 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Property and equipment, less accumulated depreciation           |   |        |        |   |         |   |   |   |
| of $2,469 (2010) and $1,301 (2009)                              |   |        | 11,638      |   |         |   | 7,937 |   |
| Deferred debt issuance costs (Note 4)                           |   |        | 103,723     |   |         |   | 166,922 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Total long-term assets                                          |   |        | 115,361     |   |         |   | 174,859 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Total assets                                                    |   | $           | 147,524     |   |         | $      | 217,335 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Liabilities and Shareholders’ Deficit                     |   |        |        |   |         |   |   |   |
| Current liabilities:                                            |   |        |        |   |         |   |   |   |
| Accounts and notes payable:                                     |   |        |        |   |         |   |   |   |
| Accounts payable, related party (Note 3)                        |   | $           | 134,858     |   |         | $      | 68,619 |   |
| Accounts payable, other                                         |   |        | 428,301     |   |         |   | 287,349 |   |
| Derivative liability, convertible notes payable (Note 4)        |   |        | 537,530     |   |         |   | 643,834 |   |
| Notes payable, related party (Note 3)                           |   |        | 96,431      |   |         |   | 132,537 |   |
| Notes payable, other (Note 4)                                   |   |        | 121,118     |   |         |   | 32,991 |   |
| Convertible notes payable, net of discount of                   |   |        |        |   |         |   |   |   |
| 80,000 (2010) and -0- (2009) (Note 4)                           |   |        | 40,000      |   |         |   | 30,000 |   |
| Payroll liabilities (Note 7)                                    |   |        | 73,948      |   |         |   | 67,166 |   |
| Accrued expenses                                                |   |        | 4,038       |   |         |   | 5,768 |   |
| Accrued interest payable:                                       |   |        |        |   |         |   |   |   |
| Interest payable, convertible notes (Note 4)                    |   |        | 21,160      |   |         |   | 6,792 |   |
| Interest payable, related party notes (Note 3)                  |   |        | 21,581      |   |         |   | 27,256 |   |
| Interest payable, notes payable other (Note 4)                  |   |        | 14,369      |   |         |   | 11,656 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Total current liabilities                                       |   |        | 1,493,335   |   |         |   | 1,313,968 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Long-term convertible notes payable net of current portion,     |   |        |        |   |         |   |   |   |
| net of discount of $241,111 (2010) and $354,583 (2009) (Note 4) |   |        | 53,889      |   |         |   | 25,417 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Total long-term liabilities                                     |   |        | 53,889      |   |         |   | 25,417 |   |
|                                                            |   |        |        |   |         |   |   |   |
|                                                            |   |        | 1,547,224   |   |         |   | 1,339,385 |   |
|                                                            |   |        |        |   |         |   |   |   |
| Commitments and contingencies                                   |   |        | —     |   |         |   | — |   |
|                                                            |   |        |        |   |         |   |   |   |
| Shareholders’ deficit: (Notes 1 & 9)                  |   |        |        |   |         |   |   |   |
| Preferred stock, $.001 par value; 10,000,000 shares authorized, |   |        |        |   |         |   |   |   |
| -0- (2010) and -0- (2009) shares                                |   |        |        |   |         |   |   |   |
| issued and outstanding                                          |   |        | —     |   |         |   | — |   |
| Common stock, $.001 par value; 500,000,000 shares authorized,   |   |        |        |   |         |   |   |   |
| 312,450,197 (2010) and 289,936,993 (2009) shares                |   |        |        |   |         |   |   |   |
| issued and outstanding                                          |   |        | 312,450     |   |         |   | 289,937 |   |
| Additional paid-in capital                                      |   |        | 12,410,667  |   |         |   | 9,459,316 |   |
| Accumulated deficit                                             |   |        | (14,125,012 | )      |         |   | (10,871,303 | ) |
|                                                            |   |        |        |   |         |   |   |   |
| Total shareholders' deficit of the Company                      |   |        | (1,401,895  | )      |         |   | (1,122,050 | ) |
|                                                            |   |        |        |   |         |   |   |   |
| Non-controlling interest (Note 1)                               |   |        | 2,195       |   |         |   | — |   |
|                                                            |   |        |        |   |         |   |   |   |
| Total shareholders' deficit                                     |   |        | (1,399,700  | )      |         |   | (1,122,050 | ) |
|                                                            |   |        |        |   |         |   |   |   |
| Total liabilities and shareholders' deficit                     |   | $           | 147,524     |   |         | $      | 217,335 |   |

----

|                                                       |   | Three months |        |   | Three months |   |        | Six months |   |   | Six months  |   |
|------------------------------------------------------------|--------|--------------|-------------|--------|--------------|--------|-------------|------------|--------|--------|-------------|--------|
|                                                       |   | ended        |        |   | ended        |   |        | ended      |   |   | ended       |   |
|                                                       |   | June 30,     |        |   | July 31,     |   |        | June 30,   |   |   | July 31,    |   |
|                                                       |   | 2010         |        |   | 2009         |   |        | 2010       |   |   | 2009        |   |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |
| Revenue                                                    |   | $            | -           |   |         | $      | -           |       |   | $      | 38,940      |   |   | $ | - |   |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Operating costs and expenses:                              |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Reactor production                                         |   |         | 88,375      |   |         |   | —     |       |   |   | 123,774     |   |   |   | — |   |
| Product development expense                                |   |         | 2,047       |   |         |   | 5,552       |       |   |   | 16,480      |   |   |   | 15,745 |   |
| Selling, general and administrative expenses               |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Related party (Note 3)                                     |   |         | 71,836      |   |         |   | 73,100      |       |   |   | 127,032     |   |   |   | 179,200 |   |
| Stock-based compensation (Notes 3 & 9)                 |   |         | 1,085,000   |   |         |   | 3,233,324   |       |   |   | 2,074,350   |   |   |   | 3,350,324 |   |
| Loss on debt extinguishment                                |   |         | -           |   |         |   | 197,545     |       |   |   | -           |   |   |   | 197,545 |   |
| Other (Note 6)                                             |   |         | 362,212     |   |         |   | 282,585     |       |   |   | 754,515     |   |   |   | 562,580 |   |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Total operating costs and expenses                         |   |         | (1,609,470  | )      |         |   | (3,792,106  | )          |   |   | (3,096,151  | )      |   |   | (4,305,394 | ) |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Loss from operations                                       |   |         | (1,609,470  | )      |         |   | (3,792,106  | )          |   |   | (3,057,211  | )      |   |   | (4,305,394 | ) |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Other income (expense)                                     |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Unrealized gain on investments (Note 1)                    |   |         | -           |   |         |   | -           |       |   |   | -           |   |   |   | 35,000 |   |
| Interest (expense) income, amortization                    |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| of convertible note discount (Note 4)                      |   |         | (143,750    | )      |         |   | (878        | )          |   |   | (178,472    | )      |   |   | (8,202 | ) |
| Interest expense (Notes 3 & 4)                         |   |         | (26,131     | )      |         |   | (3,420      | )          |   |   | (105,997    | )      |   |   | (16,711 | ) |
| Fair value adjustment of derivative liabilities (Note 4)   |   |         | (103,363    | )      |         |   | 20,533      |       |   |   | 87,971      |   |   |   | 6,049 |   |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
|                                                       |   |         | (273,244    | )      |         |   | 16,235      |       |   |   | (196,498    | )      |   |   | 16,136 |   |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Loss before income taxes                                   |   |         | (1,882,714  | )      |         |   | (3,775,871  | )          |   |   | (3,253,709  | )      |   |   | (4,289,258 | ) |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Income tax provision (Note 8)                              |   |         | -           |   |         |   | -           |       |   |   | -           |   |   |   | - |   |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Net loss                                                   |   |         | (1,882,714  | )      |         |   | (3,775,871  | )          |   |   | (3,253,709  | )      |   |   | (4,289,258 | ) |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Net loss attributable to non-controlling interest (Note 1) |   |         | 33,198      |   |         |   | -           |       |   |   | 35,075      |   |   |   | - |   |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Net loss attributable to Company                           |   | $            | (1,849,516  | )      |         | $      | (3,775,871  | )          |   | $      | (3,218,634  | )      |   | $ | (4,289,258 | ) |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Basic and diluted loss per common share                    |   | $            | (0.01       | )      |         | $      | (0.01       | )          |   | $      | (0.01       | )      |   | $ | (0.02 | ) |
|                                                       |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| Weighted average common shares                             |   |         |        |   |         |   |        |       |   |   |        |   |   |   |   |   |
| outstanding (Notes 1 & 9)                              |   |         | 309,339,089 |   |         |   | 258,604,414 |       |   |   | 301,143,018 |   |   |   | 217,813,214 |   |

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|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                | Common stock                                                                                                                                      |                                                                                                                                              | Additional paid-in                                                                                                                                |                                                                                                  | Accumulated                                                                                      |                                                                                                                                              | Non-controlling                                                                                                                                   |                                                                                                                                              | Total shareholders                              |
|-------------------------------------------------------|-----------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                | Shares                                                                                                                                            |                                                                                                                                              | Par value                                                                                                                                         |                                                                                                  | capital                                                                                          |                                                                                                                                              | deficit                                                                                                                                           |                                                                                                                                              | interest                                        |   | deficit |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| Balance at January 1, 2010                            |                                                      |   |       289,936,993                                                                                                                     |                                                                                                                                                                |  $                                                                                                                                                             |            289,937                                                                         |                                                                                                                                              |                                                                                                                                              |          9,459,316                                       |                                                                                             |  $                                                                                                                                           |       (10,871,303)                                                                                                  |                                                                                                                                              |  $                                         |                         - |   |  $ |          (1,122,050) |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| January through June 2010, issuance of                |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |
|                                                  | common stock in private placements (Note 9)               |   |                                                                                                                                                                |           12,037,500                                                                                              |                                                                                                                                                                |                                                                                                                                              |                12,037                                                  |                                                                                                                                              |                                                                                                  |             197,763                  |                                                                                                                                              |                                                                                                                                              |                         - |                                            |   |                         - |   |   |             209,800 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| March 2010, issuance of stock options to              |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |
|                                                  | officers, directors & consultants (Note 9)            |   |                                                                                                                                                                |                            - |                                                                                                                                                                |                                                                                                                                              |                         - |                                                                                                                                              |                                                                                                  |            354,650                        |                                                                                                                                              |                                                                                                                                              |                         - |                                            |   |                         - |   |   |             354,650 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| March 2010, issuance of common stock                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |
|                                                  | for consulting agreements (Note 9)                        |   |                                                                                                                                                                |            2,875,000                                                                                         |                                                                                                                                                                |                                                                                                                                              |                 2,875                                             |                                                                                                                                              |                                                                                                  |              115,000            |                                                                                                                                              |                                                                                                                                              |                         - |                                            |   |                         - |   |   |               117,875 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| March 2010, issuance of common stock to               |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |
|                                                  | convertible noteholders (Note 9)                          |   |                                                                                                                                                                |             1,378,488                                                                                   |                                                                                                                                                                |                                                                                                                                              |                  1,379                                       |                                                                                                                                              |                                                                                                  |                61,798 |                                                                                                                                              |                                                                                                                                              |                         - |                                            |   |                         - |   |   |                 63,177 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| March 2010, issuance of warrants to subsidiary        |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |
|                                                  | officers and consultants in May 2009 (Note 9)             |   |                                                                                                                                                                |                            - |                                                                                                                                                                |                                                                                                                                              |                         - |                                                                                                                                              |                                                                                                  |             516,825                  |                                                                                                                                              |                                                                                                                                              |                         - |                                            |   |                         - |   |   |              516,825 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| May 2010, issuance of common stock to                 |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |
|                                                  | debentureholders (Notes 4 & 9)                        |   |                                                                                                                                                                |             6,222,216                                                                                   |                                                                                                                                                                |                                                                                                                                              |                 6,222                                             |                                                                                                                                              |                                                                                                  |               297,111      |                                                                                                                                              |                                                                                                                                              |                         - |                                            |   |                         - |   |   |             303,333 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| June 2010, issuance of warrants to subsidiary         |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |
|                                                  | officers and consultants (Note 9)                         |   |                                                                                                                                                                |                            - |                                                                                                                                                                |                                                                                                                                              |                         - |                                                                                                                                              |                                                                                                  |          1,085,000                                  |                                                                                                                                              |                                                                                                                                              |                         - |                                            |   |                         - |   |   |           1,085,000 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| May 2010, issuance of warrants to noteholder (Note 9) |                                                      |   |                            - |                                                                                                                                                                |                                                                                                                                                                |                         - |                                                                                                                                              |                                                                                                                                              |                 3,500 |                                                                                             |                                                                                                                                              |                         - |                                                                                                                                              |                                            |                         - |   |   |                  3,500 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| Issuance of equity by AlumiFuel Power International,  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |
|                                                  | Inc. subsidiary, net of non-controlling interest (Note 1) |   |                                                                                                                                                                |                            - |                                                                                                                                                                |                                                                                                                                              |                         - |                                                                                                                                              |                                                                                                  |             319,704                  |                                                                                                                                              |                                                                                                                                              |                         - |                                            |   |             (32,880) |   |   |             286,824 |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| Net loss                                              |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                            - |                                                                                                                                              |                                                                                                                                              |                         - |                                                                                                  |                                                                                             |                         - |                                                                                                                                              |                                                                                                                                              |       (3,253,709) |   |   |               35,075 |   |   |         (3,218,634) |
|                                                  |                                                      |   |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                                                |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                                                                                  |                                                                                             |                                                                                                                                              |                                                                                                                                              |                                                                                                                                              |                                            |   |   |   |   |   |   |   |   |
| Balance at June 30, 2010                              |                                                      |   |         312,450,197                                                                                                         |                                                                                                                                                                |  $                                                                                                                                                             |             312,450                                                                   |                                                                                                                                              |                                                                                                                                              |        12,410,667                                                  |                                                                                             |  $                                                                                                                                           |        (14,125,012)                                                                                            |                                                                                                                                              |  $                                         |                  2,195 |   |  $ |         (1,399,700) |

----

|                                                        |   | Six months ended |       |   | Six months ended |   |
|-------------------------------------------------------------|--------|------------------|------------|--------|------------------|--------|
|                                                        |   | June 30,         |       |   | July 31,         |   |
|                                                        |   | 2010             |       |   | 2009             |   |
|                                                        |   |             |       |   |             |   |
| Cash flows from operating activities:                       |   |             |       |   |             |   |
| Net loss                                                    |   | $                | (3,253,709 | )      |             | $      | (4,289,258 | ) |
| Adjustments to reconcile net loss to net cash               |   |             |       |   |             |   |   |   |
| used by operating activities:                               |   |             |       |   |             |   |   |   |
| Stock based compensation (Notes 3 & 9)                  |   |             | 2,074,350  |   |             |   | 3,350,324 |   |
| Shares issued for services (Note 9)                         |   |             | 66,677     |   |             |   | - |   |
| Allowance for bad debt (Note 5)                             |   |             | 60,903     |   |             |   | 197,545 |   |
| Depreciation and amortization                               |   |             | 77,097     |   |             |   | 354 |   |
| Unrealized (gain) loss on investments (Note 1)              |   |             | -          |   |             |   | (35,000 | ) |
| (Decrease) increase in derivative liability (Note 4)        |   |             | (87,971    | )      |             |   | (6,049 | ) |
| Amortization of discount on debentures payable (Note 4)     |   |             | 178,472    |   |             |   | 8,202 |   |
| Changes in operating assets and liabilities:                |   |             |       |   |             |   |   |   |
| Accounts and other receivables                              |   |             | 492        |   |             |   | 13,660 |   |
| Prepaid expenses and other assets                           |   |             | 23,834     |   |             |   | 4,548 |   |
| Accounts payable and accrued expenses                       |   |             | 163,281    |   |             |   | 137,456 |   |
| Related party payables (Note 3)                             |   |             | 48,960     |   |             |   | (60,050 | ) |
| Interest payable                                            |   |             | 11,408     |   |             |   | 8,913 |   |
| Net cash used in operating activities                       |   |             | (636,206   | )      |             |   | (669,355 | ) |
|                                                        |   |             |       |   |             |   |   |   |
| Cash flows from investing activities:                       |   |             |       |   |             |   |   |   |
| Purchase of equipment                                       |   |             | (4,869     | )      |             |   | (5,745 | ) |
| Issuance of notes receivable (Note 5)                       |   |             | (60,903    | )      |             |   | (52,527 | ) |
| Payments received on notes receivable (Note 5)              |   |             | —    |   |             |   | 633 |   |
| Cash acquired in reverse acquisition (Note 1)               |   |             | —    |   |             |   | 655 |   |
| Net cash used in investing activities                       |   |             | (65,772    | )      |             |   | (56,984 | ) |
|                                                        |   |             |       |   |             |   |   |   |
| Cash flows from financing activities:                       |   |             |       |   |             |   |   |   |
| Proceeds from debentures (Note 4)                           |   |             | 145,000    |   |             |   | - |   |
| Proceeds from notes payable, related (Note 3)               |   |             | 48,400     |   |             |   | 31,500 |   |
| Proceeds from notes payable, other (Note 4)                 |   |             | 150,000    |   |             |   | - |   |
| Proceeds from sales of common stock (Note 9)                |   |             | 209,800    |   |             |   | 760,453 |   |
| Prodeeds from sales of subsidiary equity (Note 1)           |   |             | 321,900    |   |             |   | - |   |
| Payments on notes payable (Note 4)                          |   |             | (61,873    | )      |             |   | - |   |
| Payments on notes payable, related (Note 3)                 |   |             | (84,505    | )      |             |   | (89,327 | ) |
| Proceeds from exercise of warrants to                       |   |             |       |   |             |   |   |   |
| purchase common stock                                       |   |             | -          |   |             |   | 2,650 |   |
| Payments to placement agents (Note 4)                       |   |             | (12,730    | )      |             |   | - |   |
| Net cash provided by financing activities                   |   |             | 715,992    |   |             |   | 705,276 |   |
|                                                        |   |             |       |   |             |   |   |   |
| Net change in cash and cash equivalents                     |   |             | 14,014     |   |             |   | (21,063 | ) |
|                                                        |   |             |       |   |             |   |   |   |
| Cash and cash equivalents:                                  |   |             |       |   |             |   |   |   |
| Beginning of period                                         |   |             | 17,262     |   |             |   | 45,454 |   |
|                                                        |   |             |       |   |             |   |   |   |
| End of period                                               |   | $                | 31,276     |   |             | $      | 24,391 |   |
|                                                        |   |             |       |   |             |   |   |   |
| Supplemental disclosure of cash flow information:           |   |             |       |   |             |   |   |   |
| Cash paid during the period for:                            |   |             |       |   |             |   |   |   |
| Income taxes                                                |   | $                | -          |   |             | $      | - |   |
| Interest                                                    |   | $                | 24,376     |   |             | $      | 14,159 |   |
|                                                        |   |             |       |   |             |   |   |   |
| Noncash financing transactions:                             |   |             |       |   |             |   |   |   |
| Notes and interest payable converted to stock               |   | $                | 140,000    |   |             | $      | 20,473 |   |
| Notes and interest payable converted to stock, related      |   | $                | -          |   |             | $      | 549,024 |   |
| Accounts payable converted to stock                         |   | $                | -          |   |             | $      | 153,500 |   |
| Stock issued in exchange for related party accounts payable |   | $                | -          |   |             | $      | 22,500 |   |

----

----

| The Company has certain stock option plans approved by its stockholders, and also grants options and warrants to consultants outside of its stock option plan pursuant to individual agreements. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Management fees, rent and bonus payable to officers |   | $      | 128,983 |   |
|-----------------------------------------------------|--------|--------|---------|--------|
|                                                |   |   |    |   |
| Accrued expenses payable to subsidiary officer      |   |   | 5,875   |   |
|                                                |   |   |    |   |
| Total accounts payable, related party               |   | $      | 134,858 |   |

----

| Notes payable to affiliates of Company officers; interest at 8% and due on demand |   |   | 96,431  |   |
|-----------------------------------------------------------------------------------|--------|--------|---------|--------|
|                                                                              |   |   |    |   |
| Notes payable, related party                                                      |   |   | 96,431  |   |
|                                                                              |   |   |    |   |
| Interest payable related party                                                    |   |   | 21,583  |   |
|                                                                              |   |   |    |   |
| Total principal and interest payable, related party                               |   | $      | 118,014 |   |

----

| Notes payable, non-affiliates; interest at 8% and due on demand |   | $      | 121,118 |   |
|-----------------------------------------------------------------|--------|--------|---------|--------|
|                                                            |   |   |    |   |
| Interest payable, non-affiliates                                |   |   | 14,369  |   |
|                                                            |   |   |    |   |
| Total principal and interest payable, other                     |   | $      | 135,487 |   |

----

----

| Issuance Date | Fair Value | Term    | AssumedConversion Price | Market Price onGrant Date | Volatility Percentage | Interest Rate |
|---------------|------------|---------|-------------------------|---------------------------|-----------------------|---------------|
| 1/19/2010     | $67,667    | 3 years | $0.03                   | $0.04                     | 195%                  | 1.38%         |
| 1/28/2010     | $20,317    | 3 years | $0.04                   | $0.05                     | 195%                  | 1.38%         |

| Fair Value | Term             | AssumedConversion Price | Volatility Percentage | Interest Rate |
|------------|------------------|-------------------------|-----------------------|---------------|
| $417,917   | 2.25 - 2.6 years | $0.012                  | 189%                  | 1.13%         |

----

----

| Issuance Date | Fair Value | Term     | AssumedConversionPrice | Market Price onGrant Date | Volatility Percentage | Interest Rate |
|---------------|------------|----------|------------------------|---------------------------|-----------------------|---------------|
| 5/26/2010     | $53,292    | 6 months | $0.019                 | $0.035                    | 95%                   | 0.22%         |
| 6/30/2010     | $20,317    | 9 months | $0.009                 | $0.022                    | 107%                  | 0.22%         |

| Fair Value | Term         | AssumedConversion Price | Volatility Percentage | Interest Rate |
|------------|--------------|-------------------------|-----------------------|---------------|
| $119,612   | 5 - 9 months | $0.009                  | 78-107%               | 0.22%         |

| Short-term liabilities:                                                                                                                                              |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                                                                                 |   |   |   |
| September 2008 convertible note; non-affiliate; interest at 12% with a default rate of 18% since December 4, 2009 due date                                           |   | $      | 30,000 |   |
|                                                                                                                                                                 |   |   |   |   |
| May 2010 Convertible note; non-affiliate; interest at 8%; due November 26, 2010; $60,000 face value net of discount of $50,000                                       |   |   | 10,000 |   |
|                                                                                                                                                                 |   |   |   |   |
| June 2010 Convertible note; non-affiliate; interest at 8%; due February 28, 2011; $30,000 face value net of discount of $30,000                                      |   |   | -0-    |   |
|                                                                                                                                                                 |   |   |   |   |
| Total short-term convertible notes                                                                                                                                   |   | $      | 40,000 |   |
|                                                                                                                                                                 |   |   |   |   |
| Interest payable, short-term convertible notes                                                                                                                       |   |   | 4,529  |   |
|                                                                                                                                                                 |   |   |   |   |
|                                                                                                                                                                 |   |   |   |   |
| Total principal and interest payable, short-term convertible notes                                                                                                   |   | $      | 44,529 |   |
|                                                                                                                                                                 |   |   |   |   |
| Long-term liabilities:                                                                                                                                               |   |   |   |   |
|                                                                                                                                                                 |   |   |   |   |
| Convertible debentures; non-affiliates; interest at 7% and due three years from issue date; outstanding principal of $295,000 face value; net of discount of 241,111 |   | $      | 53,889 |   |
|                                                                                                                                                                 |   |   |   |   |
| Interest payable, long-term convertible notes                                                                                                                        |   |   | 16,631 |   |
|                                                                                                                                                                 |   |   |   |   |
| Total principal and interest payable, other                                                                                                                          |   | $      | 70,520 |   |

----

|                           |   | Three months ended June 30, 2010 |    |   | Three months ended July 31, 2009 |   |    | Six months ended June 30, 2010 |   |   | Sixmonths ended July 31, 2009 |   |
|--------------------------------|--------|----------------------------------|---------|--------|----------------------------------|--------|---------|--------------------------------|--------|--------|-------------------------------|--------|
| General and administrative     |   | $                                | 204,789 |   |                             | $      | 40,991  |                           |   | $      | 335,661                       |   |   | $ | 72,441 |   |
| Salaries and employee benefits |   |                             | 71,406  |   |                             |   | 85,296  |                           |   |   | 141,936                       |   |   |   | 183,491 |   |
| Legal and accounting           |   |                             | 48,966  |   |                             |   | 51,798  |                           |   |   | 82,034                        |   |   |   | 128,620 |   |
| Professional services          |   |                             | 37,051  |   |                             |   | 104,500 |                           |   |   | 194,884                       |   |   |   | 178,028 |   |
|                           |   | $                                | 362,212 |   |                             | $      | 282,585 |                           |   | $      | 754,515                       |   |   | $ | 562,580 |   |

----

| Issuance Date | Fair Value | Term    | Conversion Price | Market Price onGrant Date | Volatility Percentage | Interest Rate |
|---------------|------------|---------|------------------|---------------------------|-----------------------|---------------|
| May 5, 2009   | $1,374,647 | 5 years | $0.13            | $0.12                     | 225%                  | 1.9%          |
| May 5, 2009   | $1,374,646 | 6 years | $0.13            | $0.12                     | 225%                  | 2.3%          |
| May 5, 2009   | $1,385,302 | 7 years | $0.13            | $0.12                     | 225%                  | 2.6%          |

----

| Issuance Date | Fair Value | Term    | Conversion Price | Market Price onGrant Date | Volatility Percentage | Interest Rate |
|---------------|------------|---------|------------------|---------------------------|-----------------------|---------------|
| June 2, 2010  | $1,085,000 | 5 years | $0.05            | $0.03                     | 238%                  | 2.13%         |

|                                             |   | Warrants   |   | Weighted-average exercise price                                   |   | Weighted-average grant date fair value          |
|--------------------------------------------------|--------|------------|--------|-------------------------------------------------------------------|--------|-------------------------------------------------|
| Outstanding and exercisable at December 31, 2009 |   | 60,490,263 |   | $          0.15 |   | $       0.10 |
|                                             |   |       |   |                                                              |   |                                            |
| Granted                                          |   | 35,000,000 |   | 0.05                                                              |   | 0.03                                            |
| Expired/Cancelled                                |   | 32,967,372 |   | 0.13                                                              |   | 0.00                                            |
| Exercised                                        |   | -          |   | -                                                                 |   | -                                               |
|                                             |   |       |   |                                                              |   |                                            |
| Outstanding and exercisable at June 30, 2010     |   | 62,522,891 |   | $          0.09 |   | $       0.12 |

| Exercise price range |   | Number of options outstanding |   | Weighted-average exercise price                 |   | Weighted-average remaining life |
|----------------------|--------|-------------------------------|--------|-------------------------------------------------|--------|---------------------------------|
|                 |   |                          |   |                                            |   |                            |
| $0.50                |   | 1,741,863                     |   | $       0.50 |   | 0.4 years                       |
|                 |   |                          |   |                                            |   |                            |
| $0.25                |   | 27,500                        |   |        0.25  |   | 0.9 years                       |
|                 |   |                          |   |                                            |   |                            |
| $0.10 to $0.18       |   | 24,603,528                    |   | 0.13                                            |   | 2.0 years                       |
|                 |   |                          |   |                                            |   |                            |
| $0.05 to $0.06       |   | 36,150,000                    |   |       0.05        |   | 3.1 years                       |
|                 |   |                          |   |                                            |   |                            |
|                 |   | 62,522,891                    |   | $       0.09 |   | 2.0 years                       |

----

| Issuance Date | Fair Value | Term    | Exercise Price | Market Price onGrant Date | Volatility Percentage | Interest Rate |
|---------------|------------|---------|----------------|---------------------------|-----------------------|---------------|
| March 2010    | $354,650   | 5 years | $0.041         | $0.041                    | 236%                  | 2.38%         |

|                             | Options |   | Weighted-average exercise price |   | Weighted-average remaining contractual life (years) |   | Aggregate intrinsic value |
|----------------------------------|---------|--------|---------------------------------|--------|-----------------------------------------------------|--------|---------------------------|
| Outstanding at December 31, 2009 | 425,000 |   | $0.35                           |   | 2.8                                                 |   | $0                        |
|                             |    |   |                            |   |                                                |   |                      |
| Options granted                  | -       |   | -                               |   | -                                                   |   | -                         |
|                             |    |   |                            |   |                                                |   |                      |
| Outstanding atJune 30, 2010      | 425,000 |   | $0.35                           |   | 2.5                                                 |   | $0                        |

----

|                             | Options    |   | Weighted-average exercise price |   | Weighted-average remaining contractual life (years) |   | Aggregate intrinsic value |
|----------------------------------|------------|--------|---------------------------------|--------|-----------------------------------------------------|--------|---------------------------|
| Outstanding at December 31, 2009 | 11,350,000 |   | $0.10                           |   | 4.5                                                 |   | $0                        |
|                             |       |   |                            |   |                                                |   |                      |
| Options granted                  | 8,650,000  |   | $0.04                           |   | 4.6                                                 |   | $0                        |
|                             |       |   |                            |   |                                                |   |                      |
| Outstanding atJune 30, 2010      | 20,000,000 |   | $0.06                           |   | 4.2                                                 |   | $0                        |

----

----

----

|                           |   | Six months endedJune 30, 2010 |    |   | Six months endedJuly 31, 2009 |   |
|--------------------------------|--------|-------------------------------|---------|--------|-------------------------------|--------|
| General and administrative     |   | $                             | 335,661 |   |                          | $      | 72,441 |   |
| Salaries and employee benefits |   |                          | 141,936 |   |                          |   | 183,491 |   |
| Legal and accounting           |   |                          | 82,034  |   |                          |   | 128,620 |   |
| Professional services          |   |                          | 194,884 |   |                          |   | 178,028 |   |
|                           |   | $                             | 754,515 |   |                          | $      | 562,580 |   |

----

|                           |   | Three months endedJune 30, 2010 |    |   | Three months endedJuly 31, 2009 |   |
|--------------------------------|--------|---------------------------------|---------|--------|---------------------------------|--------|
| General and administrative     |   | $                               | 204,789 |   |                            | $      | 40,991 |   |
| Salaries and employee benefits |   |                            | 71,406  |   |                            |   | 85,296 |   |
| Legal and accounting           |   |                            | 48,966  |   |                            |   | 51,798 |   |
| Professional services          |   |                            | 37,051  |   |                            |   | 104,500 |   |
|                           |   | $                               | 362,212 |   |                            | $      | 282,585 |   |

----

| •   | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Exhibits: |                                                                                                |
|-----------|-----------------------------------------------------------------------------------------------------|
| 31.1      | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  Filed herewith. |
| 32.1      | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Filed herewith. |

----

|   | ALUMIFUEL POWER CORPORATION |
|--------|-----------------------------|
|   | (Registrant)                |

| Date: August 16, 2010 | By: /s/ Henry Fong                                         |
|-----------------------|------------------------------------------------------------|
|                  | Henry Fong                                                 |
|                  | Principal Executive Officer andPrincipal Financial Officer |
|                  |                                                       |