Ecosphere Technologies, Inc.

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Ecosphere Technologies Announces First Quarter 2011 Results With an Increase in Revenues Compared to the First Quarter of 2010

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Continued Improvements in the Balance Sheet Pave the Way for Business Expansion

STUART, Fla., May 11, 2011 (GLOBE NEWSWIRE) -- Ecosphere Technologies, Inc. (OTCBB:ESPH), a diversified water engineering and environmental services company, announced financial improvements in its Form 10-Q that was filed yesterday. The company reported revenues of $2.2 million for the first quarter of 2011 as well as improvements in gross margin. Notably, the balance sheet continues to reflect ongoing improvements including a $2.6 million increase in current assets and an $850K reduction in accounts payable and accrued liabilities. The increase in current assets includes $2.1 million in restricted cash that is reserved for the construction of Ecosphere's new Ozonix EF60 water treatment systems for the recently announced licensing agreement with Hydrozonix, LLC.

Adrian Goldfarb, Chief Financial Officer, stated, "The balance sheet improvements illustrate the first benefits of the agreement signed with Hydrozonix in Q1 for the manufacture and license of the Ozonix EF60 mobile, high volume water treatment units for U.S. oil and gas exploration and production. The agreement provides for significant deposits to build the units and these amounts are reflected in the cash now present on our balance sheet. The cash will be used to construct EF60 systems and will fund ongoing manufacturing operations. Additionally, our majority owned subsidiary, Ecosphere Energy Services, recorded net income for Q1 and was cash flow positive for the quarter."

Ecosphere is currently constructing two Ozonix EF60 systems at its Stuart, Florida based manufacturing facility.

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About Ecosphere Technologies:

Ecosphere Technologies, Inc. (OTCBB:ESPH) is a diversified water engineering, technology licensing and environmental services company that designs, develops and manufactures wastewater treatment solutions for industrial markets. The Company provides environmental services and technologies for use in large-scale and sustainable applications across industries, nations and ecosystems. Ecosphere is driving clean water innovation with its patented Ozonix advanced oxidation technologies and its mobile, low maintenance water treatment systems. Ecosphere, through its majority-owned subsidiary Ecosphere Energy Services, LLC ("EES"), provides energy exploration companies with an onsite, chemical free method to kill bacteria and reduce scaling during fracturing and flowback operations. For more information, please visit: www.EcosphereTech.com

     
ECOSPHERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
     
  March 31, December 31,
  2011 2010
  (Unaudited)  
Current Assets    
Cash   $ 365,218  $ 46,387
Restricted cash 2,140,000  -- 
Accounts receivable 689,891 703,475
Prepaid expenses and other current assets 238,550 46,151
Total current assets 3,433,659 796,013
 Property and equipment, net 7,293,358 7,729,721
 Construction in progress 521,386 389,558
 Patents, net 45,150 46,145
 Deposits 27,645 22,205
Total assets  $ 11,321,198  $ 8,983,642
Liabilities, Redeemable Convertible Cumulative Preferred Stock and    
Stockholders' Deficit    
Current Liabilities    
Accounts payable  $ 1,228,772  $ 1,953,798
Accounts payable - related parties  --  15,093
Accrued liabilities 803,702 917,872
Vehicle financing 66,001 69,566
Insurance premium financing contract 117,998  -- 
Due to affiliate 2,000 2,000
Customer deposit 2,140,000  -- 
Notes payable – related parties (net of discount) – current portion 2,291,311 2,636,093
Notes payable – third parties (net of discount) – current portion  --  50,000
Fair value of liability for warrant derivative instruments 809,403 610,642
Total current liabilities 7,459,187 6,255,064
 Restructuring reserve 157,934 181,119
 Notes payable - related parties - less current portion 136,676 136,676
 Notes payable - third parties – less current portion  1,519,153 313,722
Total Liabilities 9,272,950 6,886,581
Redeemable convertible cumulative preferred stock series A    
11 shares authorized; 6 shares issued and outstanding at March 31, 2011 and December 31, 2010, $25,000 per share redemption amount plus dividends in arrears ($1,141,619 at March 31, 2011)  1,141,619  1,135,994
Redeemable convertible cumulative preferred stock series B    
484 shares authorized; 322 shares issued and outstanding at March 31, 2011 and December 31, 2010, $2,500 per share redemption amount plus dividends in arrears ($2,761,926 at March 31, 2011)  2,761,926  2,741,802
     
Commitments and Contingencies (Note 13)    
     
Ecosphere Technologies, Inc. Stockholders' Deficit    
Common stock, $0.01 par value; 300,000,000 shares authorized; 141,967,359 and 137,430,786 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively 1,420,772 1,374,307
Common stock issuable, $0.01 par value, 453,733 and 1,347,915 issuable at March 31, 2011 and December 31, 2010, respectively 4,538 13,480
Additional paid-in capital 100,412,209 96,778,394
Accumulated deficit (113,799,134) (110,025,222)
Total Ecosphere Technologies, Inc. stockholders' deficit (11,961,615) (11,859,041)
Noncontrolling interest in consolidated subsidiary 10,106,318 10,078,306
Total stockholders' deficit (1,855,297) (1,780,735)
Total liabilities, redeemable convertible cumulative preferred stock, and stockholders' deficit  $ 11,321,198  $ 8,983,642
     
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
     
ECOSPHERE TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
     
  For the Three Months Ended
  March 31,
  2011 2010
Revenues   $ 2,227,641  $ 2,100,867
     
Cost of revenues 621,699 746,534
     
Gross profit  1,605,942 1,354,333
     
Operating expenses    
Selling, general and administrative 4,936,150 2,805,046
Total operating expenses 4,936,150 2,805,046
     
Loss from operations (3,330,208) (1,450,713)
     
Other income (expense):    
Other income  143 90
Gain (loss) on settlement, net  --  18,099
Gain (loss) on conversion, net (94,662)  -- 
Interest expense (122,412) (517,936)
Change in fair value of derivative instruments (198,761) (21,044,851)
Total other income (expense) (415,692) (21,544,598)
     
Net loss (3,745,900) (22,995,311)
     
Preferred stock dividends (25,750) (27,500)
     
Net loss applicable to common stock (3,771,650) (23,022,811)
     
Less: Net (income) applicable to noncontrolling interest in consolidated subsidiary (28,012) (109,395)
     
Net (loss) applicable to Ecosphere Technologies, Inc. common stock  $ (3,799,662)  $ (23,132,206)
     
Net income (loss) per common share applicable to common stock     
Basic and diluted  $ (0.03)  $ (0.19)
     
Weighted average number of common shares outstanding    
Basic and diluted 141,672,563 119,544,476
     
The accompanying unaudited notes are an integral part of these condensed consolidated unaudited financial statements.
     
ECOSPHERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
  For the Three Months Ended March 31, 
  2011 2010
OPERATING ACTIVITIES:    
Net (loss) applicable to Ecosphere Technologies, Inc. common stock  $ (3,799,662)  $ (23,132,206)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:    
Accrued preferred stock dividends 25,750 27,500
Depreciation and amortization 528,045 443,196
Accretion of discount on notes payable 46,182 143,142
Loss on settlement of note and accrued interest for common stock 93,762  -- 
Stock-based compensation expense 2,398,474 1,005,212
Stock options issued for services 97,450  -- 
Increase in fair value of warrant derivative liability 198,761 16,391,765
Increase in fair value of embedded conversion option derivative liability  --  4,653,085
Restricted stock vesting expense 53,748  -- 
Changes in operating assets and liabilities  --   -- 
Decrease in accounts receivable 13,584 96,167
(Increase ) in prepaid expenses and other current assets (41,347) (22,772)
(Increase) in deposits (5,440) (5,085)
(Increase) in restricted cash (2,140,000)  -- 
Increase in accounts payable (725,026) (357,129)
Increase (decrease) in accounts payable - related parties (15,093)  -- 
(Decrease) in restructuring reserve (23,185) (17,535)
Increase in customer deposits 2,140,000  -- 
Increase (decrease) in deferred revenue  --  (288,000)
Increase (decrease) in accrued liabilities (97,932) 7,969
Noncontrolling interest in income (loss) of consolidated subsidiary 28,012 109,395
Net cash provided by (used in) operating activities (1,223,917) (945,296)
     
INVESTING ACTIVITIES:    
Redemption of restricted cash  --  350,000
Construction in process purchases (131,828) (40,080)
Purchase of property and equipment (90,687) (1,106,502)
Net cash (used in) investing activities (222,515) (796,582)
     
FINANCING ACTIVITIES:    
Proceeds from issuance of convertible notes payable and warrants 1,575,000  -- 
Proceeds from modifications of warrrants for cash   --  617,168
Proceeds from warrant and option exercises 571,664 367,773
Proceeds from vehicle financing  --  42,000
Repayments of notes payable and insurance financing (33,054) (58,596)
Repayments of notes payable to related parties (344,782)  -- 
Repayments of vehicle financing (3,565) (2,754)
Principal payments on capital leases  --  (10,677)
Net cash provided by financing activities 1,765,263 954,914
Net increase (decrease) in cash 318,831 (786,964)
Cash, beginning of period 46,387 1,089,238
Cash, end of period  $ 365,218  $ 302,274
     
The accompanying unaudited notes are an integral part of these condensed consolidated unaudited financial statements.
CONTACT: Investor Relations Contact:
         Gerald Kieft
         The WSR Group
         772-219-7525
         EcosphereIR@wallstreetresources.net
         http://www.WallstreetResources.net/Ecosphere.asp

         Press and Media Relations Contact:
         Corey McGuire
         Ecosphere Technologies, Inc.
         772-287-4846
         cmcguire@EcosphereTech.com

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