ENVIRONMENTAL SOLUTIONS WORLDWIDE INC - FORM 10-K

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EX-32.2 - ENVIRONMENTAL SOLUTIONS WORLDWIDE INC	exh32-2.txt
EX-31.1 - ENVIRONMENTAL SOLUTIONS WORLDWIDE INC	exh31-1.txt
EX-31.2 - ENVIRONMENTAL SOLUTIONS WORLDWIDE INC	exh31-2.txt
EX-32.1 - ENVIRONMENTAL SOLUTIONS WORLDWIDE INC	exh32-1.txt

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended - December 31, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 000-30392

ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
(Exact name of Company as specified in its charter)

Florida 13-4172059
------------------------------ ------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)

335 Connie Crescent
Concord Ontario Canada L4K 5R2
(Address of principal executive offices, including postal code.)

(905) 695-4142
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT:

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:

COMMON STOCK, $0.001 PAR VALUE
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES [ ] NO [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES [ ] NO [X]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the Registrant was required
to submit and post such files). Yes [ ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $29,926,784 as of June 30,
2010 based upon the closing sale price reported for such date. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates of the registrant.

There were 129,463,767 shares of the registrant's Common Stock outstanding as of
March 31, 2011.

INDEX PAGE NO.

PART I
ITEM 1 Business 3
ITEM 1A Risk Factors 14
ITEM 1B Unresolved Staff Comments 22
ITEM 2 Properties 22
ITEM 3 Legal Proceedings 22
ITEM 4 Removed and reserved 22

PART II

ITEM 5 Market for Registrants Common Equity and Related
Stockholder Matters and Issuer Purchases of
Equity Securities 23
ITEM 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 25
ITEM 7A Quantitative And Qualitative Disclosures About
Market Risk 49
ITEM 8 Financial Statements and Supplemental Data F-1 thru F-34
ITEM 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 51
ITEM 9A Controls and Procedures 51
ITEM 9B Other Information 53

PART III

ITEM 10 Directors, Executive Officers and Corporate Governance 57
ITEM 11 Executive Compensation 65
ITEM 12 Security Ownership of Certain Beneficial Owners and
Management And Related Stockholder Matters 73
ITEM 13 Certain Relationships and Related Transactions and
Director Independence 78
ITEM 14 Principal Accountant Fees and Services 80

PART IV

ITEM 15 Exhibits and Financial Statement Schedule 81

Signatures 81

PART I

This Form 10-K contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the Company.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release any modifications or revisions to these
forward-looking statements to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events. In
connection with the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, the Company cautions investors that actual financial and
operating results may differ materially from those projected in forward-looking
statements made by, or on behalf of, the Company. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance, or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements.

The words "anticipate," "believe," "estimate," "expect," "intend," "will,"
"should," "may," "plan," and similar expressions, as they relate to
Environmental Solutions Worldwide Inc., ("ESW" or the "Company") or ESW's
management, are intended to identify forward-looking statements. Such statements
reflect ESW's current views of the Company with respect to future events and are
subject to certain risks, uncertainties, and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, intended, or planned. ESW assumes no
obligations and does not intend to update these forward-looking statements.

Readers are also urged to carefully review and consider the various disclosures
made by ESW which attempts to advise interested parties of the factors that
affect ESW's business, including without limitation the disclosures made under
the caption "Management's Discussion and Analysis" and under the caption "Risk
Factors" included herein.

ITEM 1. BUSINESS

GENERAL

Environmental Solutions Worldwide, Inc. ("ESW", "ESW Group" or the "Company") is
a publicly traded Florida corporation formed in 1987 in the State of Florida as
BBC Stock Market, Inc. ("BBC") as a development stage enterprise. BBC
subsequently changed its name to Environmental Solutions Worldwide, Inc.

ESW is engaged through its wholly owned subsidiaries in the design, development,
manufacturing and sales of environmental technologies and emission testing
service. ESW is currently focused on the international medium duty and heavy
duty diesel engine market for on-road and off-road vehicles as well as the
utility engine, mining, marine, locomotive and military industries. ESW also
offers engine and after treatment emissions verification testing and
certification services.

ESW's common stock is currently quoted on the OTCQB, which is part of the OTC
Market Group's quotation system under the symbol (ESWW). ESW's common stock is
also quoted on the Frankfurt Stock Exchange (FWB), under the symbol (EOW).

The "ESW Group" trade name is being used to identify the Company's potential
participation in business opportunities outside its traditional focus of engine
emissions controls.

ESW operates through three wholly owned subsidiaries:

o ESW America Inc. (a Delaware corporation) is ESW's technical, research and
development division. ESW America houses ESW's engine emissions testing
laboratory and certification services known under the trade name "Air Testing
Services(TM)" ("ATS") recognized by the Environmental Protection Agency (EPA),
California Air Resources Board ("CARB") and the Mine Safety and Health
Administration ("MSHA") as capable of performing engine emissions verification
test protocols. ESW America's capabilities include certification and
verification of internal combustion and compression engines ranging from 5 to
600 horsepower as well as vehicle chassis testing capabilities up to 1000
horsepower. ESW America is a fully compliant ISO 9001:2008 certified
manufacturing and laboratory testing facility.

o ESW Canada Inc. (an Ontario corporation) serves as a fabrication and substrate
manufacturing facility, as well as houses ESW Group's sales division, managing
all sales and marketing as well as the research and development activities for
ESW's catalytic product lines. ESW Canada is a fully compliant ISO 9001:2008
certified manufacturing facility.

o ESW Technologies Inc. (a Delaware corporation) holds ESW's intellectual
property, and/or rights to the same.

ESW is a developer of diesel emissions technology solutions, advancing emissions
reduction technology by commercializing leading edge proprietary catalytic
emission conversion, control and support products and technologies. ESW's key
technologies and products are detailed below and are believed to be responsive
to more stringent global emissions regulations being implemented. Among the key
products are ESW's Therma Cat(TM), Xtrm Cat(TM) and Clean Cat(TM) diesel
emissions control technologies. ESW also manufactures a line of military
technologies including the Stlth Cat(TM) and Scat-IR-Shield(TM) exhaust
shielding technology currently employed on US Marine Light Armored Vehicles.

ESW is currently focused on the retrofit opportunities available in North
America. ESW has successfully expanded coverage of the North American market by
growing its distributor network from 18 distributors in 2009 to 36 by year end
2010. ESW's current distributor base allows the Company to position its
technologies in key markets spanning from California to New York. ESW continues
to focus on growing its "share of wallet" within its existing distributor base,
as well as expanding its distributor network across North America, and will
opportunistically expand into markets outside of North America if deemed to be
financially accretive in the short term to the Company.

INDUSTRY TRENDS

Emissions regulations for mobile diesel engines in the major markets of North
America, Europe and Asia have continued to tighten and are now 40% to 90% lower
than previous regulations. Regulations in effect in the United States of
America, Europe and in Asia are expected to reduce the emissions level for new
mobile diesel engines from 85% to 99% of the levels mandated in the mid-1980s.
While much of the regulatory pressure and resulting action from engine
manufacturers has focused on reducing emissions from new engines, there is
increasing focus and concern over pollution from existing diesel engines, many
of which have 20- to 30-year life cycles. The EPA has estimated that in the U.S.
alone there are approximately 11 million diesel powered vehicles which need to
be retrofitted over the next ten years. ESW's future performance and growth at
the present time is directly related to this trend within the global market.

In the U.S., the EPA, CARB and MSHA continue to place great emphasis on
compliance with emission reduction standards. The identification of diesel
particulate matter ("PM") as a toxic air contaminant in 1998 led the CARB to
adopt the Risk Reduction Plan to Reduce Particulate Matter Emissions from
Diesel-fueled Engines and Vehicles (Plan) in September 2000.

The cost of meeting emission regulations, retrofit and replacement projects in
the U.S. is estimated to be approximately $7.0 billion dollars as published in
the National Clean Diesel Campaign Fact Sheet (Source EPA's National Clean
Diesel Campaign Fact Sheet). CARB estimates retrofits and engine replacements
for approximately 420,000 trucks and buses registered in California as well as
those transiting California roadways from other states and countries. As of
today, sixteen U.S. states have committed to voluntarily adopt California's
stricter regulations to control greenhouse gas emissions.

Over the last five years, the EPA has brought forward a number of very
successful innovative programs all designed to reduce emissions from diesel
fleets. In conjunction with state and local governments, public interest groups
and industry partners, the EPA has established a goal of reducing emissions from
the over 11 million diesel engines in the existing fleets by 2014. The EPA
offers numerous programs in order to provide technical and financial assistance
to stakeholders interested in reducing their fleets' emissions effectively and
efficiently.

The Diesel Emissions Reduction Program (known as "DERA") was created under the
Energy Policy Act of 2005. This gave the EPA new grant and loan authority for
promoting diesel emission reductions and authorized appropriations to the EPA of
up to $200 million per year for fiscal years 2007 through 2011. In addition,
$300 million was appropriated under the American Reinvestment and Recovery Act
of 2009 and $120 million was appropriated for 2009-2010. In January 2011, the US
government successfully reauthorized the DERA for five more years. This will
continue the legislation's important environmental and economic benefits for the
US. Passage of the DERA reauthorization will play a major role in the U.S.'s
effort to expand clean air initiatives. In its first five years, DERA has proven
to be one of the nation's most successful clean air programs. In addition, DERA
has provided an average of $20 worth of environmental and health benefits for
every $1 spent.

The EPA and CARB programs are accelerating the activities toward creation of
active markets for diesel emissions reduction technologies and products in the
U.S. These markets include retrofit applications in on- and off-road segments,
as well as for stationary power generation and marine and rail applications.
Thus, the market for diesel emissions reduction technologies and products is
still emerging. We expect growing demand for diesel emissions reduction
technologies and products for the diesel engine market, owners of existing
fleets of diesel-powered vehicles, and expanding requirements from the off-road,
marine and railroad sectors. It is an essential requirement of the U.S. retrofit
market that emissions control products and systems are verified under the EPA
and/or CARB protocols to qualify for credits within the EPA and/or CARB
programs. Funding for these emissions control products and systems is generally
limited to those products and technologies that have already been verified. As
of the date of this report, ESW has CARB Level III + product verifications which
provide an advantage in attracting customers with access to governmental funding
for retrofit programs.

BUSINESS STRATEGY

ESW's focus is to be a leading player in the environmental emissions market by
providing leading-edge catalyst technology as well as best-in-class engine and
vehicle emissions testing services. The Company's strategy is centered on
identifying and deploying resources against its "sweet-spot" products, where ESW
has identified its core competencies and differentiation in the marketplace.
ESW's core geography focus is North America, and will opportunistically explore
business development opportunities in other markets if accretive to the Company
in the short term. By focusing financial, human and intellectual capital on
ESW's core competencies and markets, the Company is targeting profitable growth
in the short term and value creation for its shareholders over the long term.

ESW is executing on the following items to succeed in its business strategy:

o Increase the revenue and margin opportunities from its catalyst product line
by identifying and focusing resources on its "sweet spots".

o Expand its North American distribution network and increase its "share of
wallet" with the funding agencies.

o Seek complimentary partnerships that provide growth opportunities for its core
businesses.

o Invest in new product and process technologies to broaden its array of
products available to distributors and end-users.

o Act as a trusted emissions solution provider to regulators and clients

o Capitalize on ESW America's unique geographical presence and EPA/CARB's
recognition for performing engine emissions verification test protocols to
provide value-added services in the testing verification /certification for ESW
as well as third party products.

o Implement a continuous improvement and performance based culture, focused on
identifying product design improvements, streamlining processes and optimizing
manufacturing capabilities.

o Focus on delivering exceptional product quality and customer service.

PRINCIPAL PRODUCTS AND THEIR MARKETS:

ESW's woven stainless steel wire mesh catalytic converter substrate forms the
basis of ESW's product lines. This key component can be produced in almost any
size and shape. The wire mesh substrate creates a turbulent environment, which
increases catalytic activity, and when manufactured for diesel applications, is
designed to serve as a partial filter of PM, an important factor in diesel
emission control. ESW's manufacturing process and chemical wash coat formula is
proprietary.

XTRM CAT(TM) is an innovative proprietary diesel oxidation catalyst designed for
Electro Motive Diesel (EMD) turbocharged and roots blown engine systems. The
outstanding durability and flexible characteristics enable the Xtrm Cat(TM) to
perform within the extreme operating conditions of locomotive and marine two
stroke diesel engine applications. The XTRM CAT(TM) is in the process of being
verified / certified with the US EPA or CARB. Xtrm Cat(TM) provides significant
reductions of PM, hydro carbons ("HC"), and carbon monoxide ("CO"), which may
allow EMD engines to be rebuilt to the stringent EPA standards of today and to
meet the evolving standards of the future.

THERMA CAT(TM) Active Diesel Particulate Filter is an advanced Level III+
technology that provides the flexibility and pre-retrofit usability that makes
the Therma Cat(TM) a seamless retrofit device for its end users. Other competing
retrofit technologies either limit the vehicles' use or required driver
interaction and limit the vehicles' availability during regular or multi-shift
operations. These competing solutions increase costs in manpower and vehicle
management that add to the retrofit devices initial purchase price. The Therma
Cat(TM) is designed to address these issues with the introduction of an
exothermic based (flameless technology) that utilizes the vehicle's existing
fuel supply to supplement and raise the exhaust heat so that the Diesel
Particulate Filter can regenerate and continue normal operations. The system
operates in the background, transparent to the vehicle operator and does not
impact the vehicle's normal operations. ESW took comprehensive steps to ensure
the safe operation of the Therma Cat(TM) that included meeting Federal Motor
Vehicle Safety Standards 301S for fuel system integrity for School Buses through
school bus crash tests that ensures the integrity of the fuel system
incorporated in the Therma Cat(TM) system. ESW also completed a 1,000 hour
vibration test that simulated a typical 100,000 mile life cycle on rural roads.
ESW's Therma Cat(TM) Active Level III+ catalyst system has obtained CARB
verification for a variety of on- and off-road engine applications.

CLEAN CAT XP(TM) is proven to be effective in achieving significant reductions
in particulate matter emissions, while simultaneously reducing CO and HC. The
unit is designed to be installed as a muffler replacement after the
turbocharger. The unit has broad engine coverage on four-stroke diesel engines
for on-road applications with engine horsepower ranges of 150-600 hp and meet
EPA Level II emissions requirements. The Clean Cat XP(TM) is designed to be
maintenance free, does not require ash cleaning and is designed to be taken
apart in event of engine malfunction. ESW is in the process of certifying /
verifying this product.

STLTH CAT(TM) unit construction incorporates the Company's proprietary catalyzed
wire mesh substrate integrated into an advanced sound abatement system. The
units were specifically engineered to decrease military vehicles and equipment's
overall tactical signature by reducing the diesel engines black smoke (soot),
eye and throat irritating noxious diesel engine emissions, temperature and
sound. The Stlth Cat(TM) is currently employed on US Military vehicles.

SCAT-IR-SHIELD(TM) is an innovative technology, operates in combination with the
Company's proprietary Stlth Cat(TM). The complete system is engineered to reduce
the overall heat/infrared, sound and exhaust signature of tactical military
vehicles and equipment.

AIR TESTING SERVICES(TM) ("ATS") is ESW America's (ESWA) Emissions and
Durability Testing Facility. ATS performs engine emissions verification test
protocols according to established EPA, CARB and MSHA standards, while providing
vehicle and engine manufacturers with a wide range engine and chassis
dynamometer-based durability testing. ATS has capabilities for providing testing
protocols with a broad range of fuels, including diesel, gasoline, and
alternative fuels. ATS Engine Dynamometer-based Durability Testing protocols can
also help develop custom accelerated aging test schedules for emissions control
technologies, or support customer-designed tests for component stress. A full
range of services is offered including emissions testing, compilation and
submission of applications, final issuance of the certifications, production
line, and audit testing. ATS offers customers complete testing and validation
services that includes complete project management and verification management.

ESW's objective is the development and commercialization of technologies to
reduce the overall emissions from diesel applications. Central to the emissions
reduction market is the certification, verification and registration process
established by regulatory bodies in the United States. The industry is
substantially driven by higher emissions reductions targets set by Federal and
state-level regulations, which led ESW to focus on the development of the Therma
Cat(TM) Level III Active Diesel Particulate Filter for on/off-road, medium and
heavy duty diesel engines and the Xtrm Cat(TM) Diesel Oxidation Catalyst for
marine and rail applications. ESW achieved the Therma Cat(TM) Level III Active
Diesel Particulate Filter development through verifications from CARB with
product development and testing conducted at ESW's Air Testing Services
division.

ESW's target markets include the following seven areas regulated in North
America by EPA, CARB, and other state and local standards:

1. On-road vehicle sector generally comprised of on-road trucks and school buses
employed with private and municipal fleets.

2. Off-road engine / vehicle sector defined as construction equipment, tractors,
power generators, irrigation pumps, stationary power and others.

3. Marine sector comprising of solutions for workboat applications such as tows,
ferries, dredges, tugs, and yachts, to generator sets on blue water vessels.

4. Rail sector comprising of solutions for line haul and switching, as well as
passenger rail locomotive and head end power systems.

5. Mining industry, including all equipment and vehicles operating in and around
a mine.

6. Military sector, including catalyst products and support technologies.

7. Engine and vehicle emissions testing services.

DISTRIBUTION

ESW distributes its catalyst technologies through:

1. A comprehensive network of established independent distributors that actively
service the retrofit market;

2. Strategic partnerships that provide a unique competitive advantage into
specific markets; and

3. Direct sales leveraging ESW's sales personnel, local trade magazines and
trade shows to complement distribution of its products into key markets.

Within the ATS business, ESW is currently focused on a direct sales program
targeting Original Equipment Manufacturers ("OEM") and other companies demanding
engine and vehicle emissions testing services.

COMPETITION

ESW sells into a competitive market focused on providing retrofit solutions for
diesel powered engines, with the number of competitors varying by market
segment. ESW competes primarily on the basis of technology, performance, price,
quality, reliability, distribution, customer service, and support. ESW's
competitors include companies that have deeper financial, technological,
manufacturing and personnel resources. Other than other Level III+, marine and
rail products that are available in the marketplace, ESW faces competition from
substitute products that offer lower emissions reduction benefits but are also
more competitively priced and are deemed by the ultimate users as acceptable
alternatives to ESW's products and services.

ESW's direct competitors in the North American on-road, off-road, and mining
markets include Engine Control Systems, Donaldson, DCL, Huss and Cleaire.

ESW's marine and rail products compete in the engine rebuild sector with low oil
consumption kits provided by manufacturers such as EMD and other DOC technology
providers such as Miratech.

ESW America faces competition from established emissions and durability testing
facilities such as South West Research Institute and TRC and smaller facilities
such as Olson-Eco Logic and California Environmental Engineering.

ESW believes it can address the competitive landscape within the catalyst
emissions market by providing:

o Unique Substrate Technology - ESW's proprietary wire mesh substrate is very
flexible in design, size, performance and overall product configuration. The
high mechanical and thermally durable wire mesh technology is suitable for
Diesel Oxidation Catalyst applications. The technology is cost effective and can
be applied to almost any application. Traditional ceramic or metal based
flow-through type technologies are typically less efficient, larger in size, and
are only available in pre-configured sizes and designs.

o Leading edge products that are designed to have operational and technical
advantages over the competition and are priced aggressively in the market. The
Therma Cat(TM) is an example of a product that offers technical and operational
advantages over competing products.

o Solution driven services - ESW does not only offer an emission control
technology, but also provides a variety of tailored engineering solutions,
extensive on-site and remote installation training programs, as well as project
management services.

o Air Testing Services(TM) - ESW America's CARB and EPA recognized facility
provides the Company with the unique ability to develop and verify new catalyst
technologies developed by the Company. ESWA allows the Company to quickly react
to changing regulatory requirements, as well as offer the trusted emissions
results to ESW and external clients that comply with strict CARB and EPA testing
standards.

ESW America differentiates itself from the competition in the air and durability
testing market by continually updating its testing facilities and equipment in
response to changing regulatory mandates and vehicle technology. ATS also
provides a broad set of capabilities for advanced research, engineering and
testing for various aftermarket products and new technologies. In addition, ESW
America is one of a small number of CARB and EPA recognized testing facilities
located on the east coast of the United States, which provides a logistical
advantage for clients focused on this geographical coverage.

RAW MATERIALS

The primary raw materials used to manufacture ESW catalyst products include, but
is not limited to stainless steel, stainless steel wire, stainless steel tubing,
precious metals such as platinum and palladium, particulate filters and other
electronic and mechanical components. In 2010 ESW has built up inventories of
raw materials that are subject to long lead times.

Overall, raw steel, steel mesh, particulate filters and precious metal coated
components accounted for the most significant component of ESW's raw materials
costs in 2010. ESW does spot-buys of steel products from suppliers to meet
customer demand. ESW is exposed to fluctuating raw material prices, and is
particularly exposed to certain precious metal such as platinum which has had a
run-up in prices in 2010. ESW seeks to offset raw material price fluctuations on
its result of operations by passing through certain price increases, negotiating
volume discounts from raw material suppliers; purchasing high-value inventory
components based on committed orders; scrapping and selling steel cut-offs at
the highest possible price; and implementing continuous cost reduction programs.
ESW does not currently pursue a financial hedging strategy for any of its raw
materials; however this approach could be reviewed in the future subject to
precious metals pricing volatility. ESW's results of operations could be
adversely affected if steel and precious metal prices increase substantially
unless the Company is successful in passing along these price increases to
customers or otherwise offset these in material and/or operating costs.

Other raw materials or components purchased by ESW include electronic
components, tools, fasteners, other steel and components for the Level III plus
Therma Cat (TM) product, as well as a variety of custom alloy materials and
chemicals, all of which are available from numerous suppliers. For Air Testing
Services (TM), key raw materials include fuels, rollers and other consumables.

CUSTOMERS

ESW's customers consist of established distributors focused in the emissions
space. ESW recorded sales from 30 distributors in 2010 as compared to 26
customers in fiscal year 2009. Three distributor / customers accounted for 21%,
19%, and 13% of revenues in 2010. In 2009 one customer accounted for 45 % and
two other customers accounted for 20% and 9% of ESW's revenue.

ESW will continue to establish long-term relationships with new customers and
foster greater opportunities with existing distributors. The loss of, or major
reduction in business from, one or more of the major distributors could have a
material adverse effect on ESW's liquidity, financial position, or results of
operations.

PATENT AND TRADEMARKS

ESW develops new technologies or furthers the development of existing
technologies through internal research and development. Where necessary, ESW
will seek access to third-party patents and/or licenses to develop new products
and services aimed at the emissions and air testing markets.

Through its wholly owned subsidiary ESW Technologies Inc., ESW holds both
Canadian and U.S. patents and pending applications covering the catalytic
converter and related technology. ESW's issued and pending patents are important
to the Company and ESW will pursue its legal rights to the fullest extent of the
law to ensure non-infringement of its established patents. However, there can be
no assurance that these patents, combined with pending patent applications or
existing or future trade secret protections that ESW pursues, will survive legal
challenge, or provide meaningful levels of protection.

Additionally, ESW possesses certain registered, pending and common law
trademarks. ESW considers the goodwill associated with the trademarks to be an
important part of developing product identity.

PRODUCT CERTIFICATION

ESW's customers have acquired, where necessary, engine certifications and
catalyst verifications using ESW products from such authorities as the EPA,
CARB, MSHA and ETV Canada for gasoline and diesel products. ESW was the first
catalytic substrate manufacturer and catalyst coating company in North America
to verify a metallic wire mesh substrate based catalytic converter system as a
gasoline retrofit replacement devices. ESW was the first catalytic substrate
manufacturer and catalyst coating company in the world to verify a metallic wire
mesh substrate based catalytic converter system as a passive stand alone Level
II diesel retrofit replacement device. This verification status was removed by
CARB effective January 2009 in light of EPA's 2009 regulated nitrogen dioxide
("NO2") limits.

CARB has established three primary technology levels for diesel catalyst
verifications.

LEVEL I: PM reduction greater than 25%
LEVEL II: PM reduction greater than 50%
LEVEL III: PM reduction greater than 85%

Effective January 1, 2009, the EPA has established a NO2 limit for diesel
retrofit technologies verified under the EPA's National Clean Diesel Campaign
("NCDC") Retrofit Technology Verification Program. The EPA implemented a NO2
increase limit that is harmonized with the requirements for retrofit
technologies by CARB. This requirement limits the increase in NO2 emissions
associated with retrofit technologies to levels no greater than 20% above
baseline engine levels.

ESW has completed an extensive research and development program to upgrade its
existing Level II diesel retrofit replacement device to meet the aforementioned
new regulations. ESW is pursuing the verification of a Level II device through
EPA or CARB. ESW has also completed the development for Level I technologies,
however at the present time has decided not to pursue the verification of this
technology.

In 2009 ESW's Therma Cat(TM) Active Level III Plus catalyst system was verified
by CARB for a variety of on- and off-road engine applications (PM reduction
greater than 85%). The Therma Cat(TM) filter system is a combined technology
comprised of a chemically coated wire mesh substrate and Diesel Particulate
Filter (DPF) combined with an electronically controlled external fuel injection
component. The Therma Cat(TM) regeneration process is an electronically
controlled exothermic reaction and occurs automatically during normal vehicle
operation, transparent to the operator.

In October 2008 ESW's Xtrm Cat(TM) product designed for Marine, 2-stroke, Tier 0
and Tier 1, turbocharged EMD 645 and 710 models was listed as an emerging
technology on the EPA's Emerging Technology List. In October 2009 the Emerging
Technology listing was extended for an additional year. In October 2010 this
listing expired. The Xtrm Cat(TM) product is ready for certification /
verification, ESW intends to complete this process in 2011.

ESW's products are generally sold according to appropriate government
application regulations; however, ESW does not necessarily need government
approval to sell its products into unregulated markets.

WARRANTY MATTERS

ESW may face an inherent business risk of exposure to product liability and
warranty claims in the event that its products fail to perform as expected. ESW
cannot assure that it will not experience any material warranty or product
liability losses in the future or that it will not incur significant costs to
defend such claims. In addition, if any of the products are or are alleged to be
defective; ESW may be required to participate in a recall involving such
products. Each of ESW's customers has its own policy regarding product recalls
and other product liability actions relating to its suppliers. CARB verified
products require ESW to provide specific warranties and warranty reporting on
products depending upon engine applications. A successful claim brought against
ESW or a requirement to participate in a product recall may have a material
adverse effect on ESW's business.

ESW's Therma Cat(TM) Active Level III Plus on-road catalyst system which has
been verified as a Level

III technology is typically required to meet CARB limited warranty standard of 5
years or 100,000 miles or 5 years or 150,000 miles, or 2 years unlimited miles
depending on engine application.

ESW's Therma Cat(TM) Active Level III Plus off-road catalyst system which has
been verified as a Level III technology is typically required to meet CARB
limited warranty standard of 5 years or 4,200 hours.

To date ESW has not had any major product warranty recalls.

MANUFACTURING AND TESTING SERVICES

ESW has made capital investments in manufacturing capability to support its
products. ESW's substrate manufacturing plant located in Concord, Ontario,
Canada enables ESW to control the complete fabrication and manufacturing process
of catalyzed substrates and catalytic converter systems. Catalyzed substrates
are the integral part of all catalytic converter systems sold worldwide. This
facility has the capability to design, develop and manufacture complete
catalytic converter systems based on specific customer requirements.

ESW has made significant capital investment in its Tech Center based in
Montgomeryville, Pennsylvania. ESW's emission testing laboratories and testing
capabilities are located there. The 40,200 square foot facility houses a
state-of-the-art emissions testing lab that is recognized as capable of
performing engine emissions verification test protocols by the EPA, CARB and
MSHA. ATS incorporates eight dedicated engine and vehicle dynamometer test
cells.

ATS's capabilities include:

o Engine dynamometer capacity from 5hp to 600hp, including both transient and
steady state testing.

o Chassis dynamometer testing, including light duty (up to 10,000lbs) and
medium/heavy duty (up to 50,000lbs).

o Full flow Constant Volume Sampling emission measurement system capability
across all test cells.

o All emission systems have dual Nitrogen Oxide Chemiluminescence detector and
non-methane hydrocarbon measurement capability.

o Engine dynamometer test cells comply with 40 Code of Federal Regulations (CFR)
Part 60, 86, 89, 90, 92, 1042, 1048 and CARB testing protocols.

o Test Cells are currently in transition to 40 CFR Part 1065.

ESW's manufacturing and testing facilities are subject to continuous investment
to ensure best-in-class capabilities to meet the challenges of a dynamic
marketplace, as well as the need for greater efficiencies, to improve quality
systems, and to meet the demands placed by changing regulations.

RESEARCH AND DEVELOPMENT

In 2010, research and development costs amounted to $ 783,944 (2009 - $930,548).
ESW aggressively pursues testing as well as research and development for new
products to serve potential customers and meet new regulations that are
regularly being imposed on the industry. Through proprietary methods for
improving ESW's catalyzed substrates, there are prospects for the development of
innovative applications outside of ESW's current verified product line. ESW
continues to spend further resources on new research and development projects.

ENVIRONMENTAL MATTERS

ESW is presently engaged in a business that does not generate significant
hazardous waste. ESW's facilities may have tanks for storage of diesel fuel and
other petroleum products that are subject to laws regulating such storage tanks.
Federal, state, and local provisions relating to the protection of the
environment have not had, and are not expected to have, a material adverse
effect on ESW's liquidity, financial position, and results of operations.
However, like all manufacturers, if a release of hazardous substances occurs,
ESW may be held liable for the contamination, and the amount of such liability
could be material. While ESW devotes resources designed to maintaining
compliance with these requirements, there can be no assurance that ESW operates
at all times in complete compliance with all such requirements.

EMPLOYEES

ESW and its subsidiaries presently employ 53 full-time employees. ESW does not
have any collective bargaining agreements and considers its relationship with
its employees to be good.

ITEM 1A. RISK FACTORS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report includes statements of our expectations, intentions, plans and
beliefs that constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and are intended to come within the safe harbour protection
provided by those sections. These statements, which involve risks and
uncertainties, relate to matters such as sales growth, price demand for our
products and services as well as competition, and our ability to obtain
additional financing should same be necessary to sustain our operations. We have
used words such as "may," "will," "should," "expects," "intends," "plans,"
"anticipates," "believes," "thinks," "estimates," "seeks," "predicts," "could,"
"projects," "potential" and other similar terms and phrases, including
references to assumptions, in this report to identify forward-looking
statements. These forward-looking statements are made based on expectations and
beliefs concerning future events affecting us and are subject to uncertainties,
risks and factors relating tour operations and business environments, all of
which are difficult to predict and many of which are beyond our control, that
could cause our actual results to differ materially from those matters expressed
or implied by these forward-looking statements. These risks and other factors
include those listed in this Item 1A. "Risk Factors" and elsewhere in this
report.

When considering these forward-looking statements, you should keep in mind the
cautionary statements in this report and the documents incorporated by
reference. New risks and uncertainties arise from time to time, and we cannot
predict those events or how they may affect us. There may also be other factors
that we cannot anticipate or that are not described in this report that could
cause results to differ materially from our expectations. Forward-looking
statements speak only as of the date they are made and we assume no obligation
to update them after the date of this report as a result of new information,
future events or subsequent developments, except as required by the federal
securities law.

IF CASH FLOWS FROM OPERATIONS ARE NOT SUFFICIENT AND IF ESW IS UNABLE TO OBTAIN
ADDITIONAL FUNDING THEN, ESW MAY HAVE TO SIGNIFICANTLY CURTAIL THE SCOPE OF ITS
OPERATIONS AND ALTER ITS BUSINESS MODEL.

ESW's sales are unpredictable in light of the highly competitive environment
that is focused on federal and state-level public budgets. In the event that
profitable operations are not achieved, ESW's present financial resources and
track record for raising capital should allow it to continue operations in the
short term. Should ESW receive a large order (defined by management as one in
which monthly production and deliveries would exceed $2 million), ESW will need
to either negotiate extremely favourable payment terms providing for at least
some advance payment or ESW will need to obtain either debt or equity financing
to allow it to meet its working capital needs. ESW has a credit facility that
provides working capital. However, ESW needs to be profitable and must meet
certain financial covenants and borrowing base limitations to utilize the
facility, as per the terms of the facility. The credit facility expires on March
31, 2011 and ESW is working on upgrading or renewing the facility with its
current and reviewing options with other senior lenders. The Company is
finalising the extension terms but in concept has obtained an extension to May
31, 2011 from its current senior lender. If additional financing is required and
not available when required, or is not available on acceptable terms, ESW may be
unable to continue its operations at current levels or satisfy the requirements
necessary to fill a large order. ESW continues to implement corrective actions
to minimize its operating losses. ESW would consider strategic opportunities,
including investments in ESW, or other acceptable transactions, to sustain its
operations. There can be no assurances that additional capital will be available
to ESW on acceptable terms, or at all.

ESW HAS INCURRED LOSSES IN THE PAST AND EXPECTS TO INCUR LOSSES IN THE FUTURE
SHOULD ITS BUSINESS PLAN NOT BE EFFECTIVE.

ESW has incurred losses in each year since its inception. ESW's net loss for the
fiscal year ended December 31, 2010 was $9,447,641 and accumulated deficit as
of December 31, 2010 was $43,971,021. As ESW's sales and revenue continue to be
unpredictable, and should ESW's current business plan not be effective, ESW
expects to experience additional periods with operating losses.

THE PRICE OF ESW'S SHARES MAY BE ADVERSELY AFFECTED BY THE PUBLIC SALE OF A
SIGNIFICANT NUMBER OF THE SHARES ELIGIBLE FOR FUTURE SALE.

Sales of a large amount of ESW's common stock in the public market could
materially adversely affect the market price of ESW's common stock. Such sales
may also inhibit ESW's ability to obtain future equity or equity-related
financing on acceptable terms. The issuance of additional shares could have a
significant adverse effect on the trading price of ESW's common stock.

RISKS RELATED TO THE MARKET FOR ESW'S COMMON STOCK

THE PRICE OF ESW'S COMMON STOCK HAS BEEN HIGHLY VOLATILE.

ESW's common stock has traded as low as $0.16 per share and as high as $0.86 per
share in the twelve (12) months ended December 31, 2010. Some of the factors
leading to the volatility include:

o price and volume fluctuation in the stock market at large and market
conditions which are not necessarily related to ESW operating performance;

o fluctuation in ESW's operating results;

o concerns about ESW's ability to finance continuing operations;

o financing arrangements which may require the issuance of a significant number
of shares in relation to the number shares of ESW's common stock currently
outstanding;

o announcements of agreements, technological innovations, certification /
verifications or new products which ESW or its competitors make;

o costs and availability of precious metals used in the production of ESW's
products; and

o Fluctuations in market demand and supply of ESW products.

ESW'S COMMON STOCK IS CURRENTLY TRADED ON THE OTC MARKETS - OTCQB TIER AND THE
FRANKFURT EXCHANGE AND AN INVESTOR'S ABILITY TO TRADE ESW'S COMMON STOCK MAY BE
LIMITED BY TRADING VOLUME.

The trading volume in ESW's common stock has been relatively limited. A
consistently active trading market for ESW's common stock may not continue on
the OTC Markets or the Frankfurt Stock Exchange. The average daily trading
volume of ESW common stock for the year ended December 31, 2010 was
approximately 24,796 shares. ESW's common stock started trading on the Frankfurt
Exchange on March 16, 2007, ESW has a limited trading history and there can be
no assurances that there will be increased liquidity in ESW stock.

ESW's Board of Directors may explore alternative listings of its Common Stock if
deemed beneficial to ESW's shareholders. If ESW were to seek an alternative
listing of its Common Stock, it may incur significant expenditures beyond those
anticipated for general business operations. Disciplined expenditure decisions,
focused on investments made for maintaining high quality service, cost structure
improvement, and cash flow generation are essential.

ESW's stock was previously quoted on the OTCBB under the symbol (ESWW.OB). On
February 23, 2011, the Company's common stock was removed from the OTCBB
automated quotation system. The Company's common stock along with the securities
of over 600 other issuers were deleted from the OTCBB due to the quotation
inactivity by the Market Makers of the respective issuers affected under
Exchange Act Rule 15c2-11.

THE COMPANY MAY ISSUE MORE SHARES IN CONNECTION WITH A FINANCING, MERGER OR
ACQUISITION, WHICH WOULD RESULT IN SUBSTANTIAL DILUTION.

ESW's Certificate of Incorporation authorizes the issuance of a maximum of
250,000,000 shares of common stock. The Company has announced a rights offering
whereby up to approximately 54 million shares of common stock can be issued and
in the event shares are not subscribed to by a security holder other security
holders participating in the offering may over subscribe which in turn may cause
additional dilution to shareholders not participating. Any further financing,
merger or acquisition effected by ESW may result in the issuance of additional
securities without stockholder approval and may result in substantial dilution
in the percentage of ESW's common stock held by ESW's then existing
stockholders. Moreover, the common stock issued in any such financing, merger or
acquisition transaction may be valued on an arbitrary or non-arm's-length basis
by ESW management, resulting in an additional reduction in the percentage of
common stock held by ESW's then existing stockholders. ESW's Board of Directors
has the power to issue any or all of such authorized but unissued shares without
stockholder approval. To the extent that additional shares of common stock are
issued in connection with a financing, business combination or otherwise,
dilution to the interests of ESW's stockholders will occur and the rights of the
holders of common stock might be materially adversely affected.

SEVERAL OF ESW'S SHAREHOLDERS OWN A SIGNIFICANT AMOUNT OF ESW'S OUTSTANDING
SHARES AND COLLECTIVELY MAY BE ABLE TO DECIDE CERTAIN CORPORATE ACTION.

A group of ESW's shareholders and collectively own 66,134,887 shares which is
equivalent to 51.08% of the outstanding shares of the Company based upon the
Company's certified list of shareholders as of March 31, 2010 on an undiluted
basis. As such, all or some of these shareholders may be able to control aspects
of ESW's business operations including the election of board members, the
acquisition or disposition of assets, the Company's business plans / strategy
and the future issuance of shares. For additional information about beneficial
ownership please refer to ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Effective December 17, 2010, by written action and vote of holders representing
a majority of the outstanding shares of common stock of the Company, pursuant to
Title XXXVI, Chapter 607, Section 607.0704 of the Florida Statutes and the
Company's Bylaws, Mark Yung was elected as a member of the Board of Directors.
At the present time Mr. Yung has not been nominated to serve on any of the
Company's committees.

Effective January 25, 2011 by written action and vote of Sedam Limited, Bengt
Odner, Black Family 1997 Trust, Leon D. Black, Leon D. Black Trust UAD 11/30/92
FBO Joshua Black, Leon D. Black Trust UAD 11/30/92 FBO Benjamin Black, Leon D.
Black Trust UAD 11/30/92 FBO Alexander Black, Leon D. Black Trust UAD 11/30/92
FBO Victoria Black, John Hannan, Orchard Investments LLC and Richard Ressler
(the "Majority Shareholders") representing 66,134,887 shares of the Company's
common stock, a majority or 51.08% of the outstanding shares based upon the
Company's certified list of shareholders, pursuant to Title XXXVI, Chapter 607,
Section 607.0704 of the Florida Statutes and the Company's Bylaws, Article II
Section 5 of the Company's Bylaws was amended so that the Company shall have a
minimum of one (1) director but no more than eleven (11) directors. The
amendment to the Bylaws increases the maximum number of directors the Company is
permitted from seven (7) to eleven (11). Also by a vote of the Majority
Shareholders, each of the Company's existing directors: Nitin Amersey, Peter
Bloch, John Dunlap, III, Elbert O. Hand, David J. Johnson and Mark Yung were
re-elected as directors of the Company. Additionally, Benjamin Black, Joshua
Black, John Hannan, Zohar Loshitzer and John Suydam were elected by the Majority
Shareholders as members of the Board of Directors effective January 25, 2011. At
the present time Messrs Benjamin Black, Joshua Black, Hannan, Loshitzer, and
Suydam have not been nominated to serve on any of the Company's committees.

RISKS RELATED TO ESW'S BUSINESS

ESW'S RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND COMPETITIVE
FACTORS OVER WHICH ESW HAS LITTLE OR NO CONTROL.

The factors listed below some of which ESW cannot control may cause the
Company's revenues and result of operations to fluctuate significantly:

o Actions taken by regulatory bodies relating to the verification and
certification of ESW products.

o The extent to which ESW products obtain market acceptance.

o The timing and size of customer purchases.

o Customer and distributors concerns about the stability of ESW's business which
could cause them to seek alternatives to ESW products.

ESW IS CURRENTLY DEPENDENT ON A FEW MAJOR CUSTOMERS / DISTRIBUTORS FOR A
SIGNIFICANT PORTION OF ITS REVENUES.

ESW recorded sales from 30 customers / distributors in fiscal year 2010 as
compared to 26 in fiscal year 2009. Three of its distributors / customers
accounted for 21%, 19%, and 13% respectively of the Company's revenue in the
fiscal year 2010. Three of its customers accounted for 45%, 20%, and 9%,
respectively of the Company's revenue for the fiscal year 2009. ESW will
continue to establish long-term relationships with new customers and foster
greater opportunities with existing distributors. The loss of, or major
reduction in business from, one or more of the major distributors could have a
material adverse effect on ESW's liquidity, financial position, or results of
operations.

ESW DOES NOT HAVE A LONG HISTORY OF SELLING AND MARKETING ITS PRODUCTS.

At the current time, ESW has limited marketing capabilities as compared to many
of ESW's competitors. ESW does not have a large sales, promotion and marketing
budget. ESW is constrained by the lack of working capital and its ability to
raise the necessary cash flow from business operations to re-invest in its
marketing programs. As a result of ESW's limited marketing capabilities, it is
forced to rely upon customer / distributor referrals, trade publications and a
small sales force. ESW's competitors have direct advertising and sales promotion
programs for their products as well as sales and marketing personnel that may
have a competitive advantage over ESW in contacting prospective customers /
distributors. ESW's position in the industry is considered minor in comparison
to that of its competitors. ESW continues to develop and explore new marketing
methods and techniques such as, trade show representation and sales programs
directed toward customers / distributors. ESW's ability to compete at the
present time is limited. ESW's success depends upon the ability to market,
penetrate and expand markets and form alliances with third party distributors.

There can be no assurances that:

o ESW's selling efforts will be effective;

o ESW will obtain an expanded degree of market acceptance; or

o ESW will be able to successfully form additional relationships with
distributors to market its products.

ESW DEPENDS UPON THE MARKETABILITY OF ITS CORE PRODUCTS.

Catalytic converters are ESW's primary products. ESW may have to cease
operations if its primary products fail to achieve market acceptance and/or
generate significant revenues. Additionally, the marketability of ESW's products
is dependent upon obtaining and maintaining verification and certifications as
well as the effectiveness of the product in relation to various environmental
regulations as well as competitor's products in the various jurisdictions ESW
markets and sells its products.

ESW MAY NOT BE ABLE TO OBTAIN DIRECT OR INDIRECT REGULATORY CERTIFICATION OR
VERIFICATION APPROVALS WITH RESPECT TO CERTAIN PRODUCTS.

The industry that ESW operates in is regulated. In the United States of America
these regulations are enforced by U.S. Environmental Protection Agency ("EPA")
and California Air Resources Board ("CARB"). ESW plans to further develop and
market catalytic converter products and support technologies that meet new
regulations enforced by these agencies (see ITEM 1. BUSINESS, PRODUCT
CERTIFICATION for regulations). If ESW is unable to demonstrate the feasibility
of these products or obtain in a timely manner the verification and or
certifications for its products from such regulatory agencies as the EPA or
CARB, ESW may have to abandon the products or alter its business plan. Such
modifications to ESW's business plan will have an adverse effect on revenue and
its ability to achieve profitability. The regulatory approval process with EPA
and CARB is complex and requires lengthy durability testing which must precede
final certification/verification of ESW's products. ESW does not control the
timeliness of the certification/verification process; however, ESW has taken
steps to ensure the efficacy of ESW's contribution to the
certification/verification process.

ESW FACES CONSTANT CHANGES IN GOVERNMENTAL STANDARDS BY WHICH ITS PRODUCTS ARE
EVALUATED.

ESW believes that due to the constant focus on the environment and clean air
standards throughout the world, ESW will be required in the future to adhere to
new and more stringent regulations. Governmental agencies constantly seek to
improve standards required for verification and or certification of products
intended to promote clean air. In the event ESW's products fail to meet these
ever changing standards, some or all of its products may become obsolete or
de-listed from government verification having a direct negative effect on the
Company's ability to generate revenue and become profitable.

ESW DOES NOT HAVE A LONG HISTORY OF MANUFACTURING ITS PRODUCTS AND DOES NOT HAVE
A LONG HISTORY OF MANUFACTURING ITS PRODUCTS IN COMMERCIAL QUANTITIES.

ESW may encounter difficulties in ramping up production of current and any
future products due to:

o lack of working capital;

o quality control and assurance issues;

o raw material supplies, lead times and prices;

o shortages of qualified personnel; and

o equipment capable of producing large quantities

Any of the foregoing would affect ESW's ability to meet increases in demand
should its products gain market acceptance and reduce growth in its sales
revenues.

ESW FACES INTENSE COMPETITION AND RAPID TECHNOLOGICAL ADVANCES FROM COMPETITORS.

Competition among companies that provide solutions for pollutant emissions from
diesel engines is intense. Several companies market products that compete
directly with ESW products. Other companies offer products that potential
customers may consider to be acceptable alternatives to ESW products and
services. ESW faces direct competition from companies with far greater
financial, technological, manufacturing and personnel resources, including
Corning, NGK and Emitec. Corning and NGK are the two major manufacturers of
ceramic cores, which are integral components in current catalytic converter
production, and Emitec is the major manufacturer of metal cores. ESW also faces
direct competition with companies like BASF/Engelhard and Johnson Matthey, who
purchase their substrates from others, and do further processing with their own
formulas and fabrication for direct sale to the market place. Newly developed
products could be more effective and cost efficient than ESW's current products
or those ESW may develop in the future. Many of ESW's current and potential
future competitors have substantially more engineering, sales and marketing
capabilities, substantially greater financial, technological and personnel
resources, and broader product lines than ESW. ESW also faces indirect
competition in the form of alternative fuel consumption vehicles such as those
using methanol, hydrogen, ethanol and electricity.

ESW CLAIMS CERTAIN PROPRIETARY RIGHTS IN CONNECTION WITH THE DESIGN AND
MANUFACTURE OF ITS PRODUCTS.

The protections provided by patents and those sought by pending patents are
important to ESW's business, although ESW believes that no individual right is
material to its business at the present time. There can be no assurance that
these patents, combined with pending patent applications or existing or future
trade secret protections that ESW seeks will survive legal challenge, or provide
meaningful levels of protection. Additionally, there can be no assurances when
these patents or pending patents may be assigned to ESW directly. The Canadian
patent registered to one of ESW's subsidiaries only affords protection against
the manufacture, use or sale of the patented technology within Canada. The U.S.
patent application for ESW's method of producing a catalytic element was filed
on October 1, 2004 and a patent has been issued as of December 2, 2008. ESW does
not presently have any worldwide patent protection or any immediate plans to
file for protection in any foreign countries other than Canada. There can be no
assurances that any patents ESW may have or have applied for or any agreements
ESW has in place or will enter into will protect ESW's technology and or prevent
competitors from employing the use of ESW's design and production information.

ATTRACTION AND RETENTION OF KEY PERSONNEL.

ESW's future success depends in significant part, on the continued services of
key technical, sales and senior management personnel. The loss of ESW's
executive officers or other key employees could have materially adverse effects
on ESW's business, results of operations and financial condition. ESW's success
depends upon its continued ability to attract and attain highly qualified
technical, sales and managerial personnel. There can be no assurances that ESW
can attract, assimilate or retain other highly qualified technical, sales and
managerial personnel in the future. At the present time certain key employees of
the company and or subsidiaries do not have employment contracts and may be
viewed as employees at will.

ESW IS DEPENDENT UPON KEY SUPPLIERS FOR CERTAIN MATERIALS WHICH ARE ONE OF THE
NECESSARY COMPONENTS OF ITS PRODUCTS.

The production process of ESW's products includes certain raw materials
including:

o stainless steel;

o particulate filters;

o precious metals ; and

o electronic components.

An extended interruption of the supply of precious metals and components
necessary for the production of ESW's products could have an adverse effect on
ESW. Further, a substantial price increase of the raw materials that are
components of ESW's products could also have an adverse effect on ESW's
business. ESW currently relies on third party vendors to provide certain
components of its products. ESW currently does not have any fixed commitments
from suppliers to provide supplies.

ESW DOES NOT HAVE A SIGNIFICANT LEVEL OF PRODUCT RECALL INSURANCE DUE TO ITS
HIGH COST.

ESW's catalytic converter products are subject to extended warranty programs
that could generate substantive product liability and warranty claims against
the Company. ESW's Therma Cat(TM) Active Level III Plus on-road catalyst system
which has been verified as a Level III technology is typically required to meet
CARB limited warranty standard of 5 years or 100,000 miles, or 5 years or
150,000 miles, or 2 years unlimited miles depending on engine application. ESW's
Therma Cat(TM) Active Level III Plus off-road catalyst system which has been
verified as a Level III technology is typically required to meet CARB limited
warranty standard of 5 years or 4,200 hours. Any failure of ESW's product may
result in a recall or a claim against ESW. Due to the high cost of product
recall insurance, ESW does not maintain significant amounts of insurance to
protect against claims associated with use of its product. Any claim against
ESW, whether or not successful, may result in expenditure of substantial funds
and litigation and may require management's time and use of ESW resources and
may have a materially adverse impact on the Company's overall ability to
continue operations.

JOINT VENTURES AND/OR RELATIONSHIPS ENTERED INTO OR SOUGHT BY ESW FOR
DEVELOPMENT AND SALE OF ITS PRODUCTS.

ESW's success partially depends on the relationships that it develops with
various suppliers, OEM's, dealers, and distributors for the further development
and deployment of its technology in the field. ESW does not manage these
entities nor is it assured that ESW will be able to create relationships with
these entities. The absence of such relationships could adversely impact ESW's
business plans.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

ESW has received no written comments regarding its periodic or current reports
from the staff of the Securities and Exchange Commission that were issued 180
days or more preceding the end of our 2010 fiscal year and that remained
unresolved.

ITEM 2. PROPERTIES

ESW does not own real property. Through its subsidiary, ESW Canada Inc. ESW
leases its executive, sales and marketing offices as well as its production
center which totals approximately 50,000 square feet located at 335 Connie
Crescent, Concord, Ontario, Canada. The lease expires September 30, 2015.
Additionally, ESW's wholly owned subsidiary ESW America Inc. leases
approximately 40,220 square feet at 200 Progress Drive, Montgomery Township,
Pennsylvania. The leasehold space houses ESW's research and development
facilities. The lease expires February 28, 2013.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company may be involved in a variety of claims, suits,
investigations and proceedings arising from the ordinary course of our business,
breach of contract claims, labor and employment claims, tax and other matters.
Although claims, suits, investigations and proceedings are inherently uncertain
and their results cannot be predicted with certainty, ESW believes that the
resolution of current pending matters will not have a material adverse effect on
its business, consolidated financial position, results of operations or cash
flow. Regardless of the outcome, litigation can have an adverse impact on ESW
because of legal costs, diversion of management resources and other factors. In
addition, it is possible that an unfavourable resolution of one or more such
proceedings could in the future materially and adversely affect ESW's financial
position, results of operations or cash flows in a particular period.

ITEM 4. REMOVED AND RESERVED

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUERS PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

The Company's Common Stock is quoted under the symbol "ESWW" on the OTC Markets
("OTCM") - OTCQB tier operated by the OTC Markets Group Inc. The Company's
Common Stock is also listed on the Frankfurt Stock exchange (FWB), under the
trading symbol "EOW".

Through 2010, the Company's stock was quoted on the Over-The-Counter Bulletin
Board (OTCBB) an automated quotation system. On February 23, 2011, the Company's
common stock was removed from the OTCBB quotation system. The stock continues to
be quoted on the OTCQB, which is part of the OTC Market Group's quotation
system.

The following table sets forth the high and low bid prices, on the OTCBB, for
the common stock for the quarters indicated, as reported by Bloomberg Reporting
Service. Such market quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions:

FISCAL 2010 HIGH LOW
--------------------------------------
1st Quarter $ 0.86 $ 0.46
2nd Quarter $ 0.70 $ 0.45
3rd Quarter $ 0.52 $ 0.38
4th Quarter $ 0.44 $ 0.16

FISCAL 2009 HIGH LOW
--------------------------------------
1st Quarter $ 0.40 $ 0.09
2nd Quarter $ 0.86 $ 0.23
3rd Quarter $ 0.78 $ 0.51
4th Quarter $ 0.52 $ 0.35

HOLDERS

As of March 31, 2011 there were approximately 264 stockholders of record of the
Company's Common Stock. The Company estimates there are approximately 2,972
additional stockholders with stock held in street name. On March 31, 2011, there
were 129,463,767 shares of common stock outstanding.

DIVIDENDS

The Company has not declared or issued any dividends in the past and intends to
retain future earnings, if any, for general business purposes and to retire
debt.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth as at December 31, 2010 securities authorized for
issuance under equity compensation plans.

EQUITY COMPENSATION PLAN INFORMATION

(A) (B) (C)
-----------------------------------------------------------------------------------------------------------------------------
Number of securities remaining
NUMBER OF SECURITIES TO BE Weighted-average available for future issuance under
ISSUED UPON EXERCISE OF exercise price of equity compensation plans (excluding
PLAN CATEGORY OUTSTANDING OPTIONS outstanding options securities in column A)
-----------------------------------------------------------------------------------------------------------------------------
2002 Stock Option Plan
(Shareholder Approved.
Authorized - 5,000,000 shares) 3,600,000 $ 0.68 0
-----------------------------------------------------------------------------------------------------------------------------
2010 Stock Option Plan
(Shareholder Approved.
Authorized - 5,000,000 shares) -- -- 5,000,000
-----------------------------------------------------------------------------------------------------------------------------

As reflected in the aggregate numbers above, no options were awarded under the
Company's 2002 stock plan in fiscal 2009.

On April 15, 2010, the Board of Directors granted an aggregate award of 900,000
stock options to one executive officer and director and one director. The
options vest over a period of three years with an exercise price of $0.65 (fair
market value of the Company's common stock as of the date of grant) with expiry
of five years from the date of award.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with ESW's Consolidated
Financial Statements and Notes thereto included elsewhere in this Report.

This Form 10-K contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of ESW's business.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. ESW undertakes no obligation
to publicly release any modifications or revisions to these forward-looking
statements to reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events. In connection with the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, ESW
caution investors that actual financial and operating results may differ
materially from those projected in forward-looking statements made by, or on
behalf of, ESW. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, performance,
or achievements to be materially different from any future results, performance,
or achievements expressed or implied by such forward-looking statements. Risks
and uncertainties inherent in forward-looking statements (are set forth in the
Risk Factor disclosure contained elsewhere in this report).

OVERVIEW

Environmental Solutions Worldwide Inc. ("ESW" or the "Company") is a publicly
traded company engaged through its wholly owned subsidiaries ESW Canada Inc.,
ESW America Inc. and ESW Technologies Inc. (the "ESW Group of Companies") in the
design, development, manufacturing and sales of environmental and emission
technologies and services. ESW is currently focused on the North American medium
duty and heavy duty diesel engine market for on-road and off-road vehicles as
well as the utility engine, mining, marine, locomotive and military industries.
ESW also offers engine and after treatment emissions verification testing and
certification services.

Factors that are critical to ESW's success include winning new business,
obtaining additional regulatory verifications for emission control products,
managing and optimizing ESW's manufacturing capabilities to correspond with
business needs, maintaining competitive wages and benefits, maximizing
efficiencies in its manufacturing processes, and reducing overall costs. In
addition, ESW's ability to adapt to key industry trends, such as increasing
technologically sophisticated products, changing aftermarket distribution
partners, and increasing environmental standards, also plays a critical role in
its success. Other factors that are critical to ESW's success include adjusting
to environmental and economic challenges such as increases in the cost of raw
materials and ESW's ability to offset such cost increases through material
substitutions, cost reduction initiatives and other methods.

ESW has made significant efforts to comply with new regulations which came into
force in January of 2009. (See ITEM 1. BUSINESS - PRODUCT CERTIFICATION). ESW's
Therma Cat(TM) Active Level III Plus catalyst system has been verified by CARB
for a variety of on- and off-road engine applications (PM reduction greater than
85%). The Therma Cat(TM) filter system is a combined technology comprised of a
chemically coated wire mesh substrate and Diesel Particulate Filter (DPF)
combined with an electronically controlled external fuel injection component.
The Therma Cat(TM) regeneration process is an electronically controlled
exothermic reaction and occurs automatically during normal vehicle operation,
transparent to the operator.

The EPA's Voluntary Diesel Retrofit Program signed a Memorandum of Agreement
with the State of California Air Resources Board for the coordination and
reciprocity in diesel retrofit device verification. The EPA recognizes and
accepts those retrofit hardware strategies or device-based systems that have
been verified by CARB. This reciprocity agreement allows ESW's Therma Cat (TM)
technology to be used in the remaining 49 states and it allows ESW to
participate in EPA funded programs worldwide.

FISCAL YEAR 2010

In 2010, ESW was focused primarily on: (a) increasing revenues from its verified
product line, (b) increasing its distribution network to target key markets
segments such as school bus retrofits and government regulated retrofit
programs, (c) continuing verification of the Level III product, (d) ensuring
ESW's production capabilities are adequate to deliver product to the target
markets, and (e) further development of the Xtrm Cat (TM) product for the rail
and marine markets.

ESW has made significant investments in research and development and obtaining
regulatory approvals for its technologies. The products that ESW is pursuing for
verification / certification to cover the following primary technology levels
established by CARB:

LEVEL II +

o A high performance Diesel Oxidation Catalyst and filter - PM reduction greater
than 50%

LEVEL III +

o Expansion of On Road Active Diesel Particulate Filter verification to include
Exhaust Gas Recirculation engines - PM reduction greater than 85%

In addition ESW also intends to verify / certify the Xtrm Cat(TM) product
designed for Marine, 2-stroke, Tier 0 and Tier 1, turbocharged EMD 645 and 710
models with the EPA or CARB.

ESW has decided not to further pursue the verification of the LEVEL I
technologies based on its 2011 business plan.

ESW believes that with the additional certifications/verification of the above
range of products, ESW will cover a significant portion of the market and give
ESW the competitive advantage to be the technology of first choice in retrofit
and OEM applications. The regulatory approval process with EPA and CARB is
complex and requires a lengthy process of durability testing which must precede
the final certification/ verification of ESW's products. ESW does not control
the timeliness of the certification/verification process; however, ESW has taken
steps to ensure the efficacy of ESW's contribution to the
certification/verification process.

The cost of developing a complete range of products to meet regulations is
substantial. ESW believes that it possesses a competitive advantage in ensuring
regulatory compliance by leveraging its Testing and Research facility in
Montgomeryville, Pennsylvania to support its certification and verification
efforts. ESW has also managed to offset some of these development costs through
the application of research grants and tax refunds.

During 2010 ESW has further developed its active independent dealer and support
distribution network that has positioned ESW's products as the technology of
choice for several key markets. Dealers are fully trained by ESW for a timely
distribution and deployment of ESW products. ESW also has an active field sales
support team, customer service, installation and training team to allow and
support the growth and distribution of ESW products.

ESW's production, sales, technical and design staff at ESW Canada Inc. have
sought to ensure that products are able to meet the diverse applications found
in on- and off-road vehicles while maximizing product commonality to reduce
manufacturing and support costs. ESW's manufacturing and design facility, ESW
Canada Inc. has been capitalized to streamline production of its new product
line to maximize efficiency. ESW Canada's facilities are leased and the lease
term expires on September 30, 2015.

ESW's Tech Center is based in Montgomeryville, Pennsylvania. This facility
provides ESW's emission testing laboratories and testing capabilities. The
40,200 square foot facility houses the state-of-the-art Air Testing Services(TM)
lab, recognized as capable of performing engine emissions verification test
protocols by the EPA, CARB and MSHA. ESW America's facilities are leased and the
lease term expires on February 28, 2013.

ESW believes that the ATS group will be available to better service ESW's
clientele for engine testing as well as EPA/CARB emissions testing and
certification programs. ATS currently provides testing support for ESW`s
internal research and development ("R&D") programs. The focus at this facility
in 2011 is to continue supporting internal research and development and expand
its air testing services to external customers.

Both ESW facilities are in full compliance with ISO 9001:2008. ESW currently
holds a full registration certificate effective until March 2013 for ESW America
Inc., and January 2013 for ESW Canada Inc.

The field of emission control is very complex and requires a variety of
different technologies to be employed. As such, ESW has entered into several
strategic alliances to assure access to leading edge technologies and address
the needs of ESW's potential customer base. The technology can be either in form
of customized precious metal solutions, critical system components or the
complete transfer of the entire technology. This approach enables ESW to adapt
quickly to an ever-changing marketplace.

In effecting its business plan ESW achieved important goals in fiscal 2010.

o On July 14, 2010, ESW announced through a shareholder letter that the Company
has had a substantial increase in its distributor network. The Company has a
total of 36 independent contracted distributors with over 230 individual
locations. All of the distributors have been trained and certified to install
ESW products on vehicles and construction equipment.

o On October 12, 2010, ESW announced that the company's Therma Cat(TM) Active
Level III Plus catalyst system verification has been expanded to include an
updated sizing chart for On-Road applications. Therma Cat(TM) now meets all
current retrofit installation sizing requirements for an even wider variety of
1993 through 2006 model year On-Road vehicles. The system is available up to 375
Horsepower and as per the Company's estimates increase the engine family
universe by 21%. The expanded verification has additional end-user benefits and
competitive benefits such as a "Swapping Allowance," which provides for an
alternate filter to be used in place of the one being cleaned during a scheduled
maintenance procedure for the Therma Cat(TM), thereby maximizing the on road
availability of a vehicle. In addition, a "Redistribution Allowance" gives
customers the ability to move a system from a vehicle being removed from service
to one being brought into service, saving money for the customer and minimizing
fleet disruption.

o On November 11, 2010, ESW announced that ESW and E Global Solutions ("EGS"),
the Company's exclusive New York distributor, participated in a expert panel
discussion to provide guidance on New York State and City emission control
requirements covering mandated retrofit installation and compliance deadlines
for diesel on-road and off-road engines. With deadlines for retrofit compliance
in effect, for contractors regulated by New York State, New York City and
surrounding counties for emission control requirements for diesel engines ESW
views this important market as a significant potential for the Therma Cat (TM)
product.

o On November 15, 2010, ESW announced that the company's exclusive New York
distributor, EGS, has been awarded a long-term contract with the Metropolitan
Transit Authority (MTA) of New York City. The contract provides for EGS to
supply ESW's Therma Cat(TM) Level III Plus Active Diesel Particulate Filter
(ADPF) retrofit technology to the authority to satisfy New York State diesel
engine emission control requirements. Under the supply and installation
contract, EGS will also supply the market leading Therma Cat(TM) ADPF to the
Long Island Rail Road, the Triboro Bridge and Tunnel Authority and the Staten
Island Rapid Transit Operating Authority. The contract results from the New York
State Diesel Emissions Reduction Act, Part 248/249 of 2006. This law mandates
that any vehicles over 8500 lbs. powered by diesel engine which are State owned,
operated, on behalf of or leased by these agencies must be retrofit with the
"best available" technology for the reduction of particulate matter within a
determined time period. State-wide, the legislation calls for the retrofit of
over 30,000 registered heavy-duty diesel vehicles and engines.

In 2010 ESW made significant positive strides in obtaining wide ranging
verifications for products and distribution network for sales. As a result,
ESW's revenues in 2010 increased by 239% compared to 2009. However, during the
last two quarters of 2010, ESW faced shortages in working capital. The main
reasons for the shortage in working capital were: (a) long purchase lead times
for key materials and components which was mitigated by increasing levels of
inventory; (b) delays in receiving sales orders that the Company had anticipated
in 2010 due to significantly longer than anticipated timelines for state,
federal and non-profit agencies to submit bids for funded projects, award
projects, and release purchase orders; (c) delays in achieving verifications and
certifications for certain products; and (d) delays in enforcement of certain
regulations in California (Off-road and private fleet rules) and the economic
downturn in the United States that affected the construction industry, large
capital projects, and ultimately the retrofit market for private and public
fleets. The above factors have affected the expected revenue growth of the
Company and in turn affected the liquidity position of the Company.

In November 2010, the Company's wholly owned subsidiary, ESW Canada Inc., faced
a security margin deficit under the credit facility and obtained a waiver from
its commercial lender. Without the waiver, the Company's subsidiary, ESW Canada
Inc., would not be in compliance with the current ratio and effective tangible
net worth covenants as per the credit agreement. The Company received further
waivers from its senior lender for the rest of 2010 and until February 15, 2011.

Effective March 19, 2010, the Company issued $3,000,000 of its 9% convertible
debentures (the "Debentures") to five (5) accredited investors. The Debentures
were for a term of three (3) years and were convertible into shares of the
Company's common stock at the option of the holder by dividing the principal
amount of the Debenture to be converted by $0.50. The Debentures had a mandatory
conversion feature that required the holders to convert in the event a majority
of the Company's pre-existing and outstanding 9% convertible debentures were
also converted.

Effective March 25, 2010, the November 2008 and the August 2009 debenture
holders agreed to convert all outstanding convertible debentures. The early
conversion of the debentures was a condition precedent to the Company's wholly
owned subsidiary, ESW Canada Inc., entering into a new credit facility with a
Canadian chartered bank. A total of $10,600,000 in principal and $1,176,445 of
accrued interest was converted into 43,756,653 shares of restricted common
stock. The conversion of the November 2008 and the August 2009 debentures also
triggered the mandatory conversion feature on the March 19, 2010 debentures. A
total of $3,000,000 in principal and $3,797 in accrued interest was converted
into 6,007,595 shares of restricted common stock in connection with the 2010
debentures. With these transactions effective March 25, 2010, the Company has $0
of outstanding convertible debentures and accrued interest.

Effective March 31, 2010 ESW's subsidiary, ESW Canada Inc., entered into a
demand revolving credit facility agreement with a Canadian chartered bank to
meet working capital requirements. The facility has a credit limit of CAD $4
million. Borrowings under the facility are limited to a percentage of accounts
receivable plus a percentage of inventories (capped at $ 1 million or 50% of the
accounts receivable portion) less any prior ranking claims. The credit facility
is guaranteed by the Company and its subsidiaries ESW Canada Inc., ESW America
Inc., BBL Technologies Inc. and ESW Technologies Inc. through a general security
agreement over all assets to its senior lender. The facility has been guaranteed
to the bank under Export Development Canada's Export Guarantee Program.
Borrowings under the credit facility bear interest at 2.25% above the bank's
prime rate of interest. Obligations under the revolving credit agreement are
collateralized by a first-priority lien on the assets of the Company and its
subsidiaries, including, accounts receivable, inventory, equipment and other
tangible and intangible property, including the capital stock of all direct
subsidiaries. From November 8, 2010, through December 31, 2010 the Company's
wholly owned subsidiary ESW Canada, Inc. received waivers of certain financial
covenants under its credit agreement with the Canadian chartered bank. Without
the waivers, the Company's subsidiary would not be in compliance with certain
covenants in the credit agreement. The Company is in the process of securing
additional equity finance which will help the Company to comply with the
original terms of the credit agreement. The credit facility expires on March 31,
2011 and ESW is working on upgrading or renewing the facility with its current
and reviewing options with other senior lenders. The Company is finalising the
extension terms but in concept has obtained an extension to May 31, 2011 from
its current senior lender.

On November 9, 2010 and December 8, 2010 the Company completed two tranches of a
unit offering, each unit was offered at a price of $0.40 and each unit is
comprised of one share of the Company's common stock and one, warrant
exercisable within two years, for one share of common stock. The Company raised
a total of $600,000 and issued 1,500,000 shares of the Company's common stock
and 1,500,000 warrants to purchase 1,500,000 shares of the Company's common
stock.

The Company cannot assure that the funding will be available in the amount
needed, or on terms attractive to it, or at all. Furthermore, any additional
financings will be dilutive to shareholders or if available, may involve
restrictive covenants. The Company's failure to raise capital as and when needed
or at favourable terms could have a negative impact on its financial condition
and its ability to pursue business strategies.

FISCAL YEAR 2011

In 2011, ESW is focused on optimizing the Company's operations around its "sweet
spots" and capturing a greater market share in the catalytic converter and
emissions testing markets whilst ensuring profitable growth as compared to 2010.
The key factors that are in ESW's favour are: (a) continued regulatory push for
emissions reductions in the United States, (b) additional funding available from
public agencies, (c) a market-leading Level III active catalytic converter
technology and an established distribution network in North America, and (d)
opportunities to market to third parties its CARB and EPA recognized emissions
and durability testing services.

ESW believes that it can maintain and grow its business by pursuing the
following strategy:

o Focus on delivering controlled and profitable growth to its
shareholders.

o Center the Company's sales strategy around identified "sweet-spots"
that will allow manufacturing efficiency gains and optimized resource
allocation.

o Educate the end customers about the technology and ensure realistic
delivery timeline expectations.

o Enhance scheduling and customer service functions and importance.

o Locate recurring revenue opportunities and focus sales efforts on such
opportunities.

o Work with vendors to optimize ESW's material buys and lead times.

o Constantly review operations, processes, product under a Continuous
Improvement / Performance Based culture.

To deliver against this strategic intent, in February 2011, ESW secured $3
million in additional financing through certain note subscription agreements and
issued unsecured subordinated promissory notes to affiliate shareholders.
Proceeds of the notes, along with available cash, will be used to fund working
capital, planned capital investments and other general corporate purposes. With
the proceeds of the loan, the Company and its subsidiaries are in compliance
with covenant obligations under the credit agreement with its senior lender
dated March 10, 2010 for which the Company and subsidiaries had previously
obtained waivers of covenant obligations that expired February 15, 2011.

The Company is also pursuing a rights offering of the Company's common stock at
a sale price of $0.12 per share. The Company plans to offer rights to existing
shareholders of record on the offering date to purchase approximately $6.5
million in shares of common stock. The rights offering is expected to raise at
least an incremental $3.5 million of cash for the Company and will also permit
all subordinated lenders to exchange their unsecured subordinated promissory
notes (and the other notes paid in-kind for the payment of interest under the
notes) for shares of common stock under the offering. The offering is expected
to be completed by June 17, 2011. The additional capital anticipated to be
raised by the rights offering is expected to give ESW the opportunity to execute
against its short term and medium term plans.

COMPARISON OF YEAR ENDED DECEMBER 31, 2010 TO YEAR ENDED DECEMBER 31, 2009

RESULTS OF OPERATIONS

Revenues for the year ended December 31, 2010 increased by $7,361,747, or 239.4
percent, to $10,437,145 from $3,075,398 for the year ended December 31, 2009.
The increase in revenue is mainly related to sales of ESW's verified Therma Cat
(TM) Level III products, further complemented by sales of the Xtrm Cat (TM)
product. In 2009, the Company focused its efforts on achieving verifications for
its Therma Cat (TM) Level III product.

Cost of sales as a percentage of revenues for year ended December 31, 2010 was
69.6 percent compared to 58.9 percent for the year ended December 31, 2009. The
gross profit for the year ended December 31, 2010 was 30.4 percent as compared
to a gross margin of 41.1 percent for the year ended December 31, 2009. The
increase in cost of sales as a percentage of revenue in the current period is
due to increased labour costs involved in ramping up of operations to meet
customer orders; the 2010 level of manufacturing labour could support a higher
level of operations. The increase in cost of sales is also related to a steady
increase in cost of precious metals during the year. In addition, the Company
also wrote down $195,293 of inventory in the fourth quarter of 2010 due to
discontinued product lines or product modifications.

Marketing, office and general expenses for the year ended December 31, 2010
increased by $1,389,792 or 41.7 percent, to $4,719,362 from $3,329,570 for the
year ended December 31, 2009. The increase is primarily due to increases in the
following areas: sales and marketing salaries and wages and selling expenses
grew by $474,351 attributed to an increased focus on business development and
product marketing efforts, and the addition of a customer service and support
department. Administration salaries and wages were higher by $391,532; due to
increased administration staff to support the transition and growth of the
Company and the Company's implementation of a centralised enterprise resource
planning system. Plant related expenses were higher by $151,891 as a result of
increased manufacturing activity increasing the cost of consumables, shop
supplies, equipment repair and maintenance costs. Investor relations expense
increased by $62,929 mainly related to legal fees and fees related to an
investor relations firm used by the Company. General and administration cost
increased by $333,785 mainly due to the increased finance and guarantee charges
in connection with the Company's Line of Credit with its secured lender and
increased business insurance expenses. These increases were offset by a decrease
in facility costs of $24,696 as a larger portion of overheads applied to the
cost of sales.

Research and development ("R&D") expenses for the year ended December 31, 2010
decreased by $146,604, or 15.8 percent to $783,944 from $930,548 for the year
ended December 31, 2009. ESW incurred R&D expenses associated with the
verification and expansion of engine family sizes of its Therma Cat (TM) Active
Level III Plus Diesel Particulate Filter, as well as the verification of its
locomotive and marine products and the certification of its Level II product.
During the year ended December 31, 2010 the Company received grant money for its
R&D activities amounting to $143,375 as compared to $168,753 for the year ended
December 31, 2009.

Officers' compensation and directors' fees for the year ended December 31, 2010
increased by $281,610 or 41.9 percent, to $954,054 from $672,444 for the year
ended December 31, 2009. The increase is mainly due to the addition of two
outside directors in 2010, a wage increase for an officer of the Company
retroactive to January 2010, stock based compensation expense for the April 2010
stock options and the effect of exchange rate differences on Canadian Dollar
("CAD") contracts for officers of the Company.

Consulting and professional fees for the year ended December 31, 2010 increased
by $235,361 to $451,345 from $215,984 for the year ended December 31, 2009. The
increase is mainly attributed to increased legal fees associated with the
closing of a demand revolving credit facility agreement with a Canadian
chartered bank, legal fees related to the renewal of the Company's Canadian
subsidiary's lease agreement, increased audit and other fees related to
Sarbanes-Oxley 404, as well as general consulting fees.

Foreign exchange loss for the year ended December 31, 2010 amounted to $103,256.
For the year ended December 31, 2009 foreign exchange gain amounted to $10,035.
This is a result of the fluctuation in the exchange rate of the Canadian Dollar
relative to the United States Dollar.

Depreciation and amortization expense for the year ended December 31, 2010
decreased by $286,112, or 25.5 percent to $837,448 from $1,123,560 for the year
ended December 31, 2009.

Loss from operations for the year ended December 31, 2010 decreased by $345,083
or 6.9 percent to $4,673,760 from $5,018,843 for the year ended December 31,
2009. The decrease is mainly due to increased revenues in the current year
offset by an increase in costs.

Interest expense on long-term debt was $183,858 for the year ended December 31,
2010 as compared to $ 870,632 for the year ended December 31, 2009. Amortization
of deferred costs amounted to $117,131 and long- term debt accretion amounted to
$768,981 for the year ended December 31, 2010 as compared to $19,912 and $27,019
respectively for the year ended December 31, 2009. As of December 31, 2010, ESW
has no debt outstanding related to the convertible debentures.

Effective March 25, 2010, the November 2008 and the August 2009 debenture
holders agreed to convert all outstanding convertible debentures as per the
terms of the respective debenture agreements. The early conversion of the
debentures was a condition precedent to the Company's wholly owned subsidiary
ESW Canada Inc., entering into a new credit facility with a Canadian chartered
bank. The conversion of the November 2008 and the August 2009 debentures also
triggered the mandatory conversion feature on the March 19, 2010 debentures. As
part of the agreement to convert all existing convertible debentures the Company
has paid a premium as an inducement to convert all debentures. The premium was
payable to all converting debenture holders and was subject to a positive
fairness opinion, approval by a Fairness Committee consisting of independent
directors of the Company's Board of Directors and an increase in the share
capital of the Company. The premium consisted of 4,375,668 shares of common
stock. As the Company did not have sufficient authorized shares as of the date
of conversion of the debentures to fulfill the premium, the premium was recorded
as an advance share purchase agreement at fair market value $2,909,872 at March
31, 2010. The agreement is without interest, subordinated to the bank's position
and payable in a fixed number of common shares (4,375,668 shares) of the Company
upon increase in the authorized share capital of the Company. Subsequently, as
of October 14, 2010, the Company has re-valued the advance share purchase
agreement at fair market value $1,662,753 with a $1,247,119 gain recorded in the
consolidated statements of operations and comprehensive loss. Effective November
30, 2010, the Company issued an aggregate of 4,375,668 restricted shares of
common stock to thirteen (13) prior debenture holders in connection with the
early conversion of their debentures and settled the obligation. In summary, the
fair value of the advanced share subscription was dependent on the market price
of the Company's common stock, as the Company did not have sufficient available
authorized common shares until October 14, 2010 to fulfill this obligation. The
advanced share subscription was re-valued based on the market price of the
Company's common stock at the end of each reporting period and until authorized
common shares were available for issuance. The resulting revaluations caused
gains or losses on the consolidated statement of operations and comprehensive
loss.

The Share Subscription Agreement for the 2010 Debentures contains an exchange
feature. The exchange feature provides that if within twelve months from March
19, 2010, the Company enters into or closes another financing or other
transaction (which for securities law purposes would be integrable with the
offer and sale of the Securities) on terms and conditions more favourable to
another purchaser, the terms and conditions of the 2010 Debentures shall be
adjusted to reflect the more favourable terms. On December 31, 2010, the Company
evaluated the fair value of the exchange feature based on the probability of
closing another financing by March 18, 2011 and the fair value of the number of
incremental shares to be issued at a lower estimated issue price. The
probability of closing another financing by March 18, 2011 was estimated to be
100% on December 31, 2010. The fair value of the Company's common stock is
determined by the closing price on the valuation date. At December 31, 2010, an
exchange feature liability of $1,680,000 is recorded for the 2010 Debentures in
these consolidated financial statements with a $1,680,000 expense related to
change in fair value of exchange feature liability recorded in the consolidated
statements of operations and comprehensive loss.

Effective November 9, 2010 and December 8, 2010, the Company has closed on its
first tranche and second tranche of a unit offering in the amount of $300,000
per tranche for gross proceeds of $600,000 whereby the Company issued 1,500,000
units ("the unit offering") (see Note 12). The Share Subscription Agreement for
the units contains an exchange feature which provides that if within six months
from effective date of closing, the Company enters into or closes another
financing or other transaction (which for securities law purposes would be
integrable with the offer and sale of the Securities) on terms and conditions
more favourable to another purchaser, the terms and conditions of the unit
offering shall be adjusted to reflect the more favourable terms. On November 9,
2010, December 8, 2010 and December 31, 2010, the Company evaluated the fair
value of the exchange feature based on the probability of closing another
financing within six months and the fair value of the number of incremental
shares and warrants to be issued at a lower estimated issue price for units. The
fair value of the Company's common stock is determined by the closing price on
the valuation date and the fair value of the warrants is determined using a
binomial option valuation model. At December 31, 2010, an exchange feature
liability of $453,861 is recorded for the unit offering in these consolidated
financial statements with $112,649 recorded as the fair value of exchange
feature liability on the issuance dates of the unit offering (November 9, 2010
and December 8, 2010) on the consolidated statements of changes in stockholders'
equity (deficit) and $341,213 change in fair value of exchange feature liability
recorded in the consolidated statements of operations and comprehensive loss on
December 31, 2010.

Change in fair value of exchange feature liability for the year ended December
31, 2010 amounted to $2,021,213 as compared to $0 for the year ended December
31, 2009.

Interest on note payable to related party amounted to $11,342 for the year ended
December 31, 2010 as compared to $0 for the year ended December 31, 2009. On
March 31, 2010, the Company repaid $500,000 principal and $11,342 in interest
from the proceeds of the March 19, 2010 convertible debentures.

Loss on disposal of property and equipment amounted to $8,828 for the year ended
December 31, 2010 and $1,404 for the same period in the previous year.

LIQUIDITY AND CAPITAL RESOURCES

ESW's principal sources of operating capital have been the proceeds from its
various financing transactions. During the year ended December 31, 2010, the
Company used $5,875,140 of cash to sustain operating activities compared with
$4,353,576 for the year ended December 31, 2009. As of December 31, 2010 and
December 31, 2009, the Company had cash and cash equivalents of $13,328 and
$632,604, respectively.

Net cash used in operating activities for the year ended December 31, 2010
amounted to $5,875,140. This amount was attributable to the net loss of
$9,447,641, plus non cash expenses such as depreciation, amortization, interest
and accretion on long term debt, inducement premium on conversion of debentures,
exchange feature expense and others of $6,370,409, and a decrease in net
operating assets and liabilities of $2,797,908. Net cash used in operating
activities for the year ended December 31, 2009 amounted to $4,353,576. This
amount was attributable to the net loss of $5,936,952, plus non cash expenses
such as depreciation, amortization, interest on long term debt and others of
$2,199,407, and a decrease in net operating assets and liabilities of $616,031.

Net cash used in investing activities was $414,188 for the year ended December
31, 2010 as compared to $171,176 for the year ended December 31, 2009. The
capital expenditures during the year ended December 31, 2010 were primarily
dedicated to production tooling.

Net cash provided by financing activities totalled $5,570,429 for the year ended
December 31, 2010, as compared to $3,086,915 provided by financing activities
for the year ended December 31, 2009. In the current period $2,919,375 (net of
debt issuance costs of $80,625) was provided through issuance of convertible
debentures, $3,312,254 was borrowed under ESW's senior credit facility and
$723,431 was repaid to Royal Bank of Canada prior to closing the facility,
$500,000 repayment of promissory note to related party, $576,000 (net of $24,000
broker fees related to share subscription) was received through the issuance of
common stock and $13,769 repaid under capital lease obligation.

Based on ESW's current operating plan, management believes that at December 31,
2010 cash balances, anticipated cash flows from operating activities, and the
appropriate borrowings from other financing sources, such as the issuance of
debt or equity securities, will be sufficient to meet our working capital needs
on a short-term basis. Overall, capital adequacy is monitored on an ongoing
basis by our management and reviewed quarterly by the Board of Directors.

The industry that ESW operates in is capital intensive and there is a timing
issue bringing product to market which is considered normal for this industry.
There is a timing difference between awards of funding and the final funding
released by the regulatory agencies which also affect revenues. ESW continues to
invest in research and development to prove up its technologies and bring them
to the point where its customers have a high confidence level allowing them to
place larger orders. The length of time a customer needs to build confidence in
ESW's technologies cannot be predetermined and as a result, ESW has sustained
operating losses as a result of not generating sufficient sales to generate a
profit from operations. In 2011 ESW plans to adjust it business to correct for
these issues.

During 2010 and 2009 ESW did not produce sufficient cash from operations to
support its expenditures. The November / December 2010 $600,000 gross sale of
common stock; the March 19, 2010, $3 million offering of convertible debentures;
the August 28, 2009 $1.6 million offering of convertible debentures; the
November 3, 2008 $6.0 million offering of convertible debentures; along with
continued borrowing on ESW's credit facility, a short term loan from a
shareholder and past director of the Company; and the exercise of outstanding
options, afforded ESW the opportunity to support its operations and to execute
its business plan. ESW's principal use of liquidity is to provide working
capital availability and to finance any further capital expenditures or tooling
needed for production.

Effective March 25, 2010, all convertible debentures holders converted all
outstanding convertible debentures as per the terms of the respective debenture
agreements. The early conversion of the debentures was a condition precedent to
the Company's wholly owned subsidiary ESW Canada entering into a new credit
facility with a Canadian chartered bank.

Effective March 31, 2010, ESW's subsidiary, ESW Canada Inc., entered into a
demand revolving credit facility agreement with a Canadian chartered bank to
meet working capital requirements. The facility has a credit limit of CAD $4
million. Borrowings under the facility are limited to a percentage of accounts
receivable plus a percentage of inventories (capped at CAD $ 1 million or 50% of
the accounts receivable portion) less any prior ranking claims.

ESW anticipates certain capital expenditures in 2011 related to the general
operation of its business as well as to upgrade the air testing facilities in
Montgomeryville, Pennsylvania. ESW does not expect that total capital
expenditures for 2011 will amount to more than $1,400,000.

The press release dated July 14, 2010 stated that the Company's management and
Board of Directors were analyzing capital raising opportunities, including but
not limited to pursuing a listing in a broader stock exchange. In February 2011,
ESW announced that it had secured $3 million in additional financing through
certain note subscription agreements and issued unsecured subordinated
promissory notes. Proceeds of the notes, along with available cash, will be used
to fund working capital, planned capital investments and other general corporate
purposes. The Company further approved plans for a rights offering of the
Company's common stock, at a sale price of $0.12 per share whereby the Company
plans to offer rights to existing shareholders on the offering date to purchase
approximately $6.5 million in shares of common stock, the rights offering is
expected to raise at least an incremental $3.5 million of cash for the Company.
The Company at the present time has put on hold its plans for listing on a big
board stock exchange and will concentrate its efforts on revenue, operations and
cost containment measures.

This capital will be used to fund working capital and capital expenditure needs.
As the anticipated revenue of the Company grows, it is anticipated that
profitability and cash flow will grow at a faster pace. This will also be
largely dependent on the success of ESW's initiatives to streamline its
infrastructure and drive its operational efficiencies across the Company.

As the market for ESW's products expands competition will intensify. ESW's
ability to continue to gain significant market share will depend upon its
ability to continue to develop strong relationships with distributors, customers
and develop new products. Increased competition in the market place could result
in lower average pricing adversely affecting ESW's market share and prices for
its products.

ESW has 700,000 Class A special shares, authorized, issued and outstanding,
recorded at $453,900 (based on the historical exchange rate at the time of
issuance). The Class A special shares were issued by ESW's wholly-owned
subsidiary BBL Technologies, Inc. ("BBL") without par value, and are redeemable
on demand by the holder of the shares which is a private Ontario Corporation at
CAD $700,000 (which translates to $703,801 USD at December 31, 2010). As the
Class A special shares are issued by ESW's wholly-owned subsidiary BBL, the
maximum value upon which ESW is liable is the net book value of BBL. As of
December 31, 2010, BBL has an accumulated deficit of $ USD $1,192,858 (CAD
$1,845,375 as at December 31, 2010) (2009 USD $1,187,506 which equates to CAD
$1,839,864) and therefore, the holder would be unable to redeem the redeemable
Class A special shares at their ascribed value.

DEBT STRUCTURE

As part of the agreement to convert all existing convertible debentures the
Company has paid a premium as an inducement to convert all debentures. The
premium was payable to all converting debenture holders and was subject to a
positive fairness opinion, approval by a Fairness Committee consisting of
independent directors of the Company's Board of Directors and an increase in the
share capital of the Company. The premium consisted of 4,375,668 shares of
Common Stock. As the Company did not have sufficient authorized shares as of the
date of conversion of the debentures to fulfill the premium, the premium had
been recorded as an advance share purchase agreement at fair market value
$2,909,872 as at March 31 2010, the agreement was without interest, subordinated
to the banks position and payable in a fixed number of common shares of the
Company upon increase in the authorized share capital of the Company.
Subsequently at the end of each reporting period and as of October 14, 2010 The
Company has re-valued the advance share purchase agreement at fair market value
$1,662,753 with a $1,247,119 gain recorded in the consolidated statements of
operations and comprehensive Income / (loss).

Effective March 19, 2010, the Company issued $3,000,000 of its 9% convertible
debentures (the "Debentures") to five (5) accredited investors under Rule 506 of
Regulation D. The Debentures were for a term of three (3) years and were
convertible into shares of the Company's common stock at the option of the
holder by dividing the principal amount of the Debenture to be converted by
$0.50. The Debentures earned interest at a rate of 9% per annum payable in cash
or in shares of the Company's common stock at the option of the holder. If the
holder elected to receive interest in shares of common stock, the number of
shares of common stock to be issued for interest would be determined by dividing
accrued interest by $0.50. The Debentures had a mandatory conversion feature
that required the holders to convert in the event a majority of the Company's
pre-existing outstanding 9% convertible debentures converted. Subject to the
holder's right to convert and the mandatory conversion feature, the Company had
the right to redeem the Debentures at a price equal to one hundred and ten
percent (110%) multiplied by the then outstanding principal amount plus unpaid
interest to the date of redemption. Upon maturity, the debenture and interest
was payable in cash or common stock at the option of the Holder. The Company
also had provided the holders of the Debentures registration rights. The
Debentures contained customary price adjustment protections.

On August 28, 2009, the Company completed a transaction whereby it issued $1.6
million of 9% convertible debentures (the " 2009 Debentures") to six accredited
investors. Of the $1.6 million received by the Company, $500,000 was received
from a director of the Company through the exchange of a $300,000 unsecured 9%
subordinated demand short term loan previously provided to the Company on August
11, 2009 and an additional $200,000 investment made by the director in the
offering. The 2009 Debentures were for a term of three (3) years and were
convertible into shares of the Company's common stock at the option of the
holder by dividing the principal amount of the 2009 Debenture to be converted by
$0.50. The 2009 Debentures earned interest at a rate of 9% per annum payable in
cash or in shares of the Company's common stock at the option of the holder. If
the Holder elected to receive interest in shares of common stock, the number of
shares of common stock to be issued for interest would be determined by dividing
accrued interest by $0.50. Subject to the holder's right to convert, the Company
had the right to redeem the 2009 Debentures at a price equal to one hundred and
ten percent (110%) multiplied by the then outstanding principal amount plus
unpaid interest to the date of redemption. Upon maturity, the debenture and
interest was payable in cash or common stock at the option of the Holder. The
2009 Debentures contained customary price adjustment protections.

On November 3, 2008, the Company completed a transaction whereby it issued $6.0
million of 9% convertible debentures (the "Debentures") to six accredited
investors. The Debentures were for a term of three (3) years and were
convertible into shares of the Company's common stock at the option of the
holder at any time six (6) months after the date of issuance of the Debenture by
dividing the principal amount of the Debenture to be converted by $0.25. The
Debentures earned interest at a rate of 9% per annum payable in cash or in
shares of the Company's common stock at the option of the holder. If the Holder
elected to receive interest in shares of common stock, the number of shares of
common stock to be issued for interest would be determined by dividing accrued
interest by $0.25. Subject to the holder's right to convert, the Company had the
right to redeem the Debentures at a price equal to one hundred and ten percent
(110%) multiplied by the then outstanding principal amount plus unpaid interest
to the date of redemption. Upon maturity, the debenture and interest was payable
in cash or common stock at the option of the Holder. The Debentures contained
customary price adjustment protections. The effective yield on the 2008
debentures was 9%.

From the proceeds of the November 2008 debentures, the Company repaid
$2,200,000, the principal portion only, of a previously issued Consolidated Note
in the amount of $2,308,148 to a company controlled by a trust to which a
director and shareholder of the Company is the beneficiary. The debt holder
agreed to have the remaining amount of $433,923, due under the Consolidated
Note, applied to a subscription of a Debenture under the November 3, 2008
offering. Concurrently, the Company repaid a Consolidated Subordinated Note that
it had previously issued to a debt holder who is a director and shareholder of
the Company, in the principal amount of $1,002,589. The debt holder agreed to
have the full amount of principal and accumulated interest, in the amount of
$1,158,024 due under the Consolidated Subordinated Note, applied to a
subscription of a Debenture under the offering. Additionally the Company's $1.5
million credit facility also provided by the same debt holder, from which the
Company had drawn down the sum of $1,103,000 as of November 3, 2008, was also
satisfied by way of issuance of Debentures under the November 3, 2008 offering.
With the agreement to settle all the notes previously issued the debt holder
subscribed to an aggregate of $2,566,077 of Debentures under the offering.

As at December 31, 2010, convertible debentures and corresponding accrued
interest amounted to $0. As at December 31, 2009, convertible debentures
amounted to $10,334,513 net of deferred costs of $36,506 and debt discount of
$228,981 with corresponding accrued interest of $996,385.

On December 29, 2009, the Company issued a $500,000 unsecured subordinated
promissory note to a former member of the Company's Board of Directors with
interest accruing at the annual rate of 9%. Upon the Company completing a
financing for the gross sum of $2 million dollars or more or in the event the
Company did not complete a financing by March 31, 2010, this note would have
been payable upon demand of the holder.

From the proceeds of the March 2010 offering, the Company repaid $500,000
principal and $11,342 interest of the December 29, 2009 unsecured subordinated
promissory note. As at December 31, 2010, promissory note due to related party
and corresponding accrued interest amounted to $0. At December 31, 2009,
promissory note due to related party and corresponding accrued interest amounted
to $500,000.

In 2007, ESW's subsidiary, ESW Canada Inc., entered into a $2.5 million
revolving credit facility with RBC to finance orders on hand. Effective
September 2, 2008, the agreement was amended to extend the term of the agreement
through June 30, 2009 and effective August 21, 2009, the term of the secured
commercial loan agreement with RBC was extended through April 30, 2010. The
amended arrangement provided for a revolving facility available by way of a
series of term loans of up to $750,000 to finance future production orders. The
credit facility was guaranteed by the Company and its subsidiary ESW Canada
Inc., through the pledge of their assets to RBC. The facility had been
guaranteed to the bank under Export Development Canada ("EDC") pre-shipment
financing program. Borrowings under the revolving credit agreement bear interest
at 1.5% above the bank's prime rate of interest. Effective March 31, 2010, all
borrowings under the RBC facility were repaid from the proceeds of the March 19,
2010 convertible debenture financing and the facility with RBC was closed. As of
December 31, 2010, $0 was owed under the aforementioned facility. As at December
31, 2009, $713,037 was outstanding and due to RBC under the credit facility.

Effective March 31, 2010 ESW's subsidiary, ESW Canada Inc., entered into a
demand revolving credit facility agreement with a Canadian chartered bank, to
meet working capital requirements. The facility has a credit limit of CAD $4
million. Borrowings under the facility are limited to a percentage of accounts
receivable plus a percentage of inventories (capped at CAD $1 million or 50% of
the accounts receivable portion) less any prior ranking claims. The credit
facility is guaranteed by the Company and its subsidiaries ESW Canada Inc., ESW
America Inc., BBL Technologies Inc., and ESW Technologies Inc., through a
general security agreement over all assets to its senior lender. The facility
has been guaranteed to the bank under EDC's Export Guarantee Program. Borrowings
under the credit facility bear interest at 2.25% above the bank's prime rate of
interest. Obligations under the revolving credit agreement are collateralized by
a first-priority lien on the assets of the Company and its subsidiaries,
including, accounts receivable, inventory, equipment and other tangible and
intangible property, including the capital stock of all direct subsidiaries.

The terms relating to the credit agreement specifically note that the Company
maintain a tangible net worth of at least $4.0 million. The credit agreement
contains, among other things, covenants, representations and warranties and
events of default customary for a facility of this type for the Company and its
subsidiaries. Such covenants include certain restrictions on the incurrence of
additional indebtedness, liens, acquisitions and other investments, mergers,
consolidations, liquidations and dissolutions, sales of assets, dividends and
other repurchases in respect of capital stock, voluntary prepayments of certain
other indebtedness, capital expenditures and transactions with affiliates,
subject to certain exceptions. Under certain conditions amounts outstanding
under the credit agreements may be accelerated. Such events include failure to
comply with covenants, breach of representations or warranties in any material
respect, non-payment or acceleration of other material debt, entry of material
judgments not covered by insurance, or a change of control of the Company.

As at December 31, 2010, $3,424,899 was owed under the senior credit facility.
From November 8, 2010 through December 31, 2010 the Company's wholly owned
subsidiary, ESW Canada Inc., received waivers of certain financial covenants
under its credit agreement with its senior lender. Without the waivers, the
Company's subsidiary would not be in compliance with certain covenants in the
credit agreement.

ESW's ability to service its indebtedness, other obligations and commitments in
cash will depend on its future performance, which will be affected by prevailing
economic conditions, financial, business, regulatory and other factors. Certain
of these factors are beyond ESW's control. ESW believes that, based upon its
current business plan and anticipated capital raise it will be able to meet its
debt service obligations when due. Significant assumptions underlie this belief,
including, among other things, that ESW will be successful in implementing its
business strategy, that some of ESW's new products that have received
verification from the appropriate regulatory authorities will obtain customer
and market acceptance, and that there will be no material adverse developments
in ESW's business, liquidity or capital requirements. If ESW cannot generate
sufficient cash flow from operations to service its indebtedness and to meet
other obligations and commitments, ESW might be required to refinance or to
dispose off assets to obtain funds for such purpose. There is no assurance that
refinancing or asset dispositions or raising funds from sales of equity or
otherwise could be effected on a timely basis or on satisfactory terms. In such
circumstance, ESW would have to issue shares of its common stock as repayment of
these obligations, which would be of a dilutive nature to ESW's present
shareholders.

CONTRACTUAL OBLIGATIONS

LEASES

Effective November 24, 2004, the Company's wholly-owned subsidiary, ESWA,
entered into a lease agreement for approximately 40,220 square feet of leasehold
space at 2 Bethlehem Pike Industrial Center, Montgomery Township, Pennsylvania.
The leasehold space houses the Company's research and development facilities.
The lease commenced on January 15, 2005 and expired January 31, 2010. Effective
October 16, 2009, the Company's wholly-owned subsidiary ESW America, Inc.
entered into a lease renewal agreement with Nappen & Associates for the
leasehold property at Pennsylvania. There were no modifications to the original
economic terms of the lease under the lease renewal agreement. Under the terms
of the lease renewal, the lease term will now expire February 28, 2013.

Effective December 20, 2004, the Company's wholly-owned subsidiary, ESWC,
entered into an offer to lease agreement for approximately 50,000 square feet of
leasehold space in Concord, Ontario, Canada. The leasehold space houses the
Company's executive offices and a high volume manufacturing plant. The
possession of the leasehold space took place on May 24, 2005 and the term of the
lease was extended to September 30, 2010. ESWC renewed its lease agreement at
the current property for an additional five year term. The renewed lease period
commenced on October 1, 2010 and ends on September 30, 2015.

The following is a summary of the minimum annual lease payments, for both
leases.

YEAR

2011 $460,801
2012 460,801
2013 312,520
2014 289,986
2015 217,489
----------
$1,741,597
==========

LEGAL MATTERS

CAPITAL LEASE OBLIGATION

The Company is committed to the following lease payments in connection with the
acquisition of equipment under capital leases:

YEAR

2011 $ 4,385
2012 1,047
-------
TOTAL 5,432

Less imputed interest (390)
-------
Total obligation under capital lease 5,042

Less current portion ( 3,552)
-------
TOTAL LONG-TERM PORTION $ 1,490
=======

The Company incurred $2,374 and $6,354 of interest expense on capital lease
obligation for the years ended December 31, 2010 and 2009, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

ESW's discussion and analysis of the financial condition and results of
operations is based upon its consolidated financial statements, which have been
prepared in accordance with Generally Accepted Accounting Principles, in the
United States ("US GAAP").

A critical accounting policy is defined as one that is both material to the
presentation of ESW's financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect on
ESW's financial condition and results of operations. Specifically, critical
accounting estimates generally require management to make assumptions about
matters that are highly uncertain at the time of the estimate; and if different
estimates or judgments were used, the use of these estimates or judgments would
have a material effect on ESW's financial condition or results of operations.

The estimates and judgments ESW makes that affect the reported amount of assets,
liabilities, revenues and expenses are based on historical experience and on
various other factors, which ESW believes to be reasonable in the circumstances
under which they are made. Actual results may differ from these estimates under
different assumptions or conditions. ESW considers accounting policies related
to revenue recognition, the valuation of inventories, research and development
and accounting for the value of long-lived assets and intangible assets to be
critical accounting policies.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, ESW America Inc. ("ESWA"), ESW Technologies Inc.
("ESWT"), ESW Canada Inc. ("ESWC") and BBL Technologies Inc. ("BBL"). All
inter-company transactions and balances have been eliminated on consolidation.
Amounts in the consolidated financial statements are expressed in US dollars.

ESTIMATES

The preparation of consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense during the reported period. Actual results could differ from
those estimates. Significant estimates include amounts for impairment of
property plant and equipment, intangible assets, share based compensation,
inventory, redeemable class A special shares, convertible debentures, valuation
of warrants, accrued liabilities and accounts receivable exposures.

CONCENTRATIONS OF CREDIT RISK

The Company's cash balances are maintained in various banks in Canada and the
United States. Deposits held in banks in the United States are insured up to
$250,000 per depositor for each bank by the Federal Deposit Insurance
Corporation. Deposits held in banks in Canada are insured up to $100,000
Canadian per depositor for each bank by The Canada Deposit Insurance Corporation
a federal Crown corporation. Actual balances at times may exceed these limits.

Accounts Receivable and Concentrations of Credit Risk: The Company performs
on-going credit evaluations of its customers' financial condition and generally
does not require collateral from its customers. Three of its customers accounted
for 21%, 19%, and 13%, respectively, of the Company's revenue in the fiscal year
2010 and 48%, 21%, and 13%, respectively, of its accounts receivable as of
December 31, 2010. Three of its customers accounted for 45%, 20%, and 9%,
respectively, of the Company's revenue in the fiscal year 2009 and 27%, 11%, and
25%, respectively, of its accounts receivable as of December 31, 2009.

As at December 31, 2010, the Company believes that the allowance for
uncollectible accounts sufficiently covers any credit risk related to past due
accounts receivable balances.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated credit risk by performing credit checks
and actively pursuing past due accounts. An allowance for doubtful accounts is
estimated and recorded based on management's assessment of the credit history
with the customer and current relationships with them. On this basis management
has determined that an allowance for doubtful accounts of $70,028 and $6,637 was
appropriate as at December 31, 2010 and 2009, respectively.

INVENTORY

Inventory is stated at the lower of cost or market determined using the first-in
first-out method. Inventory is periodically reviewed for use and obsolescence,
and adjusted as necessary. Inventory consists of raw materials, work in progress
and finished goods.

PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION

The Company capitalizes customized equipment built to be used in the future day
to day operations at cost. Once complete and available for use, the cost for
accounting purposes is transferred to property, plant and equipment, where
normal depreciation rates apply.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Depreciation is computed on
a straight-line basis over the estimated useful lives of the assets, generally 5
to 7 years. Maintenance and repairs are charged to operations as incurred.
Significant renewals and betterments are capitalized. An impairment loss would
be recognized when the carrying amount of an asset exceeds the estimated
discounted cash flow used in determining the fair value of the asset. ESW
conducted a test for impairment as of December 31, 2010 and 2009, and found no
impairment.

INTERNAL-USE SOFTWARE

ESW capitalizes costs related to computer software obtained or developed for
internal use. Software obtained for internal use is an enterprise-level business
and finance software that ESW is customizing to meet specific operational needs.
Costs incurred in the development phase are capitalized and amortized over the
useful life of the internal use software, which is generally from three to five
years. Capitalized internal-use software development costs for a project which
is not yet complete is included as Internal-use Software under Development in
the consolidated balance sheet. Capitalization of such costs ceases at the point
at which the project is substantially complete and ready for its intended
purpose. Costs capitalized during for the years ended December 31, 2010 and 2009
were $126,340 and $0, respectively.

PATENTS AND TRADEMARKS

Patents and trademarks consist primarily of the costs incurred to acquire them
from an independent third party. Accounting Standards Codification ("ASC") Topic
350 requires intangible assets with a finite life be tested for impairment
whenever events or circumstances indicate that the carrying amount of an asset
(or asset group) may not be recoverable. An impairment loss would be recognized
when the carrying amount of an asset exceeds the estimated discounted cash flow
used in determining the fair value of the asset. ESW conducted a test for
impairment as of December 31, 2010 and 2009 and found no impairment.

Patents and trademarks are being amortized on a straight-line basis over their
estimated life of ten years. Amortization expense for the year ended December
31, 2010 and 2009 was $213,212 and $212,792 respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC Topic 820 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements.

Included in the ASC Topic 820 framework is a three level valuation inputs
hierarchy with Level 1 being inputs and transactions that can be effectively
fully observed by market participants spanning to Level 3 where estimates are
unobservable by market participants outside of the Company and must be estimated
using assumptions developed by the Company. The Company discloses the lowest
level input significant to each category of asset or liability valued within the
scope of ASC Topic 820 and the valuation method as exchange, income or use. The
Company uses inputs which are as observable as possible and the methods most
applicable to the specific situation of each company or valued item.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities, notes payable to related party, bank loan,
redeemable Class A special shares and capital lease obligation approximate fair
value because of the short-term nature of these items. Per ASC Topic 820
framework these are considered Level 2 inputs where estimates are unobservable
by market participants outside of the Company and must be estimated using
assumptions developed by the Company.

The advance share subscription was classified as a liability and periodically
marked to market until October 14, 2010 (see Note 10). The fair value of the
advance share subscription obligation was determined by the cash settlement
value at the end of each period based on the closing price of the Company's
common stock and might be adversely affected by a change in the price of the
Company's common stock. Per ASC Topic 820 framework this was considered a Level
1 input.

The exchange feature liability is classified as a liability and periodically
marked to market. The fair value of the exchange feature liability is determined
by the cash settlement value at the end of each period based on the closing
price of the Company's common stock and might be adversely affected by a change
in the price of the Company's common stock. Per FAS 157 framework these are
considered a Level 1 input.

Interest rate risk is the risk that the value of a financial instrument might be
adversely affected by a change in the interest rates. In seeking to minimize the
risks from interest rate fluctuations, the Company manages exposure through its
normal operating and financing activities.

REVENUE RECOGNITION

The Company derives revenue primarily from the sale of its catalytic products.
In accordance with ASC Topic 605, revenue is recognized when persuasive evidence
of an arrangement exists, delivery has occurred, the amount is fixed or
determinable, risk of ownership has passed to the customer and collection is
reasonably assured.

The Company also derives revenue (less than 1.5% in 2010 and 3.0% in 2009 of
total revenue) from providing air testing and environmental certification
services. Revenues from these services are recognized upon performance.

LOSS PER COMMON SHARE

Loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding during the year. Common stock
equivalents are excluded from the computation of diluted loss per share when
their effect is anti-dilutive.

Therefore diluted loss per share has not been calculated for 2010 and 2009 (see
Note 16).

INCOME TAXES

Income taxes are computed in accordance with the provisions of ASC Topic 740,
which requires, among other things, a liability approach to calculating deferred
income taxes. SFAS 109 requires a company to recognize deferred tax liabilities
and assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax basis of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. The guidance requires the Company to
make certain estimates and judgments about the application of tax law, the
expected resolution of uncertain tax positions and other matters. In the event
that uncertain tax positions are resolved for amounts different than the
Company's estimates, or the related statutes of limitations expire without the
assessment of additional income taxes, the Company will be required to adjust
the amounts of the related assets and liabilities in the period in which such
events occur.

Such adjustments may have a material impact on ESW's income tax provision and
results of operations. Note 11 to the consolidated financial statements
describes the guidance and the effects on results of operations and financial
position arising from its adoption.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows ASC Topic 360, which requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the assets' carrying amounts may not be recoverable. In performing the
review for recoverability, if future undiscounted cash flows (excluding interest
charges) from the use and ultimate disposition of the assets are less than their
carrying values, an impairment loss represented by the difference between its
fair value and carrying value, is recognized. Management reviewed the related
assets for impairment in the fourth quarter and found no impairment.

RESEARCH AND DEVELOPMENT

The Company is engaged in research and development work. Research and
development costs, are charged as operating expense of the Company as incurred.
Any grant money received for research and development work is used to offset
these expenditures. For the years ended December 31, 2010 and 2009, the Company
expensed $783,944 and $930,548 net of grant revenues, respectively, towards
research and development costs. The expense excluding grant revenues used to
offset research and development costs for the years ended December 31, 2010 and
2009 amounted to $927,319 and $1,099,301. In 2010 and 2009, grant money amounted
to $143,375 and $168,753, respectively.

FOREIGN CURRENCY TRANSLATION

The consolidated financial statements have been translated into U.S. dollars in
accordance with ASC Topic 830. All monetary items have been translated using the
exchange rates in effect at the balance sheet date. All non-monetary items have
been translated using the historical exchange rates at the time of transactions.
Income statement amounts have been translated using the average exchange rate
for the year. Translation adjustments that arise from translating the financial
statements of the Company's foreign subsidiaries from local currency to U.S.
dollars are recorded in other comprehensive income component of stockholders'
equity (deficit).

COMPREHENSIVE INCOME

ASC Topic 830 establishes standards for reporting and display of comprehensive
income and its components. As of December 31, 2010 and 2009, accumulated other
comprehensive income is reported as a component of stockholders' equity
(deficit). Other comprehensive income includes only foreign currency translation
adjustments.

PRODUCT WARRANTIES

The Company provides for estimated warranty costs at the time of sale and
accrues for specific items at the time their existence is known and the amounts
are determinable. The Company estimates warranty costs using standard
quantitative measures based on industry warranty claim experience and evaluation
of specific customer warranty issues. The Company currently records warranty
costs as 2% of revenue. As of December 31, 2010 and 2009, $102,793 and $40,290,
respectively, was accrued against warranty provision and included in accrued
liabilities. For the years ended December 31, 2010 and 2009, the total warranty,
service, service travel and installation costs included in cost of sales was
$224,766 and $38,209, respectively.

SEGMENTED REPORTING

ASC Topic 280 changed the way public companies report information about segments
of their business in their quarterly reports issued to shareholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues
and its major customers.

The Company also derives revenue (less than 1.5% in 2010 and 3.0% in 2009 of
total revenue) from providing air testing and environmental certification
services. For the years ended December 31, 2010 and 2009, all revenues were
generated from the United States. As of December 31, 2010 and 2009, $1,182,263
and $1,662,243, respectively, of property, plant and equipment is located at the
air testing facility in Pennsylvania and all remaining long lived assets are
located in Concord, Ontario.

RECENTLY ISSUED ACCOUNTING STANDARDS

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued Accounting Standards Update ("ASU" or "Update")
No. 2010-06, Improving Disclosures about Fair Value Measurements ("ASU 2010-06")
(codified within ASC Topic 820, Fair Value Measurements and Disclosures). ASU
2010-06 improves disclosures originally required under SFAS No. 157. ASU 2010-06
is effective for interim and annual periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances and settlements in
the roll forward of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after December 15, 2009,
and for interim periods within those years. The adoption of the guidance did not
have a material effect on the Company's consolidated financial position, results
of operations, cash flows or related disclosures.

In December 2009, the FASB issued ASU 2009-16, Transfers and Servicing (Topic
860) - Accounting for Transfers of Financial Assets ("ASU 2009-16"). ASU 2009-16
amends the accounting for transfers of financials assets and will require more
information about transfers of financial assets, including securitizations, and
where entities have continuing exposure to the risks related to transferred
financial assets. ASU 2009-16 is effective at the start of a reporting entity's
first fiscal year beginning after November 15, 2009, with early adoption not
permitted. The adoption of the guidance did not have a material effect on the
Company's consolidated financial position, results of operations, cash flows or
related disclosures.

In October 2009, the FASB issued ASU 2009-15, Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
("ASU 2009-15"). ASU 2009-15 amends the accounting and reporting guidance for
debt (and certain preferred stock) with specific conversion features or other
options. ASU 2009-15 is effective for fiscal years beginning on or after
December 15, 2009. The adoption of the guidance did not have a material effect
on the Company's consolidated financial position, results of operations, cash
flows or related disclosures.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In August 2010, the FASB issued ASU No. 2010-22, Accounting for Various Topics -
Technical Corrections to SEC Paragraphs this update amends various SEC
paragraphs based on external comments received and the issuance of SAB 112,
which amends or rescinds portions of certain SAB topics. The Company is
assessing the potential effect this guidance will have on its consolidated
financial statements.

In August 2010, the FASB issued ASU No. 2010-21, Accounting for Technical
Amendments to Various SEC Rules and Schedules. This updates various SEC
paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments
to Rules, Forms, Schedules and Codification of Financial Reporting Policies. The
Company is assessing the potential effect this guidance will have on its
consolidated financial statements.

In April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition - Milestone
Method. The objective of this Update is to provide guidance on defining a
milestone and determining when it may be appropriate to apply the milestone
method of revenue recognition for research or development transactions. The
amendments in this Update are effective on a prospective basis for milestones
achieved in fiscal years, and interim periods within those years, beginning on
or after June 15, 2010. Early adoption is permitted. The Company does not
anticipate that the adoption of this pronouncement will have a significant
effect on its consolidated financial statements.

In April 2010, the FASB issued ASU No. 2010-013, Compensation - Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades a consensus of the FASB Emerging Issues Task Force. ASU
2010-13 addresses the classification of an employee share-based award with an
exercise price denominated in the currency of a market in which the underlying
equity security trades. The amendments are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The Company will comply with the additional disclosures required by this
guidance upon its adoption in January 2011.

In October 2009, the FASB issued ASU No. 2009-13, Multiple Deliverable Revenue
Arrangements - a consensus of the FASB Emerging Issues Task Force ("ASU
2009-13") (codified within ASC Topic 605). ASU 2009-13 addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services (deliverables) separately rather than as a combined unit. ASU
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The Company is currently assessing the impact of ASU
2009-13 on its consolidated financial position, results of operations and cash
flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ESW is exposed to financial market risks, including changes in currency exchange
rates and interest rates. The Company also has foreign currency exposures at its
foreign operations related to buying and selling currencies other than the local
currencies. The risk under these interest rate and foreign currency exchange
agreement is not considered to be significant.

FOREIGN EXCHANGE RISK

ESW's foreign subsidiaries conduct their businesses in local currency
predominantly the Canadian Dollar. ESW's exposure to foreign currency
transaction gains and losses is the result of certain net receivables due from
its foreign subsidiaries. ESW's exposure to foreign currency translation gains
and losses also arises from the translation of the assets and liabilities of its
subsidiaries to U.S. dollars during consolidation. ESW recognized a translation
gain of $21,166 in 2010 as compared to a gain of $173,857 in 2009 reported as
other comprehensive income in the consolidated statements of changes in
stockholders' equity / (deficit), ESW recognized a translation loss of $103,256
as compared to a loss of $10,035 in 2009 reported as foreign exchange loss in
the consolidated statements of operations and comprehensive loss primarily as a
result of exchange rate differences between the U.S. dollar and the Canadian
dollar.

ESW's strategy for management of currency risk relies primarily upon conducting
its operations in the countries' respective currency and ESW may, from time to
time, engage in hedging intended to reduce its exposure to currency
fluctuations. At December 31, 2010, ESW had no outstanding forward exchange
contracts.

INTEREST RATE RISK

ESW invests in highly liquid investments purchased with an original or remaining
maturity of three months or less at the date of purchase. These investments are
fixed rate investments. Investments in fixed rate interest earning products
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates. However due to
the limited amount of investment in such securities and their terms restricted
to three months or less, ESW does not expect the impact on these investments to
be material. At December 31, 2010 and 2009, ESW had no investments.

The interest payable on one of ESW`s subsidiaries bank loan is based on variable
interest rates and therefore affected by changes in market interest rates. The
Canadian prime business interest rates have increased over the last year. The
average interest rate the Company is paying is 4.75%. Increasing interest rates
have negatively impacted interest expense. Due to the short term nature of these
loans the impact of changing interest rates is not considered significant at
this time.

ESW currently has no variable-rate long-term debt that exposes ESW to interest
rate risk. Generally, the fair market value of ESW`s fixed-rate convertible
debentures will increase as interest rates fall and decrease as interest rates
rise. At December 31, 2010, ESW had $0 of convertible debt. At December 31,
2009, ESW had a principal amount of $10,334,513 of convertible debt net of
deferred costs of $36,506 and debt discount of $228,981. ESW currently has no
variable-rate long-term debt that exposes ESW to interest rate risk. Generally,
the fair market value of ESW`s fixed-rate convertible debentures will increase
as interest rates fall and decrease as interest rates rise. At December 31,
2010, ESW had $0 of convertible debt. At December 31, 2009, ESW had a principal
amount of $10,334,513 of convertible debt net of deferred costs of $36,506 and
debt discount of $228,981.

ITEM 8. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Environmental Solutions Worldwide,
Inc.

We have audited the accompanying consolidated balance sheets of Environmental
Solutions Worldwide, Inc. (the "Company") as of December 31, 2010 and 2009, and
the related consolidated statements of operations and comprehensive loss,
changes in stockholders' equity (deficit) and comprehensive income and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2010 and 2009, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's experience of negative cash
flows from operations and its dependency upon future financing raise substantial
doubt about its ability to continue as a going concern. Management's plans
regarding these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

/s/ MSCM LLP
---------------
Toronto, Canada
March 31, 2011

701 Evans Avenue, 8th Floor,
Toronto, Ontario,
M9C 1A3, Canada
T (416) 626-6000
F (416) 626-8650
MSCM.CA

ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS

DECEMBER 31, DECEMBER 31,
2010 2009
------------------ ---------------
ASSETS

Current Assets
Cash and cash equivalents (Note 4) $ 13,328 $ 632,604
Accounts receivable, net of allowance 2,279,149 1,118,929
for doubtful accounts of $70,028
(2009 - $6,637) (Note 2)
Inventory (Note 5) 4,414,518 1,508,414
Prepaid expenses and sundry assets 261,176 213,484
--------------- --------------

Total current assets 6,968,171 3,473,431

Property, plant and equipment under construction
(Note 6) 185,542 138,800

Property, plant and equipment, net of accumulated
depreciation of $5,765,164 1,931,373 2,687,105
(2009 - $4,663,281) (Note 6)

Internal use software under development (Note 2) 126,340 -

Patents and trademarks, net of accumulated
amortization of $2,115,091 16,145 229,347
(2009 - $1,901,501) (Note 2)
--------------- --------------

$ 9,227,571 $ 6,528,683
=============== ==============

LIABILITIES AND STOCKHOLDERS' EQUITY / (DEFICIT)

Current Liabilities
Bank loans (Note 8) $ 3,424,889 $ 713,037
Accounts payable 2,495,070 1,126,680
Accrued liabilities 512,964 1,311,518
Exchange feature liability (Note 10 and 12) 2,133,862 -
Notes payable to related party (Note 7) - 500,000
Customer deposits 29,322 9,857
Redeemable class A special shares (Note 9) 453,900 453,900
Current portion of capital lease obligation
(Note 15) 3,552 8,857
--------------- --------------

Total current liabilities 9,053,559 4,123,849
--------------- --------------

Long-term Liabilities
Convertible debentures, net of deferred costs
of $0 (2009 - $36,506)
and debt discount of $0 (2009 - $228,981)
(Note 10) - 10,334,513
Capital lease obligation (Note 15) 1,490 10,861
--------------- --------------

Total long-term liabilities 1,490 10,345,374
--------------- --------------

Total liabilities 9,055,049 14,469,223
--------------- --------------

Commitments and Contingencies (Note 15)

Stockholders' Equity / (Deficit) (Notes 12 and 13)
Common stock, $0.001 par value, 250,000,000
(2009 - 125,000,000) shares authorized;
129,463,767 shares issued and outstanding
(2009 - 73,823,851) 129,463 73,822
Additional paid-in capital 43,567,531 26,083,635
Accumulated other comprehensive income 446,549 425,383
Accumulated deficit (43,971,021) (34,523,380)
--------------- --------------

Total stockholders' equity / (deficit) 172,522 (7,940,540)
--------------- --------------

$ 9,227,571 $ 6,528,683
=============== ==============

The accompanying notes are an integral part of these consolidated financial statements.

ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31,

2010 2009
--------------- ----------------

Revenue
Net sales $ 10,437,145 $ 3,075,398

Cost of sales 7,261,496 1,812,100
--------------- ----------------

Gross profit 3,175,649 1,263,298
--------------- ----------------

Operating expenses
Marketing, office and general costs 4,719,362 3,329,570
Research and development costs 783,944 930,548
Officers' compensation and directors' fees 954,054 672,444
Consulting and professional fees 451,345 215,984
Foreign exchange loss 103,256 10,035
Depreciation and amortization 837,448 1,123,560
--------------- ----------------

7,849,409 6,282,141
--------------- ----------------

Loss from operations (4,673,760) (5,018,843)

Interest on long-term debt (183,858) (870,632)
Amortization of deferred costs (117,131) (19,912)
Long-term debt accretion (768,981) (27,019)
Inducement premium (2,909,872) --
Mark to market adjustment on advance share subscription 1,247,119 --
Change in fair value of exchange feature liability (2,021,213) --
Interest on notes payable to related party (11,342) --
Loss on disposal of property and equipment (8,828) (1,404)
Interest income 225 858
--------------- ----------------

Net loss (9,447,641) (5,936,952)
--------------- ----------------

Other comprehensive income:
Foreign currency translation of Canadian subsidiaries 21,166 173,857
--------------- ----------------

Net comprehensive loss $ (9,426,475) $ (5,763,095)
=============== ================

Net loss per share (basic and diluted) (Note 16) $ (0.08) $ (0.08)
=============== ================

Weighted average number of shares outstanding
(basic and diluted) (Note 16) 112,793,477 73,416,317
=============== ================

The accompanying notes are an integral part of these consolidated financial statements.

ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) AND COMPREHENSIVE INCOME FOR THE YEARS ENDED
DECEMBER 31, 2010 AND 2009

ADDITIONAL ACCUMULATED OTHER
COMMON STOCK PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL INCOME DEFICIT TOTAL

Balance, January 1, 2009 72,973,851 $ 72,972 $ 25,403,485 $ 251,526 $ (28,586,428) $ (2,858,445)

Net loss -- -- -- -- (5,936,952) (5,936,952)

Common stock issued from exercise of options 850,000 850 424,150 -- -- 425,000

Intrinsic value of beneficial
conversion feature of convertible debentures -- -- 256,000 -- -- 256,000

Foreign currency translation of Canadian
subsidiaries -- -- -- 173,857 -- 173,857
-------------------------------------------------------------------------------

Balance, January 1, 2010 73,823,851 73,822 26,083,635 425,383 (34,523,380) (7,940,540)

Net loss -- -- -- -- (9,447,641) (9,447,641)

Stock-based compensation -- -- 93,189 -- -- 93,189

Common stock issued from share subscription 1,500,000 1,500 598,500 -- -- 600,000

Broker fees related to share subscription -- -- (24,000) -- -- (24,000)

Fair value of exchange feature liability -- -- (112,649) -- -- (112,649)

Inducement on conversion of debentures
with related party 4,375,668 4,376 1,658,377 -- -- 1,662,753

Common stock issued on conversion of debentures 49,764,248 49,765 14,730,479 -- -- 14,780,244

Intrinsic value of beneficial
conversion feature of convertible debentures -- -- 540,000 -- -- 540,000

Foreign currency translation of
Canadian subsidiaries -- -- -- 21,166 -- 21,166
-------------------------------------------------------------------------------

Balance, December 31, 2010 129,463,767 $ 129,463 $ 43,567,531 $ 446,549 $ (43,971,021) $ 172,522

=========== =========== ============= ============ ============= ============

The accompanying notes are an integral part of these consolidated financial statements.

ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,

2010 2009
------------- ------------

Net loss $ (9,447,641) $ (5,936,952)
------------- ------------

Adjustments to reconcile net loss to net cash
used in operating activities:
Inducement premium 2,909,872 --
Change in fair value of exchange feature liability 2,021,213 --
Mark to market adjustment on advance share subscription (1,247,119) --
Depreciation of property, plant and equipment 1,045,096 1,061,439
Long-term debt accretion 768,981 27,019
Amortization of patents and trademarks 213,212 212,792
Write-down of inventory 195,293 --
Interest on long-term debt 183,858 870,632
Amortization of deferred costs 117,131 19,912
Stock-based compensation 93,189 --
Provision for doubtful accounts 60,855 6,209
Loss on disposal of property, plant and equipment 8,828 1,404
------------- ------------

6,370,409 2,199,407
------------- ------------

Increase (decrease) in cash flows from operating
activities resulting from changes in:
Accounts receivable (1,195,868) (954,177)
Inventory (3,066,562) (591,108)
Prepaid expenses and sundry assets (14,163) 151,036
Accounts payable and accrued liabilities 1,459,220 780,901
Customer deposits 19,465 (2,683)
------------- ------------

(2,797,908) (616,031)
------------- ------------

Net cash used in operating activities (5,875,140) (4,353,576)
------------- ------------

Investing activities:
Proceeds from sale of property and equipment 703 951
Acquisition of property, plant and equipment (254,581) (225,134)
Addition to internal use software under development (121,133) --
Addition to property, plant and equipment under construction (39,177) 54,115
Increase in patents and trademarks -- (1,108)
------------- ------------

Net cash used in investing activities (414,188) (171,176)
------------- ------------

Financing activities:
Proceeds from convertible debentures placement 3,000,000 1,300,000
Debt issuance cost (80,625) --
Proceeds from bank loans 3,312,254 846,140
Repayment of bank loan (723,431) (272,224)
Repayment of notes payable to related party (500,000) 800,000
Proceeds from issuance of common stock 600,000 425,000
Broker fees related to share subscription (24,000) --
Repayment of capital lease obligation (13,769) (12,001)
------------- ------------

Net cash provided by financing activities 5,570,429 3,086,915
------------- ------------

Net decrease in cash and equivalents (718,899) (1,437,837)

Foreign exchange loss (gain) on foreign operations 99,623 (177,182)

Cash and cash equivalents, beginning of year 632,604 2,247,623
------------- ------------

Cash and cash equivalents, end of year $ 13,328 $ 632,604
============= ============

Supplemental disclosures:
Cash interest paid $ 13,157 $ 858
============= ============
Cash paid (recieved) as income taxes $ -- $ (10,838)
============= ============
Other non-cash conversion of debentures and related interest $ 14,780,243 $ --
============= ============

The accompanying notes are an integral part of these consolidated financial statements.

NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION

Environmental Solutions Worldwide, Inc. (the "Company" or "ESW") through its
wholly owned subsidiaries is engaged in the design, development, manufacturing
and sales of environmental technologies and testing services with its primary
focus on the international on-road and off-road diesel retrofit market. ESW
currently manufactures and markets a line of catalytic emission control and
enabling technologies for a number of applications.

The audited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("US GAAP"), which contemplates continuation of the Company as a going concern.

The Company has sustained recurring operating losses. As of December 31, 2010,
the Company had an accumulated deficit of $43,971,021 and cash and cash
equivalents of $13,328 and was in violation of certain financial covenants with
its secured lender for which a waiver was obtained (see Note 8). There is no
assurance that the Company will be successful in achieving sufficient cash flow
from operations in the near future and there can be no assurance that it will
either achieve or maintain profitability in the future. As a result, there is
substantial doubt regarding the Company's ability to continue as a going
concern. The Company will require additional financing to fund its continuing
operations. The Company is seeking additional funds by way of equity and debt
financing. The Company's ability to continue as a going concern is dependent on
obtaining additional financing and achieving and maintaining a profitable level
of operations. The outcome of these matters cannot be predicted at this time.

Effective November 9, 2010 and December 8, 2010 the Company completed two
tranches of a unit offering, each unit was offered at a price of $0.40 and is
comprised of one share of the Company's common stock and one, warrant
exercisable within two years, for one share of common stock, the exercise price
will be $0.55; if a warrant is exercised between the first and second years from
issuance, the exercise price will be $0.65. The Company raised gross proceeds of
$600,000 and issued 1,500,000 shares of the Company's common stock and 1,500,000
warrants to purchase 1,500,000 shares of the Company's common stock. (See Note
12 for further details).

On February 17, 2011, the Company raised a further $3 million through the
issuance of unsecured subordinated promissory notes (together "the Notes") to
current shareholders and deemed affiliates of certain members of the board of
directors of the Company. Proceeds of the Notes and earlier financing will be
used to fund working capital, planned capital investments and other general
corporate purposes. With the proceeds of the Notes, the Company and its
subsidiaries are in compliance with covenant obligations under the Demand Credit
Agreement with the Canadian Imperial Bank of Commerce ("CIBC") dated March 10,
2010 for which the Company and its subsidiaries had previously obtained waivers
of covenant obligations through to February 15, 2011.

The Company has also proposed plans for a rights offering of the Company's
common stock, at a price of $0.12 per share pursuant to which the Company plans
to offer rights to existing shareholders on the offering date to purchase
approximately $6.5 million in shares of Common Stock, the offering is expected
to raise at least an incremental $3.5 million of cash for the Company and will
also permit all Subordinated Lenders to exchange their Notes (and the other
Notes paid in-kind for the payment of interest under the Notes) for shares of
Common Stock under the offering. The offering is expected to be completed by
June 17, 2011.

These consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern for a reasonable period of
time. All adjustments considered necessary for fair presentation and of a normal
recurring nature have been included in these consolidated financial statements.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

ESTIMATES

CONCENTRATIONS OF CREDIT RISK

As at December 31, 2010, the Company believes that the allowance for
uncollectible accounts sufficiently covers any credit risk related to past due
accounts receivable balances.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

INVENTORY

PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION

PROPERTY, PLANT AND EQUIPMENT

INTERNAL-USE SOFTWARE

PATENTS AND TRADEMARKS

FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC Topic 820 defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements.

REVENUE RECOGNITION

LOSS PER COMMON SHARE

Therefore diluted loss per share has not been calculated for 2010 and 2009 (see
Note 16).

INCOME TAXES

IMPAIRMENT OF LONG-LIVED ASSETS

RESEARCH AND DEVELOPMENT

F10

FOREIGN CURRENCY TRANSLATION

COMPREHENSIVE INCOME

PRODUCT WARRANTIES

SEGMENTED REPORTING

NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

F11

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

F12

NOTE 4 - CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and highly liquid investments purchased
with an original or remaining maturity of 90 days or less at the date of
purchase. At December 31, 2010 and 2009 all of the Company's cash and cash
equivalents consisted of cash.

NOTE 5 - INVENTORY

Inventory consists of:

DECEMBER 31,
INVENTORY 2010 2009
---------------------------------------------
Raw materials $1,669,481 $ 844,649
Work-in-process 2,737,545 640,286
Finished goods 7,492 23,479
---------------------------------------------
TOTAL $4,414,518 $1,508,414
=============================================

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

DECEMBER 31,
CLASSIFICATION 2010 2009
-----------------------------------------------------------
Plant, machinery and equipment $ 5,790,507 $ 5,539,017
Office equipment 384,902 325,626
Furniture and fixtures 461,817 451,281
Vehicles 18,288 17,951
Leasehold improvements 1,041,023 1,016,511
--------------------------
7,696,537 7,350,386

Less: accumulated depreciation (5,765,164) (4,663,281)
--------------------------
$ 1,931,373 $ 2,687,105
--------------------------

DECEMBER 31,
Depreciation Expense 2010 2009
-----------------------------------------------------------------------
Depreciation expense included in cost of sales $ 174,013 $ 56,436
Depreciation expense included in operating expenses 624,233 910,713
Depreciation expense included in research
and development costs 246,849 139,109
-----------------------
Total depreciation expense $1,045,096 $1,106,258
-----------------------

F13

At December 31, 2010 and 2009, the Company had $185,542 and $138,800,
respectively, of customized equipment under construction.

The office equipment above includes $0 and $19,121 in assets under capital lease
with a corresponding accumulated depreciation of $0 and $15,493 as of December
31, 2010 and 2009, respectively.

The plant, machinery and equipment above include $37,939 and $36,294 in assets
under capital lease with a corresponding accumulated depreciation of $25,723 and
$18,592 as of December 31, 2010 and 2009, respectively.

NOTE 7 - NOTE PAYABLE TO RELATED PARTY

On December 29, 2009, the Company issued a $500,000 unsecured subordinated
promissory note to a shareholder and a member of the Company's Board of
Directors with interest accruing at the annual rate of 9%. In accordance with
the terms of the note, upon the Company completing a financing for the gross sum
of $2 million dollars or more, or in the event the Company did not complete a
financing by March 31, 2010, this note would have been payable upon demand of
the holder.

Effective March 31, 2010 the Company repaid $500,000 principal and $11,342 in
interest from the proceeds of the March 19, 2010 convertible debentures
issuance. (see Note 10).

As of December 31, 2010, principal and corresponding accrued interest
outstanding on note payable to related party was $0 and $0, respectively. As of
December 31, 2009, principal and interest outstanding on note payable to related
party was $500,000 and $0, respectively.

NOTE 8 - BANK LOANS

In 2007, ESW's subsidiary, ESWC entered into a $2.5 million revolving credit
facility with Royal Bank of Canada ("RBC"), to finance orders on hand. Effective
September 2, 2008, the agreement was amended to extend the term of the agreement
through to June 30, 2009 and effective August 21, 2009, the term of the secured
commercial loan agreement with RBC was extended through to April 30, 2010. The
amended arrangement provided for a revolving facility available by way of a
series of term loans of up to $750,000 to finance future production orders. The
credit facility was guaranteed by the Company and its subsidiary ESWC, through
the pledge of their assets to RBC. The facility had been guaranteed to the bank
under Export Development Canada ("EDC") pre-shipment financing program.
Borrowings under the revolving credit agreement bore interest at 1.5% above the
bank's prime rate of interest. Repayments of any loans were required no later
than one year from the date of the advancement of that loan. Obligations under
the revolving credit agreement were collateralized by a first-priority lien on
the assets of the Company and its subsidiary ESWC, including, accounts
receivable, inventory, equipment and other tangible and intangible property,
including the capital stock of all direct subsidiaries.

F14

Effective March 31, 2010, all borrowings under the RBC facility were repaid and
the facility with RBC was closed.

Effective March 31, 2010, ESW's subsidiary, ESWC, entered into the Credit
Agreement with a Canadian chartered bank, CIBC, to meet working capital
requirements. The facility has a credit limit of $4 million Canadian. Borrowings
under the facility are limited to a percentage of accounts receivable plus a
percentage of inventories (capped at $1 million Canadian or 50% of the accounts
receivable portion) less any prior ranking claims. The credit facility is
guaranteed by the Company and its subsidiaries, ESWC, ESWA, BBL, and ESWT,
through a general security agreement over all assets to CIBC. The facility has
been guaranteed to CIBC under EDC's Export Guarantee Program. Borrowings under
the credit facility bear interest at 2.25% above CIBC's prime rate of interest.
Obligations under the revolving credit agreement are collateralized by a
first-priority lien on the assets of the Company and its subsidiaries, including
accounts receivable, inventory, equipment and other tangible and intangible
property, including the capital stock of all direct subsidiaries.

The terms relating to the Credit Agreement specifically note that the Company
maintain a tangible net worth of at least $4.0 million Canadian. The credit
agreement contains, among other things, covenants, representations and
warranties and events of default customary for a facility of this type for the
Company and its subsidiaries. Such covenants include certain restrictions on the
incurrence of additional indebtedness, liens, acquisitions and other
investments, mergers, consolidations, liquidations and dissolutions, sales of
assets, dividends and other repurchases in respect of capital stock, voluntary
prepayments of certain other indebtedness, capital expenditures and transactions
with affiliates, subject to certain exceptions. Under certain conditions amounts
outstanding under the credit agreements may be accelerated. Such events include
failure to comply with covenants, breach of representations or warranties in any
material respect, non-payment or acceleration of other material debt, entry of
material judgments not covered by insurance, or a change of control of the
Company.

On November 8, 2010, November 26, 2010, and December 23, 2010, the Company's
wholly owned subsidiary, ESWC, received the first, second and third waivers,
respectively, of certain financial covenants under its Credit Agreement with
CIBC. Without the waiver, the Company's subsidiary would not be in compliance
with the current ratio and effective tangible net worth covenants as set forth
in the Credit Agreement. In the event the Company and its subsidiary, ESWC, fail
to comply with the terms of the waiver and meet the current ratio and effective
tangible net worth covenants prior to the end of the waiver period, same would
constitute an event of default and the bank loan may need to be repaid unless a
further waiver or modification to the Credit Agreement can be obtained.

The third waiver provided by CIBC was through January 31, 2011 and also provides
for a fee payable to the lender for the extension, as well as a reduction in the
maximum security margin deficit as defined under the Credit Agreement (by either
reducing borrowing or increasing the borrowing base) and an increase in the
annual interest rate to CIBC's prime rate plus 4.50% from CIBC's prime rate plus
2.25% effective January 1, 2011.

F15

As at December 31, 2010, $3,424,889 was owed under the credit facility to CIBC.
As at December 31, 2009, $713,037 was owed under a former credit facility with
RBC.

NOTE 9 - REDEEMABLE CLASS A SPECIAL SHARES

700,000 Class A special $453,900 (based on the historical
shares authorized, exchange rate at the time of
issued, and outstanding. issuance.)

The redeemable Class A special shares were issued by the Company's wholly owned
subsidiary, BBL, without par value, and are redeemable on demand by the holder
of the shares, which is a private Ontario Corporation, at $700,000 Canadian
(which translates to $703,801 US and $660,032 US at December 31, 2010 and 2009,
respectively). As the redeemable Class A special shares were issued by the
Company's wholly owned subsidiary, BBL, the maximum value upon which the Company
is liable is the net book value of BBL. As of December 31, 2010 and 2009, BBL
had an accumulated deficit of $1,192,858 US ($1,845,375 Canadian) and $1,187,506
US ($1,839,864 Canadian) as of December 31, 2010 and 2009, respectively, and
therefore, the holder would be unable to redeem the redeemable Class A special
shares at their ascribed value.

NOTE 10 - CONVERTIBLE DEBENTURES

Convertible debentures issued by the Company are summarized as follows:

TOTAL TOTAL
2008 DEBENTURES 2009 DEBENTURES 2010 DEBENTURES MARCH 31, 2010 DECEMBER 31, 2009
-------------- -------------- -------------- --------------- -----------------
Face value of convertible debenture $ 9,000,000 $ 1,600,000 $ 3,000,000 $ 13,600,000 $ 10,600,000
Less: Beneficial conversion feature -- (256,000) (540,000) (796,000) (256,000
Deferred costs (59,738) -- (80,625) (140,363) (59,738)
--------------- -------------- --------------- --------------- --------------
Book value upon issuance 8,940,262 1,344,000 2,379,375 12,663,637 10,284,262
Accretion of the debt discount -- 256,000 540,000 796,000 27,019
Amortization of deferred costs 59,738 -- 80,625 140,363 23,232
--------------- -------------- ---------------- --------------- --------------
Carrying Value 9,000,000 1,600,000 3,000,000 13,600,000 $ 10,334,513
==============
Conversion (March 25,2010) (9,000,000) (1,600,000) (3,000,000) (13,600,000)
--------------- --------------- ---------------- ---------------
Carrying Value (December 31,2010) $ -- $ -- $ -- $ --
=============== =============== ================ ===============

F16

Effective March 19, 2010, the Company issued $3,000,000 of its 9% convertible
debentures (the "2010 Debentures") to five (5) accredited investors under Rule
506 of Regulation D of Section 4(2) of the Securities Act. The 2010 Debentures
were for a term of three (3) years and were convertible into shares of the
Company's common stock at the option of the holder by dividing the principal
amount of the 2010 Debenture to be converted by $0.50. The 2010 Debentures
earned interest at a rate of 9% per annum payable in cash or in shares of the
Company's common stock at the option of the holder. If the holder elected to
receive interest in shares of common stock, the number of shares of common stock
to be issued for interest would be determined by dividing accrued interest by
$0.50. The 2010 Debentures had a mandatory conversion feature that required the
holders to convert in the event a majority of the Company's pre-existing
outstanding 9% convertible debentures converted. Subject to the holder's right
to convert and the mandatory conversion feature, the Company had the right to
redeem the 2010 Debentures at a price equal to one hundred and ten percent
(110%) multiplied by the then outstanding principal amount plus unpaid interest
to the date of redemption. Upon maturity, the debenture and interest was payable
in cash or common stock at the option of the Holder. The Company also had
provided the holders of the Debentures registration rights. The 2010 Debentures
contained customary price adjustment protections.

At the time the 2010 Debentures were issued, the Company recorded a debt
discount for a beneficial conversion feature in the amount of $540,000. The debt
discount being the aggregate intrinsic value calculated as the difference
between the market price of the Company's share of stock on March 19, 2010 and
the conversion price of the 2010 Debentures. The debt discount was being
accreted over the three (3) year life of the debentures using the effective
yield method. The effective yield on the debentures was 16.36%.

On August 28, 2009, the Company completed a transaction whereby it issued $1.6
million of 9% convertible debentures (the "2009 Debentures") to six (6)
accredited investors. Of the $1.6 million received by the Company, $500,000 was
received from a director of the Company through the exchange of a $300,000
unsecured 9% subordinated demand short term loan previously provided to the
Company on August 11, 2009 and an additional $200,000 investment made by the
director in the offering. The 2009 Debentures were for a term of three (3) years
and were convertible into shares of the Company's common stock at the option of
the holder by dividing the principal amount of the 2009 Debenture to be
converted by $0.50. The 2009 Debentures earned interest at a rate of 9% per
annum payable in cash or in shares of the Company's common stock at the option
of the holder. If the holder elected to receive interest in shares of common
stock, the number of shares of common stock to be issued for interest would be
determined by dividing accrued interest by $0.50. Subject to the holder's right
to convert, the Company had the right to redeem the 2009 Debentures at a price
equal to one hundred and ten percent (110%) multiplied by the then outstanding
principal amount plus unpaid interest to the date of redemption. Upon maturity,
the debenture and interest was payable in cash or common stock at the option of
the holder. The 2009 Debentures contained customary price adjustment
protections.

At the time the 2009 Debentures were issued, the Company recorded a debt
discount for a beneficial conversion feature in the amount of $256,000. The debt
discount being the aggregate intrinsic value calculated as the difference
between the market price of the Company's share of stock on August 28, 2009 and
the conversion price of the 2009 Debentures. The debt discount was being
accreted over the three (3) year life of the debentures using the effective
yield method. The effective yield on the debentures was 15.52%.

F17

On November 3, 2008, the Company completed a transaction whereby it issued $6.0
million of 9% convertible debentures (the "2008 Debentures") to six accredited
investors. The 2008 Debentures were for a term of three (3) years and were
convertible into shares of the Company's common stock at the option of the
holder at any time six (6) months after the date of issuance of the 2008
Debentures by dividing the principal amount of the 2008 Debentures to be
converted by $0.25. The 2008 Debentures earned interest at a rate of 9% per
annum payable in cash or in shares of the Company's common stock at the option
of the holder. If the holder elected to receive interest in shares of common
stock, the number of shares of common stock to be issued for interest would be
determined by dividing accrued interest by $0.25. Subject to the holder's right
to convert, the Company had the right to redeem the 2008 Debentures at a price
equal to one hundred and ten percent (110%) multiplied by the then outstanding
principal amount plus unpaid interest to the date of redemption. Upon maturity,
the debenture and interest was payable in cash or common stock at the option of
the holder. The Debentures contained customary price adjustment protections. The
effective yield on the 2008 Debentures was 9%.

From the proceeds of the 2008 Debentures, the Company repaid $2,200,000, the
principal portion only of a previously issued Consolidated Note in the amount of
$2,308,148 to a company controlled by a trust to which a director and
shareholder of the Company is the beneficiary. The debt holder agreed to have
the remaining amount of $433,923, due under the Consolidated Note, applied to a
subscription of a Debenture under the November 3, 2008 offering. Concurrently,
the Company repaid a Consolidated Subordinated Note that it had previously
issued to a debt holder who is a director and shareholder of the Company, in the
principal amount of $1,002,589. The debt holder agreed to have the full amount
of principal and accumulated interest, in the amount of $1,158,024 due under the
Consolidated Subordinated Note, applied to a subscription of a Debenture under
the offering. Additionally the Company's $1.5 million credit facility also
provided by the same debt holder, from which the Company had drawn down the sum
of $1,103,000 as of November 3, 2008, was also satisfied by way of issuance of
debentures under the November 3, 2008 offering. With the agreement to settle all
the notes previously issued the debt holder subscribed to an aggregate of
$2,566,077 of debentures under the offering.

F18

As part of the agreement to convert all existing convertible debentures, the
Company was committed to pay a premium as an inducement to convert all
debentures. The premium was payable to all converting debenture holders and was
subject to a positive fairness opinion, approval by a Fairness Committee
consisting of independent Directors of the Company's Board of Directors and an
increase in the share capital of the Company. The premium consists of 4,375,668
shares of common stock. As the Company did not have sufficient authorised shares
as of the date of conversion of the debentures to fulfill the premium, the
premium had been recorded as an advance share purchase agreement at a fair
market value of $2,909,872 as of March 31, 2010. The agreement is without
interest, subordinated to the bank's position and payable in a fixed number of
common shares (4,375,668 shares) of the Company upon increase in the authorized
share capital of the Company.

Up to October 14, 2010, the Company did not have sufficient authorized and
unissued shares to fulfill the advance share subscription. Under these
conditions, FASB ASC Subtopic 815-40, Contracts in Entity' Own Equity, precludes
equity classification of this obligation. As such, the advance share
subscription was classified as a liability and periodically marked to market.
The fair value of the obligation was determined to be $1,662,753 at October 14,
2010. The fair value of the obligation was determined by the cash settlement
value at the end of each period based on the closing price of the Company's
common stock. The decrease in fair value of this liability of $1,247,119 was
recorded as a mark to market adjustment on advance share subscription in the
consolidated statement of operations and comprehensive loss.

Effective October 14, 2010, the Company's Board of Directors ratified certain
corporate action approved by the written consent of a majority of the Company's
shareholders pursuant to a Definitive Information Statement on Schedule 14C that
the Company filed with the Securities and Exchange Commission on September 3,
2010 (the "Definitive Information Statement") and distributed to shareholders of
record. The Board of Directors ratified an amendment to the Company's articles
of incorporation whereby the Company proceeded to file an amendment to its
articles of incorporation increasing its authorized shares of common stock from
125,000,000 to 250,000,000 shares.

Effective November 30, 2010 the Company issued an aggregate of 4,375,668
restricted shares of common stock to thirteen (13) prior debenture holders in
connection with the early conversion of their debentures.

F19

Included in the consolidated financial statements of the Company at December 31,
2010 is the effect of an exchange feature included in the terms of the Share
Subscription Agreement for $3,000,000 of Convertible Debentures issued on March
19, 2010 ("2010 Debentures") and fully converted including interest into
6,007,595 shares of common stock on March 25, 2010. The exchange feature
provides that if within twelve months from March 19, 2010, the Company enters
into or closes another financing or other transaction (which for securities law
purposes would be integrable with the offer and sale of the Securities) on terms
and conditions more favourable to another purchaser, the terms and conditions of
the 2010 Debentures shall be adjusted to reflect the more favourable terms. The
exchange feature was determined by the Company to be freestanding financial
instrument and also to be a liability within the scope of ASC 480 Distinguishing
Liabilities from Equity since there is an inverse relationship between the stock
price of the Company and the Company's obligation. On December 31, 2010, the
Company evaluated the fair value of the exchange feature based on the
probability of closing another financing by March 18, 2011 and the fair value of
the number of incremental shares to be issued at a lower estimated issue price.
The probability of closing another financing by March 18, 2011 was estimated to
be 100% on December 31, 2010. The fair value of the Company's common stock is
determined by the closing price on the valuation date. On December 31, 2010, an
exchange feature liability of $1,680,000 is recorded for the 2010 Debentures in
these consolidated financial statements (see also note 12).

As of December 31, 2010, total convertible debentures and corresponding accrued
interest amounted to $0 and $0, respectively. As of December 31, 2009, total
convertible debentures amounted to $10,334,513 net of deferred costs of $36,506
and debt discount of $228,981, with corresponding accrued interest of $996,385.

As of December 31, 2010, the debt discount of $768,981 and deferred cost of
$117,131 were fully amortized and expensed due to the conversion of the
debentures effective March 25, 2010.

LEGAL FEES RELATED TO 2008 AND 2010 CONVERTIBLE DEBENTURES

The Company had recorded a deferred cost asset of $59,738 for legal fees paid in
relation to the issuance of the 2008 Debentures. The deferred costs were being
amortized over the term of the 2008 Debentures using the straight line method.
The Company had also recorded a deferred cost asset of $80,625 for legal fees
paid in relation to the issuance of the 2010 Debentures. The deferred costs were
being amortized over the term of the 2010 Debentures using the straight line
method.

At December 31, 2010, the deferred cost assets were fully amortized due to the
conversion of the debentures effective March 25, 2010. As at December 31, 2010
and 2009, the deferred cost assets were $0 and $36,506, respectively, and
related amortization expense for the years then ended was $117,131 and $19,912,
respectively. As of December 31, 2009, deferred cost assets have been presented
net against the related convertible debentures.

F20

NOTE 11- INCOME TAXES

As at December 31, 2010, there are tax loss carry forwards for Federal income
tax purposes of approximately $25,718,074 available to offset future taxable
income in the United States. The tax loss carry forwards expire in various years
through 2030. The Company does not expect to incur a Federal income tax
liability in the foreseeable future. Accordingly, a valuation allowance for the
full amount of the related deferred tax asset of approximately $9,001,326 has
been established until realizations of the tax benefit from the loss carry
forwards meet the "more likely than not" criteria.

LOSS CARRY
YEAR FORWARD
---- -------
1999 $ 407,067
2000 2,109,716
2001 2,368,368
2002 917,626
2003 637,458
2004 1,621,175
2005 2,276,330
2006 3,336,964
2007 3,378,355
2008 3,348,694
2009 2,927,096
2010 2,389,225
---- -----------
Total $25,718,074
===========

Additionally, as at December 31, 2010, the Company's two wholly owned Canadian
subsidiaries had non-capital tax loss carry forwards of approximately
$10,197,881 be used, in future periods, to offset taxable income. The loss carry
forwards expire in various years through 2030. The deferred tax asset of
approximately $2,549,470 has been fully offset by a valuation allowance until
realization of the tax benefit from the non-capital tax loss carry forwards are
more likely than not.

LOSS CARRY
FORWARD FOREIGN
YEAR OPERATIONS
---- -----------
2006 $ 573,271
2007 7,211
2008 4,049,972
2009 2,774,833
2010 2,792,594
---- -----------
Total $10,197,881
===========

F21

For the year ended December 31,
2010 2009
---------------------------
Statutory tax rate:
U.S. 35.00% 35.00%
Foreign 31.00% 33.00%

Loss before income taxes:
U.S. $(6,603,329) $(3,260,449)
Foreign (2,844,312) (2,676,503)
---------------------------
$(9,447,641) $(5,936,952)
===========================
Expected income tax recovery $(3,192,617) $(2,024,403)

Differences in income tax resulting from:
Depreciation (Foreign operations) 44,330 31,936
Change in fair value of exchange feature liability 707,424 --
Inducement premium on conversion of Debentures 1,018,455 --
Stock based compensation 32,616 --
Market to market adjustment on advance share subscription (436,492) --
Long-term debt accretion 269,143 --
Accrued interest on loans (116,212) 304,721
---------------------------
(1,673,353) (1,687,746)
Benefit of losses not recognized 1,673,353 1,687,746
---------------------------
Income tax provision (recovery) per financial statements $ -- $ --
===========================

Components of deferred income tax assets are as follows:

As at December 31,
2010 2009
-----------------------------
Property, plant and equipment $ 119,226 $ 102,872
Tax loss carry forwards 11,550,796 10,147,984
-----------------------------
Total 11,670,022 10,250,856
Valuation allowance (11,670,022) (10,250,856)
-----------------------------
Carrying Value $ -- $ --
=============================

Effective January 1, 2007, the Company adopted FASB's guidance on accounting for
uncertainty in income taxes. This guidance prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in an income tax
return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities.
There was no material impact on the Company's consolidated financial position
and results of operations as a result of the adoption of this guidance. The
Company does not believe there will be any material changes in its unrecognized
tax positions over the next twelve months.

The Company will recognize interest and penalties related to unrecognized tax
benefits within the income tax expense line in the consolidated statement of
operations and comprehensive loss. Accrued interest and penalties will be
included within the related tax liability line in the consolidated balance
sheet.

F22

In many cases the Company's uncertain tax positions are related to tax years
that remain subject to examination by tax authorities. The following describes
the open tax years, by major tax jurisdiction, as of December 31, 2010:

United States - Federal 2006 - present
United States - State 2006 - present
Canada - Federal 2007 - present
Canada - Provincial 2007 - present

Valuation allowances reflect the deferred tax benefits that management is
uncertain of the Company's ability to utilize in the future.

NOTE 12 - STOCKHOLDERS' EQUITY / (DEFICIT)

On June 24, 2009, the Company received $425,000 from the exercise of options at
$0.50 per share and issued 850,000 shares of restricted common stock.

On March 25, 2010, the Company issued 43,756,653 shares of common stock in
connection with the conversion of 2008 Debentures and 2009 Debentures into
equity (see Note 10).

On March 25, 2010, the Company issued 6,007,595 shares of restricted common
stock in connection with the conversion of 2010 Debentures into equity (see Note
10).

On November 30, 2010, the Company issued 4,375,668 shares as an inducement
premium to the holders to convert all convertible debentures outstanding as of
March 25, 2010 (see Note 10). As fully disclosed in Note 10 to the consolidated
financial statements, the Company's Board of Directors approved the increase in
the authorized share capital effective October 14, 2010.

Effective November 9, 2010 and December 8, 2010, the Company closed on its first
tranche and second tranche of a unit offering in the amount of $300,000 per
tranche for gross proceeds of $600,000 whereby the Company issued 1,500,000
units. The unit offering is for up to $5 million. The units are in the form of
shares of the Company's common stock, par value $0.001 at $0.40 per share plus
for each share of Common Stock subscribed to under the unit offer the investor
will receive one warrant, the exercise price will be $0.55; if an Investor
Warrant is exercised between the first and second years from issuance, the
exercise price will be $0.65. All investor warrants as issued will be subject to
adjustment in all respects in the event of a stock split or similar adjustment
by the Company. A commission of 4% of the gross proceeds was paid from the
proceeds of the unit offering and 7.5 units for every $100 of the gross proceeds
raised are payable for brokers fees are treated as a cost of capital and no
income statement recognition is required.

The Share Subscription Agreement for the units contains an exchange feature
which provides that if within six months from effective date of closing, the
Company enters into or closes another financing or other transaction (which for
securities law purposes would be integrable with the offer and sale of the
Securities) on terms and conditions more favourable to another purchaser, the
terms and conditions of the unit offering shall be adjusted to reflect the more
favourable terms. The exchange feature was determined by the Company to be
freestanding financial instrument and also to be a liability within the scope of
ASC 480 Distinguishing Liabilities from Equity since there is an inverse
relationship between the stock price of the Company and the Company's
obligation. On November 9, 2010, December 8, 2010 and December 31, 2010, the
Company evaluated the fair value of the exchange feature based on the
probability of closing another financing within six months and the fair value of
the number of incremental shares and warrants to be issued at a lower estimated
issue price for units. The probability of closing another financing in the next
six months on November 9, 2010 and December 8, 2010 was estimated to be 50% and
on December 31, 2010 was estimated to be 100%.

F23

The fair value of the Company's common stock is determined by the closing price
on the valuation date and the fair value of the warrants is determined using a
binomial option valuation model. Key assumptions for the binomial option
valuation were as follows:

November 9, 2010 Offering
-------------------------

Nov. 9, 2010 - Dec. 31, 2010 -
lower estimated lower estimated
Valuation Date Nov. 9, 2010 strike price Dec. 31, 2010 strike price
------------ ------------ ------------- ------------
Strike Price - second year $0.65 $0.63 $0.65 $0.36
Strike Price - first year $0.55 $0.54 $0.55 $0.30
Closing market price $0.39 $0.39 $0.22 $0.22
Volatility 135.72% 135.72% 113.47% 113.47%
Time to expiration 2 years 2 years 1.83 years 1.83 years
Risk free rate 0.46% 0.46% 0.61% 0.61%
Dividend yield 0% 0% 0% 0%

December 8, 2010 Offering
-------------------------
Dec. 8, 2010 - Dec. 31, 2010 -
lower estimated lower estimated
Valuation Date Dec. 8, 2010 strike price Dec. 31, 2010 strike price
------------ ------------ ------------- ------------
Strike Price - second year $0.65 $0.39 $0.65 $0.36
Strike Price - first year $0.55 $0.33 $0.55 $0.30
Closing market price $0.24 $0.24 $0.22 $0.22
Volatility 132.07% 132.07% 117.03% 117.03%
Time to expiration 2 years 2 years 1.92 years 1.92 years
Risk free rate 0.63% 0.63% 0.61% 0.61%
Dividend yield 0% 0% 0% 0%

On December 31, 2010, an exchange feature liability of $453,861 is recorded for
the unit offering in these consolidated financial statements.

F24

NOTE 13 - STOCK OPTIONS AND WARRANT GRANTS

On April 15, 2010 the Board of Directors granted an aggregate award of 900,000
stock options to one executive officer and director and one director. The
options vest over a period of three years with an exercise price of $0.65 (fair
market value of the Company's common stock as of the date of grant) with expiry
five years from the date of award. The total stock option expense for the April
15, 2010 grant is $372,761 and will be expensed on a straight line basis over
the vesting term of the award, as per the terms of the option agreements, as
follows:

DATE Stock Option
Expense
--------------------------------------
April 15, 2011 $124,254
April 15, 2012 $124,254
April 15, 2013 $124,253

A total of $93,189 for stock based compensation has been recorded for the year
ended December 31, 2010. During fiscal year 2009 no stock options or warrants
were granted.

A summary of option transactions, including those granted pursuant to the terms
of certain employment and other agreements, is as follows:

STOCK WEIGHTED
PURCHASE AVERAGE
DETAILS OPTIONS EXERCISE PRICE
-------------------------------------------------------------
OUTSTANDING, JANUARY 1, 2009 6,120,000 $ 0.65
Expired (1,600,000) ($ 0.50)
Exercised (850,000) ($ 0.50)
---------- ------
OUTSTANDING, JANUARY 1, 2010 3,670,000 $ 0.76
Granted 900,000 $ 0.65
Expired (1,765,000) ($ 0.97)
---------- ------
OUTSTANDING, DECEMBER 31, 2010 3,600,000 $ 0.68
========== ======

At December 31, 2010, the outstanding options have a weighted average remaining
life of 23 months. All options issued prior to 2010 have vested, and the April
15, 2010 options vest over a period of three years, in three equal parts each
year.

F25

The weighted average fair value of options granted during 2010 was $0.41 and was
estimated using the Black-Scholes option-pricing model, using the following
assumptions:

2010
---------
Expected volatility 117%
Risk-free interest Rate 1.08%
Expected life 4 yrs
Dividend yield 0.00%
Forfeiture rate 0.00%

The Black-Scholes options-pricing model used by the Company to calculate options
and warrant values, was developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock purchase options and warrants. The model also
requires highly subjective assumptions, including future stock price volatility
and expected time until exercise, which greatly affect the calculated values.
Accordingly, management believes that this model does not necessarily provide a
reliable single measure of the fair value of the Company's stock options and
warrants.

At December 31, 2010, the Company had outstanding options as follows:

NUMBER OF EXERCISE
OPTIONS PRICE EXPIRATION DATE
----------------------------------------------------
100,000 $0.71 February 6,2011
100,000 $1.00 February 6,2011
2,150,000 $0.71 February 16,2011
100,000 $1.00 February 8,2013
250,000 $0.27 August 6,2013
900,000 $0.65 April 15,2015
----------------------------------------------------
3,600,000
====================================================

Warrants issued in connection with various private placements of equity
securities, are treated as a cost of capital and no income statement recognition
is required. A summary of warrant transactions is as follows:

WEIGHTED AVERAGE
DETAILS WARRANT SHARES EXERCISE PRICE
-------------------------------------------------------------------------------
OUTSTANDING, JANUARY 1, 2010 -- $ --
Granted 1,545,000 $ 0.65
Exercised -- $ --
Expired -- $ --
-------------------------------------------------------------------------------
OUTSTANDING, DECEMBER 31, 2010 1,545,000 $ 0.65
===============================================================================

F26

Effective November 9, 2010 and December 8, 2010, the Company closed on its first
tranche and second tranche of a unit offering in the amount of $300,000 per
tranche for gross proceeds of $600,000 whereby the Company issued 1,500,000
units. The unit offering is for up to $5 million. The units are in the form of
shares of the Company's common stock, par value $0.001 at $0.40 per share plus
for each share of Common Stock subscribed to under the unit offer the investor
will receive one warrant exercisable for of issuance, the exercise price will be
$0.55; if an Investor Warrant is exercised between the first and second years
from issuance, the exercise price will be $0.65. All investor warrants as issued
will be subject to adjustment in all respects in the event of a stock split or
similar adjustment by the Company. A commission of 4% of the gross proceeds was
paid and 7.5 units for every $100 of the gross proceeds raised are payable for
brokers fees.

NOTE 14 - RELATED PARTY TRANSACTIONS

During the year ended December 31, 2010 transactions with related parties
included $6,134,024 related to conversion of convertible debentures including
interest of $634,024 thereon into common stock; $1,032,849 related to inducement
on early conversion of convertible debentures; the repayment of $511,342
principal and interest on promissory note and $144,967 for various services in
addition to salaries and reimbursement of business expenses. During the year
ended December 31, 2009 the Company paid shareholders and their affiliates
$238,750 for various services, principal and interest on promissory notes and
fees rendered in addition to salaries and reimbursement of business expenses.
All transactions are recorded at the exchange amounts. Any one transaction or
combination attributed to one individual or entity exceeding $120,000 on an
annual basis has been disclosed as follows:

NOTE PAYABLE TO RELATED PARTY

The information required by this item is included in Note 7 to the consolidated
financial statements.

CONVERTIBLE DEBENTURE ISSUED TO RELATED PARTY

On August 28, 2009, the Company completed a transaction whereby it issued $1.6
million of 9% convertible debentures to six accredited investors. A shareholder
who was also a director of the Company participated in the August convertible
debenture offering with a principal investment of $500,000.

F27

As part of the agreement to convert all existing convertible debentures, the
Company was committed to pay a premium as an inducement to convert all
debentures. The premium is payable to all converting debenture holders and was
subject to a positive fairness opinion, approval by a Fairness Committee
consisting of independent Directors of the Company's Board of Directors and an
increase in the share capital of the Company. The premium consists of 4,375,668
shares of common stock. As the Company did not have sufficient authorised shares
as of the date of conversion of the debentures to fulfill the premium, the
premium has been recorded as an advance share purchase agreement at a fair
market value of $2,909,872 as at March 31, 2010. The agreement is without
interest, subordinated to the bank's position and payable in a fixed number of
common shares of the Company upon increase in the authorized share capital of
the Company.

Up to October 14, 2010, the Company did not have sufficient authorized and
unissued shares to fulfill the advance share subscription. Under these
conditions, FASB ASC Subtopic 815-40, Contracts in Entity's Own Equity,
precludes equity classification of this obligation. As such, the advance share
subscription was classified as a liability and periodically marked to market.
The fair value of the obligation was determined to be $1,662,753 and $2,909,872
at October 14, 2010 and March 31, 2010, respectively. The fair value of the
obligation was determined by the cash settlement value at the end of each period
based on the closing price of the Company's common stock. The decrease in fair
value of this liability of $1,247,119 was recorded as a mark to market
adjustment on advance share subscription in the consolidated statement of
operations and comprehensive loss. Of the total amount $784,965 (fair market
value of 2,065,697 shares of common stock) was attributed to related parties.

Effective November 30, 2010, the Company issued an aggregate of 4,375,668
restricted shares of common stock to thirteen (13) prior debenture holders in
connection with the early conversion of their debentures. Of these shares of
common stock, 2,065,697 shares were issued to related parties.

As of December 31, 2010, principal and interest on total convertible debentures
due to related parties was $0. As of December 31, 2009, the principal amount of
convertible debentures, net of accretion, due to related party amounted to
$5,428,443 with a corresponding accrued interest of $540,128, and debt discount
of $71,557.

CONTRACTS AND AGREEMENTS

Mr. Nitin Amersey who is a director of the Company is listed as a control person
with the Securities and Exchange Commission of Bay City Transfer Agency
Registrar Inc. the Company's transfer agent. He has no ownership equity in Bay
City Transfer Agency Registrar Inc. nor is he an officer or a director of Bay
City Transfer Agency Registrar Inc. For the years ended December 31, 2010 and
2009, the Company paid Bay City Transfer Agency Registrar Inc. $7,363 and
$1,683, respectively.

For the year ended December 31, 2010, Mr. Nitin Amersey received $25,500 for
consulting services to the Company. In 2009 Mr. Amersey did not provide any
services to the Company.

Mr. Peter Bloch who is a director of the Company provided consulting services to
the Company. For the year ended December 31, 2010, the Company paid Mr. Bloch
$112,104 for consulting services. In 2009 Mr. Bloch did not provide any services
to the Company.

F28

NOTE 15 - COMMITMENTS AND CONTINGENCIES

LEASES

The following is a summary of the minimum annual lease payments, for both
leases.

YEAR

2011 $460,801
2012 460,801
2013 312,520
2014 289,986
2015 217,489
----------
$1,741,597
==========
LEGAL MATTERS

CAPITAL LEASE OBLIGATION

The Company is committed to the following lease payments in connection with the
acquisition of equipment under capital leases:

YEAR

2011 $ 4,385
2012 1,047
-------
TOTAL 5,432

Less imputed interest (390)
-------
Total obligation under capital lease 5,042

Less current portion ( 3,552)
-------
TOTAL LONG-TERM PORTION $ 1,490
=======

F29

The Company incurred $2,374 and $6,354 of interest expense on capital lease
obligation for the years ended December 31, 2010 and 2009, respectively.

NOTE 16 - LOSS PER SHARE

Potential common shares of 3,600,000 related to ESW's outstanding stock options
and 1,500,000 shares related to ESW's outstanding warrants were excluded from
the computation of diluted loss per share for the year ended December 31, 2010.
Potential common shares of 3,670,000 related to ESW's outstanding stock options
and potential common shares of 42,583,901 related to the 2008 and 2009
convertible debentures were excluded from the computation of diluted loss per
share for the year ended December 31, 2009.

The reconciliation of the number of shares used to calculate the diluted loss
per share is calculated as follows:

For the Year ended
Ended December 31,
2010 2009
------------ ------------
NUMERATOR
Net loss for the year $ (9,447,641) $ (5,936,952)
Interest on long term debt 183,858 870,632
Amortization of deferred costs 117,131 19,912
Long term debt accretion 768,981 27,019
Inducement premium 2,909,872 --
Mark to market adjustment on
advance share subscription (1,247,119) --
Change in fair value of exchange
feature liability 2,021,213 --
Interest on note payable to related party 11,342 --
------------ ------------
$ (4,664,363) $ (5,019,389)
============= =============
DENOMINATOR
Weighted average number of shares outstanding 112,793,477 73,416,317
Dilutive effect of :
Stock options -- --
Warrants -- --
Convertible debentures -- --
------------ ------------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 112,793,477 73,416,317
============ ============

NOTE 17 - COMPARATIVE FIGURES

Certain 2009 figures have been reclassified to conform to the current financial
statement presentation.
F30

NOTE 18 - SUBSEQUENT EVENTS

AMENDED BYLAWS

WAIVER OF LOAN COVENANTS

Effective February 4, 2011, the Company's wholly owned subsidiary, ESWC,
received a fourth waiver of certain financial covenants under its Credit
Agreement with CIBC. Without the waiver, the Company's subsidiary would not be
in compliance with the current ratio and effective tangible net worth covenants
as set forth in the Credit Agreement. The fourth waiver provided by CIBC extends
the waiver period from January 31, 2011 through February 14, 2011 and also
provides for a fee payable to CIBC for the extension as well as requiring the
elimination of any margin deficit by February 14, 2011. In the event the Company
and its subsidiary, ESWC, fail to comply with the terms of the waiver and meet
the current ratio and effective tangible net worth covenants prior to the end of
the waiver period, same will constitute an event of default as set forth in the
Credit Agreement unless a further waiver or modification to the Credit Agreement
can be obtained.

LOAN AGREEMENTS

On February 17, 2011, the Company entered into certain note subscription
agreements and issued unsecured subordinated promissory notes (collectively, the
"Loan Agreements") with Orchard Investments, LLC; Black Family 1997 Trust; Leon
D. Black Trust UAD 11/30/92 FBO Alexander Black; Leon D. Black Trust UAD
11/30/92 FBO Benjamin Black; Leon D. Black Trust UAD 11/30/92 FBO Joshua Black;
Leon D. Black Trust UAD 11/30/92 FBO Victoria Black; Leon D. Black; John J.
Hannan and Richard Ressler (each individually a "Subordinated Lender" or
"Holder" and collectively the "Subordinated Lenders" or "Holders") who are
current shareholders and may be deemed affiliates of certain members of the
Board of Directors of the Company. The Loan Agreements were approved by the
independent directors of the Company. Pursuant to the Loan Agreements, the
Subordinated Lenders agreed to make, and made, loans to the Company in the
principal aggregate amount of $3 million (the "Loan"), subject to the terms and
conditions set forth in the Loan Agreements and represented by unsecured
subordinated promissory notes (the "Notes"), dated February 17, 2011.

F31

Proceeds of the Loan, along with available cash, will be used to fund working
capital, planned capital investments and other general corporate purposes. With
the proceeds of the Loan, the Company and its subsidiaries will be in compliance
with covenant obligations under the Credit Agreement with CIBC for which the
Company and its subsidiaries had previously obtained waivers of covenant
obligations that expired February 14, 2011.

The Notes provide that the Loan bears interest at a rate of 10% per annum,
payable in-kind on a monthly basis commencing March 17, 2011, up to the date on
which the Note has been paid in full. The maturity date of the Loan is the
earlier of: (i) the consummation of a rights offering of the Company's common
stock, par value $.001 per share (the "Common Stock") registered under the
Securities Act of 1933, as Amended (the "Act"), at a sale price of $0.12 per
share (as adjusted for any stock split, stock dividend or other similar
adjustment) pursuant to which the Company plans to offer rights to purchase
approximately $6.5 million in shares of Common Stock, which is expected to raise
at least an incremental $3.5 million of cash for the Company and will also
permit all Subordinated Lenders to exchange their Notes (and the other Notes
paid in-kind for the payment of interest under the Notes) for shares of Common
Stock at such price per share (with such offering referred to as the "Qualified
Offering") or (ii) June 17, 2011 (the "Outside Date"). The Qualified Offering
has also been approved by the independent directors of the Company. There can be
no assurance, however, that the Company will successfully complete the Qualified
Offering on or prior to the Outside Date or thereafter.

In the event the Qualified Offering does not take place on or before the Outside
Date, then the Subordinated Lenders at their sole option may require the Company
to refrain from making any and all payments on any of the outstanding principal
and accrued interest outstanding under the Notes. However the Company will not
be prohibited from paying any accrued interest in-kind through the issuance of
substantially similar notes, at any time. The Holders at their sole option may
extend the Outside Date.

In the event the Qualified Offering closes on or prior to the Outside Date and
for any reason a Holder shall have failed to have exchanged in the Qualified
Offering any and all principal or accrued interest outstanding under its Notes
and such Holder wishes to exchange his or her Note for Common Stock at a price
of $0.12 per share (as adjusted for any stock split, stock dividend or other
similar adjustment), then the Company has agreed to offer such Holder the
immediate right to purchase additional shares of Common Stock at such price, so
that all principal and accrued interest outstanding under the Notes shall have
been exchanged for shares of Common Stock at such price.

In the event the Qualified Offering closes on or prior to the Maturity Date and,
for any reason, certain Holders (the "Qualified Holders") collectively shall
have failed to have invested at least $1 million in the Qualified Offering or
pursuant to exchange of their Notes and the Qualified Holders wish to invest the
balance of such $1 million aggregate amount to purchase Common Stock at a price
of $0.12 per share (as adjusted for any stock split, stock dividend or other
similar adjustment), then the Company will be required to offer to the Qualified
Holders the immediate right to invest the balance of such investment amount to
purchase additional shares of Common Stock at such price, so that in the
aggregate, the Qualified Holders shall collectively invested such $1 million
amount.

F32

Concurrent with entering into the Loan Agreements and issuance of the Notes,
CIBC, the Company and its subsidiaries; and the Subordinated Lenders entered
into a Postponement and Subordination Agreement (the "Subordination Agreement")
whereby the Subordinated Lenders agreed that the obligations of the Company and
its subsidiaries under the Notes as issued would be subordinate to the
obligations of the Company and its subsidiaries under the Credit Agreement.

As previously reported, pursuant to securities subscription agreements entered
into by the Company on or about March 23, 2010, the Company issued $3 million of
9% convertible debentures to five (5) accredited investors which have since been
converted into 6 million shares of the Company's Common Stock. Additionally, on
November 9, 2010 and December 8, 2010, the Company completed an offering in the
aggregate gross proceeds of $600,000 to one (1) accredited investor whereby it
issued units comprised of 1.5 million shares of common stock and a like number
of warrants to purchase 1 share of Common Stock (collectively the "Prior
Subscription Agreements"). The investors under the Prior Subscription Agreements
will receive an approximate aggregate of 22,500,000 additional shares of Common
Stock in conjunction with certain rights under the Prior Subscription Agreements
in the event the Qualified Offering closes.

CHANGES IN EXECUTIVE OFFICERS

Effective March 9, 2011, the Company and David J. Johnson, entered into an
Employment Separation and General Release Agreement (the "Agreement"), whereby
Mr. Johnson resigned as President and Chief Executive Officer of the Company as
well as all of its subsidiaries wherein he served as an executive officer.
Additionally, Mr. Johnson resigned from the Company's Board of Directors as well
from the Board of Directors of each of the Company's wholly owned subsidiaries
wherein he served. Mr. Johnson resigned without any disputes or disagreements
with the Company or any of its subsidiaries. Under the terms of the Agreement,
Mr. Johnson will receive a severance payment based upon his regular salary of
$360,000 per annum as prorated. The severance payments will be made on a
quarterly basis for the remainder of the calendar year. Mr. Johnson will also
continue to receive customary medical benefits and a car allowance of $1,000 a
month for the remainder of the calendar year.

Concurrent to entering into the Agreement, the Company and Mr. Johnson entered
into a Consultancy Agreement for the remainder of the calendar year whereby Mr.
Johnson will receive compensation on a per diem basis when engaged by the
Company per the agreement. Additionally, Mr. Johnson was also awarded options as
part of the Consultancy Agreement.

Effective March 11, 2011, Mr. Stefan Boekamp, resigned on mutually agreeable
terms from his position as Vice President of Operations of the Company. Mr.
Boekamp resigned without any disputes or disagreements with the Company or any
of its subsidiaries.

F33

Effective March 9, 2011, Mr. Praveen Nair, the Company's Chief Accounting
Officer was promoted to the position of Chief Financial Officer of the Company.
Mr. Nair will receive an annual salary of $150,000 Canadian. The Company and Mr.
Nair intend to enter into a new employment agreement in the near future with
terms similar to those set forth in Mr. Nair's prior employment agreement with
the Company.

Effective March 9, 2011, Mr. Frank Haas was appointed the Company's Chief
Technology Officer and Chief Regulatory Officer. Mr. Haas will receive an annual
salary of $160,000 Canadian and will receive an incentive compensation for each
of the first two achieved verification/certifications of certain of the
Company's products within the first year of his appointment.

Effective March 9, 2011, Mr. Virendra Kumar was appointed Vice President of
Operations of the Company. Mr. Kumar will receive an annual salary of $150,000.
Mr. Kumar has been General Manager of ESWA, Inc. since 2010 and is responsible
for the overall operations related to Air Testing Services.

F34

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

In 2010 there were no changes or disagreements.

Effective May 15, 2009, the Registrant (the "Company") dismissed the firm of
Deloitte & Touche LLP ("Deloitte") who was previously engaged as the Company's
principal auditor. Deloitte's audit report on the Company's consolidated
financial statements for the fiscal year ended December 31, 2008 and December
31, 2007, did not contain any adverse opinion or disclaimer of opinion, and was
not qualified or modified as to audit scope or accounting principles, except
that the aforementioned report for the year ended December 31, 2008 included was
modified for an uncertainty relating to the Company's ability to continue as a
going concern. The decision to dismiss Deloitte has been approved by the
Company's Audit Committee and Board of Directors.

Effective May 15, 2009, the Company upon approval of its Audit Committee and
Board of Directors elected to retain the firm of MSCM LLP ("MSCM") as its
principal independent accountants. During the Company's two most recent fiscal
years and through May 15, 2009, the Company has not consulted with MSCM
regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements, and neither a written
report nor oral advise was provided that was an important factor considered by
the Company in reaching a decision as to the accounting, auditing or financial
reporting issue; or (ii) any matter that was either the subject of a
disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K
and the related instructions to Item 304 of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of ESW's management, including
ESW's Executive Chairman and Chief Financial Officer, ESW evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December
31, 2010 (the "Evaluation Date"). Based upon that evaluation, the Executive
Chairman and Chief Financial Officer concluded that, as of the Evaluation Date,
ESW's disclosure controls and procedures were effective to provide reasonable
assurance to ensure that information required to be disclosed in ESW's Exchange
Act reports is recorded, processed, summarized, and reported within the time
periods specified by the Securities and Exchange Commission's rules and forms
and that such information is accumulated and communicated to management,
including the Executive Chairman and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosures.

CHANGES IN INTERNAL CONTROLS

There was no significant change in the Company's internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the
last fiscal year that has materially affected, or is reasonably likely to
materially affect the Company's internal control over financial reporting.

INTERNAL CONTROL OVER FINANCIAL REPORTING.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.

ESW's management is responsible for establishing and maintaining adequate
internal control over financial reporting as such term is defined in Exchange
Act Rule 13a-15(f). Internal control over financial reporting is a process
designed by, or under the supervision of, ESW's Executive Chairman and Chief
Financial Officer and effected ESW's Board of Directors, management and other
personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and includes those
policies and procedures that: (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that ESW's
receipts and expenditures are being made only in accordance with the
authorizations of its management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on ESW's
consolidated financial statements.

Because of inherent limitations, a control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. Also projections of any evaluation
of effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.

Under the supervision of and with the participation of management, including
ESW's Executive Chairman and Chief Financial Officer, ESW assessed the
effectiveness of its internal control over financial reporting as of December
31, 2010. In making this assessment, management used the framework in INTERNAL
CONTROL-INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, ESW's management concluded
that ESW's internal control over financial reporting was effective as of
December 31, 2010.

This annual report does not include an attestation of ESW's registered public
accounting firm regarding internal controls over financial reporting as
management's report was not subject to attestation by ESW's registered public
accounting firm pursuant to Securities and Exchange Commission Rule for small
business issuers.

ITEM 9B OTHER INFORMATION

AMENDED BYLAWS AND APPOINTMENT OF DIRECTORS

Effective January 25, 2011, by written action and vote of Sedam Limited, Bengt
Odner, Black Family 1997 Trust, Leon D. Black, Leon D. Black Trust UAD 11/30/92
FBO Joshua Black, Leon D. Black Trust UAD 11/30/92 FBO Benjamin Black, Leon D.
Black Trust UAD 11/30/92 FBO Alexander Black, Leon D. Black Trust UAD 11/30/92
FBO Victoria Black, John Hannan, Orchard Investments LLC and Richard Ressler
(the "Majority Shareholders") representing 66,134,887 shares of the Company's
common stock, a majority or 51.08% of the outstanding shares based upon the
Company's certified list of shareholders, pursuant to Title XXXVI, Chapter 607,
Section 607.0704 of the Florida Statutes and the Company's Bylaws, Article II
Section 5 of the Company's Bylaws was amended so that the Company shall have a
minimum of one (1) director but no more than eleven (11) directors. The
amendment to the Bylaws increases the maximum number of directors the Company is
permitted from seven (7) to eleven (11). Also by a vote of the Majority
Shareholders, each of the Company's existing directors: Nitin Amersey, Peter
Bloch, John Dunlap, III, Elbert O. Hand, David J. Johnson and Mark Yung were
re-elected as directors of the Company. Additionally, Benjamin Black, Joshua
Black, John Hannan, Zohar Loshitzer and John Suydam were elected by the Majority
Shareholders as members of the Board of Directors effective January 25, 2011. At
the present time Messrs Benjamin Black, Joshua Black, Hannan, Loshitzer, and
Suydam have not been nominated to serve on any of the Company's committees.

WAIVER OF LOAN COVENANTS

RESIGNATIONS AND APPOINTMENT OF DIRECTORS

Effective February 7, 2011, Mr. Elbert O. Hand, the Company's Chairman
voluntarily resigned from the Board of Directors.

Effective February 10, 2011, Mr. Mark Yung was elected to serve as Executive
Chairman of the Company's Board of Directors. Mr. Yung is 36 years old and has
been serving as an elected member of the Board of Directors of the Company since
December 17, 2010 with a term expiring at the next annual meeting of
shareholders or until the election and qualification of his successor by the
shareholders of the Company. Mr. Yung is also employed by Orchard Capital
Corporation, which is controlled by Richard Ressler, affiliated entities of
Orchard Capital Corporation as well as Richard Ressler own shares of the
Company. At the current time, Mr. Yung is not party to any plan, contract or
arrangement with the Company.

LOAN AGREEMENTS

On February 17, 2011, Environmental Solutions Worldwide, Inc. (the "Company")
entered into certain note subscription agreements and issued unsecured
subordinated promissory notes (collectively, the "Loan Agreements") with Orchard
Investments, LLC; Black Family 1997 Trust; Leon D. Black Trust UAD 11/30/92 FBO
Alexander Black; Leon D. Black Trust UAD 11/30/92 FBO Benjamin Black; Leon D.
Black Trust UAD 11/30/92 FBO Joshua Black; Leon D. Black Trust UAD 11/30/92 FBO
Victoria Black; Leon D. Black; John J. Hannan and Richard Ressler (each
individually a "Subordinated Lender" or "Holder" and collectively the
"Subordinated Lenders" or "Holders") who are current shareholders and may be
deemed affiliates of certain members of the board of directors of the Company.
The Loan Agreements were approved by the independent directors of the Company.
Pursuant to the Loan Agreements, the Subordinated Lenders agreed to make, and
made, loans to the Company in the principal aggregate amount of $3 million (the
"Loan"), subject to the terms and conditions set forth in the Loan Agreements
and represented by unsecured subordinated promissory notes (the "Notes"), dated
February 17, 2011.

Proceeds of the Loan, along with available cash, will be used to fund working
capital, planned capital investments and other general corporate purposes. With
the proceeds of the Loan, the Company and its subsidiaries will be in compliance
with covenant obligations under the Demand Credit Agreement (the "Credit
Agreement") Canadian Imperial Bank of Commerce ("CIBC") dated March 10, 2010 for
which the Company and subsidiaries had previously obtained waivers of covenant
obligations that expired February 15, 2011.

The Notes provide that the Loan bears interest at a rate of 10% per annum,
payable in-kind on a monthly basis commencing March 17, 2011, up to the date on
which the Note has been paid in full. The maturity date of the Loan is the
earlier of: (i) the consummation of a rights offering of the Company's common
stock, par value $.001 per share (the "Common Stock") registered under the
Securities Act of 1933, as Amended (the "Act"), at a sale price of $0.12 per
share (as adjusted for any stock split, stock dividend or other similar
adjustment) pursuant to which the Company plans to offer rights to purchase
approximately $6.5 million shares of Common Stock, which is expected to raise at
least an incremental $3.5 million of cash for the Company and will also permit
all Subordinated Lenders to exchange their Notes (and the other Notes paid
in-kind for the payment of interest under the Notes) for shares of Common Stock
at such price per share (with such offering referred to as the "Qualified
Offering") or (ii) June 17, 2011 (the "Outside Date"). The Qualified Offering
has also been approved by the independent directors of the Company. There can be
no assurance, however, that the Company will successfully complete the Qualified
Offering on or prior to the Outside Date or thereafter.

In the event the Qualified Offering does not take place on or before the Outside
Date, then the Subordinated Lenders at their sole option, may require the
Company to refrain from making any and all payments on any of the outstanding
principal and accrued interest outstanding under the Notes, however the Company
will not be prohibited from paying any accrued interest in-kind through the
issuance of substantially similar Notes, at any time. The Holders at their sole
option may extend the Outside Date.

As previously reported, pursuant to securities subscription agreements entered
into by the Company on or about March 23, 2010, the Company issued $3 million of
9% convertible debentures to five (5) accredited investors which have since been
converted into 6 million shares of the Company's Common Stock. Additionally, on
November 9, 2010 and December 8, 2010, the Company completed an offering in the
aggregate of $600,000 to one (1) accredited investor whereby it issued units
comprised of 1.5 million shares of common stock and a like number of warrants to
purchase 1 share of Common Stock (collectively the "Prior Subscription
Agreements"). The investors under the Prior Subscription Agreements will receive
an approximate aggregate of 22,500,000 additional shares of Common Stock in
conjunction with certain rights under the Prior Subscription Agreements in the
event the Qualified Offering closes.

MARKET INFORMATION

On February 23, 2011, the Company's common stock was removed from the OTCBB
automated quotation system. The stock continues to be quoted on the OTCQB, which
is part of the OTC Market Group's quotation system. The Company's common stock
along with the securities of over 600 other issuers were deleted from the OTCBB
due to the quotation inactivity by the Market Makers of the respective issuers
affected under Exchange Act Rule 15c2-11. The removal of the Company's common
stock from the OTCBB was not due to the failure of the Company to meet quality
standards or any delinquencies in reporting. The Company now trades on the
OTCQB, a new market for OTC-traded companies that are registered and current in
their reporting obligations to the SEC or a U.S. banking or insurance regulator.
The Company's common stock is now quoted on the OTCQB under its prior symbol
ESWW and remains listed on the Frankfurt Stock Exchange under the symbol EOW.

CHANGES IN EXECUTIVE OFFICERS

Effective March 9, 2011, the Company and David J. Johnson entered into an
Employment Separation and General Release Agreement (the "Agreement"), whereby
Mr. Johnson resigned as President and Chief Executive Officer of the Company as
well as all of its subsidiaries wherein he served as an executive officer.
Additionally, Mr. Johnson resigned from the Company's Board of Directors as well
from the Board of Directors of each of the Company's wholly owned subsidiaries
wherein he served. Mr. Johnson resigned without any disputes or disagreements
with the Company or any of its subsidiaries. Under the terms of the Agreement,
Mr. Johnson will receive a severance payment based upon his regular salary of
US$360,000 per annum as prorated. The severance payments will be made on a
quarterly basis for the remainder of the calendar year. Mr. Johnson will also
continue to receive customary medical benefits and a car allowance of $1,000 a
month for the remainder of the calendar year.

Effective March 11, 2011, Mr. Stefan Boekamp resigned on mutually agreeable
terms from his position as Vice President of Operations of the Company. Mr.
Boekamp resigned without any disputes or disagreements with the Company or any
of its subsidiaries.

Effective March 9, 2011, Mr. Frank Haas was appointed as the Company's Chief
Technology Officer and Chief Regulatory Officer. Mr. Haas will receive an annual
salary of $160,000 Canadian and will receive an incentive compensation for each
of the first two achieved verification/certifications of certain of the
Company's products within the first year of his appointment.

Effective March 9, 2011, Mr. Virendra Kumar was appointed Vice President of
Operations of the Company. Mr. Kumar will receive an annual salary of $150,000.
Mr. Kumar has been General Manager of ESW America, Inc. since 2010 and is
responsible for the overall operations related to Air Testing Services.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

DIRECTORS AND EXECUTIVE OFFICERS

Certain information concerning the directors and executive officers of the
Company is set forth in the following table and in the paragraphs following.
Information regarding each such directors and executive officer's ownership of
voting securities of the Company appears as "Securities Ownership of Certain
Beneficial Owners and Management" below.

FISCAL YEAR 2010

NAME POSITION DATE ELECTED/
APPOINTED FOOTNOTE
-------------------------------------------------------------------------------
Elbert O. Hand Chairman January 2010 (1)

David J. Johnson Director, President and Chief September 2000 (2)
Executive Officer

Nitin Amersey Director January 2003

Michael F. Albanese Director February 2006 (3)

John D. Dunlap III Director February 2007

Bengt G. Odner Director September 2000 (4)

Joey Schwartz Director June 2005 (5)

Peter Bloch Director November 2010 (6)

Mark Yung Director December 17, 2010

Stefan Boekamp Vice President Of Operations February 2008 (7)

Praveen Nair Chief Accounting Officer February 2008

(1) Mr. Elbert O. Hand voluntarily resigned from ESW`s Board on February 07,
2011.

(2) Mr. David J. Johnson resigned as President and Chief Executive Officer of
the Company as well as all its subsidiaries wherein he served as an executive
officer on March 09, 2011. Additionally, Mr. Johnson resigned from the Company's
Board of Directors as well from the Board of Directors of each of the Company's
wholly owned subsidiaries wherein he served. Mr. Johnson resigned without any
disputes or disagreements with the Company or any of its subsidiaries.

(3) Mr. Michael F. Albanese was not nominated and did not stand for re-election
as a Director effective October 14, 2010. Mr. Albanese had no disputes or
disagreements with the Company.

(4) Mr. Bengt G. Odner resigned from ESW`s Board on December 17, 2010.

(5) Mr. Joey Schwartz was not nominated and did not stand for re-election as a
Director effective October 14, 2010. Mr. Schwartz had no disputes or
disagreements with the Company.

(6) Mr. Peter Bloch voluntarily resigned from ESW`s Board on March 04, 2011. Mr.
Bloch had no disputes or disagreements with the Company.

(7) Mr. Stefan Boekamp resigned on mutually agreeable terms from his position as
Vice President of Operations of the Company on March 11, 2011. Mr. Boekamp
resigned without any disputes or disagreements with the Company or any of its
subsidiaries.

CURRENT EXECUTIVE OFFICERS AND BOARD - AS AT MARCH 31, 2011
NAME POSITION DATE ELECTED/
APPOINTED
-------------------------------------------------------------------------------

Mark Yung Executive Chairman February 07, 2011

Nitin Amersey Director January 2003

John D. Dunlap III Director February 2007

John J Suydam Director January 25, 2011

John J Hannan Director January 25, 2011

Benjamin Black Director January 25, 2011

Joshua Black Director January 25, 2011

Zohar Loshitzer Director January 25, 2011

Frank Haas Chief Technology Officer March 09, 2011
and Chief Regulatory Officer

Praveen Nair Chief Financial Officer March 09, 2011

Virendra Kumar Vice President of Operations March 09, 2011

Set forth below is information relating to the business experience of each of
the directors and executive officers of the Company.

ELBERT O. HAND, age 70, has extensive experience in corporate management. Mr.
Hand became President of Hartmarx Corporation in 1985 and Chairman and Chief
Executive Officer from 1992 through 2004 and thereafter retired as Chairman and
remained as a director though 2009. Mr. Hand has also served on the Main Board
of Austin Reed PLC, London from 1993 to 2002 and currently serves on the Board
of Arthur J. Gallagher Inc. and has been a director from 2002 through the
present. Mr. Hand also serves on the advisory board of Terlato Wines
International and is a board member of the Savannah Music Festival, Savannah
Georgia and Chicago's Music of the Baroque Chorus and Orchestra of which he was
Chairman from 1995 to 2004. Mr. Hand attended The Kellog School of Management's
Executive Development Program at Northwestern University and received a
bachelor's degree from Hamilton College, Clinton, New York State. Effective
January 25, 2010, ESW's Board of Directors unanimous elected Elbert O. Hand to
serve as a member of the Board of Directors and appointed Mr. Hand to serve as
Chairman. Mr. Hand voluntarily resigned from ESW`s Board on February 7, 2011.

DAVID J. JOHNSON, age 49, has 28 years of experience in the automotive industry
in various aspects of advanced engineering, systems development, manufacturing
of components, and as an entrepreneur. Mr. Johnson has served as the Company's
Chief Operating Officer from August 2000 through November 2001 and was elected
to the Board of Directors in September 2000. In addition to serving as a
director of the Company, Mr. Johnson has served as Senior Vice President of
Sales and Marketing from November 2001 until May 2004 and served as acting Chief
Financial Officer from December 2004 through May 2005. Mr. Johnson was appointed
as the Interim Chief Executive Officer and President on May 1, 2004 and was
subsequently appointed President and Chief Executive Officer in June 2005. Mr.
Johnson attended Tollgate Tech. Secondary, Mohawk College, Devry Institute of
Technologies and is an active member of the Society of Automotive Engineers
(SAE). Effective March 8, 2011, the Company and David J. Johnson, entered into
an Employment Separation and General Release Agreement (the "Agreement"),
whereby Mr. Johnson resigned as President and Chief Executive Officer of the
Company as well as all of its subsidiaries wherein he served as an executive
officer. Additionally, Mr. Johnson resigned from the Company's Board of
Directors as well from the Board of Directors of each of the Company's wholly
owned subsidiaries wherein he served. Mr. Johnson resigned without any disputes
or disagreements with the Company or any of its subsidiaries.

NITIN M. AMERSEY, age 59, has over 36 years of experience in international
trade, marketing and corporate management. Mr. Amersey was elected as a director
of ESW and has served as a member of the board since January 2003. Mr. Amersey
was appointed Interim Chairman of the Board in May 2004 and subsequently was
appointed Chairman of the Board in December 2004 and served as Chairman on ESW's
board through to January 2010. In addition to his service as a board member of
ESW, Mr. Amersey has been Chairman of Scothalls Limited, a private trading firm
since 1978. Mr. Amersey has also served as President of Circletex Corp., a
financial consulting management firm since 2001, has has been the Managing
Member in Amersey Investments, LLC, a financial consulting management firm since
2006, and has served as chairman of Midas Touch Global Media Corp from 2005 to
the present. He is also Chairman of Hudson Engineering Industries Pvt. Ltd. and
of Trueskill Technologies Pvt. Ltd., private companies domiciled in India. He is
a director and Chief Financial Officer of the Trim Holding Group, director and
Chief Executive Officer of New World Brands, Inc., and director and Chief
Executive Officer of Azaz Capital Corp., formerly ABC Acquisition Corp. Mr.
Amersey served as director and Chief Executive Officer of ABC Acquisition Corp.
1502 from June 2010 to February 2011. From 2003 to 2006 Mr. Amersey was Chairman
of RMD Entertainment Group and also served during the same period as chairman of
Wide E-Convergence Technology America Corp. Mr. Amersey is also the owner of
Langford Business Services LLC. Mr. Amersey has a Masters of Business
Administration Degree from the University of Rochester, Rochester, New York, and
a Bachelor of Science in Business from Miami University, Oxford, Ohio. He
graduated from Miami University as a member of Phi Beta Kappa and Phi Kappa Phi.
He is the sole member manager of Amersey Investments LLC. Mr. Amersey also holds
a Certificate of Director Education from the NACD Corporate Director's
Institute. Mr. Amersey continues to serve on ESW`s board.

MICHAEL F. ALBANESE, age 57, has over 34 years of financial experience including
roles as Chief Financial Officer and Chief Operating Officer. Currently he is
the president of Cost Reduction Solutions, a CPA consulting firm providing
services to both private and public companies as well as to the banking
industry. Mr. Albanese received a Bachelor's degree in Accounting and is a
licensed CPA practicing in New Jersey. He is a member of the AICPA and NJSCPA,
The Garden State Credit Association and is a registered accountant with the
SEC's Public Company Accounting Oversight Board (PCAOB). Mr. Albanese was not
nominated and did not stand for re-election as a director effective October 14,
2010. Mr. Albanese had no disputes or disagreements with the Company.

JOHN DUNLAP, III, 52, served as Chairman of the Board of Directors of the
California Air Resources Board from 1994 to 1999. In this post, Mr. Dunlap
promoted advanced technological solutions to achieve air quality and public
health protection gains. During his tenure as Chairman, Mr. Dunlap oversaw the
development and implementation of the most far-reaching air quality regulations
in the world aimed at fuels, engines and over 200 consumer products. Prior to
Mr. Dunlap's tenure at CARB, he served as the Chief Deputy Director of the
California Department of Toxic's Substances Control where his responsibilities
included crafting the state's technology advancement program, serving as the
lead administration official in securing congressional and U.S. Department of
Defence/Executive Branch support and funding for military base closure
environmental clean-up and in creating a network of ombudsman staff to assist
the regulated businesses in demystifying the regulatory process. In addition,
Mr. Dunlap spent more than a decade at the South Coast Air Quality Management
District in a host of regulatory, public affairs and advisory positions where he
distinguished himself as the principal liaison with the business and regulatory
community. Mr. Dunlap is currently the owner of a California-based advocacy and
consulting firm called the Dunlap Group. He has served on the Board of
Director's of ESW since 2007. Mr. Dunlap has a BA degree in Political Science
and Business from the University of Redlands (California) and a Master's degree
in Public Policy from Claremont Graduate University (California). Mr. Dunlap
continues to serve on ESW`s board.

BENGT G. ODNER, age 58, has served as a director since September 2000. He served
as the Company's Chairman from September 2000 through October 2002. Mr. Odner
has also served as our Chief Executive Officer from August 1999 through
September 2000 and as Interim Chief Executive Officer from February 2002 to July
2002. Mr. Odner was a director of Crystal Fund Ltd., a Bermuda mutual fund, and
was a director of Crystal Fund Managers, Ltd. from 1996 until January 2003. From
1990 through 1995, Mr. Odner was the Chairman of Altus Nord AB, a property
holding company specializing in Scandinavian properties and a wholly owned
subsidiary of Credit Lyonais Bank Paris. Mr. Odner holds a masters degree in
Business Administration from Babson College. Mr. Odner resigned from ESW`s Board
on December 17, 2010.

JOEY SCHWARTZ, age 49, has over 26 years of experience in financial management,
business strategy development and marketing. During various periods from
February 2001 to September 2004, Mr. Schwartz served in various consulting
positions involving organizational development, corporate compliance, legal
affairs and finance for ESW and its wholly owned subsidiary ESW Canada Inc. In
May 2005 he was appointed as Chief Financial Officer (CFO) and served as CFO
through February 2008. He served as a consultant to the Company on special
projects and provided advice on compliance, due diligence, regulatory and
business matters from February 2008 through to December 2008. Prior to his
association with the Company, Mr. Schwartz consulted for several companies in
different industries including Identicam Systems Canada Ltd., which was acquired
under the GE Infrastructure security group of companies. He was President of
Empereau Manufacturing, for over 18 years, a manufacturing company supplying
products to the commercial specification and construction industry as well as
government procurement. He is currently president of JMC Emerald Corp. a
consulting company. Mr. Schwartz graduated on the dean's honour roll from York
University where he received a Bachelor of Arts Degree in Economics and
Mathematics. Mr. Schwartz was not nominated and did not stand for re-election as
a Director effective October 14, 2010. Mr. Schwartz had no disputes or
disagreements with the Company.

PETER BLOCH, age 52, is the co-founder and partner of Guarden Capital, a private
company which invests in clean technology companies and assists their management
with strategy and planning. From 2008 to 2009, Mr. Bloch served as Chief
Financial Officer of Just Energy a gas and electricity marketing income trust
which is listed on the TSX. From 2005 to 2008, Mr. Bloch was also a co-founder
and served as a Partner of Tribute Pharmaceuticals, a specialty pharmaceutical
company engaged in the acquisition, licensing and management of mature
prescription pharmaceutical products in the United States and Canada. From 2000
to 2005, he served as Chief Financial Officer, Vice President Finance and
Administration of Gennum Corporation, an international semiconductor company
listed on the Toronto Stock Exchange. Mr. Bloch holds a Bachelors of Commerce
degree with Honours from the University of Cape Town, South Africa and is a
Chartered Accountant in South Africa and Canada. Mr. Bloch voluntarily resigned
from ESW`s Board on March 4, 2011. Mr. Bloch had no disputes or disagreements
with the Company.

MARK YUNG, age 37, is a Senior Investment Executive at Orchard Capital, an
investment firm located in Los Angeles, California. Mr. Yung currently acts as
Executive Chairman of ESW and as a board member of Polymer Plainfield. Prior to
joining Orchard, Mr. Yung was a Senior Vice President in the Corporate Strategy
and Merger and Acquisitions groups of Citigroup and ABN AMRO. Prior to his
corporate strategy roles, Mr. Yung was an investment professional at JPMorgan
Partners ("JPMP"). At JPMP, Mr. Yung focused on venture capital, growth equity
and buyout transactions in Latin America and acted as board member for various
emerging companies in the region. Mr. Yung holds a B.A. from Cornell University
and a M.B.A. from INSEAD. Effective February 10, 2011, Mr. Mark Yung was elected
to serve as Executive Chairman of the Company's Board of Directors. Mr. Yung has
been serving as an elected member of the Board of Directors of the Company since
December 17, 2010. Mr. Mark Yung is also employed by Orchard Capital
Corporation, which is controlled by Mr. Richard Ressler, affiliated entities of
Orchard Capital Corporation as well as Mr. Richard Ressler are shareholders of
the Company.

STEFAN BOEKAMP, age 62, joined the Company in July 2005 as the Plant Manager of
the Company's wholly owned subsidiary, ESW Canada Inc. In February 2008 he was
appointed as the Company's Vice President of Operations. Prior to joining the
Company, Mr. Boekamp ran several machine building companies in Europe engaged in
tooling and specialized equipment design and building between 1971 and 1983.
From 1983 to 1992 he served as a General Manager and Vice President of
Operations for Magna International. He was the President and Chief Executive
Officer of Evermore Automation, an industrial magnet and automated equipment
manufacturer between 1992 and 2005. Mr. Boekamp has a Masters Degree in Tool and
Die Making, equivalent to a Professional Engineer Degree and a Masters in
Business Administration from Handwerskammer Ostwetfalen-Lippe Zu Bielefeld,
Bielefeld, Germany. Mr. Boekamp resigned on mutually agreeable terms from his
position as Vice President of Operations of the Company on March 11, 2011. Mr.
Boekamp resigned without any disputes or disagreements with the Company or any
of its subsidiaries.

PRAVEEN NAIR, age 35, was appointed Chief Accounting Officer in February 2008.
He joined the Company in May 2005 and served in the position of Assistant to the
Chief Financial Officer supporting the Company's Chief Financial Officer in
day-to-day operations. In May 2006 he was promoted to Controller for the
Company's wholly owned subsidiaries, ESW America Inc. and ESW Canada Inc. Prior
to joining the Company, Mr. Nair was with e-Serve International Ltd, a Citigroup
company from December 2000 through January 2005 where he served as a Deputy
Manager in the Business Development and Migrations Unit and subsequently as
Manager and Senior Manager. He was responsible for feasibility studies and
regionalizing operations from countries in Europe, North America and Africa into
processing centers in Mumbai and Chennai in India. Mr. Nair has a Bachelors
Degree in Commerce with specialization in Accounting and a Masters Degree in
Finance from Faculty of Management Studies, College of Materials Management,
Jabalpur, India. Effective March 9, 2011 Mr. Nair was promoted to the position
of Chief Financial Officer of the Company.

NEW BOARD AND EXECUTIVE OFFICER APPOINTMENTS AS AT MARCH 31, 2011

ZOHAR LOSHITZER, age 53, Chief Executive Officer of Presbia an ophthalmic-device
firm. Mr. Loshitzer possesses a varied background guiding commercialization of
emerging technologies in fields including aerospace, telecommunications and
medical devices. Mr. Loshitzer has held leadership positions in several
portfolio companies affiliated to Orchard Capital, including Presbia.
Previously, Mr. Loshitzer served as the President, CEO and founder of Universal
Telecom Services (UTS), which provides high-quality, competitively priced voice
and data telecommunications solutions to emerging markets. Mr. Loshitzer oversaw
the company's operations and its critical relationships with key foreign
entities, mainly in the Indochina region. He is one of the founders of J2 Global
Communications (NASDAQ: JCOM), and a co-founder and former managing director of
Life Alert Emergency Response, Inc., currently serves as a managing director of
Orchard Telecom, Inc., and has served as a board member to MAI Systems
Corporation, an AMEX-listed company and j2 Global communications (NASDAQ: JCOM)
from 1998 - 2001 . Earlier in his career, Mr. Loshitzer worked in the aerospace
industry at the R&D lab of Precision Instruments, a division of IAI (Israel
Aircraft Industries). Mr. Loshitzer focuses on helping grow companies from
start-ups to global enterprises. Mr. Loshitzer holds a degree in Electrical &
Electronic Engineering from Ort Syngalowski College in Israel.

JOSHUA BLACK, age 24, is employed by the Leveraged Finance Group within the
Investment Banking Division at Goldman, Sachs & Co. From 2008 to 2010, he was
employed in the Financial Institutions Group within the Investment Banking
Division also at Goldman, Sachs & Co. He graduated cum laude and with
departmental distinction from Princeton University in 2008 with a major in
Religion.

JOHN J SUYDAM, age 51, Mr. Suydam joined Apollo Investment Corporation in 2006
and serves as the Chief Legal and Administrative Officer at the firm. From 2002
through 2006, Mr. Suydam was a partner at O'Melveny & Myers, where he served as
head of Mergers & Acquisitions and co-head of the Corporate Department. Prior to
that, Mr. Suydam served as Chairman of the law firm O'Sullivan, LLP which
specialized in representing private equity investors. Mr. Suydam serves on the
Board of the Big Apple Circus and is a member of Mount Sinai Hospital Department
of Medicine Advisory Board . Mr. Suydam received his JD from New York University
in 1985 and graduated magna cum laude with a BA in History from the State
University of New York at Albany.

JOHN J HANNAN, age 58, is Chairman of the Board of Directors of Apollo
Investment Corporation, a public investment company. He served as Chief
Executive Officer of Apollo Investment Corporation from 2006 to 2008. Mr.
Hannan, a senior partner of Apollo Management, L.P., co-founded Apollo
Management, L.P. in 1990. He received a BBA from Adelphi University and an MBA
from the Harvard Business School.

BENJAMIN BLACK, age 26, is a 2013 joint degree candidate for a Juris
Doctor/Master of Business Administration from Harvard University. From 2007 to
2009, he was employed in the Technology, Media & Telecoms Group within the
Investment Banking Division at Goldman, Sachs & Co. He graduated cum laude from
the University of Pennsylvania in 2007 with a major in History.

FRANK HAAS, age 47, was appointed the Company's Chief Technology Officer and
Chief Regulatory Officer. Mr. Haas has been the Vice President of Special
Projects for the Company since 2007. He joined the Company in 2001 and served in
several capacities, such as technical Sales Engineer and Director of Sales.
Prior to joining the Company Mr. Haas was employed by Nett Technologies and
Husky Injection Moulding, where he served in the roles of technical Sales and
Project Engineer. Mr. Haas holds a Bachelors degree in Mechanical Engineering
with specialization in Production Engineering from the University of Applied
Sciences in Cologne, Germany.

VIRENDRA KUMAR, age 36, was appointed Vice President of Operations of the
Company. Mr. Kumar has been General Manager of ESW America, Inc. ("ESWA") since
2010 and is responsible for the overall operations related to Air Testing
Services. Prior to joining ESWA in 2009, Mr. Kumar was employed by Cummins Inc.
as an Emission Operations Leader from 2004 through 2009, prior to that by Escort
JCB as a design and production engineer, and by the Indian Institute of
Technology Delhi as a project manager. Mr. Kumar holds a Masters degree in
Mechanical Engineering from the Indian Institute of Technology Delhi and a
Bachelors degree in Mechanical Engineering from the University of Rajasthan. Mr.
Kumar was also a PhD candidate at University of California, Riverside.

CORPORATE GOVERNANCE

GENERAL

ESW's management and Board of Directors believe that good corporate governance
is important to ensure that the Company is managed for the long-term benefit of
its stockholders. This section describes key corporate governance practices that
have been adopted.

BOARD OF DIRECTORS MEETINGS AND ATTENDANCE

The Board of Directors has responsibility for establishing broad corporate
policies and reviewing overall performance of the Company rather than day-to-day
operations. The primary responsibility of ESW's Board of Directors is to oversee
the management of the Company and, in doing so, serve the best interests of the
Company and its stockholders. The Board of Directors selects, evaluates and
provides for the succession of executive officers and, subject to stockholder
approval, the election of directors. The Board also reviews and approves
corporate objectives and strategies, and evaluates significant policies and
proposed major commitments of corporate resources as well as participates in
decisions that have a potential major economic impact on our Company. Management
keeps the directors informed of Company activity through regular communication,
including written reports and presentations at Board of Directors and committee
meetings. We have no formal policy regarding director attendance at the annual
meeting of stockholders. The Board of Directors held eleven (11) meetings in
2010, all of which were telephonic. All board members were in attendance at
least seventy five percent (75%) of the board meetings.

AUDIT COMMITTEE COMPOSITION

The Company has a separately designated standing Audit Committee comprised of
Nitin M. Amersey (Chairman) and John Dunlap III. Nitin Amersey qualifies as a
"financial expert" as defined by SEC rules. The Company's Board has also
determined that Nitin Amersey meets the SEC definition of an "independent"
director. The Audit Committee met 7 times during 2010.

COMPENSATION COMMITTEE COMPOSITION

The Compensation Committee is currently comprised of John Dunlap III, who serves
as Chairman, and Nitin Amersey. In accordance with its charter, the Compensation
Committee is responsible for establishing and reviewing the overall compensation
philosophy of the Company, establishing and reviewing the Company's general
compensation policies applicable to the chief executive officer and other
officers, evaluating the performance of the chief executive officer and other
officers and approving their annual compensation, reviewing and recommending the
compensation of directors, reviewing and recommending employment, consulting,
retirement and severance arrangements involving officers, and directors of the
Corporation and reviewing and recommending proposed and existing
incentive-compensation plans and equity-based compensation plans for the
Corporation's directors, officers, employees and consultants. The Compensation
Committee met 3 times during 2010.

COMPENSATION POLICY:

The objective of the Compensation Committee with respect to compensation for
executive officers is to ensure that compensation packages are designed and
implemented to align compensation with both short-term and long-term key
corporate objectives and employee performance and to ensure that the Corporation
is able to attract, motivate and retain skilled and experienced executives in an
effort to enhance ESW's success and shareholder value.

The compensation policies are designed to align the interests of management with
ESW's shareholders. In order to do so, the committee takes into consideration
the experience, responsibility and performance of each individual over the
longer term and considers a range of short-and long-term cash, and non-cash
compensation elements. The Company believes that this serves the goals of
compensating ESW's executive officers competitively on a current basis, tying a
significant portion of the executives' compensation to company performance, and
allowing the executive officers and key employees to gain an ownership stake in
ESW's commensurate with their relative levels of seniority and responsibility.
Each year, a review of the executive compensation program, compensation
philosophy, committee mission and performance is completed. In addition, each
year the committee reviews the nature and amounts of all elements of the
executive officers' compensation, both separately and in the aggregate, to
ensure that the total amount of compensation is competitive with respect to
ESW's peer companies, and that there is an appropriate balance for compensation
that is tied to the short- and long-term performance of the Company.

NOMINATION COMMITTEE:

The Company does not at present have a formal nominating committee. The full
Board of Directors as a group performs the role. The Board does not assign
specific weights to particular criteria and no particular criterion is a
prerequisite for each prospective nominee. ESW believes that the backgrounds and
qualifications of our directors, considered as a group, should provide a
significant breadth of experience, knowledge and abilities that will allow its
Board to fulfill its responsibilities.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of the
Company's common stock are required to report their initial ownership of the
Company's common stock and any subsequent changes in their ownership to the
Securities and Exchange Commission. Specific due dates have been established by
the Commission, and the Company is required to disclose any failure to file by
those dates. Based upon the copies of Section 16 (a) reports that the Company
received from such persons for their 2010 fiscal year transactions, the Company
believes there has been compliance with all Section 16 (a) filing requirements
applicable to such officers, directors and ten-percent beneficial owners for
such fiscal year, except that a Form 3 was filed late by Mr. Peter Bloch a
former director of the Company.

CODE OF ETHICS

ESW's Board of Directors has adopted a Code of Business Conduct and Ethics which
provides a framework for directors, officers and employees on the conduct and
ethical decision-making integral to their work. The Audit Committee is
responsible for monitoring compliance with this code of ethics and any waivers
or amendments thereto can only be made by the Board or a Board committee. The
Code of Ethics is available on www.sec.gov as an exhibit with the Company's Form
10KSB filed with the Securities and Exchange Commission on April 3, 2006. The
Company can provide a copy of such Code of Ethics, upon receipt of a written
request to the attention of the CFO's Office, at ESW Inc., 335 Connie Crescent,
Concord, Ontario, Canada, L4K 5R2. The written request should include the
Company name, contact person and full mailing address and/or email address of
the requestor.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation for each of the last two (2)
fiscal years earned by the Chief Executive Officer and each of the most highly
compensated executive officers (the "Named Executives").

SUMMARY COMPENSATION TABLE

-------------------------------------------------------------------------------------------------------------------------------
NON-EQUITY NON-QUALIFIED
NAME OPTION INCENTIVE DEFERRED
/ PRINCIPAL STOCK AWARDS PLAN COMPENSATION ALL OTHER
POSITION YEAR SALARY BONUS AWARDS (6) COMPENSATION EARNINGS COMPENSATION TOTAL

-------------------------------------------------------------------------------------------------------------------------------
David J. Johnson (1) 2010 $360,000 -- -- $62,127 -- -- $34,732 $456,859
Director,
Chief Executive Officer 2009 $240,000 -- -- -- -- -- $34,998 $274,998
And President

-------------------------------------------------------------------------------------------------------------------------------
Stefan Boekamp (2) 2010 $111,662 -- -- -- -- -- $8,840 $120,502
Vice President Of
Operations 2009 $100,709 -- -- -- -- -- $10,421 $111,130

-------------------------------------------------------------------------------------------------------------------------------
Praveen Nair (3) 2010 $116,516 -- -- -- -- -- $7,636 $124,152
Chief Accounting Officer
2009 $105,088 -- -- -- -- -- $8,282 $113,370

-------------------------------------------------------------------------------------------------------------------------------

EFFECTIVE MARCH 9, 2011

-------------------------------------------------------------------------------------------------------------------------------
Frank Haas (4) 2010 $87,387 -- -- -- -- -- $5,073 $92,460
Chief Technology Officer
& Chief Regulatory Office 2009 $78,809 -- -- -- -- -- $4,998 $83,807

-------------------------------------------------------------------------------------------------------------------------------
Virendra Kumar (5) 2010 $112,000 -- -- -- -- -- $6,900 $118,900
Vice President Of
Operations 2009 $112,000 -- -- -- -- -- $6,000 $118,000

-------------------------------------------------------------------------------------------------------------------------------

1. Mr. David J. Johnson was paid at the annual rate of $360,000. In 2010 Mr.
Johnson received $360,000 as salary, $18,358 pay in lieu of vacation, a car
allowance of $12,000 per annum and standard medical and dental benefits provided
by the Company totalling $4,374. Mr. Johnson also received 600,000 stock
options. The options vest over a period of three years with an exercise price of
$0.65 (fair market value of the Company's common stock as of the date of grant)
with expiry five years from the date of award. In 2009 Mr. Johnson received
$240,000 as salary and fees, $18,000 pay in lieu of vacation, a car allowance of
$12,000 per annum and standard medical and dental benefits provided by the
Company totalling $4,998. Effective March 9, 2011, the Company and David J.
Johnson, entered into an Employment Separation and General Release Agreement
(the "Agreement"), whereby Mr. Johnson resigned as President and Chief Executive
Officer of the Company as well as all of its subsidiaries wherein he served as
an executive officer. Mr. Johnson will receive a severance payments based upon
his regular salary of $360,000 per annum as prorated. The severance payments
will be made on a quarterly basis for the remainder of the calendar year. Mr.
Johnson will also continue to receive customary medical benefits and a car
allowance of 1,000 a month for the remainder of the calendar year.

2. Mr. Stefan Boekamp was paid at the annual rate of CAD $115,000 (which
translates to USD $111,662 for the year ended December 31, 2010). In 2010 Mr.
Boekamp received $111,662 as salary, $4,466 pay in lieu of vacation, and
standard medical and dental benefits provided by the Company totalling $4,374.
In 2009 Mr. Boekamp received $100,709 as salary, $5,423 pay in lieu of vacation,
and standard medical and dental benefits provided by the Company totalling
$4,998. Effective March 11, 2011, Mr. Boekamp, resigned on mutually agreeable
terms from his position as Vice President of Operations of the Company.

3. Mr. Praveen Nair was paid at the annual rate of CAD$120,000 (which translates
to USD $116,516 for the year ended December 31, 2010). In 2010 Mr. Nair received
$116,516 as salary, $3,262 pay in lieu of vacation, and standard medical and
dental benefits provided by the Company totalling $4,374.In 2009 Mr. Nair
received $105,088 as salary, $3,284 pay in lieu of vacation, and standard
medical and dental benefits provided by the Company totalling $4,998. Effective
March 9, 2011, Mr. Praveen Nair the Company's Chief Accounting Officer was
promoted to the position of Chief Financial Officer of the Company. Mr. Nair
will receive an annual salary of CAD $150,000.

4. Effective March 9, 2011, Mr. Frank Haas was appointed the Company's Chief
Technology Officer and Chief Regulatory Officer. Mr. Haas will receive an annual
salary of CAD $160,000 and will receive an incentive compensation for each of
the first two achieved verification/certifications of certain of the Company's
products within the first year of his appointment. In 2010 Frank Hass was paid
at the rate of CAD $90,000 (which translates to USD $87,387 for the year ended
December 31, 2010). In 2010 Mr. Haas received $87,387 as salary, $699 pay in
lieu of vacation, and standard medical and dental benefits provided by the
Company totalling $4,374. In 2009 Mr. Haas received $87,387 as salary, $0 pay in
lieu of vacation, and standard medical and dental benefits provided by the
Company totalling $4,998.

5. Effective March 9, 2011, Mr. Virendra Kumar was appointed the Company's Vice
President of Operations. Mr. Kumar will receive an annual salary of $150,000. In
2010 Virendra Kumar was paid at the rate of $112,000 annually. In 2010 Mr. Kumar
received $112,000 as salary and standard medical and dental benefits provided by
the Company totalling $6,900. In 2009 Mr. Kumar received the following
compensation, $112,000 as salary and standard medical and dental benefits
provided by the Company totalling $6,000.

6. Represents the cost of the compensation expense recorded by the Company for
option grants in 2010.

EMPLOYMENT AGREEMENTS

In February 2007, the Company entered into an employment agreement with Mr.
David J. Johnson as President and Chief Executive Officer. The agreement
provided, among other things, for an annual salary of $240,000, as well as an
award of 600,000 options exercisable for a term of five (5) years at an exercise
price of $0.71 per share (fair market value of the Company's stock as of the
date of grant). The agreement also provided that, other than in connection with
Mr. Johnson's employment being terminated other than for death, disability,
conviction of a felony or non-performance of duties, he will be paid the balance
of his contract. The employment agreement provided for participation in benefit
plans ESW offers to its employees, and a car allowance of $1,000 per month.
Effective May 13, 2010, the Company's Board of Directors approved the
recommendation of the Compensation Committee whereby the base salary for Mr.
Johnson was increased to $360,000 per annum. The increase in Mr. Johnson's
salary was retroactive to January 1, 2010. On April 15, 2010, the Board of
Directors granted an aggregate award of 600,000 stock options to Mr. Johnson.
The options vest over a period of three years with exercise prices of $0.65
(fair market value of the Company's common stock as of the date of grant) with
expiry of five years from the date of award.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table shows certain information regarding the outstanding equity
awards held by the Named Executives at the end of 2010.

No stock options were granted in 2009.

NUMBER OF SECURITIES OPTION DATE OPTION
UNDERLYING EXERCISE OF EXPIRY
NAME UNEXERCISED OPTIONS(#) PRICE GRANT DATE
------------------------------------------------------------------------------------
600,000 $0.65 04/15/2010 02/16/2012
David J. Johnson 700,000 $0.71 02/16/2007 02/16/2012
150,000 $0.27 06/08/2003 08/06/2013
------------------------------------------------------------------------------------

Stefan Boekamp 50,000 $0.71 02/07/2008 02/06/2011

-----------------------------------------------------------------------------------

Praveen Nair
50,000 $0.71 02/07/2008 02/06/2011
-----------------------------------------------------------------------------------

Frank Haas 50,000 $1.00 02/07/2008 02/06/2011

-----------------------------------------------------------------------------------

Virendra Kumar -- -- -- --

-----------------------------------------------------------------------------------

STOCK OPTION PLAN

On June 23, 2005, the Company, with shareholder approval, amended its 2002 Stock
Option Plan (the "Plan"), to increase the underlying shares of common stock
available under the plan to 5,000,000 shares. The 2002 Stock Option Plan is the
successor plan to the 2000 Nonqualified Stock Option Plan. All stock options
outstanding under the 2000 Nonqualified Stock Option Plan remain in effect
according to their terms and conditions (including vesting requirements). Under
the Company's 2002 Stock Option Plan, the compensation committee may grant
equity incentive awards to directors, officers, employees and service providers
of the Company, in the form of incentive stock options, non-qualified stock
options, and other performance-related or non-restricted stock awards. The
selection of participants in the 2002 Plan, the determination of the award
vehicles to be utilized and the number of stock options or shares subject to an
award are determined by the Company compensation committee, in its sole
discretion, within the approved allocation of shares. The committee shall
determine any service requirements and/or performance requirements pertaining to
any stock awards under the 2002 Plan. The Plan permits the Company to provide
its employees with incentive compensation opportunities which are motivational
and which afford the most favourable tax and accounting treatments to the
Company. The exercise price of any option granted under the 2002 Plan shall not
be less than the fair market value of the common stock of the Company on the
date of grant.

In October 2010, the 2002 Stock option Plan was replaced by the 2010 Stock
Option Plan.

The 2010 Stock Incentive Plan (the "Stock Incentive Plan" or the "Plan")
replaces the Company's 2002 Stock Option Plan. While previously granted options
under the Company's 2002 Stock Option Plan will remain in effect in accordance
with the terms of the individual options, the 2010 Stock Incentive Plan will
replace the Company's 2002 Plan for future grants. The Stock Incentive Plan is
to be capitalized with 5,000,000 shares. The Stock Incentive Plan authorizes the
granting of awards to employees (including officers) of the Company and certain
related companies in the form of any combination of (1) options to purchase
shares of common stock, (2) stock appreciation rights ("SARs"), (3) shares of
restricted common stock ("restricted stock"), (4) shares of deferred common
stock ("deferred stock"), (5) bonus stock, and (6) tax-offset payments with
respect to any of such awards. The Stock Incentive Plan also authorizes the
granting of awards to directors who are not employees or officers of the Company
("Outside Directors") to purchase shares of common stock and related limited
SARs and tax-offset payments. The Stock Incentive Plan is administered by a
committee of the Company's Board of Directors, which consists of at least two
Outside Directors. The Committee has authority to interpret the Stock Incentive
Plan, adopt administrative regulations, and determine and amend the terms of
awards to employees. The Board of Directors has similar authority with respect
to Outside Directors (although the Stock Incentive Plan may also provide for
certain automatic grants to Outside Directors). The aggregate number of shares
of common stock which may be issued under the Stock Incentive Plan is 5,000,000.
Such shares may consist of authorized but unissued shares or treasury shares.
The exercise of a SAR for cash or for the settlement of any other award in cash
will not count against this share limit. Shares subject to lapsed, forfeited or
cancelled awards, including options cancelled upon the exercise of tandem SARs
for cash, will not count against this limit and can be re-granted under the
Stock Incentive Plan. If the exercise price of an option is paid in common stock
or if shares are withheld from payment of an award to satisfy tax obligations
with respect to the award, such shares also will not count against the above
limit. Under the Plan, SARs, restricted stock, deferred stock, or bonus stock
can be granted with a limitation of no more than 1,500,000 shares or derivatives
granted in the aggregate in any fiscal year. No employee or Outside Director may
be granted tax-offset payments with respect to more than the number of shares of
common stock covered by awards held by such employee. The Stock Incentive Plan
does not limit awards which may be made under other plans of the Company.

COMPENSATION OF NON-MANAGEMENT DIRECTORS

FEES EARNED OPTIONS
NAME OF OUTSIDE OR PAID IN AWARDS (1)
DIRECTOR YEAR CASH $ TOTAL
--------------------------------------------------------------------------
Elbert O. Hand (2) 2010 $18,000 $31,063 $49,063

2009 $ -- $ -- $ --
--------------------------------------------------------------------------
Nitin M. Amersey 2010 $19,000 $ -- $ 19,000

2009 $49,500 $ -- $ 49,500
--------------------------------------------------------------------------
Michael F. Albanese 2010 $21,000 $ -- $ 21,000

2009 $38,500 $ -- $ 38,500
--------------------------------------------------------------------------
John D. Dunlap III 2010 $15,000 $ -- $ 15,000

2009 $27,500 $ -- $ 27,500
--------------------------------------------------------------------------
Bengt G. Odner 2010 $15,000 $ -- $ 15,000

2009 $27,500 $ -- $ 27,500
--------------------------------------------------------------------------
Joey Schwartz 2010 $ 15,000 $ -- $ 15,000

2009 $ 27,500 $ -- $ 27,500
--------------------------------------------------------------------------
Peter Bloch (3) 2010 $ -- $ -- $ --

2009 $ -- $ -- $ --
--------------------------------------------------------------------------
Mark Yung (4) 2010 $ -- $ -- $ --

2009 $ -- $ -- $ --
--------------------------------------------------------------------------
Zohar Loshitzer (5) 2010 $ -- $ -- $ --

2009 $ -- $ -- $ --
--------------------------------------------------------------------------
Benjamin Black (6) 2010 $ -- $ -- $ --

2009 $ -- $ -- $ --
--------------------------------------------------------------------------
Joshua Black (7) 2010 $ -- $ -- $ --

2009 $ -- $ -- $ --
--------------------------------------------------------------------------
John J Hannan (8) 2010 $ -- $ -- $ --

2009 $ -- $ -- $ --
--------------------------------------------------------------------------
John Suydam (9) 2010 $ -- $ -- $ --

2009 $ -- $ -- $ --
--------------------------------------------------------------------------

During the fiscal year 2010 and 2009, outside directors were compensated at the
rate of $2,500 a month. The Chairman of the Board of Directors received an
additional $2,000 per month and the Chair of the Audit Committee received an
additional $1,000 per month.

(1) Represents the cost of the compensation expense recorded by the Company in
accordance with FAS123R (ASC 718-10-10). In 2009 no stock option awards were
issued to Outside Directors.

(2) Effective January 25, 2010, ESW's Board of Directors unanimously elected
Elbert O. Hand to serve as a member of the Board of Directors and appointed Mr.
Hand as Interim Chairman. Mr. Hand did not receive any compensation from the
Company in 2009.

(3) Effective November 1, 2010, ESW's Board of Directors unanimously elected
Peter Bloch to serve as a member of the Board of Directors. Mr. Bloch did not
receive any compensation from the Company in 2010 and 2009.

(4) Effective December 17, 2010, Mark Yung was appointed to serve as a member of
the Board of Directors by written action and vote of majority shareholders of
ESW. Mr. Yung did not receive any compensation from the Company in 2010 and
2009.

(5) Effective January 25, 2011, Zohar Loshitzer was appointed to serve as a
member of the Board of Directors by written action and vote of majority
shareholders of ESW. Mr. Loshitzer did not receive any compensation from the
Company in 2010 and 2009.

(6) Effective January 25, 2011, Benjamin Black was appointed to serve as a
member of the Board of Directors by written action and vote of majority
shareholders of ESW. Mr. Benjamin Black did not receive any compensation from
the Company in 2010 and 2009.

(7) Effective January 25, 2011, Joshua Black was appointed to serve as a member
of the Board of Directors by written action and vote of majority shareholders of
ESW. Mr. Joshua Black did not receive any compensation from the Company in 2010
and 2009.

(8) Effective January 25, 2011, John J. Hannan was appointed to serve as a
member of the Board of Directors by written action and vote of majority
shareholders of ESW. Mr. Hannan did not receive any compensation from the
Company in 2010 and 2009.

(9) Effective January 25, 2011, John Suydam was appointed to serve as a member
of the Board of Directors by written action and vote of majority shareholders of
ESW. Mr. Suydam did not receive any compensation from the Company in 2010 and
2009.

The following table shows certain information regarding the outstanding equity
awards held by the outside directors at the end of 2010.

On April 15, 2010, the Board of Directors granted an aggregate award of 300,000
stock options Mr. Elbert O. Hand. The options vest over a period of three years
with exercise prices of $0.65 (fair market value of the Company's common stock
as of the date of grant) with expiry five years from the date of award.

No stock awards or stock options were granted to the outside directors in 2009.

OPTION
NUMBER OF EXERCISE OPTION
OPTIONS (#) PRICE EXPIRATION
NAME OUTSTANDING ($) DATE
-------------------------------------------------------------------
Nitin M. Amersey 50,000 $ 0.27 08/06/2013
300,000 $ 0.71 02/16/2012
-------------------------------------------------------------------
Michael F. Albanese 450,000 $ 0.71 02/16/2012
-------------------------------------------------------------------
John D. Dunlap III 300,000 $ 0.71 02/16/2012
-------------------------------------------------------------------
Bengt G. Odner 50,000 $ 0.27 08/06/2013
300,000 $ 0.71 02/16/2012
-------------------------------------------------------------------
Joey Schwartz (1) 100,000 $ 0.71 02/16/2012
100,000 $ 1.00 02/08/2013
-------------------------------------------------------------------
Elbert O. Hand 300,000 $ 0.65 04/15/2015
-------------------------------------------------------------------

(1) Mr. Joey Schwartz's status changed to an outside director in December 2008.
As an outside director, Mr. Schwartz has not received any stock option awards.
The option awards show in the table above reflect Mr. Schwartz's prior awards as
an executive officer of ESW which are still effective until their expiration
date.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.

The following table sets forth, to the best knowledge of the Company, as of
March 31, 2011, certain information with respect to (1) beneficial owners of
more than five percent (5%) of the outstanding Common Stock of the Company, (2)
beneficial ownership of shares of the Company's Common Stock by each director
and named executive, (3) beneficial ownership of shares of Common Stock of the
Company by all directors and officers as a group.

Unless otherwise noted, all shares are beneficially owned and the sole voting
and investment power is held by the persons/entities indicated.

Calculations are based upon the aggregate of all shares of Common Stock issued
and outstanding as of March 31, 2011 in addition to shares issuable upon
exercise of options currently exercisable or becoming exercisable within 60 days
and which are held by the individuals named on the table.

NAME AND ADDRESS OF TOTAL BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS
-------------------------------------------------------------------------------
Mark Yung, Executive Chairman
c/o 335 Connie Crescent 0 0.00%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Elbert O. Hand, Former Chairman
c/o 335 Connie Crescent 500,000 (2) 0.39%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Nitin M. Amersey, Director
c/o 335 Connie Crescent 350,000 (3) 0.27%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
David J. Johnson
Former Chief Executive Officer,
President and Director 1,700,000 (4) 1.30%
c/o 335 Connie Crescent
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Bengt G. Odner, Former Director
c/o 335 Connie Crescent 25,462,900 (5) 19.61%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Sedam Ltd
15 Rue Du Cendrier, 6TH Floor 25,462,900 (5) 19.61%
Geneva V8 1211
-------------------------------------------------------------------------------
Joey Schwartz, Former Director
c/o 335 Connie Crescent 210,000 (6) 0.16%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
Michael F. Albanese, Former Director
c/o 335 Connie Crescent 450,000 (7) 0.35%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
John D. Dunlap, III, Director
c/o 335 Connie Crescent 300,000 (8) 0.23%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Stefan Boekamp,
Former Vice President of Operations
c/o 335 Connie Crescent 0 0.00%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Praveen Nair, Chief Financial Officer
c/o 335 Connie Crescent 900 (9) 0.00%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Zohar Loshitzer, Director
c/o 335 Connie Crescent 0 0.00%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Benjamin Black, Director
c/o 335 Connie Crescent 0 (10) 0.00%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Joshua Black, Director
c/o 335 Connie Crescent 0 (11) 0.00%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
John J Suydam, Director
c/o 335 Connie Crescent 0 0.00%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
John J Hannan, Director
c/o 335 Connie Crescent 1,088,095 (12) 0.83%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Frank Haas, Chief Technology Officer
and Chief Regulatory Officer
c/o 335 Connie Crescent 246,050 (13) 0.19%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------
Virendra Kumar,
Vice President of Operations
c/o 335 Connie Crescent 0 0.00%
Concord, ON L4K 5R2
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
John J. Hannan as Trustee
of the Black Family 1997 Trust
c/o 9 West 57TH Street, Suite 4300 15,624,615 (14) 12.07%
New York NY 10019
-------------------------------------------------------------------------------
Leon D. Black
c/o 9 West 57TH Street, Suite 4300 6,724,211 (15) 5.19%
New York NY 10019
-------------------------------------------------------------------------------
John J. Hannan as Trustee
of the Leon D. Black Trust UAD
11/30/92 FBO Alexander Black 5,085,379 (16) 3.93%
c/o 9 West 57TH Street, Suite 4300
New York NY 10019
-------------------------------------------------------------------------------
John J. Hannan as Trustee
of the Leon D. Black Trust UAD
11/30/92 FBO Benjamin Black 5,085,379 (17) 3.93%
c/o 9 West 57TH Street, Suite 4300
New York NY 10019
-------------------------------------------------------------------------------
John J. Hannan as Trustee
of the Leon D. Black Trust UAD
11/30/92 FBO Joshua Black 5,085,379 (18) 3.93%
c/o 9 West 57TH Street, Suite 4300
New York NY 10019
-------------------------------------------------------------------------------
John J. Hannan as Trustee
of the Leon D. Black Trust UAD
11/30/92 FBO Victoria Black 5,085,379 (19) 3.93%
c/o 9 West 57TH Street, Suite 4300
New York NY 10019
-------------------------------------------------------------------------------
Richard R. Ressler
C/O CIM GROUP 1,088,095 (20) 0.84%
6922 Hollywood Boulevard
Los Angeles CA 90028
-------------------------------------------------------------------------------
Orchard Investments, LLC
C/O CIM GROUP 2,178,842 (21) 1.68%
6922 Hollywood Boulevard
Los Angeles CA 90028
-------------------------------------------------------------------------------
All current directors and executive
officers as a group (Eleven persons) 37,951,176 29.17%
-------------------------------------------------------------------------------

(1) On the basis of 129,463,767 shares of common stock outstanding, plus, in the
case of any person deemed to own shares of common stock as a result of owning
options or rights to purchase common stock exercisable within 60 days of March
31, 2011.

(2) Includes 200,000 shares of Common Stock. Includes options to purchase
300,000 shares of Common Stock at $0.65 per share, expiring April 15, 2015.

(3) Includes options to purchase 50,000 shares of Common Stock at $0.27 per
share expiring August 6, 2013, and options to purchase 300,000 shares of Common
Stock at $0.71 per share expiring February 16, 2012.

(4) Includes options to purchase 150,000 shares of Common Stock at $0.27 per
share expiring August 6, 2013, options to purchase 700,000 shares of Common
Stock at $0.71 per share expiring February 16, 2012, options to purchase 600,000
shares of Common Stock at $0.65 per share expiring April 15, 2015 and options to
purchase 250,000 shares of Common Stock at $0.12 per share expiring September
09, 2012.

(5) Mr. Bengt George Odner is a past director of Environmental Solutions
Worldwide, Inc. The aggregate amount of Common Stock beneficially owned by Mr.
Bengt Odner, a former director of ESW, is represented by 1,275,780 shares of
Common Stock and 350,000 shares of Common Stock underlying stock options that
may be exercised. In addition to the direct ownership listed herein, Mr. Odner
has indirect beneficial ownership by way of Sedam Limited (supra). Sedam
Limited, a corporation organized under the laws of Cyprus, is controlled by a
trust, of which Mr. Bengt Odner is the sole beneficiary. Sedam Limited includes
23,837,120 shares.

(6) Includes 10,000 shares of Common Stock and options to purchase 100,000
shares of Common Stock at $0.71 per share expiring February 16, 2012, and
options to purchase 100,000 shares of Common Stock at $1.00 per share expiring
February 8, 2013.

(7) Includes 450,000 options to purchase 450,000 shares of Common Stock at $0.71
per share expiring February 16, 2012.

(8) Includes 300,000 options to purchase 300,000 shares of Common Stock at $0.71
per share expiring February 16, 2012.

(9) Includes 900 shares of Common Stock.

(10) Mr. Benjamin Black is a beneficiary of the Leon D. Black Trust UAD 11/30/92
FBO Benjamin Black (the "Benjamin Trust") and the Black Family 1997 Trust (the
"1997 Trust"). John J. Hannan is the trustee of the Benjamin Trust and the 1997
Trust and has the sole voting, investment and dispositive power with respect to
the shares held by the Benjamin Trust and the 1997 Trust. Mr. Benjamin Black
disclaims any beneficial ownership of the shares of Common Stock of the Company
held by the Benjamin Trust and the 1997 Trust.

(11) Mr. Joshua Black is a beneficiary of the Leon D. Black Trust UAD 11/30/92
FBO Joshua Black (the "Joshua Trust") and the 1997 Trust. John J. Hannan is the
trustee of the Joshua Trust and the 1997 Trust and has the sole voting,
investment and dispositive power with respect to the shares held by the Joshua
Trust and the 1997 Trust. Mr. Joshua Black disclaims any beneficial ownership of
the shares of Common Stock of the Company held by the Joshua Trust and the 1997
Trust.

(12) Includes 1,088,095 shares of Common Stock directly owned by John J. Hannan.
As the trustee of each of the 1997 Trust, the Leon D. Black Trust UAD 11/30/92
FBO Alexander Black (the "Alexander Trust"), the Leon D. Black Trust UAD
11/30/92 FBO Victoria Black (the "Victoria Trust"), the Benjamin Trust and the
Joshua Trust, Mr. Hannan is the beneficial owner of an additional 35,966,131
shares of Common Stock.

(13) Includes 246,050 shares of Common Stock.

(14) Includes 15,624,615 shares of Common Stock directly beneficially owned by
the 1997 Trust. John J. Hannan is the trustee of the 1997 Trust and has the sole
voting, investment and dispositive power with respect to the Common Stock shares
of the Company held by the 1997 Trust.

(15) Includes 6,724,211 shares of Common Stock directly owned by Mr. Leon Black.

(16) Includes 5,085,379 shares of Common Stock directly beneficially owned by
the Alexander Trust. John J. Hannan is the trustee of the Alexander Trust and
has the sole voting, investment and dispositive power with respect to the Common
Stock shares of the Company held by the Alexander Trust.

(17) Includes 5,085,379 shares of Common Stock directly beneficially owned by
the Benjamin Trust. John J. Hannan is the trustee of the Benjamin Trust and has
the sole voting, investment and dispositive power with respect to the Common
Stock shares of the Company held by the Benjamin Trust.

(18) Includes 5,085,379 shares of Common Stock directly beneficially owned by
the Joshua Trust. John J. Hannan is the trustee of the Joshua Trust and has the
sole voting, investment and dispositive power with respect to the Common Stock
shares of the Company held by the Joshua Trust.

(19) Includes 5,085,379 shares of Common Stock directly beneficially owned by
the Victoria Trust. John J. Hannan is the trustee of the Victoria Trust and has
the sole voting, investment and dispositive power with respect to the Common
Stock shares of the Company held by the Victoria Trust.

(20) Includes 1,088,095 shares of Common Stock directly owned by Richard S.
Ressler. Richard Ressler is the President of Orchard Capital Corporation, the
Manager of Orchard Investments LLC.

(21) Includes 2,178,842 shares of Common Stock directly owned by Orchard
Investments, LLC ("Orchard").

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

NOTE PAYABLE TO RELATED PARTY

The information required by this item is included in Note 7 to the consolidated
financial statements.

CONVERTIBLE DEBENTURE ISSUED TO RELATED PARTY

Up to October 14, 2010, the Company did not have sufficient authorized and
unissued shares to fulfill the advance share subscription. Under these
conditions, FASB ASC Subtopic 815-40, Contracts in Entity's Own Equity,
precludes equity classification of this obligation. As such, the advance share
subscription was classified as a liability and periodically marked to market.
The fair value of the obligation was determined to be $1,662,753 and $2,909,872
at October 14, 2010 and March 31, 2010, respectively. The fair value of the
obligation was determined by the cash settlement value at the end of each period
based on the closing price of the Company's common stock. The decrease in fair
value of this liability of $1,247,119 was recorded as a mark to market
adjustment on advance share subscription in the consolidated statement of
operations and comprehensive loss. Of the total amount $784,965 (fair market
value of 2,065,697 shares of common stock) was attributed to related parties.

CONTRACTS AND AGREEMENTS

For the year ended December 31, 2010, Mr. Nitin Amersey received $25,500 for
consulting services to the Company. In 2009 Mr. Amersey did not provide any
services to the Company.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES:

The Company paid its principal accountant MSCM LLP, $0 to date in audit fees for
the audit of the Company's annual financial statements for 2010.

The Company paid its principal accountant MSCM LLP $44,766 in audit fees for
review of the financial statements included in its Form 10-QSB for the three
quarterly reports in 2010.

The Company paid its principal accountant MSCM LLP, $ 78,152 to date in audit
fees for the audit of the Company's annual financial statements for 2009.

The Company paid its principal accountant MSCM LLP $24,524 in audit fees for
review of the financial statements included in its Form 10-QSB for the three
quarterly reports in 2009.

TAX AND OTHER FEES:

The Company paid its principal accountant MSCM LLP $0 and $0 for tax and
compliance services for 2009.

The Company paid its principal accountant MSCM LLP $0 and $29,971 for tax and
compliance services for 2009.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

The Company has filed the following documents as part of this Form 10-K:

1. CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm - Page F1
Financial Statements
Consolidated Balance Sheets - Page F2
Consolidated Statements of Income - Page F3
Consolidated Statements of Stockholders' Equity - Page F4
Consolidated Statements of Cash Flows - Page F5
Notes to Consolidated Financial Statements - Page F6-34

2. FINANCIAL STATEMENT SCHEDULE

All schedules have been omitted because they are not required, not applicable,
or the required information is otherwise included.

3. EXHIBITS.

Exhibits are incorporated by reference to the Index of Exhibits provided at the
end of this Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on behalf
of the undersigned; thereunto duly authorized this 31st day of March 2011 in
the city of Concord, Province of Ontario.

ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
(Registrant)

BY: /S/ MARK YUNG
------------------------
MARK YUNG
EXECUTIVE CHAIRMAN

Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below, by the following persons on behalf of the Registrant and
in the capacities indicated.

SIGNATURES TITLE DATE
-------------------------------------------------------------------------------

/S/ MARK YUNG EXECUTIVE CHAIRMAN MARCH 31, 2011
----------------------------
MARK YUNG

/S/ NITIN M. AMERSEY DIRECTOR MARCH 31, 2011
----------------------------
NITIN M. AMERSEY

/S/ JOHN DUNLAP III DIRECTOR MARCH 31, 2011
----------------------------
JOHN DUNLAP

/S/ ZOHAR LOSHITZER DIRECTOR MARCH 31, 2011
----------------------------
BENGT G. ODNER

/S/ BENJAMIN BLACK DIRECTOR MARCH 31, 2011
----------------------------
BENJAMIN BLACK

/S/ JOSHUA BLACK DIRECTOR MARCH 31, 2011
----------------------------
JOSHUA BLACK

/S/ JOHN J HANNAN DIRECTOR MARCH 31, 2011
----------------------------
JOHN J HANNAN

/S/ JOHN SUYDAM DIRECTOR MARCH 31, 2011
----------------------------
JOHN SUYDAM

/S/ PRAVEEN NAIR CHIEF FINANCIAL MARCH 31, 2011
---------------------------- OFFICER
PRAVEEN NAIR

/S/ FRANK HAAS CHIEF TECHNOLOGIES MARCH 31, 2011
---------------------------- OFFICER / CHIEF
FRANK HAAS REGULATORY OFFICE

/S/ VIRENDRA KUMAR VICE PRESIDENT OF MARCH 31, 2011
---------------------------- OPERATIONS
VIRENDRA KUMAR

INDEX OF EXHIBITS

EXHIBIT DESCRIPTION
NUMBER

3.1 Articles of Incorporation of the Company. (1)

3.2 Bylaws of the Company. (1)

3.3 Articles of Incorporation of the Company, as amended as of November 29,
2001. (Originally filed as exhibit 3.2) (5)

3.4 Articles of Incorporation of the Company as amended July 20, 2005
(Originally filed as exhibit 3.3)(13)

3.5 Bylaws of the Company as amended January 3, 2006 (15)

3.6 Articles of Incorporation of the Company, as amended as of October 13,
2010. (34)

3.7 Bylaws of the Company as amended January 25, 2011 (Originally filed as
exhibit 3.1) (35)

4.1 Form of Warrant Certificate issued April, 1999. (1)

4.2 Form of Warrant Certificate for 2002 Unit Private Placement (7)

4.3 Form of three (3) year Warrant Certificate exercisable at $0.90 per
share issued on April and July 2005. (13)

4.4 Form of three (3) year Warrant Certificate exercisable at $2.00 per
share issued on April and July 2005. (13)

4.5 Form of three (3) year Warrant Certificate exercisable at $3.00 per
share issued on April and July 2005. (13)

4.6 Form of Specimen of Common Stock Certificate. (Originally filed as
exhibit 4.1)

10.1 Form of Agreement dated January 29, 1999 by and between the shareholders
BBL Technologies, Inc. and the Company. (1)

10.2 Form of Consulting Agreement dated March 31, 1999 by and between May
Davis Group and the Company. (1)

10.3 Form of Commission Agreement dated March 31, 1999 by and between May
Davis Group and the Company. (1)

10.4 Form of Option Agreement dated June 21, 1999, between David Coates o/a
Fifth Business and the Company. (1)

10.5 Form of Option Agreement dated June 21 1999 between Zoya Financial Corp.
and the Company. (1)

10.6 Form of Consulting Agreement with Bruno Liber dated January 29, 2000.
(2)

10.7 Form of Office Offer to Lease for Environmental Solutions Worldwide Inc.
dated October 6, 1999. (2)

10.8 Form of Financial relations agreement with Continental Capital & Equity
Corporation dated December 5, 2000. (4)

10.9 Form of Employment Agreement between John A. Donohoe, Jr. and the
Company dated as of September 10, 2003. (6)

10.10 Form of Employment Agreement between Robert R. Marino and the Company
dated as of September 10, 2003. (6)

10.11 Form of Employment Agreement between David J. Johnson and the Company
dated as of September 10, 2003. (6)

10.12 Form of Subscription Agreement for 2001 Common Stock Placement. (7)

10.13 Form of Subscription Agreement for 2002 Unit Private Placement and
related representation letters. (7)

10.14 Form of unsecured subordinated promissory note issued by the Company to
AB Odinia, dated August 27, 2004. (Originally filed as exhibit 10.1) (8)

10.15 Form of Securities Subscription Agreement between the Company and
Investor for the purchase of 4% Convertible Debentures and three (3)
year warrant exercisable at $1.00 per share dated September, 2004.
(Originally filed as exhibit 10.1) (9)

10.16 Form of 4% Three (3) Year Debenture issued by the Company dated
September, 2004.(Originally filed as exhibit 10.2) (9)

10.17 Form of Three (3) Year Warrant to purchase the Company's Common Stock at
$1.00 a share dated September, 2004.(Originally filed as exhibit 10.3)
(9)

10.18 Form of Registration Rights Agreement dated September, 2004. (Originally
filed as exhibit 10.4) (9)

10.19 Form of Lease agreement and amended lease agreement between the
Company's wholly owned subsidiary ESW America Inc. and Nappen &
Associates dated on November 16, 2004. (12)*

10.20 Form of Subscription Agreement dated April and July 2005 for Common
Stock at $0.85 and Warrants exercisable at $0.90, $2.00 and $3.00 per
share. (13)

10.21 Form of Registration rights Agreement dated April and July 2005. (13)

10.22 Form of $1.2 Million Unsecured Subordinated Promissory Note dated June
30, 2006. (16)

10.23 Form of $1 Million Unsecured Subordinated Promissory Note dated
September 7, 2006. (17)

10.24 Form of Separation Agreement and Release of Claims by and between the
Company and Stan Kolaric dated October 12, 2006. (20)

10.25 Form of $500,000 Unsecured Subordinated Promissory Note dated November
17, 2006. (18)

10.26 Form of Contract for Investor Relations Service by and between the
Company and Delta 2005 AG dated December 12, 2006. (20)

10.27 Form of Consolidated $2.3 Million Unsecured Subordinated Demand
Promissory Note dated February 9, 2007. (20)\

10.28 Form of $500,000 Unsecured Subordinated Demand Promissory Note by and
between the Company and Mr. Bengt Odner, dated February 15, 2007. (20)

10.29 Form of Employment Agreement between David J. Johnson and the Company
dated as of January 1, 2007. (20) 10.30 Form of Assignment by Inventor
by and between the Company and David Johnson dated February 16, 2007.
(20)

EXHIBIT DESCRIPTION
NUMBER

10.31 Form of Consolidated 1.002 Million Note by and between the Company and
Mr. Bengt Odner dated March 13, 2007. (20)

10.32 Form of $2.5 Million Financing Loan Agreement by and between ESW Canada
Inc and Royal Bank of Canada dated March 5, 2007 (20)

10.33 Letter Agreement dated October 11, 2007 and effective November 2, 2007
by and between the Company's wholly owned subsidiary ESW Canada Inc and
Royal Bank of Canada amending the terms of the Credit Facility Agreement
dated as of March 2, 2007. (21)

10.34 Form of Employment Agreement between Stefan Boekamp and the Company
dated as of February 4, 2008. (23)

10.35 Form of Employment Agreement between Praveen Nair and the Company dated
as of February 4, 2008. (23)

10.36 Form of Credit Facility Agreement between the Company and Mr. Bengt
Odner Dated June 2, 2008 (24)

10.37 Form of $500,000 Unsecured Subordinated Demand Promissory Note by and
between the Company and Mr. Bengt Odner, dated June 2, 2008 (24)

10.38 Form of Securities Subscription Agreement between the Company and
Investor for the purchase of 9% three (3) year Convertible Debentures
(25)

10.39 Form of 9% Three (3) Year Debenture issued by the Company dated November
3, 2008. (25)

10.40 Form of Registration Rights Agreement dated November 3, 2008. (25)

10.41 Form of Consulting Agreement between Joey Schwartz and the Company dated
as of February 4, 2008 (26)

10.42 Form of Securities Subscription Agreement between the Company and
Investor Ledelle Holdings Ltd. for the purchase of 9% three (3) year
Convertible Debentures dated November 7, 2008. (26)

10.43 Form of 9% Three (3) Year Debenture issued by the Company to Investor
Ledelle Holdings Ltd. dated November 7, 2008. (26)

10.44 Form of Registration Rights Agreement between the Company and Investor
Ledelle Holdings Ltd. for the purchase of 9% three (3) year Convertible
Debentures (25)

10.45 Form of Securities Subscription Agreement between the Company and
Investor Mr. Bengt Odner. for the purchase of 9% three (3) year
Convertible Debentures Dated November 7, 2008. (26)

10.46 Form of 9% Three (3) Year Debenture issued by the Company to Investor
Mr. Bengt George Odner dated November 7, 2008. (26)

10.47 Form of Registration Rights Agreement between the Company and Investor
Ledelle Holdings Ltd. for the purchase of 9% three (3) year Convertible
Debentures (25)

10.48 Form of Amendment to Employment Agreement between Praveen Nair and the
Company effective as of January 1, 2009 (26)

10.49 Form of 9% Unsecured Promissory Note (27)

10.50 Form of Letter Agreement Amendment to Secured Commercial Loan Agreement
by and between ESW Canada Inc and Royal Bank of Canada dated as of
August 24, 2009 (28) 10.51 Form of Securities Subscription Agreement for
9% Convertible Debentures dated as of August 28, 2009 (29)

10.51 Form of 9% Three (3) year debentures (29)

10.53 Lease Renewal Agreement by and between the Company's wholly owned
subsidiary ESW America, Inc. and Nappen Associates effective October 16,
2009

10.54 Form of 9% Unsecured Promissory Note effective December 29, 2009 (30)

10.55 Form of Securitas Subscription Agreement for 9% Convertible Debentures
dated as of March 19, 2010 (31)

10.56 Form of 9% three year Convertible Debenture dated as of March 19, 2010
(31)

10.57 Form of Registration Rights Agreement dated as of March 19, 2010 (31)

10.58 Form of Loan Agreement by and between the Company's wholly subsidiary
ESW Canada, Inc and Canadian Imperial Bank of Commerce effective March
31, 2010.

10.59 Form of Guarantee of Loan Guarantee of Loan Agreement by and between
Canadian Imperial Bank of Commerce and the Company, and the Company's
wholly owned subsidiaries ESW America, Inc and ESW Technologies, Inc.

10.60 Form of Patent and Trademark Security Agreement by and between the
Company's wholly owned subsidiary ESW Technologies, Inc. and Canadian
Imperial Bank of Commerce

10.61 Environmental Solutions Worldwide Inc. Nominating and Governance
Committee Charter as of August 10, 2010 (33)

10.62 Environmental Solutions Worldwide, Inc. Audit Committee Charter as of
August 10, 2010 (33)

10.63 Environmental Solutions Worldwide Inc. Compensation Committee Charter as
of August 10, 2010 (33)

10.64 Form of Subordinated Note Subscription Agreement as of February 17, 2011
(36)

10.65 Form of Unsecured Subordinated Promissory Note as of February 17, 2011
(36) 14.1 Code of ethics adopted March 28, 2005 by the Company's Board
of Directors. (12)

EXHIBIT DESCRIPTION
NUMBER

14.2 Code of ethics as amended March 28, 2006 by the Company's Board of
Directors. (15)

16.1 Letter from James E. Scheifley & Associates, P. C. (1)

16.2 Letter from Daren, Martenfeld, Carr, Testa and Company LLP dated
February 2001. (3)

16.3 Letter of resignation from Goldstein and Morris Certified Public Account
P.C. dated October 20, 2004 (10)

16.4 Letter from Goldstein and Morris Certified Public Account P.C. dated
November 23, 2004 (11)

16.5 Letter from Deloitte & Touche LLP dated May 29, 2009 (32)

21.1 List of subsidiaries. (1)

31.1 Certification Pursuant To Section 302 of the Sarbanes-Oxley Act Of 2002

31.2 Certification Pursuant To Section 302 of the Sarbanes-Oxley Act Of 2002

32.1 Certification Pursuant To 18 U.S. C. Section 1350 as Adopted Pursuant To
Section 906 of The Sarbanes- Oxley Act Of 2002

32.2 Certification Pursuant To 18 U. S. C. Section 1350 as Adopted Pursuant
To Section 906 of The Sarbanes- Oxley Act Of 2002

99.1 Form of Compensation Committee Charter dated February 14, 2007. (19)

NOTES

(1) Incorporated herein by reference from the Registrant's Form 10 Registration
Statement (SEC File No. 000-30392) filed with the Securities and Exchange
Commission of November 18, 1999

(2) Incorporated herein by reference from the Registrant's 10-K filed with the
Securities and Exchange Commission on March 30, 2000.

(3) Incorporated herein by reference from the Registrant's Form 8-K/A filed with
the Securities and Exchange Commission on March 14, 2001.

(4) Incorporated herein by reference from the Registrant's 10-KSB filed with the
Securities and Exchange Commission on April 16, 2001.

(5) Incorporated herein by reference from the Registrants Form 10-KSB filed with
the Securities and Exchange Commission on April 01, 2002.

(6) Incorporated herein by reference from the Registrant's Form 10-QSB/A filed
with the Securities and Exchange Commission on November 26, 2003.

(7) Incorporated by reference from an exhibit filed with the Registrant's
Registration Statement on Form S-2 (File No. 333-112125) filed on January 22,
2004.

(8) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on September 2, 2004.

(9) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on September 17, 2004.

(10) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on October 22, 2004.

(11) Incorporated herein by reference from the Registrants Form 8-K/A filed with
the Securities and Exchange Commission on December 2, 2004.

(12) Incorporated by reference to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission on March 31, 2005.

(13) Incorporated herein by reference from the Registrants Form 10-QSB filed
with the Securities and Exchange Commission on August 15, 2005.

(14) Incorporated herein by reference from the Registrants Form S-8 Registration
Statement SEC File No. 333-127549) filed on August 15, 2005.

(15) Incorporated herein by reference from the Registrants Form 10-KSB filed
with the Securities and Exchange Commission on April 3, 2006.

(16) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on June 30, 2006.

(17) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on September 7, 2006.

(18) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on November 17, 2006.

(19) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on February 14, 2007.

(20) Incorporated herein by reference from the Registrants Form 10-KSB filed
with the Securities and Exchange Commission on March 30, 2007.

(21) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on November 8, 2007.

(22) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on February 1, 2008.

(23) Incorporated herein by reference from the Registrants Form 10-KSB/A filed
with the Securities and Exchange Commission on April 29, 2008.

(24) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on June 2, 2008.

(25) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on November 7, 2008.

(26) Incorporated herein by reference from the Registrants Form 10-K filed with
the Securities and Exchange Commission on April 9, 2009.

(27) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on January 05, 2010.

(28) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on August 26, 2009.

(29) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on September 2, 2009.

(30) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on January 5, 2010.

(31) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on March 23, 2010.

(32) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on June 2, 2010.

(33) Incorporated herein by reference from the Registrants Form 10Q filed with
the Securities and Exchange Commission on August 13, 2010.

(34) Incorporated herein by reference from the Registrants Form 10Q filed with
the Securities and Exchange Commission on September 09, 2010.

(35) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on January 28, 2011.

(36) Incorporated herein by reference from the Registrants Form 8-K filed with
the Securities and Exchange Commission on February 22, 2011.

* Confidential treatment requested for a portion of this exhibit

** PREVIOUSLY FILED WITH FORM SB-2.

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