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Universal Alternative Fuels

On October 14, 2009, the Company entered into a License Agreement with UAF, as amended by Amendment No. 1 to the License Agreement dated October 14, 2009 (the "UAF License Agreement"). Pursuant to the terms of the UAF License Agreement, the Company granted UAF an exclusive world-wide, royalty free license for the application of the Technology in recovering commercially usable energy, energy producing material and by products from oil shale and coal (the "Licensed Field of Use"), including, (i) the right to sublicense in the Licensed Field of Use;
(ii) to practice the method or process required for the Licensed Field of Use and covered by the Company's patents or the Technology (the "Licensed Process") as a service to others or for UAF itself; (iii) to make, have made and use in the practice of the Licensed Process and to sell, offer to sell, lease, distribute, export and import licensed products in the country or countries in which the patent are effective and (iv) to use the Company's trademarks. UAF was required to pay a one time license fee equal to $750,000 (the "License Fee") upon the execution and delivery of the UAF License Agreement and receive restricted shares aggregating to 20% of the issued and outstanding shares of common stock of UAF (the "Equity Interest") of UAF on the date of issuance.

In connection with the UAF License Agreement, UAF issued a purchase order, dated October 14, 2009, for an initial machine capable of processing one ton per hour of oil shale (the "Purchase Order") to the Company. The purchase price for the initial machine is based on a formula related to the Company's cost to manufacture the initial machine and will not exceed $3.5 million. Payment of the purchase price is as follows: (i) UAF was required to pay $500,000 to the Company six months from the date of the Purchase Order (ii) and $500,000 nine months from the date of the Purchase Order, (iii) a deemed deposit by UAF of $843,000 was credited against the purchase price on the date of the Purchase Order, and (iv) the balance of the purchase price will be paid upon completion of the initial machine, demonstration and acceptance by UAF. As of the date of this filing, UAF has not paid the initial $500,000 payment due in April of 2010, nor has it paid the second $500,000 payment due in July of 2010.

The Purchase Order was subject to a 180 day "wait and see" period from the date of the Purchase Order upon which UAF had the right to terminate the Purchase Order only if the Company has not raised at least $3,400,000 in additional equity capital (which shall include debt, if convertible into Common Stock of the Company) within 150 days from the date of the UAF License Agreement. If UAF had exercised its right to terminate the Purchase Order, the Company had a ten day period in which it could repurchase the license granted to UAF and retain the existing prototype machine for an aggregate of $1,700,000 (the "Repurchase Price") which included the return of the $750,000 license fee and reimbursement to UAF of the $843,000 in costs incurred in connection with the License Agreement to be paid within twenty days from the end of the ten day period.

Prior to the date of this filing, the Company received from UAF a notice of termination (the "Termination Notice") of the License Agreement and Purchase Order and a notice of foreclosure ("Foreclosure Notice") in connection with the Security Agreement. The Company believes that, for a number of reasons, pursuant to the terms of the License Agreement and all related agreements, the Termination Notice and Foreclosure Notice are invalid. On July 26, 2010, the Company issued a notice of default ("Default Notice") to UAF as a result of UAF's failure to issue the Equity Interests and make the required Purchase Price payments pursuant to the terms of the License Agreement and Purchase Order. UAF has 60 days from the date of the Default Notice to cure such breach. If UAF has not cured the breach within the 60 day time frame the Default Notice serves as notice of termination by the Company of the License Agreement and Purchase Order. Upon such termination UAF's lien pursuant to the Security Agreement would terminate. The 60 day time frame has elapsed as of September 26, 2010 thereby terminating the License Agreement and Purchase Order. On October 20, 2010, UAF sent to the Company a Notice of Disposition of Collateral notifying the Company that certain of it patent applications and other items as identified in the Security Agreement would be offered for sale at a public auction on November 4, 2010. On December 16, 2010 UAF issued a press release announcing a change in the date of the public auction to December 22, 2010. Representatives of the Company attended the auction held by UAF at which UAF auctioned certain of the Company's assets to itself. Additionally, on November 4, 2010 the Company received a copy of a written consent executed by the board of directors of UAF authorizing the issuance of the Equity Interest together with an unsigned copy of a stock certificate in the Company's name for an aggregate of 40 shares of the common stock of UAF.

On January 14, 2011, the Company filed a complaint in the Supreme Court of the State of New York (1) seeking compensatory damages for breach of contract in an amount to be determined at trial and (2) seeking a declaratory judgment that UAF
(a) did not and does not have the right to terminate the Purchase Order; (b) did not validly exercise the purported termination right; (3) is not entitled to seize, attempt to seize, sell, attempt to sell, transfer or request the transfer of, auction or attempt to auction any property, including without limitation any property identified in the License Agreement, Purchase Order and or Security Agreement; and (4) permanently enjoining UAF from seizing, selling, transferring, or attempting to auction any property. There are no assurances as to the outcome of this dispute.

On February 28, 2011, UAF filed a complaint in the state of North Carolina General Court of Justice in Wake County (1) for breach of contract, alleging damages in the amount of $1,713,000; (2) seeking possession of the Company's prototype or in the alternative, damages for its conversion; (3) treble damages and attorney's fees as a resulting from an alleged violation of the Uniform Fraudulent Act; (4) the appointment of a receiver and (5) seeking a preliminary injunction enjoining the Company and its insiders, employees and or/agents from transferring or disposing of any property or assets of the Company including patents or its prototype. Additionally, on March 3, 2011, UAF filed a temporary restraining order (the "Restraining Order") in the state of North Carolina in the General Court of Justice in Wake County restraining the Company from selling, disposing, moving or relocating any of the Company's assets. The Restraining Order is in effect for ten (10) days from March 3, 2011. The Restraining Order has temporarily been extended until a hearing in the Wake County courts scheduled for May 2, 2011.

Joint Ventures and Strategic Alliances

We currently have limited funds available to pursue research and development of our Technology in other potential areas of application. These additional applications require the investment of large amounts of capital over extended time periods to investigate, refine and eventually develop the correct techniques for the use of microwave technology for the relevant application, build test units to evaluate the viability of the techniques on a large scale, determine the commercial usefulness of the application, and develop a sales and marketing force with expertise in the intended area of use. Accordingly, our strategy will be to negotiate collaborative agreements with large industrial and manufacturing companies, governments, or other parties to pursue opportunities in these areas of application.

On April 23, 2009, Global Heavy Oil Corporation, a wholly-owned subsidiary of the Company, entered into a Joint Development Agreement with Schlumberger Technology Corporation and Schlumberger Holdings Limited (the "Joint Development Agreement"). The parties to the Joint Development Agreement agreed to use reasonable efforts to collaborate in order to develop surface upgrading products and services in heavy oil oilfield operations (the "Products and Services"). Surface upgrading are processes and technologies using microwaves to increase the gravity of heavy oil above the surface of the Earth. Heavy oil is petroleum with an American Petroleum Institute gravity of 22.3 degrees or less. Pursuant to the Joint Development Agreement, we agreed not to engage in the research, development, manufacturing, marketing or exploitation of Products and Services during its term and for two years thereafter, except pursuant to the Joint Development Agreement.

Pursuant to the Joint Development Agreement, Schlumberger agreed to pay $300,000 within thirty days of its execution and another $300,000 on its first anniversary. These moneys are non-refundable. The first $300,000 was received on May 22, 2009. The Company received the second payment of $300,000 on March 4, 2010.

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