| Florida                         | 26-0067474          |
|---------------------------------|---------------------|
| (State or other jurisdiction of | (I.R.S. Employer    |
| incorporation or organization)  | Identification No.) |

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| PART I.   FINANCIAL INFORMATION |                                                                                                               |     |
|------------------------------------------------|--------------------------------------------------------------------------------------------------------------------|----------|
|                                           |                                                                                                               |     |
|                                           | Cautionary Note Regarding Forward-Looking Statements                                                               |     | 3 |
|                                           |                                                                                                               |     |   |
| Item 1.                                        | Financial Statements                                                                                               |     |   |
|                                           |                                                                                                               |     |   |
|                                           | Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010                                  |     | 4 |
|                                           |                                                                                                               |     |   |
|                                           | Consolidated Statements of Operations for the three months and six months ended June 30, 2011 and 2010 (Unaudited) |     | 5 |
|                                           |                                                                                                               |     |   |
|                                           | Consolidated Statement of Stockholders’ Equity (Deficit) for the six months ended June 30, 2011 (Unaudited)  |     | 6 |
|                                           |                                                                                                               |     |   |
|                                           | Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)                  |     | 7 |
|                                           |                                                                                                               |     |   |
|                                           | Notes to Consolidated Financial Statements                                                                         |     | 8 |
|                                           |                                                                                                               |     |   |
| Item 2.                                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        |     | 25 |
|                                           |                                                                                                               |     |   |
| Item 3.                                        | Qualitative and Quantitative Disclosures About Market Risk                                                         |     | 33 |
|                                           |                                                                                                               |     |   |
| Item 4.                                        | Controls and Procedures                                                                                            |     | 33 |
|                                           |                                                                                                               |     |   |
| PART II.   OTHER INFORMATION    |                                                                                                               |     |
|                                           |                                                                                                               |     |
| Item 1A.                                       | Risk Factors                                                                                                       |     | 35 |
|                                           |                                                                                                               |     |   |
| Item 2.                                        | Unregistered Sales of Equity Securities and Use of Proceeds                                                        |     | 35 |
|                                           |                                                                                                               |     |   |
| Item 6.                                        | Exhibits                                                                                                           |     | 35 |
|                                           |                                                                                                               |     |   |
| Signatures                                     |                                                                                                               |  37 |

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|   | · | our dependence on additional financing to continue as a going concern; |
|--------|--------|------------------------------------------------------------------------|

|   | · | our inability to meet our debt and other financial obligations when they become due; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | our ability to successfully develop viable fuel product using pyrolysis oil; |
|--------|--------|------------------------------------------------------------------------------|

|   | · | our lack of operating history; |
|--------|--------|--------------------------------|

|   | · | our inability to generate revenues or profits from sales of our biofuel and to establish commercial scale production facilities; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | the disproportionately higher cost of production relative to units sold; |
|--------|--------|--------------------------------------------------------------------------|

|   | · | our ability to fully realize the value of our intellectual property, which are our principal assets; |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | our inability to enter into acceptable licensing agreements with respect to our technology or the inability of any licensee to successfully manufacture, market or sell biofuel utilizing our technology; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | market acceptance of our biofuel; |
|--------|--------|-----------------------------------|

|   | · | our inability to compete effectively in the renewable fuels market; |
|--------|--------|---------------------------------------------------------------------|

|   | · | governmental regulation and oversight, including our ability to qualify our biofuel for certain tax credits and renewable portfolio standards; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our ability to protect our technology through intellectual property rights; |
|--------|--------|-----------------------------------------------------------------------------|

|   | · | unexpected costs and operating deficits; |
|--------|--------|------------------------------------------|

|   | · | adverse results of any material legal proceedings; and |
|--------|--------|--------------------------------------------------------|

|   | · | other specific risks set forth under the heading “Risk Factors” beginning on page 35 of this report. |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                                                                              |   | June 30, |        |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                              |   | 2011          |        |   | 2010              |   |
|                                                                                                                                                                                                                                                              |   | (Unaudited)   |        |   |              |   |
| ASSETS                                                                                                                                                                                                                                                            |   |          |        |   |              |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |
| Current assets:                                                                                                                                                                                                                                                   |   |          |        |   |              |   |
| Cash and cash equivalents                                                                                                                                                                                                                                         |   | $             | 7,773       |   |              | $      | 149,909 |   |
| Restricted cash                                                                                                                                                                                                                                                   |   |          | 14,710      |   |              |   | 14,706 |   |
| Other receivables                                                                                                                                                                                                                                                 |   |          | -           |   |              |   | 9,095 |   |
| Debt issuance costs, net                                                                                                                                                                                                                                          |   |          | 28,745      |   |              |   | 25,000 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                         |   |          | 119,803     |   |              |   | 904,254 |   |
| Total current assets                                                                                                                                                                                                                                              |   |          | 171,031     |   |              |   | 1,102,964 |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Property, plant and equipment, net                                                                                                                                                                                                                                |   |          | 1,016,569   |   |              |   | 1,189,620 |   |
| License agreement, net                                                                                                                                                                                                                                            |   |          | 4,726,323   |   |              |   | 5,034,545 |   |
| Other assets, net                                                                                                                                                                                                                                                 |   |          | 79,638      |   |              |   | 370,906 |   |
| Total assets                                                                                                                                                                                                                                                      |   | $             | 5,993,561   |   |              | $      | 7,698,035 |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Accounts payable and accrued expenses                                                                                                                                                                                                                             |   | $             | 2,080,294   |   |              | $      | 1,647,449 |   |
| Convertible notes payable                                                                                                                                                                                                                                         |   |          |        |   |              |   |   |   |
| (net of unamortized debt discount of $185,787 and $11,141 as of June 30, 2011 and December 31, 2010, respectively)                                                                                                                                                |   |          | 1,438,963   |   |              |   | 518,859 |   |
| Promissory notes payable (net of unamortized debt discount of $24,287 and $0 as of June 30, 2011 and December 31, 2010, respectively)                                                                                                                             |   |          | 33,213      |   |              |   | - |   |
| License agreement payable, current portion                                                                                                                                                                                                                        |   |          |        |   |              |   |   |   |
| (net of unamortized debt discount of $267,732 and $291,844 as of June 30, 2011 and December 31, 2010, respectively)                                                                                                                                               |   |          | 1,732,268   |   |              |   | 708,156 |   |
| Accrued dividends on preferred stock                                                                                                                                                                                                                              |   |          | -           |   |              |   | 1,083,666 |   |
| Derivative liabilities                                                                                                                                                                                                                                            |   |          | 33,618      |   |              |   | 12,692 |   |
| Total current liabilities                                                                                                                                                                                                                                         |   |          | 5,318,356   |   |              |   | 3,970,822 |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| License agreement payable                                                                                                                                                                                                                                         |   |          |        |   |              |   | -  |   |
| (net of unamortized debt discount of $188,938 and $331,995 as of June 30, 2011 and December 31, 2010, respectively)                                                                                                                                               |   |          | 1,811,062   |   |              |   | 2,668,005 |   |
| Deferred rent                                                                                                                                                                                                                                                     |   |          | 106,478     |   |              |   | 149,069 |   |
| Embedded conversion feature                                                                                                                                                                                                                                       |   |          | -           |   |              |   | - |   |
| Total liabilities                                                                                                                                                                                                                                                 |   |          | 7,235,896   |   |              |   | 6,787,896 |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Commitments and contingencies                                                                                                                                                                                                                                     |   |          | -           |   |              |   | - |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Stockholders' equity (deficit):                                                                                                                                                                                                                                   |   |          |        |   |              |   |   |   |
| Preferred stock; $0.001 par value; 9,450,000 shares authorized; no shares issued and outstanding at June 30, 2011 and December 31, 2010                                                                                                                           |   |          | -           |   |              |   | - |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Series A Cumulative Convertible Preferred Stock: $0.001 par value; $100 stated value; 300,000 shares authorized; no shares issued and outstanding at June 30, 2011 and December 31, 2010                                                                          |   |          | -           |   |              |   | - |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Series B Cumulative Convertible Preferred Stock: $0.001 par value; $100 stated value; 250,000 shares authorized; no shares and 45,785 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively                                       |   |          | -           |   |              |   | 3,094,872 |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Common stock, $0.001 par value, 350,000,000 and 100,000,000 shares authorized as of June 30, 2011 and December 31, 2010, respectively; 94,006,013 and 82,083,896 shares issued and outstanding as of  June 30, 2011 and December 31, 2010, respectively |   |          | 94,006      |   |              |   | 82,083 |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Additional paid-in-capital                                                                                                                                                                                                                                        |   |          | 65,684,020  |   |              |   | 60,380,709 |   |
|                                                                                                                                                                                                                                                              |   |          |        |   |              |   |   |   |
| Accumulated deficit                                                                                                                                                                                                                                               |   |          | (67,020,361 | )      |              |   | (62,647,525 | ) |
| Total stockholders' equity (deficit)                                                                                                                                                                                                                              |   |          | (1,242,335) |   |              |   | 910,139 |   |
| Total liabilities and stockholders’ equity (deficit)                                                                                                                                                                                                        |   | $             | 5,993,561   |   |              | $      | 7,698,035 |   |

----

|                                                                                                                                                                                                        |   | For the ThreeMonths EndedJune 30, 2011 |       |   | For the Three Months EndedJune 30, 2010 |   |       | For the SixMonths EndedJune 30, 2011 |   |   | For the SixMonths EndedJune 30, 2010 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|------------|--------|-----------------------------------------------------------------------|--------|------------|---------------------------------------------------------------|--------|--------|---------------------------------------------------------------|--------|
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |
| Revenues:                                                                                                                                                                                                   |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |
| Product                                                                                                                                                                                                     |   | $                                                               | -          |   |                                                                  | $      | -          |                                                          |   | $      | -                                                             |   |   | $ | 6,477 |   |
| Total revenue                                                                                                                                                                                               |   |                                                            | -          |   |                                                                  |   | -          |                                                          |   |   | -                                                             |   |   |   | 6,477 |   |
| Operating expenses: Cost of product revenue (including depreciation and amortization for the three and six months ended June 30, 2011 and 2010 of $183,598, $366,328, $239,612, and $419,065, respectively) |   |                                                            | 247,305    |   |                                                                  |   | 526,404    |                                                          |   |   | 497,072                                                       |   |   |   | 1,107,352 |   |
| Research and development expense                                                                                                                                                                            |   |                                                            | 546,373    |   |                                                                  |   | 72,302     |                                                          |   |   | 636,248                                                       |   |   |   | 153,160 |   |
| General and administrative expense                                                                                                                                                                          |   |                                                            | 933,547    |   |                                                                  |   | 2,088,705  |                                                          |   |   | 2,308,724                                                     |   |   |   | 4,433,704 |   |
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |   |   |   |   |
| Total operating expenses                                                                                                                                                                                    |   |                                                            | 1,727,225  |   |                                                                  |   | 2,687,411  |                                                          |   |   | 3,442,044                                                     |   |   |   | 5,694,216 |   |
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |   |   |   |   |
| Loss from operations                                                                                                                                                                                        |   |                                                            | (1,727,225 | )      |                                                                  |   | (2,687,411 | )                                                             |   |   | (3,442,044                                                    | )      |   |   | (5,687,739 | ) |
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |   |   |   |   |
| Interest income                                                                                                                                                                                             |   |                                                            | 2          |   |                                                                  |   | 71         |                                                          |   |   | 59                                                            |   |   |   | 385 |   |
| Interest expense                                                                                                                                                                                            |   |                                                            | (222,025   | )      |                                                                  |   | (280,297   | )                                                             |   |   | (461,329                                                      | )      |   |   | (382,281 | ) |
| Gain on extinguishment of trade payables                                                                                                                                                                    |   |                                                            | 9,383      |   |                                                                  |   | -          |                                                          |   |   | 19,983                                                        |   |   |   | - |   |
| Loss on  extinguishment of convertible debt                                                                                                                                                       |   |                                                            | -          |   |                                                                  |   | -          |                                                          |   |   | (163,305                                                      | )      |   |   | - |   |
| Loss on conversion of debt                                                                                                                                                                                  |   |                                                            | -          |   |                                                                  |   | -          |                                                          |   |   | (403,163                                                      | )      |   |   | - |   |
| Gain on debt extinguishment                                                                                                                                                                                 |   |                                                            | -          |   |                                                                  |   | -          |                                                          |   |   | -                                                             |   |   |   | 154,000 |   |
| Gain (Loss) on net change in fair value of derivative liabilities                                                                                                                                           |   |                                                            | 43,815     |   |                                                                  |   | (12,102    | )                                                             |   |   | 206,110                                                       |   |   |   | (4,996 | ) |
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |   |   |   |   |
| Net loss                                                                                                                                                                                                    |   |                                                            | (1,896,050 | )      |                                                                  |   | (2,979,739 | )                                                             |   |   | (4,243,689                                                    | )      |   |   | (5,920,631 | ) |
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |   |   |   |   |
| Dividends to preferred stockholders                                                                                                                                                                         |   |                                                            | (19,663    | )      |                                                                  |   | (125,787   | )                                                             |   |   | (129,147                                                      | )      |   |   | (274,479 | ) |
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |   |   |   |   |
| Net loss attributable to common stockholders                                                                                                                                                                |   | $                                                               | (1,915,713 | )      |                                                                  | $      | (3,105,526 | )                                                             |   | $      | (4,372,836                                                    | )      |   | $ | (6,195,110 | ) |
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |   |   |   |   |
| Basic and diluted net loss per share                                                                                                                                                                        |   | $                                                               | (0.02      | )      |                                                                  | $      | (0.09      | )                                                             |   | $      | (0.05                                                         | )      |   | $ | (0.18 | ) |
|                                                                                                                                                                                                        |   |                                                            |       |   |                                                                  |   |       |                                                          |   |   |                                                          |   |   |   |   |   |
| Weighted average number of shares outstanding                                                                                                                                                               |   |                                                            | 94,436,197 |   |                                                                  |   | 36,337,173 |                                                          |   |   | 89,892,419                                                    |   |   |   | 34,983,189 |   |

----

|                                                                          |   | Common Stock |        |   | Preferred StockSeries A |    |    | Preferred StockSeries B |   |   | AdditionalPaid-In-Capital |   |   | AccumulatedDeficit |   |   | Total  |   |
|-------------------------------------------------------------------------------|--------|-------------------|-------------|--------|-----------------------------------|---------|---------|-----------------------------------|--------|--------|---------------------------|--------|--------|--------------------|--------|--------|--------|--------|
|                                                                          |   | Shares            |        |   | Amount                            |    |    | Shares                            |   |   | Amount                    |   |   | Shares             |   |   | Amount |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2010                                                  |   |              | 82,083,896  |   |                              |  $ | 82,083  |                              |   |   | -                         |   |   |  $            | -      |   |   |   | 45,785 |   |   | $ | 3,094,872 |   |   | $ | 60,380,709 |   |   | $ | (62,647,525 | ) |   | $ | 910,139 |   |
|                                                                          |   |              |        |   |                              |    |    |                              |   |   |                      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of stock options and restricted stock to employees                   |   |              | -           |   |                              |    | -       |                              |   |   | -                         |   |   |               | -      |   |   |   | - |   |   |   | - |   |   |   | 252,416 |   |   |   | - |   |   |   | 252,416 |   |
| Cancellation of restricted stock                                              |   |              | (1,000,000) |   |                              |    | (1,000) |                              |   |   | -                         |   |   |               | -      |   |   |   | - |   |   |   | - |   |   |   | 1,000 |   |   |   | - |   |   |   | - |   |
| Beneficial conversion feature on convertible debt                             |   |              | -           |   |                              |    | -       |                              |   |   | -                         |   |   |               | -      |   |   |   | - |   |   |   | - |   |   |   | 341,965 |   |   |   | - |   |   |   | 341,965 |   |
| Issuance of common stock in connection with conversion of  debt     |   |              | 6,250,000   |   |                              |    | 6,250   |                              |   |   | -                         |   |   |               | -      |   |   |   | - |   |   |   | - |   |   |   | 306,250 |   |   |   | - |   |   |   | 312,500 |   |
| Issuance of common stock in connection with conversion of  debt     |   |              | 4,533,335   |   |                              |    | 4,534   |                              |   |   | -                         |   |   |               | -      |   |   |   | - |   |   |   | - |   |   |   | 86,134 |   |   |   | - |   |   |   | 90,668 |   |
| Issuance of common stock for payment of accounts payable and accrued expenses |   |              | 208,333     |   |                              |    | 208     |                              |   |   | -                         |   |   |               | -      |   |   |   | - |   |   |   | - |   |   |   | 9,792 |   |   |   | - |   |   |   | 10,000 |   |
| Conversion of preferred stock into common stock                               |   |              | 1,930,449   |   |                              |    | 1,931   |                              |   |   | -                         |   |   |               | -      |   |   |   | (45,785) |   |   |   | (3,094,872) |   |   |   | 4,305,754 |   |   |   | - |   |   |   | 1,212,813 |   |
| Preferred stock dividends                                                     |   |              | -           |   |                              |    | -       |                              |   |   | -                         |   |   |               | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (129,147 | ) |   |   | (129,147 | ) |
| Net loss                                                                      |   |              | -           |   |                              |    | -       |                              |   |   | -                         |   |   |               | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4,243,689 | ) |   |   | (4,243,689 | ) |
|                                                                          |   |              |        |   |                              |    |    |                              |   |   |                      |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at June 30, 2011                                                      |   |              | 94,006,013  |   |                              | $       | 94,006  |                              |   |   | -                         |   |   | $                  | -      |   |   |   | - |   |   | $ | - |   |   | $ | 65,684,020 |   |   | $ | (67,020,361 | ) |   | $ | (1,242,335) |   |

----

|                                                                                                            |   | For theSix MonthsEnded June 30,2011 |       |   | For theSix MonthsEnded June 30,2010 |   |
|-----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|------------|--------|---------------------------------------------------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                           |   |                                                    |       |   |                                                    |   |
| Net loss                                                                                                        |   | $                                                       | (4,243,689 | )      |                                                    | $      | (5,920,631 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities:                                     |   |                                                    |       |   |                                                    |   |   |   |
| Bad debt expense                                                                                                |   |                                                    | -          |   |                                                    |   | 5,609 |   |
| Amortization of prepaid consulting fee                                                                          |   |                                                    | 733,000    |   |                                                    |   | 71,339 |   |
| Amortization of debt issuance costs                                                                             |   |                                                    | 86,729     |   |                                                    |   | 74,513 |   |
| Depreciation and amortization expense                                                                           |   |                                                    | 44,955     |   |                                                    |   | 56,667 |   |
| Amortization of license agreement                                                                               |   |                                                    | 308,222    |   |                                                    |   | 368,501 |   |
| Amortization of debt discount on license agreement payable                                                      |   |                                                    | 167,169    |   |                                                    |   | 192,414 |   |
| Amortization of patents                                                                                         |   |                                                    | 19,540     |   |                                                    |   | - |   |
| Amortization of debt premium on convertible notes                                                               |   |                                                    | (1,870)    |   |                                                    |   | - |   |
| Amortization of debt discount on convertible notes                                                              |   |                                                    | 148,665    |   |                                                    |   | 103,298 |   |
| Amortization of debt discount on promissory notes                                                               |   |                                                    | 8,269      |   |                                                    |   | - |   |
| Write-off of capitalized patent costs                                                                           |   |                                                    | 271,728    |   |                                                    |   | - |   |
| Write-off of capitalized construction in progress                                                               |   |                                                    | 128,095    |   |                                                    |   | - |   |
| Issuance of common stock pursuant to separation agreement                                                       |   |                                                    | -          |   |                                                    |   | 105,000 |   |
| Compensation expense associated with stock options and restricted stock to employees                            |   |                                                    | 252,416    |   |                                                    |   | 1,084,613 |   |
| Stock options issued to non-employees for services                                                              |   |                                                    | -          |   |                                                    |   | 3,318 |   |
| Gain on change in fair value of derivative liabilities                                                          |   |                                                    | (206,110)  |   |                                                    |   | 4,996 |   |
| Loss on extinguishment of convertible debt                                                                      |   |                                                    | 163,305    |   |                                                    |   | - |   |
| Loss on conversion of debt                                                                                      |   |                                                    | 403,163    |   |                                                    |   | - |   |
| Gain on settlement of trade payables                                                                            |   |                                                    | (19,983)   |   |                                                    |   | - |   |
| Gain on extinguishment of license agreement payable                                                             |   |                                                    | -          |   |                                                    |   | (154,000) |   |
| Changes in operating assets and liabilities:                                                                    |   |                                                    |       |   |                                                    |   |   |   |
| Accounts receivable                                                                                             |   |                                                    | -          |   |                                                    |   | 58,291 |   |
| Other receivables                                                                                               |   |                                                    | 9,095      |   |                                                    |   | - |   |
| Prepaid expenses and other current assets                                                                       |   |                                                    | 51,451     |   |                                                    |   | 107,066 |   |
| Other assets                                                                                                    |   |                                                    | -          |   |                                                    |   | (40,739) |   |
| Accounts payable and accrued expenses                                                                           |   |                                                    | 467,559    |   |                                                    |   | 1,591,093 |   |
| Deferred rent                                                                                                   |   |                                                    | (42,591)   |   |                                                    |   | (40,272) |   |
| Net cash used in operating activities                                                                           |   |                                                    | (1,250,882 | )      |                                                    |   | (2,328,924 | ) |
|                                                                                                            |   |                                                    |       |   |                                                    |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                           |   |                                                    |       |   |                                                    |   |   |   |
| Net increase in restricted cash                                                                                 |   |                                                    | (4)        |   |                                                    |   | (14,702) |   |
| Purchases of property and equipment                                                                             |   |                                                    | -          |   |                                                    |   | (52,048) |   |
| Capitalized patent costs                                                                                        |   |                                                    | -          |   |                                                    |   | (13,282) |   |
| Net cash used in investing activities                                                                           |   |                                                    | (4         | )      |                                                    |   | (80,042 | ) |
|                                                                                                            |   |                                                    |       |   |                                                    |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                           |   |                                                    |       |   |                                                    |   |   |   |
| Payments for license agreement payable                                                                          |   |                                                    | -          |   |                                                    |   | (120,000) |   |
| Proceeds from issuance of common stock, net                                                                     |   |                                                    | -          |   |                                                    |   | 1,543,350 |   |
| Proceeds from the issuance of convertible notes                                                                 |   |                                                    | 1,262,500  |   |                                                    |   | 700,000 |   |
| Debt issuance costs                                                                                             |   |                                                    | (53,750)   |   |                                                    |   | (20,000) |   |
| Repayment of convertible notes                                                                                  |   |                                                    | (100,000)  |   |                                                    |   | - |   |
| Net cash provided by financing activities                                                                       |   |                                                    | 1,108,750  |   |                                                    |   | 2,103,350 |   |
| Decrease in cash and cash equivalents                                                                           |   |                                                    | (142,136   | )      |                                                    |   | (305,616) |   |
| Cash and cash equivalents - beginning of period                                                                 |   |                                                    | 149,909    |   |                                                    |   | 567,647 |   |
| Cash and cash equivalents - end of period                                                                       |   | $                                                       | 7,773      |   |                                                    | $      | 262,031 |   |
|                                                                                                            |   |                                                    |       |   |                                                    |   |   |   |
| Supplemental Disclosure of Non-Cash Operating and Financing Activities                                          |   |                                                    |       |   |                                                    |   |   |   |
| Accrued dividends on preferred stock                                                                            |   | $                                                       | 129,147    |   |                                                    | $      | 274,479 |   |
| Common stock issued for payment of license agreement payable                                                    |   | $                                                       | -          |   |                                                    | $      | 726,000 |   |
| Issuance of common stock for payment of accounts payable and accrued expenses                                   |   | $                                                       | 10,000     |   |                                                    | $      | - |   |
| Anti-dilution obligation associated with issuance of common stock                                               |   | $                                                       | -          |   |                                                    | $      | 40,000 |   |
| Issuance of promissory note ($40,000 principal amount) for settlement of Class B common stock warrant liability |   | $                                                       | 7,444      |   |                                                    | $      | - |   |
| Issuance of promissory note ($17,500 principal amount) for debt issuance costs                                  |   | $                                                       | 17,500     |   |                                                    | $      | - |   |
| Issuance of common stock for settlement of anti-dilution obligation                                             |   | $                                                       | -          |   |                                                    | $      | 58,449 |   |
| Issuance of warrants for debt issuance costs                                                                    |   | $                                                       | 19,223     |   |                                                    | $      | - |   |
| Issuance of warrants with convertible debt                                                                      |   | $                                                       | 157,777    |   |                                                    | $      | - |   |
| Embedded conversion feature on convertible debt                                                                 |   | $                                                       | 57,480     |   |                                                    | $      | - |   |
| Debt discount as a result of beneficial conversion feature associated with convertible debt modification        |   | $                                                       | 341,965    |   |                                                    | $      | - |   |
| Conversion of debt to common stock                                                                              |   | $                                                       | 4          |   |                                                    | $      | - |   |
| Discount on convertible notes associated with detachable warrants                                               |   | $                                                       | -          |   |                                                    | $      | 149,949 |   |
| Issuance of warrants to non-employees for deferred financing costs                                              |   | $                                                       | -          |   |                                                    | $      | 38,165 |   |
| Conversion of Series A preferred stock to common stock                                                          |   | $                                                       | -          |   |                                                    | $      | 710,970 |   |
| Conversion of Series B preferred stock to common stock                                                          |   | $                                                       | 3,094,872  |   |                                                    | $      | - |   |
| Accrued preferred stock dividends converted into shares of common stock                                         |   | $                                                       | 1,212,813  |   |                                                    | $      | 488,334 |   |
| Deferred financing costs included in accrued expenses                                                           |   | $                                                       | -          |   |                                                    | $      | 50,000 |   |

----

----

----

----

----

----

|                                      |   | June 30, 2011 |    |
|-------------------------------------------|--------|-------------------------|---------|
| Description                               |   | Level 1            |    |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Assets:                                   |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                 |   | $                       | 7,773   |   |   | $ | – |   |   | $ | – |   |   | $ | 7,773 |   |
| Total assets                              |   | $                       | 7,773   |   |   | $ | – |   |   | $ | – |   |   | $ | 7,773 |   |
| Liabilities:                              |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivative - warrants                     |   | $                       | – |   |   | $ | – |   |   | $ | 31,503 |   |   | $ | 31,503 |   |
| Derivative - anti-dilution obligation     |   | $                       | – |   |   | $ | – |   |   | $ | 2,115 |   |   | $ | 2,115 |   |
| Derivative - embedded conversion features |   | $                       | – |   |   | $ | – |   |   | $ | - |   |   | $ | - |   |
| Total liabilities                         |   | $                       | – |   |   | $ | – |   |   | $ | 33,618 |   |   | $ | 33,618 |   |

|                                     |   | December 31, 2010 |    |
|------------------------------------------|--------|-----------------------------|---------|
| Description                              |   | Level 1                |    |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Assets:                                  |   |                        |    |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                |   | $                           | 149,909 |   |   | $ | – |   |   | $ | – |   |   | $ | 149,909 |   |
| Total assets                             |   | $                           | 149,909 |   |   | $ | – |   |   | $ | – |   |   | $ | 149,909 |   |
| Liabilities:                             |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivative - warrants                    |   | $                           | – |   |   | $ | – |   |   | $ | - |   |   | $ | - |   |
| Derivative - anti-dilution obligation    |   | $                           | – |   |   | $ | – |   |   | $ | 12,692 |   |   | $ | 12,692 |   |
| Derivative - embedded conversion feature |   | $                           | – |   |   | $ | – |   |   | $ | - |   |   | $ | - |   |
| Total liabilities                        |   | $                           | – |   |   | $ | – |   |   | $ | 12,692 |   |   | $ | 12,692 |   |

----

|                                                |   | February          |   |   | November   |   |   | February   |   |   | June       |   |   | Class A |   |   | Class B |   |    |   |   |
|-----------------------------------------------------|--------|-------------------|--------|--------|------------|--------|--------|------------|--------|--------|------------|--------|--------|--------------|--------|--------|--------------|--------|---------|--------|--------|
|                                                |   | 2010 Private |   |   | 2010       |   |   | 2011       |   |   | 2011       |   |   | Common       |   |   | Common       |   |    |   |   |
|                                                |   | Placement         |   |   | Embedded   |   |   | Embedded   |   |   | Embedded   |   |   | Stock        |   |   | Stock        |   |    |   |   |
|                                                |   | Anti-dilution     |   |   | Conversion |   |   | Conversion |   |   | Conversion |   |   | Warrant      |   |   | Warrant      |   |    |   |   |
|                                                |   | Obligation        |   |   | Feature    |   |   | Feature    |   |   | Feature    |   |   | Liability    |   |   | Liability    |   |    | Total  |   |
|                                                |   |              |   |   |       |   |   |       |   |   |       |   |   |         |   |   |         |   |    |   |   |
| Balance at January 1, 2011                          |   | $                 | 12,692 |   |       | $      | -      |       |   | $      | -          |   |   | $            | -      |   |         | $      | -       |   |   | $ | - |   |   | $ | 12,692 |   |
| Additions to (settlements of) Level 3 (1), (2), (3) |   |              | -      |   |       |   | -      |       |   |   | 57,480     |   |   |         | -      |   |         |   | 138,857 |   |   |   | 38,143 |   |   |   | 234,480 |   |
| Adjustment to fair value included in earnings (4)   |   |              | (8,462 | )      |       |   | -      |       |   |   | (56,480    | )      |   |         | -      |   |         |   | (75,947 | )      |   |   | (21,406 | ) |   |   | (162,295 | ) |
|                                                |   |              |   |   |       |   |   |       |   |   |       |   |   |         |   |   |         |   |    |   |   |   |   |   |   |   |   |   |
| Balance at March 31, 2011                           |   | $                 | 4,230  |   |       | $      | -      |       |   | $      | 1,000      |   |   | $            | -      |   |         | $      | 62,910  |   |   | $ | 16,737 |   |   | $ | 84,877 |   |
| Additions to (settlements of) Level 3 (5)           |   |              | -      |   |       |   | -      |       |   |   | -          |   |   |         | -      |   |         |   | -       |   |   |   | (7,444 | ) |   |   | (7,444 | ) |
| Adjustment to fair value included in earnings (6)   |   |              | (2,115 | )      |       |   | -      |       |   |   | (1,000     | )      |   |         | -      |   |         |   | (35,876 | )      |   |   | (4,824 | ) |   |   | (43,815 | ) |
| Balance at June 30, 2011                            |   | $                 | 2,115  |   |       | $      | -      |       |   | $      | -          |   |   | $            | -      |   |         | $      | 27,034  |   |   | $ | 4,469 |   |   | $ | 33,618 |   |

| (1) | The February 2011 Notes (as defined in Note 2) provide for an adjustment of the conversion price in the event of certain issuances of the Company’s stock or stock-related instruments at prices lower than the conversion price, as defined in the February 2011 Subscription Agreement (as defined in Note 2).  The adjustment would reduce the conversion price of the February 2011 Notes to be equivalent to that of the newly issued stock or stock-related instruments.  As a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until the related February 2011 Notes have been settled.  As a result, the Company initially allocated $57,480 of February 2011 Notes proceeds to the embedded conversion feature.  The fair value of the conversion feature was determined using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.05; historical stock price volatility: 124.75%; risk-free interest rate of 0.18%; term (years) 0.5; and expected dividend rate: 0%. The discount on the February 2011 Notes attributable to the conversion feature of $57,480 will be amortized to interest expense using the effective interest method through August 1, 2011.  The Company recorded a $15,520 loss at inception related to the conversion feature resulting from the allocation of the gross proceeds using the relative fair value method which was included in “gain on net change in fair value of derivative liabilities” on the accompanying consolidated statements of operations.  The Company valued the conversion feature at March 31, 2011 and derived a value of $1,000 using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.02; historical stock price volatility: 127.04%; risk-free interest rate: 0.09%; term (years): 0.33; and expected dividend rate: 0%.  The Company valued the conversion feature at June 30, 2011 and derived a value of $0 using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.01; historical stock price volatility: 131.09%; risk-free interest rate: 0.01%; term (years): 0.42; and expected dividend rate: 0%.  For the six months ended June 30, 2011, the net adjustment to fair value resulted in a gain of $57,480 and is included in “gain on net change in fair value of derivative liabilities” on the accompanying consolidated statements of operations (see Note 2). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (2) | In connection with the February 2011 Notes private placement, the Company issued warrants to purchase 4,500,000 shares of common stock at $0.10 per share (the “Class A Warrants”) exercisable for a period of five years. The Class A Warrants provide for an adjustment of the exercise price in the event of certain issuances of the Company’s stock or stock-related instruments at prices lower than the exercise price, as defined in the February 2011 Subscription Agreement.  The adjustment would reduce the exercise price of the Class A Warrants to be equivalent to that of the newly issued stock or stock-related instruments.  As a result, the Company concluded that the Class A Warrants should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period.  As a result, the Company initially allocated $138,857 of February 2011 Notes proceeds to the Class A Warrants.  The fair value of the Class A Warrants was determined using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.05; historical stock price volatility: 124.75%; risk-free interest rate of 2.02%; term (years) 5.0; and expected dividend rate: 0%. The discount on the February 2011 Notes attributable to the Class A Warrants of $138,857 will be amortized to interest expense using the effective interest method through August 1, 2011.  The Company recorded a $37,492 loss at inception related to the Class A Warrants resulting from the allocation of the gross proceeds using the relative fair value method which was included in “gain on net change in fair value of derivative liabilities” on the accompanying consolidated statements of operations.  The Company valued the Class A Warrants at March 31, 2011 and derived a value of $62,910 using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.02; historical stock price volatility: 127.04%; risk-free interest rate: 2.24%; term (years): 4.84; and expected dividend rate: 0%.  The Company valued the Class A Warrants at June 30, 2011 and derived a value of $27,034 using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.01; historical stock price volatility: 131.09%; risk-free interest rate: 1.76%; term (years): 4.59; and expected dividend rate: 0%. For the six months ended June 30, 2011, the net adjustment to fair value resulted in a gain of $111,823 and is included in “gain on net change in fair value of derivative liabilities” on the accompanying consolidated statements of operations (see Note 2). |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | In connection with the February 2011 Notes private placement, the Company issued warrants to purchase 500,000 shares of common stock at $0.005 per share (the “Class B Warrants”) exercisable for a period of five years. The Class B Warrants provide for an adjustment of the exercise price in the event of certain issuances of the Company’s stock or stock-related instruments at prices lower than the exercise price, as defined in the February 2011 Subscription Agreement.  The adjustment would reduce the exercise price of the Class B Warrants to be equivalent to that of the newly issued stock or stock-related instruments.  As a result, the Company concluded that the Class B Warrants should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period.  As a result, the Company initially allocated $18,920 of February 2011 Notes proceeds to the Class B Warrants.  The fair value of the Class B Warrants was determined using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.05; historical stock price volatility: 124.75%; risk-free interest rate of 2.02%; term (years) 5.0; and expected dividend rate: 0%. The discount on the February 2011 Notes attributable to the Class B Warrants of $18,920 will be amortized to interest expense using the effective interest method through August 1, 2011.  The Company recorded a $5,109 loss at inception related to the Class B Warrants resulting from the allocation of the gross proceeds using the relative fair value method which was included in “gain on net change in fair value of derivative liabilities” on the accompanying consolidated statements of operations.  In addition, the Company issued the placement agent a Class B Warrant to purchase 400,000 shares of common stock at $0.005 per share exercisable for a period of five years.  The warrants were valued using the Black-Scholes option pricing model.  The estimated fair value of the warrants at the date of issuance was $19,223.  The Company capitalized $19,223 as debt issuance costs to be amortized them over the term of the notes.  The Company valued the Class B Warrants at March 31, 2011 and derived a value of $16,737 using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.02; historical stock price volatility: 127.04%; risk-free interest rate: 2.24%; term (years): 4.84; and expected dividend rate: 0%.  The Company valued the Class B Warrants at June 30, 2011 and derived a value of $4,469 using the Black-Scholes option-pricing model with the following assumptions: current share price: $0.01; historical stock price volatility: 131.09%; risk-free interest rate: 1.76%; term (years): 4.59; and expected dividend rate: 0%.  For the six months ended June 30, 2011, the net adjustment to fair value resulted in a gain of $26,230 and is included in “gain on net change in fair value of derivative liabilities” on the accompanying consolidated statements of operations (see Note 2). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The Company marked the February 2010 Private Placement anti-dilution obligation to market at March 31, 2011, using an estimate of the number of shares (211,541 shares) to be issued to all investors in the February 2010 Private Placement pursuant to the anti-dilution provisions times an estimated fair market value ($0.02), and derived a value of $4,230 resulting in a gain of $8,462 for the three months ended March 31, 2011 and is  included in “gain on net change in fair value of derivative liabilities” on the accompanying consolidated statements of operations.  The fair value of the embedded conversion features and common stock warrant liabilities is calculated using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility, and the remaining contractual term of the award. The risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the award. Expected dividend yield is projected at 0%, as the Company has not paid any dividends on its common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future. Expected volatility is based on the Company’s historical volatility. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (5) | The Company issued a promissory note ($40,000 principal amount) for settlement of 400,000 Class B warrants (see Notes 2 and 4). |
|-----|---------------------------------------------------------------------------------------------------------------------------------|

| (6) | The Company marked the February 2010 Private Placement anti-dilution obligation to market at June 30, 2011, using an estimate of the number of shares (211,541 shares) to be issued to all investors in the February 2010 Private Placement pursuant to the anti-dilution provisions times an estimated fair market value ($0.01), and derived a value of $2,115 resulting in a gain of $2,115 for the three months ended June 30, 2011 and is  included in “gain on net change in fair value of derivative liabilities” on the accompanying consolidated statements of operations.  The fair value of the embedded conversion features and common stock warrant liabilities is calculated using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility, and the remaining contractual term of the award. The risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the award. Expected dividend yield is projected at 0%, as the Company has not paid any dividends on its common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future. Expected volatility is based on the Company’s historical volatility. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The conversion price was modified from $0.14 to $0.005 per share for $75,000 of the principal and interest outstanding; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

----

|   | § | The conversion price was modified from $0.14 to $0.0075 per share for $80,000 of the principal and interest outstanding. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | § | Stock price at February 1, 2011, effective date of the modification: $0.05; |
|--------|--------|-----------------------------------------------------------------------------|

|   | § | Conversion rate: $0.14 per share v. $0.005 per share and $0.0075 per share; |
|--------|--------|-----------------------------------------------------------------------------|

|   | § | Term: 0.83 years to maturity; |
|--------|--------|-------------------------------|

|   | § | Volatility: 125.0% (based on historical values); and |
|--------|--------|------------------------------------------------------|

|   | § | Risk free interest rate: 0.27% |
|--------|--------|--------------------------------|

----

----

----

----

----

----

| Year ended December 31, |    | Amount Due |    |
|----------------------------------------|--------------|-----------------|--------------|
|                                   |         |            |         |
| 2011                                   |         | $               | -            |   |
| 2012                                   |         |            | 2,000,000    |   |
| 2013                                   |         |            | 1,000,000    |   |
| 2014                                   |         |            | 1,000,000    |   |
|                                   |         |            | 4,000,000    |   |
| Unamortized debt discount              |         |            | (456,670     | ) |
|                                   |         | $               | 3,543,330    |   |

|                 |   | AmountsSettled |   |   | Paymentsin Cash |   |   | PaymentsRemaining |   |   | Gainon Settlementof Trade Payables |   |
|----------------------|--------|----------------|--------|--------|----------------------|--------|--------|-------------------|--------|--------|---------------------------------------------------|--------|
|                 |   |           |   |   |                 |   |   |              |   |   |                                              |   |
| Other trade payables |   | $              | 38,983 |   |                 | $      | (9,000 | )                 |   | $      | (10,000                                           | )      |   | $ | 19,983 |   |
| Total                |   | $              | 38,983 |   |                 | $      | (9,000 | )                 |   | $      | (10,000                                           | )      |   | $ | 19,983 |   |

|                                      |   | June 30, 2011 |    |   | December 31, 2010 |   |
|-------------------------------------------|--------|-------------------------|---------|--------|-----------------------------|--------|
| Prepaid consulting fees                   |   | $                       | 82,750  |   |                        | $      | 815,750 |   |
| Other prepaid expenses and current assets |   |                    | 37,053  |   |                        |   | 88,504 |   |
|                                      |   |                    |    |   |                        |   |   |   |
| Total                                     |   | $                       | 119,803 |   |                        | $      | 904,254 |   |

----

----

|   | · | Immediate Strategic Actions. We are focused on the following priorities: obtaining proper financing through strategic partners; commercialization of our pyrolysis oil based technology; optimization of manufacturing capabilities. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Strategic Partners.  We are seeking arrangements with strategic partners that would provide funding and support our efforts to develop our production capacity and attract customers. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Direct Sales. We are seeking to develop a revenue stream from direct sales of our biofuel produced at our Baltimore production facility. Based on existing contracts with our customers, we are seeking to expand our facility over the next several months if sufficient resources are available. Our longer term strategy includes construction of additional plants. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Technology Licensing. As a second potential revenue stream, our business plan contemplates collecting royalties through sublicensing our proprietary technology where it is more efficient for manufacturers to produce our biofuel at their own plants rather than requiring production at our facilities. We are in the process of exploring various technology licensing relationships. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Government Tax Credits. We are also pursuing our eligibility and qualification for tax credits and other government incentives to strengthen the competitive position of our biofuel and to otherwise attempt to take advantage of the U.S. government’s encouragement of “green” technologies. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Research and Development. To the extent permitted by our limited resources, we are developing our technology to extend it to fuels with additional applications. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | On August 10, 2011, the Company entered into a Second Amendment Agreement (the “Amendment”) with Alpha, which amended that certain Subscription Agreement. Pursuant to the Amendment, the Company and Alpha agreed to terminate the remaining investment obligations under the First Amendment and Alpha agreed to provide $50,000 to the Company on the same terms as the Subscription Agreement, which it did on August 11, 2011 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On July 28, 2011, the Company notified Alpha Capital Anstalt (“Alpha”) that it would be unable to meet August 1, 2011 repayment obligation under the terms of that certain February 1, 2011 Subscription Agreement, as amended February 28, 2011, and June 7, 2011 (the “Subscription Agreement”) by and among the Company and four (4) investors (of which Alpha was one)  and further that the financing terms established in the Subscription Agreement were no longer adequate to properly capitalize the Company.  The Company further asked Alpha to consider alternative financing arrangements that would adequately capitalize the Company. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On July 1, 2011, certain provisions of the June 2011 Amendment were triggered as a result of the Company's inability to secure at least $500,000 pursuant to an additional investment into the Company. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On July 1, 2011, the Company received additional financing pursuant to an Amendment and Consent Agreement dated June 7, 2011 (The “Amended and Consent Agreement”). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On June 7, 2011, the Company entered into an Amendment and Consent Agreement which amended that certain Subscription Agreement by and among the Company and four (4) investors dated February 1, 2011, as amended February 28, 2011. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On June 7, 2011, the Company issued Alpha a senior secured convertible note with a principal amount of $100,000 in connection with the June Installment. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On May 17, 2011, the Company entered into an additional Allonge with Alpha, pursuant to which the Company and Alpha increased the principal amount of the Alpha Note between the Company and Alpha by $50,000. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On April 15, 2011, the Company entered into an Allonge with Alpha, pursuant to which the Company and Alpha increased the principal amount of the Alpha Note between the Company and Alpha by $100,000. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | On April 15, 2011, the Company executed a Confidential Settlement Agreement and Mutual Release (the “Settlement Agreement”) with Miles Mahoney, the Company’s former President and Chief Executive Officer, which, among other things, provides for the mutual release of each party. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | a $0.3 million decrease in cost of product revenues. |
|--------|--------|------------------------------------------------------|

|   | · | a $1.2 million decrease in general and administrative expenses |
|--------|--------|----------------------------------------------------------------|

|   | · | a $0.4 million increase in research and development expenses. |
|--------|--------|---------------------------------------------------------------|

|   | · | a $0.2 million decrease in non cash compensation expense. |
|--------|--------|-----------------------------------------------------------|

|   | · | a $0.1 million decrease in business travel expenses.  This is primarily the result of reduced headcount, reduction in production related travel and managing travel plans due to financial constraints. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a $0.2 million decrease in wage expenses and related service fees. |
|--------|--------|--------------------------------------------------------------------|

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|   | · | a $0.2 million decrease in severance pay expenses. |
|--------|--------|----------------------------------------------------|

|   | · | a $0.1 million decrease in consulting fees and shareholder services |
|--------|--------|---------------------------------------------------------------------|

|   | · | a $0.1 million decrease in board fees. |
|--------|--------|----------------------------------------|

|   | · | a $0.3 million decrease in legal fees. |
|--------|--------|----------------------------------------|

|   | · | a $0.6 million decrease in cost of product revenues. |
|--------|--------|------------------------------------------------------|

|   | · | a $0.2  million decrease in gain on extinguishment of license agreement payable. |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | a $2.1 million decrease in general and administrative expenses |
|--------|--------|----------------------------------------------------------------|

|   | · | a $0.4 million increase in research and development expenses. |
|--------|--------|---------------------------------------------------------------|

|   | · | a $0.1 million increase in interest expense. |
|--------|--------|----------------------------------------------|

|   | · | a $0.4 million increase in loss on conversion of debt. |
|--------|--------|--------------------------------------------------------|

|   | · | a $0.1 million increase in loss on extinguishment of convertible debt. |
|--------|--------|------------------------------------------------------------------------|

|   | · | a $0.2 million increase in gain (loss) on net change in fair value adjustment. |
|--------|--------|--------------------------------------------------------------------------------|

----

|   | · | a $0.5 million decrease in non cash compensation expense. |
|--------|--------|-----------------------------------------------------------|

|   | · | a $0.1 million decrease in non cash compensation expense related to warrants for non-employees. |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | a $0.1 million decrease in business travel expenses.  This is primarily the result of reduced headcount, reduction in production related travel and managing travel plans due to financial constraints. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a $0.2 million decrease in bonus expenses.  During the six months ended June 30, 2010 we recorded Retention Bonuses for all employees.  No similar bonus was earned or recorded during the six months ended June 30, 2011. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a $0.4 million decrease in wage expenses and related service fees. |
|--------|--------|--------------------------------------------------------------------|

|   | · | a $0.2 million decrease in severance pay expenses. |
|--------|--------|----------------------------------------------------|

|   | · | a $0.1 million decrease in recruiting fees.  During the six months ended June 30, 2010 a $75,000 fee was recorded related to the hiring of our new CFO.  No similar expenses were incurred during the six months ended June 30, 2011. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a $0.1 million decrease in consulting fees. |
|--------|--------|---------------------------------------------|

----

|   | · | a $0.1 million decrease in accounting and audit fees. |
|--------|--------|-------------------------------------------------------|

|   | · | a $0.1 million decrease in investor relations and shareholder service expenses. |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | a $0.1 million decrease in board fees. |
|--------|--------|----------------------------------------|

|   | · | a $0.5 million decrease in legal fees.   . |
|--------|--------|-----------------------------------------------------------|

|   | · | a $0.4 million increase in non cash compensation expense  for a restricted stock which can mostly be attributed to $398,000 in expenses incurred in connection with stock issued to consultants for services to be provided over a period ranging over either 6 or 12 months.  Additionally, the result of changes in the employee restricted stock recorded for the current quarter resulted from individuals who left the company in 2010 and either forfeited their stock or had the expenses accelerated as part of a severance agreement. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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|   | · | the level of cash flows from product sales or sublicensing; |
|--------|--------|-------------------------------------------------------------|

|   | · | conducting additional testing with utilities, independent power producers, commercial boiler operators or others, including product application testing, to gain market acceptance of our biofuel among customers and equipment manufacturers; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | maintaining and improving our production facility in Baltimore, Maryland under our terminal lease agreement with Pennington Partners, LLC or with others to supply our products initially for testing and eventually for the broader biofuels market; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the scope and results of our research and development efforts; |
|--------|--------|----------------------------------------------------------------|

|   | · | developing and executing a sales and marketing plan for the commercial and industrial heating fuel and related segments and a technology plan that complements the marketing plan; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | entering into feedstock supply and transportation logistics agreements to supply our production facilities; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | developing additional strategic relationships to attract potential customers and sublicensees and to obtain the capital commitments necessary to engineer, construct and operate biofuel plants in our exclusive territory; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | continuing to pursue favorable tax incentives for our biofuel, particularly efforts to include our biofuel in the $1 per gallon and $0.50 credit afforded biodiesel and to have the benefit of such a change extend beyond the current expiration date of December 31, 2011 and to pursue obtaining EPA approval; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | recruiting additional key employees to expand the capabilities of our existing management team; and |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | the costs of maintaining, expanding and protecting our intellectual property portfolio, including litigation costs and liabilities. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|

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----

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| Exhibit No. |         | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.1              |         | Amended and Restated Bylaws                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.1              |         | First Amendment and Consent Agreement dated June 7, 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.2              |         | Allonge to Secured Convertible Promissory Notes dated June 7, 2011, issued to Alpha Capital Anstalt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.3              |         | Amended and Restated Secured Convertible Promissory Note dated June 7, 2011,  issued to Alpha Capital Anstalt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.4              |         | Class A Warrant dated June 7, 2011,  issued to Alpha Capital Anstalt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.5              |         | Class B Warrant dated June 7, 2011,  issued to Alpha Capital Anstalt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.6              |         | Promissory Note dated June 7, 2011, issued to Palladium Capital Advisors, LLC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.7              |         | Second Convertible Promissory Note dated July 1, 2011, issued to Alpha Capital Anstalt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.8              |         | Class A Warrant dated July 1, 2011,  issued to Alpha Capital Anstalt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.9              |         | Class B Warrant dated July 1, 2011,  issued to Alpha Capital Anstalt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.10             |         | Promissory Note dated July 1, 2011, issued to Palladium Capital Advisors, LLC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.11             |         | Second Amendment Agreement dated August 4, 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 31.1             |         | Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 31.2             |         | Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 32.1             |         | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 32.2             |    | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|             |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 101              |         | The following materials from New Generation Biofuels Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets for the three and six months ended June 30, 2011 and 2010; (ii) Consolidated Statements of Operations for the six months ended June 30, 2011 and 2010; (iii) Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2011 and 2010; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010; and (v) Notes to Consolidated Financial Statements * *Pursuant to Rule 406T of Regulation S-T, the Interactive Data File on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |

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|                  | New Generation Biofuels Holdings, Inc. |
|-----------------------|----------------------------------------|
|                  |                                   |
| Date: August 15, 2011 | By:                                    | /s/ David H. Goebel, Jr. |
|                  |                                   | David H. Goebel, Jr. |
|                  |                                   | Interim Principal Executive Officer and Chief Operating |
|                  |                                   | Officer |
|                  |                                   | (principal executive officer) |
|                  |                                   |
|                  | By:                                    | /s/ Dane R. Saglio |
|                  |                                   | Dane R. Saglio |
|                  |                                   | Chief Financial Officer |
|                  |                                   | (principal financial officer and principal accounting officer) |

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