| Delaware                                                                          |           | 65-0774638          |
|-----------------------------------------------------------------------------------|----------------|---------------------|
| (State or other jurisdiction of                                                   |           | (I.R.S. Employer    |
| incorporation organization)                                                       |           | Identification No.) |
|                                                                              |           |                |
| 3601 Clover Lane                                                                  |           |                |
| New Castle, Pennsylvania                                                          |           | 16105               |
| (Address of principal executive offices)                                          |           | (Zip Code)          |
|                                                                              |           |                |
| Registrant’s telephone number, including area code | (724) 654-9300 |

| Large accelerated filer  ̈ | Accelerated filer  ̈    |
|--------------------------------|-----------------------------|
| Non-accelerated filer  ̈   | Smaller reporting company x |

|           |   | Shares Outstanding |
|----------------|--------|--------------------|
| Title of Class |   | March 1, 2011      |
| Common Stock   |   | 85,453,302         |

----

Table of Contents

TABLE OF CONTENTS

| PART I                                                                                                                                                       |                                                                                                                |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 1.                                                                                                                                                      | Business.                                                                                                           |   | 3      |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 1A.                                                                                                                                                     | Risk Factors.                                                                                                       |   | 12     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 2.                                                                                                                                                      | Properties.                                                                                                         |   | 16     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 3.                                                                                                                                                      | Legal Proceedings.                                                                                                  |   | 16     |
|                                                                                                                                                         |                                                                                                                |   |   |
| PART II                                                                                                                                                      |                                                                                                                |   |   |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 5.                                                                                                                                                      | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Equity of Securities. |   | 18     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 7.                                                                                                                                                      | Management’s Discussion and Analysis of Financial Condition and Results of Operations.                        |   | 21     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 8.                                                                                                                                                      | Financial Statements and Supplementary Data.                                                                        |   | 28     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 9.                                                                                                                                                      | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.                               |   | 57     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 9A                                                                                                                                                      | Controls and Procedures.                                                                                            |   | 57     |
|                                                                                                                                                         |                                                                                                                |   |   |
| PART III                                                                                                                                                     |                                                                                                                |   |   |
|                            |                                                                                                                |   |   |
| Item 10.                                                                                                                                                     | Directors, Executive Officers and Corporate Governance.                                                             |   | 58     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 11.                                                                                                                                                     | Executive Compensation.                                                                                             |   | 58     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 12.                                                                                                                                                     | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.                     |   | 58     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 13.                                                                                                                                                     | Certain Relationships and Related Transactions, and Director Independence.                                          |   | 58     |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 14.                                                                                                                                                     | Principal Accountant Fees and Services.                                                                             |   | 58     |
|                                                                                                                                                         |                                                                                                                |   |   |
| PART IV                                                                                                                                                      |                                                                                                                |   |   |
|                                                                                                                                                         |                                                                                                                |   |   |
| Item 15.                                                                                                                                                     | Exhibits.                                                                                                           |   | 59     |

----

Table of Contents

PART I

Item 1   Description of Business

----

Table of Contents

----

Table of Contents

----

Table of Contents

|   | · | continue to refine our fabrication methods for carbon sheeting, packet assembly and other key components of our carbon electrode assemblies; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | demonstrate the feasibility of manufacturing our PbC device and our other technologies, using standard techniques and equipment; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | demonstrate that the proper quality control can be achieved on our robotic PbC negative electrode manufacturing line; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | · | demonstrate and document the performance of our products in key applications; and |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | respond appropriately to anticipated and unanticipated technical and manufacturing challenges. |
|--------|--------|------------------------------------------------------------------------------------------------|

|   | · | motive power applications; |
|--------|--------|----------------------------|

|   | · | stationary power applications; |
|--------|--------|--------------------------------|

|   | · | hybrid electric vehicle applications; |
|--------|--------|---------------------------------------|

|   | · | hybrid locomotive applications; and |
|--------|--------|-------------------------------------|

|   | · | military applications. |
|--------|--------|------------------------|

----

Table of Contents

|   | · | Cost effectiveness: Due to an extended cycle life and relatively low production costs; |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | Superior properties of our product: The PbC battery has a much greater charge acceptance and has must faster recharge capabilities when compared to other standard and advanced lead-acid batteries; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Ease of manufacturing integration: Our planned carbon electrode assemblies will be designed to replace the standard lead negative electrodes in conventional lead-acid batteries. In some applications that require fixed voltage operations, voltage conversion may be needed; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Superior flexibility: By changing the number, geometry and arrangement of the PbC negative electrode assemblies, we expect to be able to configure our devices to favor either maximum energy storage or maximum power delivery; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Reduced lead content: Depending on the energy, power and cycling requirements of a particular application, our fully recyclable device will use substantially less lead than conventional lead-acid batteries in some applications. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the availability of raw materials and key components; |
|--------|--------|-------------------------------------------------------|

|   | · | our ability to design and manufacture commercial carbon electrode assemblies; |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | our ability to establish and operate facilities that can fabricate PbC negative electrode assemblies and commercially manufacture our PbC device with consistent quality at a predictable cost; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to establish and expand a customer base; |
|--------|--------|------------------------------------------------------|

|   | · | our ability to execute and perform on any future strategic distribution agreements with tier one and/or tier two battery manufacturers; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to compete against established, emerging, and other storage technologies; |
|--------|--------|---------------------------------------------------------------------------------------|

|   | · | the market for batteries in general; and |
|--------|--------|------------------------------------------|

|   | · | our ability to retain key personnel. |
|--------|--------|--------------------------------------|

|   | · | Platform technology business model. We plan to implement a platform technology business model that will focus on developing and manufacturing carbon electrode assemblies that we can offer for sale to established battery manufacturers who want to use our PbC carbon electrode products in their batteries. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Leverage relationships with thought leaders. We are engaged in discussions with industry consortia, research institutions, automotive OEM’s, rail transportation providers and other thought leaders in the fields of utility applications and hybrid electric vehicle technology. As we develop our relationships in the field of energy research, we believe the opportunities for government funding and consortia participation will expand and improve our access to potential suppliers and customers. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Leverage relationships with battery manufacturers. Our business model is based on the premise that we can most effectively address the needs of the market by selling PbC negative electrode assemblies to established lead-acid battery manufacturers who want to add advanced battery technology to their existing product lines. This business model should allow us to leverage the business abilities, manufacturing facilities and distribution networks of established manufacturers in order to reduce our time to market and increase our potential market penetration. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Build a recognized brand. We believe strong brand name recognition is important in order to increase product awareness and to effectively penetrate the mass market. We intend to differentiate our brand by emphasizing our combination of high performance and low total cost of ownership per storage cycle. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | · | Focus on specific markets. Markets for hybrid electric vehicles, hybrid locomotives and conventional utility applications are becoming increasingly attractive. We are actively pursuing the use of our lead carbon technology products in these emerging markets. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Maintain our technical advantage and reduce manufacturing costs. We intend to maintain our technical advantage by continuing to invest in R&D in order to improve the performance of our PbC devices and other technologies and to continue to lower our manufacturing costs. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Prototype manufacturing. We are finalizing architecture and manufacturing methods for our commercial prototype PbC carbon electrodes. These PbC negative electrode assemblies will be the key component in the onsite manufacturing of our PbC batteries. We are also working in house, and with third parties, to develop methods of properly integrating electronics unique to various applications. Our proprietary battery management system plays a key role in this development since it allows us to remotely monitor, and in some cases manage the condition, of both individual batteries and battery strings. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Demonstration projects. When we have developed and bench tested our commercial prototype PbC devices for a particular target market, we will negotiate additional demonstration projects for each of the intended applications. In some of the larger projects we may partner with a larger battery manufacturer in order to provide the required quantity of PbC devices. Our goal is to document and validate the superior performance of our products in real-world applications. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Commercial production. When we have developed sufficient data to support a decision to commence full scale production of a product or product line, we intend to use our Clover Lane facility until we reach our maximum permitted capacity, after which we plan to pursue strategic relationships with other battery manufacturers that are willing to manufacture co-branded commercial PbC products. Those products will contain our proprietary PbC negative electrode assembly, which we will continue to manufacture at our Green Ridge Road facility and build our brand recognition. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | · | U.S. Patent No. 6,466,429 (expires May 2021) - Electric double layer capacitor; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | U.S. Patent No. 6,628,504 (expires May 2021) - Electric double layer capacitor; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | U.S. Patent No. 6,706,079 (expires May 2022) - Method of formation and charge of the negative polarizable carbon electrode in an electric double layer capacitor; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | U.S. Patent No. 7,006,346 (expires April 2024) - Positive Electrode of an electric double layer capacitor; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | · | U.S. Patent No. 7,110,242 (expires February 2021) - Electrode for electric double layer capacitor and method of fabrication thereof; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------|

|   | · | U.S. Patent No. 7,119,047 (expires February 2021) - Modified activated carbon for carbon for capacitor electrodes and method of fabrication thereof; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | U.S. Patent No. 7,569,514 (expires May 22, 2021) - Modified activated carbon for carbon for capacitor electrodes and method of fabrication thereof; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | U.S. Patent No. 7,881,042 (expires March 2027) – Activated Carbon Electrode with PTFE Binder. |
|--------|--------|-----------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | · | symmetric supercapacitors; |
|--------|--------|----------------------------|

|   | · | asymmetric supercapacitors with organic electrolytes; |
|--------|--------|-------------------------------------------------------|

|   | · | nickel metal hydride batteries; |
|--------|--------|---------------------------------|

|   | · | lithium-ion batteries; |
|--------|--------|------------------------|

|   | · | other advanced lead-acid devices; and |
|--------|--------|---------------------------------------|

|   | · | flow batteries. |
|--------|--------|-----------------|

----

Table of Contents

|   | · | The Lease term commenced on January 1, 2011 and the term expires on December 31, 2015. |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | The Lease may be extended for two 5-year terms, by giving notice not less than 30 nor more than 120 days before the expiration of the initial term or first renewal term (as applicable).  The renewal leases shall be on terms substantially similar to the terms of the initial Lease except for any adjustment to rent, if warranted, as mutually agreed upon by Lessor and the Company. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The rental amount for the initial term is $19,297 per month and is on a “triple net” basis. |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | · | If the Company is able to obtain sufficient funding from either the federal or state government or agencies, and it enters into a binding agreement to purchase the Property, the Lease shall be immediately terminated and Lessor shall credit the most recent 6 months of actual rental payments made to Lessor against the purchase price of the Property |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Company also has a right of first refusal to purchase the property within 30 days of receipt of notice of a third party offer from Lessor upon substantially the same terms as those offered by the third party. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Lease contains market terms on standard provisions such as defaults and maintenance. |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | The term commenced on April 3, 2010 with an initial term of three years. |
|--------|--------|--------------------------------------------------------------------------|

|   | · | The renewal lease may be extended for two successive five-year renewal options with future rent to be negotiated at a commercially reasonable rate. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The battery manufacturing facility includes 70,438 square feet of floor space, including 7,859 square feet of office, locker, lab and lunch area, 46,931 square feet of manufacturing space, 1,488 square feet of dedicated lab space, 9,200 square feet of storage buildings and 5,000 square feet of basement area. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The rental amount for the initial term is $16,700 per month, which is fixed through 2013. In addition to the monthly rental, we are obligated to pay all required maintenance costs, taxes and special assessments, maintain public liability insurance, and maintain fire and casualty insurance for an amount equal to 100% of the replacement value of the leased premises. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

Item 1A Risk Factors

|   | · | Maintain effective control over the cost of our research, pace of progress, development and product testing activities; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | Develop cost effective manufacturing methods for essential components of our proposed products; |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | Improve the performance of our commercial prototype batteries; |
|--------|--------|----------------------------------------------------------------|

|   | · | Successfully transition from our laboratory research and pilot production efforts to commercial manufacturing and sales of our prototype  PbC battery technologies; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Adapt and successfully execute our vision and business plan; |
|--------|--------|--------------------------------------------------------------|

|   | · | Implement and improve operational, information technology , financial and management control systems and processes; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------|

|   | · | License complementary technologies if necessary and successfully defend our intellectual property rights against potential claims; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Respond effectively to competitive developments and changing market conditions; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | Continue to attract, retain and motivate qualified personnel; and |
|--------|--------|-------------------------------------------------------------------|

|   | · | Manage each of the other risks set forth below. |
|--------|--------|-------------------------------------------------|

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

Item 2 Properties

Item 3 Legal Proceedings

| $      | 214,000 |   | To legal counsel for fees and expenses                                    |
|--------|---------|--------|---------------------------------------------------------------------------|
|   | 646,000 |   | To us (which consists mainly of reimbursement of legal fees and expenses) |
| $      | 860,000 |   | Total proceeds                                                            |

----

Table of Contents

----

Table of Contents

PART II

Item 5    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

| Period              |   | High |   |   | Low    |   |
|---------------------|--------|------|--------|--------|--------|--------|
| First Quarter 2009  |   | $    | 1.25   |   |   | $      | 0.80 |   |
| Second Quarter 2009 |   | $    | 2.10   |   |   | $      | 0.78 |   |
| Third Quarter 2009  |   | $    | 2.75   |   |   | $      | 1.05 |   |
| Fourth Quarter 2009 |   | $    | 2.25   |   |   | $      | 1.20 |   |
| First Quarter 2010  |   | $    | 1.48   |   |   | $      | 1.13 |   |
| Second Quarter 2010 |   | $    | 1.15   |   |   | $      | 0.63 |   |
| Third Quarter 2010  |   | $    | 0.64   |   |   | $      | 0.46 |   |
| Fourth Quarter 2010 |   | $    | 0.72   |   |   | $      | 0.52 |   |

| Equity Compensation Plan category:                   |   | Number of sharesIssuable on exercise ofOutstanding options |      |   | Weighted averageexercise price ofoutstanding options |   |   | Number of sharesavailable for futureissuance under equitycompensation plans |   |
|------------------------------------------------------|--------|-----------------------------------------------------------------|-----------|--------|-----------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------|--------|
| Compensation plans approved by stockholders          |   |                                                            |      |   |                                                      |   |   |                                                                             |   |
| 2004 Incentive Stock Plan                            |   |                                                            | 0         |   |                                                      | $      | 0      |                                                                             |   |   | 1,379,000 |   |
| 2004 Directors’ Option Plan                    |   |                                                            | 480,972   |   |                                                      | $      | 1.68   |                                                                             |   |   | 489,463 |   |
|                                                 |   |                                                            |      |   |                                                      |   |   |                                                                             |   |   |   |   |
| Compensation not approved by stockholders            |   |                                                            |      |   |                                                      |   |   |                                                                             |   |   |   |   |
| Options held by officers, employees, and consultants |   |                                                            | 1,658,500 |   |                                                      | $      | 2.46   |                                                                             |   |   |   |   |
| 2010 Employees and Officers Stock Option Plan        |   |                                                            | 1,439,048 |   |                                                      |   | 1.50   |                                                                             |   |   | 524,952 |   |
| Total equity awards                                  |   |                                                            | 3,578,520 |   |                                                      | $      | 1.97   |                                                                             |   |   |   |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

----

Table of Contents

----

Table of Contents

|                                                          |   | Total AwardAmount |       |   | UnbilledAward Balance |   |
|---------------------------------------------------------------|--------|------------------------|------------|--------|----------------------------|--------|
| DOD Office of Naval Research Contract                         |   |                   | 1,004,747  |   |                       |   | 389,090 |   |
| ALABC                                                         |   |                   | 388,000    |   |                       |   | - |   |
| PA Alternative Fuels Incentive Grant Program                  |   |                   | 763,404    |   |                       |   | - |   |
| Pennsylvania Energy Development Authority                     |   |                   | 248,650    |   |                       |   | 140,389 |   |
| Pennsylvania Department of Community and Economic Development |   |                   | 298,605    |   |                       |   | 298,605 |   |
|                                                          |   | $                      | 2, 703,406 |   |                       | $      | 828,084 |   |

|   | · | Our primary activity in our current development stage consists of R&D efforts for advanced battery applications and PbC carbon electrode devices. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Product sales are derived from the sale of lead-acid batteries (both flooded and AGM) to specialty collectors, race car owners and other battery manufacturers, and from the sale of PbC batteries. Service sales result from the sale of R&D services related to advanced PbC battery applications. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Product costs include raw materials, components, labor and allocated manufacturing overhead to produce batteries sold to customers. Due to the development stage of our business, product costs represented in our current financial statements may not be indicative of the future costs to produce batteries. Product costs also include provisions for inventory valuation and obsolescence reserves. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Research & development includes expenses to design, develop, and test advanced batteries and carbon electrode assemblies for our energy storage products based on our patented lead carbon technology. Also included are the materials consumed in production of test products, engineering services, manufacturing costs not allocated to product sales, and costs attributable to service sales. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Selling, general and administrative expenses include labor, expenses associated with our being a public company, selling and marketing, investor relations, and legal costs associated with litigation and protection of our intellectual property rights. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   | 2010   |       |   | 2009   |   |
|------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Product  sales                       |   | $      | 1,328,025  |   |   | $      | 1,843,592 |   |
| Service  sales                       |   |   | 820,081    |   |   |   | - |   |
| Total sales                                    |   |   | 2,148,106  |   |   |   | 1,843,592 |   |
| Product costs                                  |   |   | 893,681    |   |   |   | 1,693,714 |   |
| Research & development expenses            |   |   | 5,432,230  |   |   |   | 4,426,956 |   |
| Selling, general & administrative expenses |   |   | 3,448,508  |   |   |   | 3,837,526 |   |
| Derivative revaluations (income)               |   |   | (1,165,751 | )      |   |   | 6,292,401 |   |
| Loss before income taxes                       |   |   | (6,830,854 | )      |   |   | (14,578,427 | ) |

----

Table of Contents

----

Table of Contents

|   | · | The exercise for warrants previously issued to Quercus by us was reset from $2.60 per share to $0.75 per share. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | Any previously accrued liquidated damages under the Securities Purchase Agreement to the date of the Amendment were waived. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | Axion and Quercus agreed to elect three new directors on behalf of Quercus, each to serve a three year term. |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | Quercus agreed to invest an additional $2,000,000 in connection with a minimum $10 million capital raise by us upon certain terms and conditions as set forth in the Amendment. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Certain deadlines in the Agreement for filing of post effective amendments were extended from 7 business days and 30 calendar days are extended to 15 business days and 60 calendar days, respectively. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

----

Table of Contents

----

Table of Contents

Item 8   Financial Statements and Supplementary Data

----

Table of Contents

|                                                                                                                  |   | December 31, 2010 |        |   | December 31, 2009 |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|--------|-------------------|--------|
| ASSETS                                                                                                                |   |              |        |   |              |   |
| Current Assets                                                                                                        |   |              |        |   |              |   |
| Cash and cash equivalents                                                                                             |   | $                 | 13,330,009  |   |              | $      | 23,279,466 |   |
| Accounts receivable                                                                                                   |   |              | 221,922     |   |              |   | 194,315 |   |
| Other receivables                                                                                                     |   |              | 144,973     |   |              |   | 208,179 |   |
| Prepaid expenses                                                                                                      |   |              | 82,060      |   |              |   | 79,987 |   |
| Inventory, net                                                                                                        |   |              | 1,428,560   |   |              |   | 1,008,092 |   |
| Total current assets                                                                                                  |   |              | 15,207,524  |   |              |   | 24,770,039 |   |
|                                                                                                                  |   |              |        |   |              |   |   |   |
| Property & equipment, net                                                                                         |   |              | 6,738,575   |   |              |   | 4,216,080 |   |
| Other receivables                                                                                                     |   |              | 65,000      |   |              |   | 34,601 |   |
| TOTAL ASSETS                                                                                                          |   | $                 | 22,011,099  |   |              | $      | 29,020,720 |   |
|                                                                                                                  |   |              |        |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                  |   |              |        |   |              |   |   |   |
| Current Liabilities                                                                                                   |   |              |        |   |              |   |   |   |
| Accounts payable                                                                                                      |   | $                 | 930,021     |   |              | $      | 1,375,292 |   |
| Other liabilities                                                                                                     |   |              | 225,804     |   |              |   | 82,326 |   |
| Notes payable                                                                                                         |   |              | 101,684     |   |              |   | 101,684 |   |
| Total current liabilities                                                                                             |   |              | 1,257,509   |   |              |   | 1,559,302 |   |
|                                                                                                                  |   |              |        |   |              |   |   |   |
| Deferred revenue                                                                                                      |   |              | 1,385,185   |   |              |   | 856,237 |   |
| Derivative liabilities                                                                                                |   |              | 254,461     |   |              |   | 1,616,788 |   |
| Notes payable                                                                                                         |   |              | 547,612     |   |              |   | 649,549 |   |
| Total liabilities                                                                                                     |   |              | 3,444,767   |   |              |   | 4,681,876 |   |
|                                                                                                                  |   |              |        |   |              |   |   |   |
| Stockholders' Equity                                                                                                  |   |              |        |   |              |   |   |   |
| Convertible preferred stock-12,500,000 shares authorized                                                              |   |              |        |   |              |   |   |   |
| Series-A preferred – 2,000,000 shares designated 0 shares issued and outstanding (630,897 in 2009)              |   |              | -           |   |              |   | 9,069,871 |   |
| Common stock-125,000,000 shares authorized $0.0001 par value 85,453,302 issued & outstanding (75,767,818 in 2009) |   |              | 8,545       |   |              |   | 7,576 |   |
| Additional paid in capital                                                                                            |   |              | 86,499,416  |   |              |   | 76,372,520 |   |
| Deficit accumulated during development stage                                                                          |   |              | (67,690,004 | )      |              |   | (60,859,150 | ) |
| Cumulative foreign currency translation adjustment                                                                    |   |              | (251,625    | )      |              |   | (251,973 | ) |
| Total stockholders' equity                                                                                            |   |              | 18,566,332  |   |              |   | 24,338,844 |   |
|                                                                                                                  |   |              |        |   |              |   |   |   |
| TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                                                                          |   | $                 | 22,011,099  |   |              | $      | 29,020,720 |   |

----

Table of Contents

|                                                             |   | Years Ended |       |   | Inception    |   |
|------------------------------------------------------------------|--------|-------------|------------|--------|--------------|--------|
|                                                             |   | December 31 |       |   | 9/18/2003 to |   |
|                                                             |   | 2010        |       |   | 2009         |   |   | 12/31/2010 |   |
| Product                                                          |   | $           | 1,328,025  |   |         | $      | 1,843,592 |   |   | $ | 4,660,464 |   |
| Service                                                          |   |        | 820,081    |   |         |   | - |   |   |   | 820,081 |   |
| Net  sales                                             |   |        | 2,148,106  |   |         |   | 1,843,592 |   |   |   | 5,480,545 |   |
|                                                             |   |        |       |   |         |   |   |   |   |   |   |   |
| Costs and expenses                                               |   |        |       |   |         |   |   |   |   |   |   |   |
| Product costs                                                    |   |        | 893,681    |   |         |   | 1,693,714 |   |   |   | 3,797,657 |   |
| Research & development                                       |   |        | 5,432,230  |   |         |   | 4,426,956 |   |   |   | 23,810,856 |   |
| Selling, general & administrative                            |   |        | 3,448,508  |   |         |   | 3,837,526 |   |   |   | 25,301,415 |   |
| Interest expense - related party                                 |   |        | 21,143     |   |         |   | 186,063 |   |   |   | 2,359,129 |   |
| Impairment of assets                                             |   |        | 361,793    |   |         |   | - |   |   |   | 1,753,278 |   |
| Derivative revaluations (income)                                 |   |        | (1,165,751 | )      |         |   | 6,292,401 |   |   |   | (1,388,018 | ) |
| Mega C Trust share augmentation                                  |   |        | -          |   |         |   | - |   |   |   | 400,000 |   |
| Interest & other income                                      |   |        | (12,644    | )      |         |   | (14,641 | ) |   |   | (561,437 | ) |
| Loss before income taxes                                         |   |        | (6,830,854 | )      |         |   | (14,578,427 | ) |   |   | (49,992,335 | ) |
|                                                             |   |        |       |   |         |   |   |   |   |   |   |   |
| Income taxes                                                     |   |        | -          |   |         |   | - |   |   |   | 4,300 |   |
| Accumulated deficit                                              |   |        | (6,830,854 | )      |         |   | (14,578,427 | ) |   |   | (49,996,635 | ) |
|                                                             |   |        |       |   |         |   |   |   |   |   |   |   |
| Less preferred stock dividends and beneficial conversion feature |   |        | -          |   |         |   | (4,046,836 | ) |   |   | (17,693,369 | ) |
| Net loss applicable to common shareholders                       |   | $           | (6,830,854 | )      |         | $      | (18,625,263 | ) |   | $ | (67,690,004 | ) |
|                                                             |   |        |       |   |         |   |   |   |   |   |   |   |
| Basic and diluted net loss per share                             |   | $           | (0.08      | )      |         | $      | (0.67 | ) |   | $ | (2.53 | ) |
|                                                             |   |        |       |   |         |   |   |   |   |   |   |   |
| Weighted average common shares outstanding                       |   |        | 83,711,708 |   |         |   | 27,619,839 |   |   |   | 26,718,580 |   |

----

Table of Contents

|                                                           |   | Years Ended |       |   | Inception    |   |
|----------------------------------------------------------------|--------|-------------|------------|--------|--------------|--------|
|                                                           |   | December 31 |       |   | 9/18/2003 to |   |
|                                                           |   | 2010        |       |   | 2009         |   |   | 12/31/2010 |   |
| Cash Flows from Operating Activities                           |   |        |       |   |         |   |   |   |   |
| Accumulated deficit                                            |   | $           | (6,830,854 | )      |         | $      | (14,578,427 | ) |   | $ | (49,996,635 | ) |
|                                                           |   |        |       |   |         |   |   |   |   |   |   |   |
| Adjustments to reconcile deficit accumulated for noncash items |   |        |       |   |         |   |   |   |   |   |   |   |
| Depreciation                                                   |   |        | 673,170    |   |         |   | 441,005 |   |   |   | 1,657,461 |   |
| Interest expense                                               |   |        | -          |   |         |   | 139,668 |   |   |   | 1,970,251 |   |
| Impairment of assets                                           |   |        | 361,793    |   |         |   | - |   |   |   | 1,753,279 |   |
| Derivative revaluations (income)                               |   |        | (1,165,751 | )      |         |   | 6,292,401 |   |   |   | (1,388,018 | ) |
| Mega C Trust share augmentation                                |   |        | -          |   |         |   | - |   |   |   | 400,000 |   |
| Share based compensation expense                               |   |        | 444,986    |   |         |   | 986,982 |   |   |   | 5,782,467 |   |
|                                                           |   |        |       |   |         |   |   |   |   |   |   |   |
| Changes in operating assets & liabilities                  |   |        |       |   |         |   |   |   |   |   |   |   |
| Accounts receivable                                            |   |        | (27,607    | )      |         |   | (66,280 | ) |   |   | (228,791 | ) |
| Other receivables                                              |   |        | 63,206     |   |         |   | (143,723 | ) |   |   | (123,013 | ) |
| Prepaid expenses                                               |   |        | (2,073     | )      |         |   | (998 | ) |   |   | (79,472 | ) |
| Inventory, net                                                 |   |        | (420,468   | )      |         |   | 261,423 |   |   |   | (1,428,559 | ) |
| Accounts payable                                               |   |        | (445,271   | )      |         |   | 51,005 |   |   |   | 2,584,665 |   |
| Other liabilities                                              |   |        | 143,478    |   |         |   | (80,254 | ) |   |   | 246,936 |   |
| Liability to issue equity instruments                          |   |        | -          |   |         |   | - |   |   |   | 178,419 |   |
| Deferred revenue and other                                     |   |        | 528,977    |   |         |   | 105,151 |   |   |   | 1,472,703 |   |
|                                                           |   |        |       |   |         |   |   |   |   |   |   |   |
| Net cash used by operating activities                          |   |        | (6,676,414 | )      |         |   | (6,592,047 | ) |   |   | (37,198,307 | ) |
|                                                           |   |        |       |   |         |   |   |   |   |   |   |   |
| Cash Flows from Investing Activities                           |   |        |       |   |         |   |   |   |   |   |   |   |
| Short term investments                                         |   |        | -          |   |         |   | 2,193,920 |   |   |   | - |   |
| Other receivables                                              |   |        | (30,399    | )      |         |   | (6,213 | ) |   |   | (1,282,016 | ) |
| Purchases of property & equipment                          |   |        | (3,557,458 | )      |         |   | (1,382,902 | ) |   |   | (8,754,540 | ) |
| Investment in intangible assets                                |   |        | -          |   |         |   | - |   |   |   | (167,888 | ) |
| Net cash provided (used) by investing activities               |   |        | (3,587,857 | )      |         |   | 804,805 |   |   |   | (10,204,444 | ) |
|                                                           |   |        |       |   |         |   |   |   |   |   |   |   |
| Cash Flows from Financing Activities                           |   |        |       |   |         |   |   |   |   |   |   |   |
| Net proceeds from related party debt                           |   |        | -          |   |         |   | 265,687 |   |   |   | 5,445,458 |   |
| Repayment of notes payable                                     |   |        | (101,937   | )      |         |   | 751,234 |   |   |   | 649,297 |   |
| Net proceeds from sale of common stock                         |   |        | 57,137     |   |         |   | 24,928,323 |   |   |   | 45,171,365 |   |
| Net proceeds from exercise of warrants                         |   |        | 359,266    |   |         |   | - |   |   |   | 2,014,766 |   |
| Net proceeds from sale of preferred stock                      |   |        | -          |   |         |   | - |   |   |   | 7,472,181 |   |
| Net cash provided by financing activities                      |   |        | 314,466    |   |         |   | 25,945,244 |   |   |   | 60,753,067 |   |
|                                                           |   |        |       |   |         |   |   |   |   |   |   |   |
| Net change in cash and cash equivalents                        |   |        | (9,949,805 | )      |         |   | 20,158,002 |   |   |   | 13,350,316 |   |
| Effect of exchange rate on cash                                |   |        | 348        |   |         |   | (2,704 | ) |   |   | (20,307 | ) |
| Cash and cash equivalents - beginning                          |   |        | 23,279,466 |   |         |   | 3,124,168 |   |   |   | - |   |
| Cash and cash equivalents - ending                             |   | $           | 13,330,009 |   |         | $      | 23,279,466 |   |   | $ | 13,330,009 |   |

----

Table of Contents

|                                               |   | Preferred |   |   | Common          |   |   | DeficitAccumulatedDuring |   |   | OtherComprehensiveIncomeCumulative |   |   | TotalStockholders'      |       |
|---------------------------------------------------------|--------|-----------|--------|--------|-----------------|--------|--------|--------------------------|--------|--------|------------------------------------|--------|--------|-------------------------|------------|
|                                                    |   | Shares    |   |   | SeniorPreferred |   |   | Series-APreferred        |   |   | Shares                             |   |   | CommonStock Amount |       |   | Additional Paid-In Capital |   |   | SubscriptionsReceivable |   |   | DevelopmentStage |   |   | TranslationAdjustments |   |   | Equity(Deficit) |   |
| Inception September 18, 2003                  |   |      | 0      |   |            | $      | 0      |                     |   | $      | 0                                  |   |   |                    | 0          |   |   | $ | 0 |   |   | $ | 0 |   |   | $ | 0 |   |   | $ | 0 |   |   | $ | 0 |   |   | $ | 0 |   |
| Shares to founders upon formulation of APC    |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 1,360,000  |   |   |   | 137 |   |   |   | (137 | ) |   |   | 0 |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Stock based compensation                      |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 170,000    |   |   |   | 17 |   |   |   | 48,936 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 48,953 |   |
| Conversion of debt to equity                  |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 1,108,335  |   |   |   | 111 |   |   |   | 1,449,889 |   |   |   | (350,000 | ) |   |   |   |   |   |   |   |   |   |   | 1,100,001 |   |
| Debt Discount from convertible debt           |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 86,402 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 86,402 |   |
| Unamortized discount on convertible debt      |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | (77,188 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (77,188 | ) |
| Fair value of options issued as loan inducements        |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 15,574 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 15,574 |   |
| Recapitalization:                             |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| - Shares issued to Mega-C trust               |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 6,147,483  |   |   |   | 615 |   |   |   | (615 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| - Equity acquired in recapitalization         |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 1,875,000  |   |   |   | 188 |   |   |   | (188 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Net Loss December 31, 2003                    |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (3,097,030 | ) |   |   |   |   |   |   | (3,097,030 | ) |
| Other Comprehensive income (loss):            |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign Currency Translation Adjustment       |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (56,547 | ) |   |   | (56,547 | ) |
| Comprehensive loss                            |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (3,153,577 | ) |
| Balance at December 31, 2003                  |   |      | 0      |   |            | $      | 0      |                     |   | $      | 0                                  |   |   |                    | 10,660,818 |   |   | $ | 1,067 |   |   | $ | 1,522,674 |   |   | $ | (350,000 | ) |   | $ | (3,097,030 | ) |   | $ | (56,547 | ) |   | $ | (1,979,836 | ) |
| Shares issued to founders                     |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 445,000    |   |   |   | 45 |   |   |   | (45 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Augmentation shares issued to Mega-C trust              |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 180,000    |   |   |   | 18 |   |   |   | (18 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Conversion of debt                            |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 283,333    |   |   |   | 28 |   |   |   | 451,813 |   |   |   | 350,000 |   |   |   |   |   |   |   |   |   |   |   | 801,841 |   |
| Warrants in consideration for technology purchased      |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 563,872 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 563,872 |   |
| Common stock offering - net of cost           |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 823,800    |   |   |   | 81 |   |   |   | 1,607,053 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,607,134 |   |
| Proceeds from exercise of warrants            |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 475,200    |   |   |   | 48 |   |   |   | 867,972 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 868,020 |   |
| Liability converted as partial prepayment on options    |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 306,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 306,000 |   |
| Stock based compensation                      |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 45,000     |   |   |   | 5 |   |   |   | 191,738 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 191,742 |   |
| Fraction Shares Issued Upon Reverse Spilt     |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    | 48,782     |   |   |   | 5 |   |   |   | (5 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Net Loss December 31, 2004                    |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (3,653,637 | ) |   |   |   |   |   |   | (3,653,637 | ) |
| Other Comprehensive income (loss):            |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign Currency Translation Adjustment       |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (74,245 | ) |   |   | (74,245 | ) |
| Comprehensive loss                            |   |      |   |   |            |   |   |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (3,727,882 | ) |
| Balance at December 31, 2004                  |   |      | 0      |   |            | $      | 0      |                     |   | $      | 0                                  |   |   |                    | 12,961,933 |   |   | $ | 1,296 |   |   | $ | 5,511,054 |   |   | $ | 0 |   |   | $ | (6,750,667 | ) |   | $ | (130,792 | ) |   | $ | (1,369,109 | ) |

----

Table of Contents

|                                             |   | Preferred |     |   | Common          |   |       | DeficitAccumulatedDuring |   |   | OtherComprehensiveIncomeCumulative |   |   |  TotalStockholders' |       |
|-------------------------------------------------------|--------|-----------|----------|--------|-----------------|--------|------------|--------------------------|--------|--------|------------------------------------|--------|--------|--------------------------|------------|
|                                                  |   | Shares    |     |   | SeniorPreferred |   |       | Series-APreferred        |   |   | Shares                             |   |   | CommonStock Amount  |       |   | Additional Paid-In Capital |   |   | SubscriptionsReceivable |   |   | DevelopmentStage |   |   | TranslationAdjustments |   |   | Equity(Deficit) |   |
| Balance at December 31, 2004                          |   |      | 0        |   |            | $      | 0          |                     |   | $      | 0                                  |   |   |                     | 12,961,933 |   |   | $ | 1,296 |   |   | $ | 5,511,054 |   |   | $ | 0 |   |   | $ | (6,750,667 | ) |   | $ | (130,792 | ) |   | $ | (1,369,109 | ) |
| Proceeds From Exercise of Warrants & Options      |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     | 853,665    |   |   |   | 85 |   |   |   | 1,283,395 |   |   |   | (496,000 | ) |   |   |   |   |   |   |   |   |   |   | 787,480 |   |
| Common Stock Offering Proceeds              |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     | 600,000    |   |   |   | 60 |   |   |   | 1,171,310 |   |   |   | (200,000 | ) |   |   |   |   |   |   |   |   |   |   | 971,370 |   |
| Preferred Stock Offering proceeds           |   |      | 385,000  |   |            |   | 3,754,110  |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   | (25,000 | ) |   |   |   |   |   |   |   |   |   |   | 3,729,110 |   |
| Conversion of preferred to common           |   |      | (245,000 | )      |            |   | (2,475,407 | )                        |   |   |                               |   |   |                     | 1,470,000  |   |   |   | 147 |   |   |   | 2,475,260 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Stock issued for services                   |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     | 500,000    |   |   |   | 50 |   |   |   | 1,524,950 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,525,000 |   |
| Fair Value of Options for Non-Employee Services       |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   | 237,568 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 237,568 |   |
| Employee incentive share grants             |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     | 219,000    |   |   |   | 22 |   |   |   | 647,480 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 647,502 |   |
| Impact of beneficial conversion feature     |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   | 3,099,156 |   |   |   |   |   |   |   | (3,099,156 | ) |   |   |   |   |   |   | 0 |   |
| Preferred Stock Dividends                   |   |      |     |   |            |   | 176,194    |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (176,194 | ) |   |   |   |   |   |   | 0 |   |
| Net Loss December 31, 2005                  |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (6,325,113 | ) |   |   |   |   |   |   | (6,325,113 | ) |
|                                                  |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Comprehensive income (loss):                    |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign Currency Translation Adjustment               |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (24,780 | ) |   |   | (24,780 | ) |
| Comprehensive loss                                    |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (6,349,893 | ) |
| Balance at December 31, 2005                          |   |      | 140,000  |   |            | $      | 1,454,897  |                     |   | $      | 0                                  |   |   |                     | 16,604,598 |   |   | $ | 1,661 |   |   | $ | 15,950,173 |   |   | $ | (721,000 | ) |   | $ | (16,351,130 | ) |   | $ | (155,572 | ) |   | $ | 179,028 |   |
|                                                  |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred Series-A Proceeds                           |   |      | 782,997  |   |            |   |       |                     |   |   | 7,571,768                          |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 7,571,768 |   |
| Preferred - Dividends                                 |   |      |     |   |            |   | 119,092    |                     |   |   | 103,101                            |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (222,193 | ) |   |   |   |   |   |   | 0 |   |
| Senior Preferred Cancellation                         |   |      | (2,500   | )      |            |   | (25,000    | )                        |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   | 25,000 |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Common Stock Offering Proceeds                        |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     | 80,000     |   |   |   | 8 |   |   |   | 199,992 |   |   |   | 696,000 |   |   |   |   |   |   |   |   |   |   |   | 896,000 |   |
| Proceeds from exercise of warrants                    |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     | 56,700     |   |   |   | 6 |   |   |   | 113,394 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 113,400 |   |
| Employee incentive share grants                       |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     | 6,000      |   |   |   | 1 |   |   |   | 23,999 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 24,000 |   |
| Augmentation shares issued to Mega-C trust            |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     | (500,000   | ) |   |   | (50 | ) |   |   | (1,124,950 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,125,000 | ) |
| Stock based compensation                              |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   | 1,241,231 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,241,231 |   |
| Fair value of warrants with related party debt        |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   | 885,126 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 885,126 |   |
| Modification of preexisting warrants                  |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   | 392,811 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 392,811 |   |
| Fair value warrants issued for services               |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   | 86,848 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 86,848 |   |
| Beneficial conversion feature on related party debt   |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   | 95,752 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 95,752 |   |
| Beneficial conversion feature on Preferred Stock      |   |      |     |   |            |   |       |                     |   |   | (6,096,634                         | )      |   |                     |       |   |   |   |   |   |   |   | 6,709,970 |   |   |   |   |   |   |   | (613,336 | ) |   |   |   |   |   |   | 0 |   |
| Net Loss December 31, 2006                            |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (7,027,963 | ) |   |   |   |   |   |   | (7,027,963 | ) |
| Other Comprehensive income (loss):                    |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Foreign Currency Translation Adjustment               |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (95,387 | ) |   |   | (95,387 | ) |
| Comprehensive loss                                    |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (7,123,350 | ) |
|                                                  |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2006                          |   |      | 920,497  |   |            | $      | 1,548,989  |                     |   | $      | 1,578,235                          |   |   |                     | 16,247,298 |   |   | $ | 1,625 |   |   | $ | 24,574,346 |   |   |   | - |   |   | $ | (24,214,622 | ) |   | $ | (250,959 | ) |   | $ | 3,237,614 |   |

----

Table of Contents

|                                        |   | Preferred |     |   | Common          |   |      | DeficitAccumulatedDuring |   |   | Other Comprehensive |   |   | TotalStockholders'      |       |
|--------------------------------------------------|--------|-----------|----------|--------|-----------------|--------|-----------|--------------------------|--------|--------|---------------------|--------|--------|-------------------------|------------|
|                                             |   | Shares    |     |   | SeniorPreferred |   |      | Series-APreferred        |   |   | Shares              |   |   | CommonStock Amount |       |   | Additional Paid-In Capital |   |   | SubscriptionsReceivable |   |   | DevelopmentStage |   |   | Income CumulativeTranslation Adjustments |   |   | Equity(Deficit) |   |
| Balance at December 31, 2006                     |   |      | 920,497  |   |            | $      | 1,548,989 |                     |   | $      | 1,578,235           |   |   |                    | 16,247,298 |   |   | $ | 1,625 |   |   | $ | 24,574,346 |   |   | $ | - |   |   | $ | (24,214,622 | ) |   | $ | (250,959 | ) |   | $ | 3,237,614 |   |
| Preferred Series-A Proceeds                      |   |      | 40,000   |   |            |   |      |                     |   |   | 337,270             |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 337,270 |   |
| Preferred - Dividends                            |   |      |     |   |            |   | 130,566   |                     |   |   | 1,790,755           |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,921,321 | ) |   |   |   |   |   |   | 0 |   |
| Employee incentive share grants                  |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    | 1,000      |   |   |   | 0 |   |   |   | 315,950 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 315,950 |   |
| Stock based compensation                         |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   | 215,393 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 215,393 |   |
| Fair value of warrants with related party debt   |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   | 98,463 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 98,463 |   |
| Modification of preexisting warrants             |   |      |     |   |            |   | (164,179  | )                        |   |   |                |   |   |                    |       |   |   |   |   |   |   |   | 164,179 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Beneficial conversion feature on Preferred Stock |   |      |     |   |            |   |      |                     |   |   | 6,096,634           |   |   |                    |       |   |   |   |   |   |   |   | 400,000 |   |   |   |   |   |   |   | (6,496,634 | ) |   |   |   |   |   |   | 0 |   |
| Net Loss December 31, 2007                       |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (5,866,127 | ) |   |   |   |   |   |   | (5,866,127 | ) |
| Other Comprehensive income (loss):               |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Foreign Currency Translation Adjustment          |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 21,136 |   |   |   | 21,136 |   |
| Comprehensive loss                               |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (5,844,991 | ) |
|                                             |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2007                     |   |      | 960,497  |   |            | $      | 1,515,376 |                     |   | $      | 9,802,894           |   |   |                    | 16,248,298 |   |   | $ | 1,625 |   |   | $ | 25,768,331 |   |   | $ | 0 |   |   | $ | (38,498,704 | ) |   | $ | (229,823 | ) |   | $ | (1,640,301 | ) |
|                                             |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred  - Dividends                 |   |      |     |   |            |   | 141,359   |                     |   |   | 976,340             |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,117,699 | ) |   |   |   |   |   |   | 0 |   |
| Preferred Converted into Common Stock            |   |      | (104,000 | )      |            |   |      |                     |   |   | (1,338,875          | )      |   |                    | 1,071,099  |   |   |   | 107 |   |   |   | 1,338,768 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Bridge Loans Converted into Common Stock         |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    | 514,611    |   |   |   | 51 |   |   |   | 1,080,633 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,080,684 |   |
| Proceeds from Quercus Trust-net of costs         |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    | 8,571,429  |   |   |   | 857 |   |   |   | 15,273,908 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 15,274,765 |   |
| Employee incentive share grants                  |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    | 12,000     |   |   |   | 1 |   |   |   | 435,725 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 435,726 |   |
| Stock based compensation                         |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   | 425,979 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 425,979 |   |
| Fair value of warrants with related party debt   |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   | 667,208 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 667,208 |   |
| Fair value warrants issued for services          |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   | 1,193,735 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,193,735 |   |
| Net Loss December 31, 2008                       |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (9,494,659 | ) |   |   |   |   |   |   | (9,494,659 | ) |
| Other Comprehensive income (loss):               |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Foreign Currency Translation Adjustment          |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (19,446 | ) |   |   | (19,446 | ) |
| Comprehensive loss                               |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (9,514,105 | ) |
|                                             |   |      |     |   |            |   |      |                     |   |   |                |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2008                     |   |      | 856,497  |   |            | $      | 1,656,735 |                     |   | $      | 9,440,359           |   |   |                    | 26,417,437 |   |   | $ | 2,641 |   |   | $ | 46,184,287 |   |   | $ | 0 |   |   | $ | (49,111,062 | ) |   | $ | (249,269 | ) |   | $ | 7,923,691 |   |

----

Table of Contents

|                                                                    |   | Preferred |     |   | Common          |   |       | DeficitAccumulatedDuring |   |   | OtherComprehensiveIncomeCumulative |   |   | TotalStockholders'      |       |
|------------------------------------------------------------------------------|--------|-----------|----------|--------|-----------------|--------|------------|--------------------------|--------|--------|------------------------------------|--------|--------|-------------------------|------------|
|                                                                         |   | Shares    |     |   | SeniorPreferred |   |       | Series-APreferred        |   |   | Shares                             |   |   | CommonStock Amount |       |   | Additional Paid-In Capital |   |   | SubscriptionsReceivable |   |   | DevelopmentStage |   |   | TranslationAdjustments |   |   | Equity(Deficit) |   |
| Balance at December 31, 2008                                                 |   |      | 856,497  |   |            | $      | 1,656,735  |                     |   | $      | 9,440,359                          |   |   |                    | 26,417,437 |   |   | $ | 2,641 |   |   | $ | 46,184,287 |   |   | $ | 0 |   |   | $ | (49,111,062 | ) |   | $ | (249,269 | ) |   | $ | 7,923,691 |   |
|                                                                         |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred  - Dividends                                             |   |      |     |   |            |   | 126,497    |                     |   |   | 909,819                            |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1,036,316 | ) |   |   |   |   |   |   | 0 |   |
| Preferred Converted into Common Stock                                        |   |      | (88,100  | )      |            |   |       |                     |   |   | (1,280,308                         | )      |   |                    | 1,149,201  |   |   |   | 114 |   |   |   | 1,280,194 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Senior Preferred Converted into Common                                       |   |      | (137,500 | )      |            |   | (1,982,315 | )                        |   |   | 0                                  |   |   |                    | 1,390,944  |   |   |   | 139 |   |   |   | 1,982,176 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Reclassify warrants to APIC upon conversion of Senior Preferred              |   |      |     |   |            |   | 164,179    |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | (164,179 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Reclassify offering costs to APIC upon Preferred conversion into Common |   |      |     |   |            |   | 34,904     |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | (34,904 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Bridge Loans Converted to Common Stock                                       |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    | 651,520    |   |   |   | 65 |   |   |   | 371,301 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 371,366 |   |
| Proceeds from common stock offering-net of costs                             |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    | 45,825,716 |   |   |   | 4,583 |   |   |   | 24,923,740 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 24,928,323 |   |
| Employee incentive share grants                                              |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    | 333,000    |   |   |   | 33 |   |   |   | 500,451 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 500,484 |   |
| Stock based compensation                                                     |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 441,120 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 441,120 |   |
| Fair value of warrants with related party debt                               |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 34,002 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 34,002 |   |
| Fair value warrants issued in lieu of liquidated damages                     |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 45,380 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 45,380 |   |
| Cumulative adjustments from adoption of ASC 815 as of Jan 1, 2009            |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | (6,877,176 | ) |   |   |   |   |   |   | 6,877,176 |   |   |   |   |   |   |   | 0 |   |
| Reclassification of warrants to derivative liabilities                       |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | (2,450,542 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,450,542 | ) |
| Extinguishment of derivative liabilities                                     |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 7,126,155 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 7,126,155 |   |
| Beneficial conversion feature  on Preferred Stock                  |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 3,010,517 |   |   |   |   |   |   |   | (3,010,517 | ) |   |   |   |   |   |   | 0 |   |
| Net Loss December 31, 2009                                                   |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (14,578,427 | ) |   |   |   |   |   |   | (14,578,427 | ) |
| Other Comprehensive income (loss):                                           |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Foreign Currency Translation Adjustment                                      |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,704 | ) |   |   | (2,704 | ) |
| Comprehensive loss                                                           |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (14,581,131 | ) |
| Balance at December 31, 2009                                                 |   |      | 630,897  |   |            | $      | (0         | )                        |   | $      | 9,069,871                          |   |   |                    | 75,767,818 |   |   | $ | 7,576 |   |   | $ | 76,372,520 |   |   | $ | 0 |   |   | $ | (60,859,150 | ) |   | $ | (251,973 | ) |   | $ | 24,338,844 |   |
|                                                                         |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock Issuance Costs                                                         |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | (55,894 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (55,894 | ) |
| Preferred Converted into Common Stock                                        |   |      | (630,897 | )      |            |   | -          |                     |   |   | (9,390,803                         | )      |   |                    | 8,785,484  |   |   |   | 879 |   |   |   | 9,389,924 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Reclassify offering costs to APIC on  Series-A conversion          |   |      |     |   |            |   |       |                     |   |   | 320,932                            |   |   |                    |       |   |   |   |   |   |   |   | (320,932 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 0 |   |
| Warrants exercised                                                           |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    | 400,000    |   |   |   | 40 |   |   |   | 227,960 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 228,000 |   |
| Mercatus settlement in shares                                                |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    | 198,300    |   |   |   | 20 |   |   |   | 113,011 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 113,031 |   |
| Mercatus warrant exercise                                                    |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    | 301,700    |   |   |   | 30 |   |   |   | 131,266 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 131,296 |   |
| Incentive Shares forfeited                                                   |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | (46,993 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (46,993 | ) |
| Stock based comp.                                                            |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 491,978 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 491,978 |   |
| Extinguishment of derivative liabilities                                     |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   | 196,576 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 196,576 |   |
| Net Loss Dec. 31, 2010                                                       |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (6,830,854 | ) |   |   |   |   |   |   | (6,830,854 | ) |
| Other Comprehensive income (loss):                                           |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign Currency Translation Adjustment                                      |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 348 |   |   |   | 348 |   |
| Comprehensive loss                                                           |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (6,830,506 | ) |
|                                                                         |   |      |     |   |            |   |       |                     |   |   |                               |   |   |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at Dec 31, 2010                                                      |   |      | 0        |   |            | $      | 0          |                     |   | $      | 0                                  |   |   |                    | 85,453,302 |   |   | $ | 8,545 |   |   | $ | 86,499,416 |   |   | $ | 0 |   |   | $ | (67,690,004 | ) |   | $ | (251,625 | ) |   | $ | 18,566,332 |   |

----

Table of Contents

----

Table of Contents

|               |   | 2010   |      |   | 2009   |   |
|--------------------|--------|--------|-----------|--------|--------|--------|
| Raw materials      |   | $      | 1,053,825 |   |   | $      | 345,784 |   |
| Work in process    |   |   | 470,219   |   |   |   | 314,209 |   |
| Finished goods     |   |   | 123,516   |   |   |   | 469,175 |   |
| Inventory reserves |   |   | (219,000  | )      |   |   | (121,076 | ) |
|               |   | $      | 1,428,560 |   |   | $      | 1,008,092 |   |

----

Table of Contents

|                     |   | 2010         |   |   | 2009         |   |
|--------------------------|--------|--------------|--------|--------|--------------|--------|
| Exercise Price           |   | $0.57        |   |   | $0.57        |   |
| Risk-free interest rate  |   |  0.61%  |   |   |  1.70%  |   |
| Dividend yield           |   | $ -          |   |   | $ -          |   |
| Expected volatility      |   |  71.14% |   |   |  56.20% |   |
| Expected term (in years) |   |  2.27   |   |   |  3.27   |   |

----

Table of Contents

----

Table of Contents

|                          | Estimated useful  life |   | 2010   |      |   | 2009   |   |
|-------------------------------|----------------------------------|--------|--------|-----------|--------|--------|--------|
| Construction in progress      |                             |   | $      | 2,361,391 |   |   | $      | 1,000,692 |   |
| Leasehold improvements        | Lesser of lease term or 10 years |   |   | 154,650   |   |   |   | 144,335 |   |
| Machinery & equipment     | 3-22 years                       |   |   | 5,970,015 |   |   |   | 4,145,364 |   |
| Less accumulated depreciation |                             |   |   | 1,747,481 |   |   |   | 1,074,311 |   |
| Net                           |                             |   | $      | 6,738,575 |   |   | $      | 4,216,080 |   |

----

Table of Contents

| Period Ended |   | Adjusted Stated Value |   |
|--------------|--------|---------------------------------|--------|
| 31-Mar-09    |   | $                               | 13.77  |   |
| 30-Jun-09    |   | $                               | 14.04  |   |
| 30-Sep-09    |   | $                               | 14.32  |   |
| 30-Oct-09    |   | $                               | 14.42  |   |

----

Table of Contents

| Quarter Ended |   | Adjusted Stated Value |   |
|---------------|--------|----------------------------|--------|
| 31-Mar-09     |   | $                          | 13.92  |   |
| 30-Jun-09     |   | $                          | 14.26  |   |
| 30-Sep-09     |   | $                          | 14.63  |   |
| 31-Dec-09     |   | $                          | 14.88  |   |

----

Table of Contents

| 2003                                |       |   |   |       |   |                    |   |                  |
|------------------------------------------|------------|--------|--------|------------|--------|-------------------------|--------|-----------------------|
| Description:                             | Date       |   | Shares |       |   | Per sharevaluation |   | Business reason: |
| Shares issued to founders                | 9/18/2003  |   |   | 1,360,000  |   |                    | $      | 0.00                  |   | original capitalization-no contributed capital |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| APC Founder                              | 9/18/2003  |   |   | 170,000    |   |                    | $      | 0.29                  |   | services rendered with respect to formation |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Seed debt financing                      | 12/31/2003 |   |   | 500,000    |   |                    | $      | 1.00                  |   | conversion of debt plus interest to common stock |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Series I convertible debt                | 12/31/2003 |   |   | 533,334    |   |                    | $      | 1.50                  |   | conversion of debt plus interest to common stock |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Series II convertible debt               | 12/31/2003 |   |   | 75,000     |   |                    | $      | 2.00                  |   | conversion of debt plus interest to common stock |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Mega-C Trust                             | 12/31/2003 |   |   | 6,147,484  |   |                    | $      | 0.00                  |   | In lieu of shares issuable to founders |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Tamboril shareholders                    | 12/31/2003 |   |   | 1,875,000  |   |                    | $      | 0.00                  |   | recapitalization at fair market value of Tamboril assets |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| 2003 Totals                              |       |   |   | 10,660,818 |   |                    | $      | 0.14                  |   |   |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| 2004                                |       |   |   |       |   |                    |   |                  |   |   |
| Description:                             | Date       |   | Shares |       |   | Per sharevaluation |   | Business reason: |
| Shares issued to founders                | 1/9/2004   |   |   | 445,000    |   |                    | $      | 0.00                  |   | In lieu of shares issuable to founders |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Mega-C Trust                             | 1/9/2004   |   |   | 180,000    |   |                    | $      | 0.00                  |   | adjustment is shares issuable to founders |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Officer                                  | 1/9/2004   |   |   | 45,000     |   |                    | $      | 1.60                  |   | services rendered by former officer |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Series I convertible debt-Igor Filipenko | 1/9/2004   |   |   | 50,000     |   |                    | $      | 1.00                  |   | conversion of debt plus interest to common stock |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Series II convertible debt-Turitella     | 1/9/2004   |   |   | 133,333    |   |                    | $      | 1.50                  |   | conversion of debt plus interest to common stock |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Series III convertible debt-Turitella    | 1/9/2004   |   |   | 100,000    |   |                    | $      | 2.00                  |   | conversion of debt plus interest to common stock |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Series II common stock offering          | 2/1/2004   |   |   | 175,000    |   |                    | $      | 2.00                  |   | common stock & warrants issued for cash |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Series III common stock offering         | 3/31/2004  |   |   | 288,100    |   |                    | $      | 3.00                  |   | common stock & warrants issued for cash |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Exercise of Series I warrants            | Various    |   |   | 316,700    |   |                    | $      | 1.50                  |   | warrants exercised pursuant to original terms |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Exercise of Series II warrants           | Various    |   |   | 125,000    |   |                    | $      | 2.28                  |   | warrants exercised pursuant to original terms |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Exercise of Series II warrants           | Various    |   |   | 33,500     |   |                    | $      | 3.23                  |   | warrants exercised pursuant to original terms |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| November emergency funding               | 11/1/2004  |   |   | 314,000    |   |                    | $      | 1.50                  |   | common stock & warrants issued for cash |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| December emergency funding               | 12/1/2004  |   |   | 46,700     |   |                    | $      | 1.50                  |   | common stock & warrants issued for cash |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| Fractional shareholders                  | 12/31/2004 |   |   | 48,782     |   |                    | $      | 0.00                  |   | shares issued due to reverse split rounding formula |
|                                     |       |   |   |       |   |                    |   |                  |   |   |
| 2004 Totals                              |       |   |   | 2,301,115  |   |                    | $      | 1.37                  |   |   |

----

Table of Contents

| 2005              |       |   |   |      |   |                    |   |                  |
|-------------------|------------|--------|--------|-----------|--------|-------------------------|--------|-----------------------|
| Description:      | Date       |   | Shares |      |   | Per sharevaluation |   | Business reason: |
| Mega-C Trust      | 2/28/2005  |   |   | 500,000   |   |                    | $      | 3.05                  |   | Trust augmentation |
|              |       |   |   |      |   |                    |   |                  |   |   |
| Banca di Unionale | 3/18/2005  |   |   | 30,000    |   |                    | $      | 2.00                  |   | conversion of Preferred and accrued dividends |
|              |       |   |   |      |   |                    |   |                  |   |   |
| Banca di Unionale | 4/20/2005  |   |   | 20,000    |   |                    | $      | 2.00                  |   | conversion of Preferred and accrued dividends |
|              |       |   |   |      |   |                    |   |                  |   |   |
| C&T employees | 4/1/2005   |   |   | 219,000   |   |                    | $      | 2.50                  |   | employee incentive share grants |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 7 individuals     | 6/10/2005  |   |   | 29,565    |   |                    | $      | 3.57                  |   | Exercise of Director options |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 3 individuals     | 7/11/2005  |   |   | 190,000   |   |                    | $      | 1.58                  |   | conversion of Preferred and accrued dividends |
|              |       |   |   |      |   |                    |   |                  |   |   |
| Banca di Unionale | 7/11/2005  |   |   | 10,000    |   |                    | $      | 1.60                  |   | exercise of preferred warrants |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 3 individuals     | 8/28/2005  |   |   | 150,000   |   |                    | $      | 1.67                  |   | conversion of Preferred and accrued dividends |
|              |       |   |   |      |   |                    |   |                  |   |   |
| James Smith       | 9/7/2005   |   |   | 30,000    |   |                    | $      | 1.67                  |   | conversion of Preferred and accrued dividends |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 2 individuals     | 9/28/2005  |   |   | 1,050,000 |   |                    | $      | 1.69                  |   | conversion of Preferred and accrued dividends |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 2 individuals     | Various    |   |   | 226,900   |   |                    | $      | 1.79                  |   | exercise of Series I warrants |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 3 individuals     | Various    |   |   | 91,200    |   |                    | $      | 2.40                  |   | exercise of Series III warrants |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 2 individuals     | Various    |   |   | 25,000    |   |                    | $      | 1.60                  |   | exercise of Preferred warrants |
|              |       |   |   |      |   |                    |   |                  |   |   |
| Officer           | 10/20/2005 |   |   | 446,000   |   |                    | $      | 1.00                  |   | exercise of warrants and options |
|              |       |   |   |      |   |                    |   |                  |   |   |
| Officer           | 10/20/2005 |   |   | 25,000    |   |                    | $      | 2.00                  |   | exercise of warrants |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 6 individuals     | 12/1/2005  |   |   | 600,000   |   |                    | $      | 2.00                  |   | common stock and warrants |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 2005 Totals       |       |   |   | 3,642,665 |   |                    | $      | 1.94                  |   |   |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 2006              |       |   |   |      |   |                    |   |                  |   |   |
| Description:      | Date       |   | Shares |      |   | Per sharevaluation |   | Business reason: |
| 2 individuals     | 4/21/2006  |   |   | 80,000    |   |                    | $      | 2.50                  |   | Common stock and warrants issued for cash |
|              |       |   |   |      |   |                    |   |                  |   |   |
| Officer           | 4/21/2006  |   |   | 56,700    |   |                    | $      | 2.00                  |   | Exercise of non-plan incentive option by CEO |
|              |       |   |   |      |   |                    |   |                  |   |   |
| Officer           | 4/21/2006  |   |   | 6,000     |   |                    | $      | 4.00                  |   | Unrestricted share grant to CTO |
|              |       |   |   |      |   |                    |   |                  |   |   |
| Mega-C Trust      | 11/28/2006 |   |   | (500,000  | )      |                    | $      | 2.25                  |   | Return of shares per settlement agreement |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 2006 Totals       |       |   |   | (357,300  | )      |                    | $      | 2.20                  |   |   |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 2007              |       |   |   |      |   |                    |   |                  |   |   |
| Description:      | Date       |   | Shares |      |   | Per sharevaluation |   | Business reason: |
| Officer           | 12/1/2007  |   |   | 1,000     |   |                    | $      | 2.30                  |   | Unrestricted share grant to VP Mfg Eng. |
|              |       |   |   |      |   |                    |   |                  |   |   |
| 2007 Totals       |       |   |   | 1,000     |   |                    | $      | 2.30                  |   |   |

----

Table of Contents

| 2008                              |                  |   |   |       |   |                    |   |                  |
|-----------------------------------|-----------------------|--------|--------|------------|--------|-------------------------|--------|-----------------------|
| Description:                      | Date                  |   | Shares |       |   | Per sharevaluation |   | Business reason: |
| The Quercus Trust                 | 1/14/2008             |   |   | 1,904,762  |   |                    | $      | 2.10                  |   | Securities purchase agreement |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 1 individual                      | 3/31/2008             |   |   | 106,659    |   |                    | $      | 2.10                  |   | 2007 Bridge Loan Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| The Quercus Trust                 | 4/8/2008              |   |   | 1,904,762  |   |                    | $      | 2.10                  |   | Securities purchase agreement |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 1 individuals                     | 4/21/2008             |   |   | 25,000     |   |                    | $      | 2.10                  |   | 2007 Bridge Loan Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| Lichtensteiniche Landsbank        | 5/6/2008              |   |   | 508,512    |   |                    | $      | 1.25                  |   | Series-A Preferred Conversions |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| Director                          | 5/29/2008             |   |   | 2,000      |   |                    | $      | 2.10                  |   | 2007 Bridge Loan Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| The Quercus Trust                 | 6/30/2008             |   |   | 4,761,905  |   |                    | $      | 2.10                  |   | Securities purchase agreement |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| Director                          | 6/30/2008             |   |   | 380,952    |   |                    | $      | 2.10                  |   | 2007 Bridge Loan Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 1 individual                      | 8/20/2008             |   |   | 520,787    |   |                    | $      | 1.25                  |   | Series-A Preferred Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 1 individual                      | 9/11/2008             |   |   | 41,800     |   |                    | $      | 1.25                  |   | Series-A Preferred Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| V.P. Mfg Engineering              | 01/01/2008-12/01/2008 |   |   | 12,000     |   |                    | $      | 1.85                  |   | Unrestricted share Grant |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 2008 Totals                       |                  |   |   | 10,169,139 |   |                    | $      | 2.01                  |   |   |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 2009                              |                  |   |   |       |   |                    |   |                  |   |   |
| Description:                      | Date                  |   | Shares |       |   | Per sharevaluation |   | Business reason: |
| V.P. Mfg Engineering              | 01/01/2009-12/01/2009 |   |   | 23,000     |   |                    | $      | 1.55                  |   | Unrestricted share Grant |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| CFO                               | 6/16/2009             |   |   | 30,000     |   |                    | $      | 1.41                  |   | Unrestricted share Grant |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| New Energy Fund                   | 7/21/2009             |   |   | 286,735    |   |                    | $      | 1.25                  |   | Series-A Preferred Conversions |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| Fursa Global Event Driven Fund LP | 11/4/2009             |   |   | 862,466    |   |                    | $      | 1.07                  |   | Series-A Preferred Conversions |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| Director                          | 12/23/2009            |   |   | 252,912    |   |                    | $      | 1.43                  |   | Senior Preferred Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| Director                          | 12/23/2009            |   |   | 431,297    |   |                    | $      | 1.43                  |   | Senior Preferred Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 8 individuals                     | 12/23/2009            |   |   | 706,735    |   |                    | $      | 1.43                  |   | Senior Preferred Conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 11 individuals                    | 12/23/2009            |   |   | 719,664    |   |                    | $      | 0.57                  |   | Common stock placement fees |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 48 investors                      | 12/22/2009            |   |   | 45,106,052 |   |                    | $      | 0.57                  |   | Securities purchase agreement, net of 2009 Bridge Loan conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| Director                          | 12/22/2009            |   |   | 300,620    |   |                    | $      | 0.57                  |   | 2009 Bridge Loan conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 1 individual                      | 12/22/2009            |   |   | 350,900    |   |                    | $      | 0.57                  |   | 2009 Bridge Loan conversion |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
|  CTO                         | 12/29/2009            |   |   | 280,000    |   |                    | $      | 1.50                  |   | Unrestricted share Grant |
|                              |                  |   |   |       |   |                    |   |                  |   |   |
| 2009 Totals                       |                  |   |   | 49,350,381 |   |                    | $      | 0.61                  |   |   |

----

Table of Contents

| 2010           |       |   |   |      |   |                    |   |                  |
|----------------|------------|--------|--------|-----------|--------|-------------------------|--------|-----------------------|
| Description:   | Date       |   | Shares |      |   | Per sharevaluation |   | Business reason: |
| 1 individual   | 1/26/2010  |   |   | 1,426,960 |   |                    | $      | 1.07                  |   | Series-A conversion |
|           |       |   |   |      |   |                    |   |                  |   |   |
| 1 individual   | 2/9/2010   |   |   | 100,000   |   |                    | $      | 0.57                  |   | Warrant Exercise |
|           |       |   |   |      |   |                    |   |                  |   |   |
| 18 individuals | 2/24/2010  |   |   | 3,453,899 |   |                    | $      | 1.07                  |   | Series-A conversion |
|           |       |   |   |      |   |                    |   |                  |   |   |
| Director       | 2/24/2010  |   |   | 1,692,160 |   |                    | $      | 1.07                  |   | Series-A conversion |
|           |       |   |   |      |   |                    |   |                  |   |   |
| Officer        | 2/24/2010  |   |   | 275,296   |   |                    | $      | 1.07                  |   | Series-A conversion |
|           |       |   |   |      |   |                    |   |                  |   |   |
| Director       | 2/24/2010  |   |   | 1,937,169 |   |                    | $      | 1.07                  |   | Series-A conversion |
|           |       |   |   |      |   |                    |   |                  |   |   |
| 1 individual   | 4/19/2010  |   |   | 100,000   |   |                    | $      | 0.57                  |   | Warrant Exercise |
|           |       |   |   |      |   |                    |   |                  |   |   |
| 1 individual   | 7/12/2010  |   |   | 100,000   |   |                    | $      | 0.57                  |   | Warrant Exercise |
|           |       |   |   |      |   |                    |   |                  |   |   |
| 1 individual   | 7/28/2010  |   |   | 301,700   |   |                    | $      | 0.44                  |   | Mercatus Warrants |
|           |       |   |   |      |   |                    |   |                  |   |   |
| 1 individual   | 10/1/2010  |   |   | 100,000   |   |                    | $      | 0.57                  |   | Warrant Exercise |
|           |       |   |   |      |   |                    |   |                  |   |   |
| 2 individuals  | 12/15/2010 |   |   | 198,300   |   |                    | $      | 0.57                  |   | Settlement of accrued liabilities to selling shareholders in the Mercatus settlement |
|           |       |   |   |      |   |                    |   |                  |   |   |
| 2010 Totals    |       |   |   | 9,685,484 |   |                    | $      | 1.02                  |   |   |

|                             |   |   |       |   | 2010                                     |   |   |   |   |   | 2009                                     |   |
|----------------------------------|--------|--------|------------|--------|------------------------------------------|--------|--------|--------|--------|--------|------------------------------------------|--------|
|                             |   | Shares |       |   | Weighted AverageExercise price |   |   | Shares |   |   | Weighted AverageExercise price |   |
|                             |   |   |       |   |                                     |   |   |   |   |   |                                     |   |
| Warrants outstanding January 1   |   |   | 13,965,433 |   |                                     | $      | 1.36   |   |   |   | 14,278,772                               |   |   | $ | 1.44 |   |
|                             |   |   |       |   |                                     |   |   |   |   |   |                                     |   |   |   |   |   |
| Granted during year              |   |   | -          |   |                                     |   | -      |   |   |   | 45,661                                   |   |   |   | 2.00 |   |
|                             |   |   |       |   |                                     |   |   |   |   |   |                                     |   |   |   |   |   |
| Exercised                        |   |   | (701,700   | )      |                                     |   | .51    |   |   |   | -                                        |   |   |   | - |   |
|                             |   |   |       |   |                                     |   |   |   |   |   |                                     |   |   |   |   |   |
| Lapsed                           |   |   | (289,913   | )      |                                     |   | 6.00   |   |   |   | (359,000                                 | )      |   |   | 4.33 |   |
|                             |   |   |       |   |                                     |   |   |   |   |   |                                     |   |   |   |   |   |
| Outstanding at December 31       |   |   | 12,973,820 |   |                                     | $      | 1.18   |   |   |   | 13,965,433                               |   |   | $ | 1.36 |   |
|                             |   |   |       |   |                                     |   |   |   |   |   |                                     |   |   |   |   |   |
| Weighted average years remaining |   |   | 2.2        |   |                                     |   |   |   |   |   | 3.1                                      |   |   |   |   |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

----

Table of Contents

| Year |   | Interest Rate % |   |   | Dividend Yield % |   |   | Expected Volatility % |   | Expected Life |
|------|--------|----------------------|--------|--------|-----------------------|--------|--------|----------------------------|--------|--------------------|
| 2004 |   |                 | 3.8    |   |                  |   | 0.0    |                       |   |               | 59.1 |   | 60 months |
| 2005 |   |                 | 4.0    |   |                  |   | 0.0    |                       |   |               | 52.0 |   | 100 months |
| 2006 |   |                 | 4.7    |   |                  |   | 0.0    |                       |   |               | 53.6 |   | 45 months |
| 2007 |   |                 | 3.9    |   |                  |   | 0.0    |                       |   |               | 54.4 |   | 62 months |
| 2008 |   |                 | 2.8    |   |                  |   | 0.0    |                       |   |               | 51.4 |   | 58 months |
| 2009 |   |                 | 2.0    |   |                  |   | 0.0    |                       |   |               | 53.0 |   | 80 months |
| 2010 |   |                 | 2.3    |   |                  |   | 0.0    |                       |   |               | 58.0 |   | 69 months |

|                                                                  |   |                  |    |   | 2004                  |   |   |            |   |
|-----------------------------------------------------------------------|--------|-----------------------|---------|--------|-----------------------|--------|--------|-----------------|--------|
|                                                                  |   |                  |    |   | Weighted Average |   |   |            |   |
| All Plan & Non-Plan Compensatory Options |   | Number ofOptions |    |   | Exercise              |   |   | Fair Value |   |   | RemainingLife (years) |   |   | AggregateIntrinsicValue |   |
| Options outstanding at December  31, 2003         |   |                  | -       |   |                  | $      | 0.00   |            |   | $ | 0.00 |   |   |   |    |   |   |   |    |   |
| Granted                                                               |   |                  | 736,350 |   |                  |   | 3.53   |            |   |   | 2.87 |   |   |   |   |   |   |   |   |   |
| Exercised                                                             |   |                  | -       |   |                  |   | 0.00   |            |   |   | 0.00 |   |   |   |   |   |   |   |   |   |
| Forfeited or lapsed                                                   |   |                  | -       |   |                  |   | 0.00   |            |   |   | 0.00 |   |   |   |   |   |   |   |   |   |
| Options outstanding at December 31, 2004                              |   |                  | 736,350 |   |                  | $      | 3.53   |            |   | $ | 2.87 |   |   |   | 6.34 |   |   |   |   |   |

|                                                                        |   |                  |      | 2005             |   |            |   |   |
|-----------------------------------------------------------------------------|--------|-----------------------|-----------|------------------|--------|-----------------|--------|--------|
|                                                                        |   |                  |      | Weighted Average |   |            |   |   |
| All Plan & Non-Plan  Compensatory Options |   | Number ofOptions |      | Exercise         |   | Fair Value |   |   | RemainingLife (years) |   |   | AggregateIntrinsicValue |   |
| Options outstanding at December 31, 2004                                    |   |                  | 736,350   |             |   | $               | 3.53   |   |   | $ | 2.87 |   |   |   |   |   |   |   |   |   |
| Granted                                                                     |   |                  | 1,254,500 |             |   |            | 2.48   |   |   |   | 1.34 |   |   |   |   |   |   |   |   |   |
| Exercised                                                                   |   |                  | (358,865  | )                |   |            | 1.65   |   |   |   | 2.32 |   |   |   |   |   |   |   |   |   |
| Forfeited or lapsed                                                         |   |                  | (182,100  | )                |   |            | 3.04   |   |   |   | 1.44 |   |   |   |   |   |   |   |   |   |
| Options outstanding at December 31, 2005                                    |   |                  | 1,449,885 |             |   | $               | 3.12   |   |   | $ | 1.86 |   |   |   | 7.73 |   |   |   |   |   |

|                                                                  |   |                  |      |   | 2006                  |   |   |            |   |
|-----------------------------------------------------------------------|--------|-----------------------|-----------|--------|-----------------------|--------|--------|-----------------|--------|
|                                                                  |   |                  |      |   | Weighted Average |   |   |            |   |
| All Plan & Non-Plan Compensatory Options |   | Number ofOptions |      |   | Exercise              |   |   | Fair Value |   |   | RemainingLife (years) |   |   | AggregateIntrinsicValue |   |
| Options outstanding at December 31, 2005                              |   |                  | 1,449,885 |   |                  | $      | 3.12   |            |   | $ | 1.86 |   |   |   |   |   |   |   |
| Granted                                                               |   |                  | 1,191,000 |   |                  |   | 5.42   |            |   |   | 0.82 |   |   |   |   |   |   |   |
| Exercised                                                             |   |                  | -         |   |                  |   | 0.00   |            |   |   | 0.00 |   |   |   |   |   |   |   |
| Forfeited or lapsed                                                   |   |                  | (894,000  | )      |                  |   | 3.24   |            |   |   | 1.94 |   |   |   |   |   |   |   |
| Options outstanding at December 31, 2006                              |   |                  | 1,746,885 |   |                  | $      | 4.65   |            |   | $ | 1.035 |   |   |   | 3.70 |   |   | $ | 634,903 |   |
| Options exercisable at December 31, 2006                              |   |                  | 1,192,385 |   |                  | $      | 5.11   |            |   | $ | 0.97 |   |   |   | 2.90 |   |   | $ | 254,903 |   |

----

Table of Contents

|                                                            |   |                  |      |   | 2007                  |   |   |            |   |
|-----------------------------------------------------------------|--------|-----------------------|-----------|--------|-----------------------|--------|--------|-----------------|--------|
|                                                            |   |                  |      |   | Weighted Average |   |   |            |   |
| All Plan & Non-Plan CompensatoryOptions |   | Number ofOptions |      |   | Exercise              |   |   | Fair Value |   |   | RemainingLife(years) |   |   | AggregateIntrinsicValue |   |
| Options outstanding at December 31, 2006                        |   |                  | 1,746,885 |   |                  | $      | 4.65   |            |   | $ | 1.03 |   |   |   |   |   |   |   |   |   |
| Granted                                                         |   |                  | 228,000   |   |                  |   | 4.82   |            |   |   | 0.87 |   |   |   |   |   |   |   |   |   |
| Exercised                                                       |   |                  | -         |   |                  |   | 0.00   |            |   |   | 0.00 |   |   |   |   |   |   |   |   |   |
| Forfeited or lapsed                                             |   |                  | (124,000) |   |                  |   | 2.50   |            |   |   | 1.14 |   |   |   |   |   |   |   |   |   |
| Options outstanding at December 31, 2007                        |   |                  | 1,850,885 |   |                  | $      | 4.81   |            |   | $ | 1.00 |   |   |   | 1.5 |   |   | $ | 18,000 |   |
| Options exercisable at December 31, 2007                        |   |                  | 1,442,385 |   |                  | $      | 4.88   |            |   | $ | 0.93 |   |   |   | 2.0 |   |   | $ | 6,000 |   |

|                                                            |   |                  |      |   | 2008                  |   |   |            |   |
|-----------------------------------------------------------------|--------|-----------------------|-----------|--------|-----------------------|--------|--------|-----------------|--------|
|                                                            |   |                  |      |   | Weighted Average |   |   |            |   |
| All Plan & Non-Plan CompensatoryOptions |   | Number ofOptions |      |   | Exercise              |   |   | Fair Value |   |   | RemainingLife(years) |   |   | AggregateIntrinsicValue |   |
| Options outstanding at December 31, 2007                        |   |                  | 1,850,885 |   |                  | $      | 4.81   |            |   | $ | 1.00 |   |   |   |   |   |   |   |   |   |
| Granted                                                         |   |                  | 969,055   |   |                  |   | 2.38   |            |   |   | 0.73 |   |   |   |   |   |   |   |   |   |
| Exercised                                                       |   |                  | -         |   |                  |   | 0.00   |            |   |   | 0.00 |   |   |   |   |   |   |   |   |   |
| Forfeited or lapsed                                             |   |                  | -         |   |                  |   | 0.00   |            |   |   | 0.00 |   |   |   |   |   |   |   |   |   |
| Options outstanding at December 31, 2008                        |   |                  | 2,819,940 |   |                  | $      | 3.98   |            |   | $ | 0.91 |   |   |   | 3.1 |   |   | $ | 0 |   |
| Options exercisable at December 31, 2008                        |   |                  | 1,831,690 |   |                  | $      | 4.75   |            |   | $ | 0.90 |   |   |   | 1.4 |   |   | $ | 0 |   |

|                                                            |   |                  |        |   | 2009                  |   |   |            |   |
|-----------------------------------------------------------------|--------|-----------------------|-------------|--------|-----------------------|--------|--------|-----------------|--------|
|                                                            |   |                  |        |   | Weighted Average |   |   |            |   |
| All Plan & Non-Plan CompensatoryOptions |   | Number ofOptions |        |   | Exercise              |   |   | Fair Value |   |   | RemainingLife(years) |   |   | AggregateIntrinsicValue |   |
| Options outstanding at December 31, 2008              |   |                  | 2,819,940   |   |                  | $      | 3.98   |            |   | $ | 0.91 |   |   |   |   |   |   |   |   |   |
| Granted                                               |   |                  | 164,565     |   |                  |   | 1.64   |            |   |   | 0.70 |   |   |   |   |   |   |   |   |   |
| Exercised                                             |   |                  | -           |   |                  |   | -      |            |   |   | - |   |   |   |   |   |   |   |   |   |
| Forfeited or lapsed                                   |   |                  | (1,101,035) |   |                  |   | 5.71   |            |   |   | 0.68 |   |   |   |   |   |   |   |   |   |
| Options outstanding at December 31, 2009                        |   |                  | 1,883,470   |   |                  | $      | 2.77   |            |   | $ | 1.02 |   |   |   | 4.1 |   |   | $ | 51,890 |   |
| Options exercisable at December 31, 2009                        |   |                  | 1,077,155   |   |                  | $      | 3.16   |            |   | $ | 1.14 |   |   |   | 2.9 |   |   | $ | 10,440 |   |

|                                                            |   |                  |      |   | 2010                  |   |   |            |   |
|-----------------------------------------------------------------|--------|-----------------------|-----------|--------|-----------------------|--------|--------|-----------------|--------|
|                                                            |   |                  |      |   | Weighted Average |   |   |            |   |
| All Plan & Non-Plan CompensatoryOptions |   | Number ofOptions |      |   | Exercise              |   |   | Fair Value |   |   | RemainingLife(years) |   |   | AggregateIntrinsicValue |   |
| Options outstanding at December 31, 2009              |   |                  | 1,883,470 |   |                  | $      | 2.77   |            |   | $ | 1.02 |   |   |   |   |   |   |   |   |   |
| Granted                                               |   |                  | 2,074,970 |   |                  |   | 1.47   |            |   |   | 0.49 |   |   |   |   |   |   |   |   |   |
| Exercised                                             |   |                  | -         |   |                  |   | -      |            |   |   | - |   |   |   |   |   |   |   |   |   |
| Forfeited or lapsed                                   |   |                  | (379,920) |   |                  |   | 3.17   |            |   |   | 1.11 |   |   |   |   |   |   |   |   |   |
| Options outstanding at December 31, 2010                        |   |                  | 3,578,520 |   |                  | $      | 1.97   |            |   | $ | 0.70 |   |   |   | 4.7 |   |   | $ | - |   |
| Options exercisable at December 31, 2010                        |   |                  | 1,660,910 |   |                  | $      | 2.42   |            |   | $ | 0.91 |   |   |   | 3.4 |   |   | $ | - |   |

| All non-vested stock options as of December 31, 2010 |   | Shares |      |   | Fair Value |   |
|------------------------------------------------------------------------------------|--------|--------|-----------|--------|-----------------|--------|
| Options subject to future vesting at December 31, 2009                             |   |   | 806,315   |   |            | $      | 0.87 |   |
| Options granted                                                               |   |   | 2,074,970 |   |            |   | 0.49 |   |
| Options forfeited or lapsed                                                   |   |   | (128,070  | )      |            |   | 0.93 |   |
| Options vested                                                                |   |   | (835,605  | )      |            |   | 0.70 |   |
| Options subject to future vesting at December 31, 2010                        |   |   | 1,917,610 |   |            | $      | 0.52 |   |

----

Table of Contents

|                                                                              |   | 2010   |        |   | 2009   |   |
|-----------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| Current income tax expense:                                                       |   |   |        |   |   |   |
| Federal                                                                           |   | $      | -           |   |   | $      | - |   |
| State                                                                             |   |   | -           |   |   |   | - |   |
| Foreign                                                                           |   |   | -           |   |   |   | - |   |
|                                                                              |   | $      | -           |   |   | $      | - |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Deferred income tax provision (benefit):                                          |   |   |        |   |   |   |   |   |
| Federal                                                                           |   | $      | (2,711,000  | )      |   | $      | (2,890,000 | ) |
| State                                                                             |   |   | (584,000    | )      |   |   | (603,000 | ) |
| Foreign                                                                           |   |   | (441,000    | )      |   |   | (280,000 | ) |
| Total deferred                                                                    |   |   | (3,736,000  | )      |   |   | (3,773,000 | ) |
| Less increase in allowance                                                        |   |   | 3,736,000   |   |   |   | 3,773,000 |   |
| Net deferred                                                                      |   | $      | .           |   |   | $      | - |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Total income tax expense (recovery)                                               |   | $      | -           |   |   | $      | - |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Individual components giving rise to the deferred tax asset are as follows:  |   |   | 2010        |   |   |   | 2009 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Future tax benefit arising from net operating loss carry forwards                 |   | $      | 14,584,000  |   |   | $      | 11,502,000 |   |
| Future tax benefit arising from available tax credits                             |   |   | 1,373,000   |   |   |   | 1,035,000 |   |
|                                                                              |   |   |        |   |   |   |   |   |
| Future tax benefit arising from options/warrants issued for Services              |   |   | 845,000     |   |   |   | 665,000 |   |
| Other                                                                             |   |   | 209,000     |   |   |   | 78,000 |   |
| Total                                                                             |   |   | 17,011,000  |   |   |   | 13,280,000 |   |
| Less valuation allowance                                                          |   |   | (17,011,000 | )      |   |   | (13,280,000 | ) |
| Net deferred                                                                      |   | $      | -           |   |   | $      | - |   |
|                                                                              |   |   |        |   |   |   |   |   |
| The components of pretax net loss are as follows:                                 |   |   | 2010        |   |   |   | 2009 |   |
| United States                                                                     |   | $      | (6,838,031  | )      |   | $      | (14,574,274 | ) |
| Foreign                                                                           |   |   | 7,177       |   |   |   | (4,153 | ) |
|                                                                              |   | $      | (6,830,854  | )      |   | $      | (14,578,427 | ) |

----

Table of Contents

|                                   |   | 2010   |   |   | 2009   |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|
| Statutory U.S. federal income tax rate |   |   | (34.0  | )%     |   |   | (34.0 | )% |
| Prior period adjustments               |   |   | (1.9   | )%     |   |   | 0.0 | % |
| State taxes, net                       |   |   | (8.5   | )%     |   |   | (4.1 | )% |
| Foreign currency fluctuation           |   |   | (2.3   | )%     |   |   | (1.9 | )% |
| U.S. tax credits                       |   |   | (2.2   | )%     |   |   | (0.5 | )% |
| Revaluation of Derivatives             |   |   | (5.8   | )%     |   |   | 14.7 | % |
| Other                                  |   |   | 0.2    | %      |   |   | 0.1 | % |
| Change in valuation allowance          |   |   | 54.7   | %      |   |   | 25.9 | % |
| Effective income tax rate              |   |   | 0.0    | %      |   |   | 0.0 | % |

----

Table of Contents

|                                                    |   | 2010   |   |   | 2009   |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                    |   |   |   |   |   |   |
| Dividend accrued to preferred stock – Senior |   | $      | -      |   |   | $      | 126,497 |   |
|                                                    |   |   |   |   |   |   |   |   |
| Dividend accrued to preferred stock – Series-A    |   |   | -      |   |   |   | 909,819 |   |
|                                                    |   |   |   |   |   |   |   |   |
| Beneficial conversion feature on preferred stock        |   |   | -      |   |   |   | 3,010,517 |   |
|                                                    |   |   |   |   |   |   |   |   |
| Warrants issued in lieu of liquidated damages           |   |   | -      |   |   |   | 45,380 |   |
|                                                    |   |   |   |   |   |   |   |   |
| Placement fees payable in shares                        |   |   | -      |   |   |   | 410,209 |   |
|                                                    |   |   |   |   |   |   |   |   |
| Interest converted to common stock                      |   |   | -      |   |   |   | 13 |   |
|                                                    |   |   |   |   |   |   |   |   |
| Origination fees issued with related party note         |   |   | -      |   |   |   | 105,666 |   |
|                                                    |   |   |   |   |   |   |   |   |
| Notes payable converted to common stock                 |   |   | -      |   |   |   | 371,366 |   |
|                                                    |   |   |   |   |   |   |   |   |
| Fair value of warrants issued with related party note   |   |   | -      |   |   |   | 34,002 |   |

|   | · | The Lease term commenced on January 1, 2011 and the term expires on December 31, 2015. |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | The Lease may be extended for two 5-year terms, by giving notice not less than 30 nor more than 120 days before the expiration of the initial term or first renewal term (as applicable).  The renewal leases shall be on terms substantially similar to the terms of the initial Lease except for any adjustment to rent, if warranted, as mutually agreed upon by Lessor and the Company. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The rental amount for the initial term is $19,297 per month and is on a “triple net” basis. |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | · | If the Company is able to obtain sufficient funding from either the federal or state government or agencies, and it enters into a binding agreement to purchase the Property, the Lease shall be immediately terminated and Lessor shall credit the most recent 6 months of actual rental payments made to Lessor against the purchase price of the Property |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Company also has a right of first refusal to purchase the property within 30 days of receipt of notice of a third party offer from Lessor upon substantially the same terms as those offered by the third party. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Lease contains market terms on standard provisions such as defaults and maintenance. |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | The term commenced on April 3, 2010 with an initial term of three years. |
|--------|--------|--------------------------------------------------------------------------|

|   | · | The renewal lease may be extended for two successive five-year renewal options with future rent to be negotiated at a commercially reasonable rate. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The battery manufacturing facility includes 70,438 square feet of floor space, including 7,859 square feet of office, locker, lab and lunch area, 46,931 square feet of manufacturing space, 1,488 square feet of dedicated lab space, 9,200 square feet of storage buildings and 5,000 square feet of basement area. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The rental amount for the initial term is $16,700 per month, which is fixed through 2013. In addition to the monthly rental, we are obligated to pay all required maintenance costs, taxes and special assessments, maintain public liability insurance, and maintain fire and casualty insurance for an amount equal to 100% of the replacement value of the leased premises. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| Name                                                    |   | Position           |   | Date    |   | Term   |   | Salary |    |   | Options |   |    | Price  |   | Vesting |   | Stock  |    |
|---------------------------------------------------------|--------|--------------------|--------|---------|--------|--------|--------|--------|---------|--------|---------|--------|---------|--------|--------|---------|--------|--------|---------|
| Thomas Granville  (1)                         |   | CEO                |   | 6/29/10 |   | 3-year |   | $      | 380,000 |   |    |   | 360,000 |   |   | $       | 1.50   |   | Monthly |   |   | 0 |   |
| Charles R. Trego   (2)                   |   | CFO                |   | 4/01/10 |   | 3-year |   | $      | 225,000 |   |    |   | 265,000 |   |   | $       | 1.50   |   | Monthly |   |   | 0 |   |
| Philip S. Baker       (3) |   | COO                |   | 4/01/10 |   | 3-year |   | $      | 199,800 |   |    |   | 230,000 |   |   | $       | 1.50   |   | Monthly |   |   | 0 |   |
| Dr. Edward Buiel  (4)                         |   | VP and CTO(former) |   |    |   |   |   |   |    |   |    |   |    |   |   |    |   |   |    |   |   |   |   |
| Donald T. Hillier   (5)                  |   | CFO(former)        |   |    |   |   |   |   |    |   |    |   |    |   |   |    |   |   |    |   |   |   |   |

| 1. | Thomas Granville. On June 29, 2010, the Company entered into an Executive Employment Agreement with Thomas Granville as Chief Executive Officer. Pursuant to this agreement, Mr. Granville receives an annual salary of $380,000, and an annual car allowance of $9,000 for the period commencing June 29, 2010, and terminating June 30, 2013. Mr. Granville’s base salary is subject to annual review, and such salary is subject to renegotiation on the basis of Mr. Granville’s and the Company’s performance. In addition, Mr. Granville received a signing bonus of $270,000 and was paid on July 9, 2010. The Company also granted Mr. Granville an option to purchase 360,000 shares of our common stock at a price of $1.50 per share at a vesting rate of 10,000 shares per month through the term of the agreement. Mr. Granville is eligible to participate in any executive compensation plans adopted by the shareholders of the Company and the Company's standard employee benefit programs. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Charles R. Trego. On April 1, 2010, the Company entered into an Executive Employment Agreement with Charles R. Trego as Chief Financial Officer. Under the terms of his employment agreement, which has a term of three years, Mr. Trego receives an annual salary of $225,000, which is subject to review after the initial six month term of the agreement and annually thereafter, an annual car allowance of $9,000, bonuses as determined by the compensation committee, and a 5-year option to purchase 265,000 shares of our common stock at a price of $1.50 per share. 27,000 options shall vest upon execution of this contract and, beginning in June 2010, 7,000 options will vest monthly through the remaining 34 months of this contract. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Philip S. Baker. On April 1, 2010, the Company entered into an Executive Employment Agreement with Philip S. Baker as Chief Operating Officer. Under the terms of his employment agreement, which has a term of three years, Mr. Baker receives an annual salary of $199,800, which is subject to review after the initial six month term of the agreement and annually thereafter, an annual car allowance of $6,000, and a 5-year option to purchase 230,000 shares of our common stock at a price of $1.50 per share. 26,000 options shall vest upon execution of this contract and, beginning in June, 2010, 6,000 options will vest monthly through the remaining 34 months of this contract. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | Dr. Edward Buiel. On June 23, 2008, the Company entered into an Executive Employment Agreement with Dr. Edward Buiel as Vice President and Chief Technology Officer, which terminated on May 31, 2010. Upon expiration of his status as employee, 50,000 shares of restricted stock were forfeited pursuant to the terms of his 2008 employment agreement.  On June 7, 2010 the Company agreed to engage Dr. Buiel as an interim independent contractor with compensation at $10,000 per week, plus travel expenses to and from all work sites, meals, administrative expenses, other travel related expenses, and health care benefits through December 31, 2010.  Dr. Buiel is currently working as a consultant to the Company on a project basis. There is no formal consulting agreement in place, and Dr. Buiel’s compensation is determined on a project specific basis. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | Donald T. Hillier. Under the terms of his employment agreement effective June 2008, which had a term of three years, Mr. Hillier received an annual salary of $150,000, an annual car allowance of $9,000, bonuses as determined by the compensation committee, and a 5-year option to purchase 180,000 shares of our common stock at a price of $2.50 per share that vests over 36 months beginning in June 2008.  Mr. Hillier also received 90,000 shares of the Company's common stock with vesting to occur in equal 30,000 shares on the next 3 anniversary dates of his employment agreement. However, 60,000 of these shares were forfeited upon termination.  Mr. Hillier served as our CFO throughout fiscal year 2009 and was terminated as the Company’s CFO on February 5, 2010. Under the terms of the separation agreement, Mr. Hillier received $35,000 in cash, health insurance through April 30, 2010, and waived his right to receive the 30,000 vested common shares owing to him under his 2008 contract in exchange for 30,000 vested common shares valued at $23,400 on June 22, 2010, the physical stock issuance date. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

----

Table of Contents

| Item 9  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
|--------------|---------------------------------------------------------------------------------------|

Item 9A   Controls and Procedures

|   | · | We have begun to implement a formal budget process. |
|--------|--------|-----------------------------------------------------|

|   | · | We have implemented improved inventory control procedures for physical inventories and cycle counting. |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | We have implemented improved controls for the acquisition of fixed assets. |
|--------|--------|----------------------------------------------------------------------------|

----

Table of Contents

PART III

Item 10 Directors, Executive Officers and Corporate Governance

Item 11 Executive Compensation

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13 Certain Relationships and Related Transactions, and Director Independence

Item 14 Principal Accounting Fees and Services

----

Table of Contents

PART IV

Item 15 Exhibits

| 2.1   | Reorganization Agreement (without exhibits) between Tamboril Cigar Company, Axion Power Corporation and certain stockholders of Axion Power Corporation dated December 31, 2003.                                                 | (1)                    |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
| 2.2   | First Addendum to the Reorganization Agreement between Tamboril Cigar Company, Axion Power Corporation and certain stockholders of Axion Power Corporation dated January 9, 2004.                                                | (1)                    |
| 3.1   | Amended and Restated Certificate of Incorporation of Tamboril Cigar Company dated February 13, 2001.                                                                                                                             | (2)                    |
| 3.3   | Amendment to the Certificate of Incorporation of Tamboril Cigar Company dated June 4, 2004.                                                                                                                                      | (3)                    |
| 3.4   | Amendment to the Certificate of Incorporation of Axion Power International, Inc. dated June 4, 2004.                                                                                                                             | (3)                    |
| 3.5   | Amended By-laws of Axion Power International, Inc. dated June 4, 2004.   (3)                                                                                                                                                |                   |
| 3.6   | Certificate of Amendment to the Certificate of Incorporation of Axion Power International, Inc., dated June 14, 2010.                                                                                                            | (25)                   |
| 4.1   | Specimen Certificate for shares of Company’s $0.00001 par value common stock.                                                                                                                                              | (9)                    |
| 4.2   | Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation dated December 31, 2003.                                                                                                                         | (1)                    |
| 4.3   | Succession Agreement Pursuant to the Provisions of the Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation dated March 25, 2004.                                                                     | (4)                    |
| 4.4   | Form of Warrant Agreement for 1,796,300 capital warrants.                                                                                                                                                                        | (9)                    |
| 4.5   | Form of Warrant Agreement for 667,000 Series I investor warrants.                                                                                                                                                                | (9)                    |
| 4.6   | Form of Warrant Agreement for 350,000 Series II investor warrants.                                                                                                                                                               | (9)                    |
| 4.7   | Form of Warrant Agreement for 313,100 Series III investor warrants.                                                                                                                                                              | (9)                    |
| 4.8   | Form of 8% Cumulative Convertible Senior Preferred Stock Certificate                                                                                                                                                             | (D)                    |
| 4.9   | First Amended and Restated Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation dated February 28, 2005.                                                                                              | (11)                   |
| 4.10  | Second Amendment and Restated Trust Agreement for the Benefit of the Shareholders of Mega-C Power Corporation dated November 21, 2006.                                                                                           | (19)                   |
| 4.11  | Certificate of Powers, Designations, Preferences and Rights of the 8% Convertible Senior Preferred Stock of Axion Power International, Inc. dated March 17, 2005.                                                                | (12)                   |
| 4.12  | Certificate of Powers, Designations, Preferences and Rights of the Series-A Convertible Preferred Stock, Par Value $0.0001 Per Share, of Axion Power International, Inc. dated October 23, 2006.                                 | (13)                   |
| 4.13  | Amended Certificate of Powers, Designations, Preferences and Rights of the Series-A Convertible Preferred Stock, Par Value $0.0001 Per Share, of Axion Power International, Inc. dated October 26, 2006.                         | (13)                   |
| 4.14  | Certificate of Amendment to the Certificate of Powers, Designations, Preferences and Rights of the Series-A Convertible Preferred Stock, Par Value $.0001 Per Share, of Axion Power International, Inc. dated February 24, 2010. |                   |
| 9.1   | Agreement respecting the voting of certain shares beneficially owned by the Trust for the Benefit of the Shareholders of Mega-C Power Corporation.                                                                               | Included inExhibit 4.2 |
| 10.1  | Development and License Agreement between Axion Power Corporation and C and T Co. Incorporated dated November 15, 2003.                                                                                                          | (1)                    |
| 10.2  | Letter Amendment to Development and License Agreement between Axion Power Corporation and C and T Co. Incorporated dated November 17, 2003.                                                                                      | (1)                    |
| 10.3  | Tamboril Cigar Co. Incentive Stock Plan dated January 8, 2004.                                                                                                                                                                   | (A)                    |
| 10.4  | Tamboril Cigar co. Outside Directors Stock Option Plan dated February 2, 2004.                                                                                                                                                   | (A)                    |
| 10.5  | Stock Purchase & Investment Representation Letter among John L. Petersen, Sally A. Fonner and C and T Co. Incorporated dated January 9, 2004.                                                                                | (1)                    |
| 10.6  | Letter Amendment to Development and License Agreement between Axion Power Corporation and C and T Co. Incorporated dated January 9, 2004.                                                                                        | (1)                    |
| 10.7  | First Amendment to Development and License Agreement between Axion Power Corporation and C and T Co. Incorporated dated as of January 9, 2004.                                                                                   | (5)                    |
| 10.8  | Definitive Incentive Stock Plan of Axion Power International, Inc. dated June 4, 2004.                                                                                                                                           | (3)                    |
| 10.9  | Definitive Outside Directors’ Stock Option Plan of Axion Power International, Inc. dated June 4, 2004.                                                                                                                     | (3)                    |
| 10.10 | Executive Employment Agreement of Charles Mazzacato.                                                                                                                                                                             | (9)                    |
| 10.11 | Executive Employment Agreement of Peter Roston.                                                                                                                                                                                  | (9)                    |
| 10.12 | Amended Retainer Agreement between the law firm of Fefer, Petersen & Cie dated March 31, 2005.                                                                                                                               | (C)                    |
| 10.13 | Retainer Agreement between the law firm of Fefer, Petersen & Cie and Tamboril Cigar Company dated January 2, 2004.                                                                                                           | (10)                   |
| 10.14 | Bankruptcy Settlement Agreement Between Axion Power International, Inc. and Mega-C Power Corporation dated December, 2005.                                                                                                  | (E)                    |

----

Table of Contents

| 10.15  | Second Amendment to Development and License Agreement between Axion Power International, Inc. and C and T Co. Incorporated dated as of March 18, 2005.                                                                                       | (12)       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 10.16  | Executive Employment Agreement of Thomas Granville dated June 23, 2008.                                                                                                                                                                      | (20)       |
|   |                                                                                                                                                                                                                                         |       |
| 10.17  | Loan agreement between Axion Battery Products, Inc. as borrower, Axion Power International, Inc. as accommodation party and Robert Averill as lender respecting a $1,000,000 purchase money and working capital loan dated January 31, 2006. | (14)       |
| 10.18  | Security agreement between Axion Battery Products, Inc. as debtor and Robert Averill as secured party dated January 31, 2006.                                                                                                                | (14)       |
| 10.19  | Security agreement between Axion Power International, Inc. as debtor and Robert Averill as secured party dated January 31, 2006.                                                                                                             | (14)       |
| 10.20  | Promissory Note between Axion Battery Products, Inc. as maker and Robert Averill as payee dated February 14, 2006.                                                                                                                           | (14)       |
| 10.21  | Form of Warrant Agreement between Axion Power International, Inc. and Robert Averill.                                                                                                                                                        | (14)       |
| 10.22  | Commercial Lease Agreement between Axion Battery Products, Inc. as lessee and Steven F. Hoye and Steven C. Warner as lessors dated February 14, 2006.                                                                                        | (14)       |
| 10.23  | Asset Purchase Agreement dated between Axion Battery Products, Inc. as buyer and National City Bank of Pennsylvania as seller February 10, 2006.                                                                                             | (14)       |
| 10.24  | Escrow Agreement between Axion Battery Products, Inc. and National City Bank of Pennsylvania as parties in interest and William E. Kelleher, Jr. and James D. Newell as escrow agents dated February 14, 2006.                               |  (14) |
| 10.25  | Executive Employment Agreement of Edward Buiel dated June 23, 2008.                                                                                                                                                                          | (21)       |
| 10.26  | Consulting Agreement, by and between Axion Power International, Inc. and Andrew Carr Conway, Jr. dated as of September 27, 2007.                                                                                                             | (16)       |
| 10.27  | Amendment No. 1 to Consulting Agreement by and between Axion Power International, Inc. and Andrew Carr Conway, Jr. dated as of October 31, 2007.                                                                                             | (16)       |
| 10.28  | Securities Purchase Agreement by and between Axion Power International, Inc. and Quercus Trust dated as of January 14, 2008.                                                                                                                 | (17)       |
| 10.29  | Common Stock Purchase Warrant executed by Axion Power International, Inc. dated January 14, 2008.                                                                                                                                            |  (17) |
| 10.30  | Executive Employment Agreement of Donald T. Hillier dated June 18, 2008.                                                                                                                                                                     | (19)       |
| 10.31  | Amendment to Warrants and Securities Purchase Agreement by and between Axion Power International, Inc. and Quercus Trust dated as of September 22, 2009.                                                                                     | (22)       |
| 10.32  | Securities Purchase Agreement by and between Axion Power International, Inc. and the Investors named therein dated as of December 18, 2009.                                                                                                  | (23)       |
| 10.33  | Registration Rights Agreement, executed by Axion Power International Inc. and the Investors named therein.                                                                                                                                   | (23)       |
| 10.34  | Amendment No. 2 to Securities Purchase by and between Axion Power International, Inc. and Quercus Trust Agreement dated as of January 14, 2008.                                                                                              | (23)       |
| 10.35  | Lock-Up Agreement executed by Quercus Trust and David Gelbaum and Monica Chavez Gelbaum.                                                                                                                                                     | (23)       |
| 10.36  | Lease Agreement by and between Steven F. Hoye and Steven C. Warner, Lessor, and Axion Power Battery Manufacturing, Inc., Lessee dated March 28, 2010.                                                                                        | (6)   |
|   |                                                                                                                                                                                                                                         |       |
| 10.37  | Executive Employment Agreement of Charles R. Trego dated April 1, 2010.                                                                                                                                                                      | (24)       |
| 10.38  | Executive Employment Agreement of Phillip S. Baker dated April 1, 2010.                                                                                                                                                                      | (24)       |
|   |                                                                                                                                                                                                                                         |       |
| 10.39  | Executive Employment Agreement of Thomas Granville dated June 29, 2010.                                                                                                                                                                      | (26)       |
| 10.40  | Amendment No. 3 to Securities Purchase Agreement by and between Axion Power International, Inc. and the Quercus Trust dated September 30, 2010.                                                                                              |  (27) |
| 10.41  | Commercial Lease with Becan Development, LLC dated November 4, 2010.                                                                                                                                                                         |  (28) |
|   |                                                                                                                                                                                                                                         |       |
| 32.1   | Statement of Principal Executive Officer Pursuant to Section   1350 of Title 18 of the United States Code.                                                                                                                              |       |
|   |                                                                                                                                                                                                                                         |       |
| 32.2   | Statement of Principal Financial Officer Pursuant to Section   1350 of Title 18 of the United States Code.                                                                                                                              |       |

----

Table of Contents

| (1) | Incorporated by reference from our Current Report on Form 8-K dated January 15, 2004. |
|-----|---------------------------------------------------------------------------------------|

| (2) | Incorporated by reference from our Current Report on Form 8-K dated February 5, 2003. |
|-----|---------------------------------------------------------------------------------------|

| (3) | Incorporated by reference from our Current Report on Form 8-K dated June 7, 2004. |
|-----|-----------------------------------------------------------------------------------|

| (4) | Incorporated by reference from our Current Report on Form 8-K dated April 13, 2004. |
|-----|-------------------------------------------------------------------------------------|

| (5) | Incorporated by reference from our Form S-3 registration statement dated May 20, 2004. |
|-----|----------------------------------------------------------------------------------------|

| (6) | Incorporated by reference from our Annual Report on Form 10-KSB dated March 30, 2004. |
|-----|---------------------------------------------------------------------------------------|

| (7) | Incorporated by reference from our Current Report on Form 8-K dated April 13, 2003. |
|-----|-------------------------------------------------------------------------------------|

| (8) | Incorporated by reference from our Current Report on Form 8-K dated February 16, 2004. |
|-----|----------------------------------------------------------------------------------------|

| (9) | Incorporated by reference from our Form S-1 registration statement dated September 2, 2004. |
|-----|---------------------------------------------------------------------------------------------|

| (10) | Incorporated by reference from our Form S-1 registration statement dated December 17, 2004. |
|------|---------------------------------------------------------------------------------------------|

| (11) | Incorporated by reference from our Current Report on Form 8-K dated February 28, 2005. |
|------|----------------------------------------------------------------------------------------|

| (12) | Incorporated by reference from our Current Report on Form 8-K dated March 21, 2005. |
|------|-------------------------------------------------------------------------------------|

| (13) | Incorporated by reference from our Current Report on Form 8-K dated November 8, 2006. |
|------|---------------------------------------------------------------------------------------|

| (14) | Incorporated by reference from our Current Report on Form 8-K dated February 16, 2006. |
|------|----------------------------------------------------------------------------------------|

| (15) | Incorporated by reference from our Current Report on Form 8-K dated January 3, 2007. |
|------|--------------------------------------------------------------------------------------|

| (16) | Incorporated by reference from our Current Report on Form 8-K dated November 6, 2007. |
|------|---------------------------------------------------------------------------------------|

| (17) | Incorporated by reference from our Current Report on Form 8-K dated January 17, 2008. |
|------|---------------------------------------------------------------------------------------|

| (18) | Incorporated by reference from our Current Report on Form 8-K dated January 31, 2008. |
|------|---------------------------------------------------------------------------------------|

| (19) | Incorporated by reference from our Registration Statement on Form S-1 dated July 3, 2008. |
|------|-------------------------------------------------------------------------------------------|

| (20) | Incorporated by reference from our Current Report on Form 8-K dated June 27, 2008. |
|------|------------------------------------------------------------------------------------|

| (21) | Incorporated by reference from our Current Report on Form 8-K dated July 2, 2008. |
|------|-----------------------------------------------------------------------------------|

| (22) | Incorporated by reference from our Current Report on Form 8-K dated September 22, 2009. |
|------|-----------------------------------------------------------------------------------------|

| (23) | Incorporated by reference from our Current Report on Form 8-K dated December 18, 2009. |
|------|----------------------------------------------------------------------------------------|

| (24) | Incorporated by reference from our Current Report on Form 8-K dated April 6, 2010. |
|------|------------------------------------------------------------------------------------|

| (25) | Incorporated by reference from our Current Report on Form 8-K dated June 15, 2010. |
|------|------------------------------------------------------------------------------------|

| (26) | Incorporated by reference from our Current Report on Form 8-K dated July 6, 2010. |
|------|-----------------------------------------------------------------------------------|

| (27) | Incorporated by reference from our Current Report on Form 8-K dated October 4, 2010. |
|------|--------------------------------------------------------------------------------------|

| (28) | Incorporated by reference from our Current Report on Form 8-K dated November 10, 2010. |
|------|----------------------------------------------------------------------------------------|

| (A) | Incorporated by reference from our Current Report on Form 8-K/A dated February 2, 2004. |
|-----|-----------------------------------------------------------------------------------------|

| (B) | Incorporated by reference from our Current Report on Form 8-K dated April 4, 2005. |
|-----|------------------------------------------------------------------------------------|

| (C) | Incorporated by reference from our Registration Statement on Form SB-2 dated April 26, 2005. |
|-----|----------------------------------------------------------------------------------------------|

| (D) | Incorporated by reference from our Current Report on Form 8-K dated December 13, 2005. |
|-----|----------------------------------------------------------------------------------------|

----

Table of Contents

|   | AXION POWER INTERNATIONAL, INC. |
|--------|---------------------------------|
|   |                            |
|   | By:                             | /s/ Thomas Granville |
|   |                            | Thomas Granville, Principal Executive Officer and Director |
|   |                            |   |
|   | Dated: March 30, 2011           |

| Signature                |   | Title    |   | Date           |
|--------------------------|--------|----------|--------|----------------|
|                     |   |     |   |           |
| /s/ Robert G. Averill    |   |     |   |           |
| Robert G. Averill        |   | Director |   | March 30, 2011 |
|                     |   |     |   |           |
| /s/ Glenn Patterson      |   |     |   |           |
| Glenn Patterson          |   | Director |   | March 30, 2011 |
|                     |   |     |   |           |
| /s/ Michael Kishinevsky  |   |     |   |           |
| Michael Kishinevsky      |   | Director |   | March 30, 2011 |
|                     |   |     |   |           |
| /s/ Howard K. Schmidt    |   |     |   |           |
| Howard K. Schmidt        |   | Director |   | March 30, 2011 |
|                     |   |     |   |           |
| /s/ D. Walker Wainwright |   |     |   |           |
| D. Walker Wainwright     |   | Director |   | March 30, 2011 |
|                     |   |     |   |           |
| /s/ David Anthony        |   |     |   |           |
| David Anthony            |   | Director |   | March 30, 2011 |

----