Vertex Energy Inc. - Annual Report: 2008 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number 1-11476

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WORLD WASTE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

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Registrant's telephone number, including area code (408) 517-3308

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨  No þ

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 þ

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 þ  No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, according to disclosure in Item 10  a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer”, “ accelerated filer, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨  Accelerated filer ¨  Non-accelerated filer ¨  Smaller reporting company þ

Indicate by check mark if whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No þ

The aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2008) was approximately $5,519,298. As of March 19, 2009, there were 27,596,491 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Not Applicable

TABLE OF CONTENTS

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CAUTIONARY STATEMENT

This report contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. When used in this report, the words "budgeted," "anticipate," "estimate," "expect," "may," "project," "believe," "intend," "plan," "potential" and similar expressions are intended to be among the statements that identify forward-looking statements. These forward-looking statements speak only as of their dates and should not be unduly relied upon. We undertake no obligation to update or review any forward-looking statement, whether as a result of new information, future events, or otherwise. Such statements involve risks and uncertainties, including, but not limited to, the numerous risks and substantial and uncertain costs associated with the need for a significant waste supply, our ability to develop or acquire technologies, our ability to raise capital, environmental regulations and litigation, permitting, construction of processing facilities, our ability to protect our intellectual property, the development and viability of our technology and recycling process, and other factors detailed in this report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes will likely vary materially from those indicated.

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PART I

ITEM 1.

BUSINESS

COMPANY OVERVIEW

On May 15, 2008, World Waste Technologies, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Vertex Energy, LP, a Texas limited partnership (“Vertex LP”), Vertex Energy, Inc., a Nevada corporation (“Vertex Nevada”), Vertex Merger Sub, Inc., a California corporation and wholly-owned subsidiary of Vertex Nevada, and Benjamin P. Cowart, as agent for the shareholders of Vertex Nevada (the “Agent”). On May 19, 2008, we, Vertex LP, Vertex Nevada, and Vertex Merger Sub, LLC, a California Limited Liability Company and wholly-owned subsidiary of Vertex Nevada (“Merger Sub”), entered into an Amended and Restated Merger Agreement (as so amended and restated, the “Merger Agreement”).  Vertex LP is a Texas-based privately held limited partnership controlled by the Agent.  Among other businesses, Vertex LP engages in the business of recycling of used motor oil and other hydrocarbons.  

At a special meeting of our shareholders held on March 6, 2009, the holders of a majority of the outstanding shares of each of our common stock, Series A preferred stock and Series B preferred stock, adopted the Merger Agreement.  Upon consummation of the merger, the Company will become a wholly-owned subsidiary of Vertex Nevada, and Vertex Nevada will succeed to our company’s reporting obligations under the Securities Exchange Act of 1934. The parties anticipate that the merger will be consummated on April 1, 2009.

Our management team is currently focused on completing our pending merger with the wholly-owned subsidiary of Vertex Nevada, while maintaining the viability of our renewable energy business plan. Upon the closing of the merger, it is anticipated that the renewable energy business plan will continue to be pursued by Vertex Nevada through a subsidiary. Expenditures related to the renewable energy business are being minimized as we manage relationships, contract negotiations and other relevant activities related to the potential development of renewable energy projects without encumbering our ability to meet the closing conditions of the merger in a timely manner. While the renewable energy project development effort remains viable, the primary focus of the combined company post merger will become Vertex Nevada’s hydrocarbon recycling business and the pursuit of growth opportunities related to this business segment. The following is an overview of World Waste and its business operations prior to consummation of the pending merger and other transactions contemplated by the associated merger agreement.

We are a development stage company formed to develop, design, build, own and operate facilities which employ systems and technologies designed to profitably convert municipal solid waste (“MSW”) and other waste streams, such as wood waste and construction and demolition debris, into usable commodities and products. These products are expected to include renewable energy and recyclable commodities. We may continue our efforts on producing renewable energy from waste materials through the use of gasification and pyrolysis technologies in order to meet the rapidly growing demand for renewable power. We believe that this increased demand is being driven, to a large extent, by the adoption of Renewable Portfolio Standards in a number of states, which require or encourage utilities to have a specific percentage of their electricity sales come from renewable sources.

To implement our renewable energy platform, we may pursue the development of facilities in targeted markets where we believe we will be able to earn a “tipping” fee for accepting wastes and a premium for the sale of renewable energy products or receive a very low cost biomass feedstock. We also may plan to develop or obtain the rights to use gasification technologies in demonstration application to gain operating experience with the unique aspects of gasifying biomass derived from municipal solid waste and other waste streams such as construction and demolition debris, and to develop detailed design criteria for larger-scale systems.

We anticipate that the development of projects using these technologies could position us to generate three distinct revenue streams: (a) “tipping” fees charged to the entities that supply us with MSW or other waste materials, (b) recycling revenue from the sale of commodity recyclables (such as beverage containers, aluminum, steel, plastics, and glass) that our process recovers and which otherwise would be interred in landfills, and (c) revenue from the sale of our end products, anticipated to be primarily renewable electricity, and potentially bio-fuels. We believe that our receipt of fees from waste generators or handlers could provide us with a low cost fuel source, which is an important and beneficial characteristic of our business model.

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MARKET OVERVIEW

We believe there is a large and growing market for the production and sale of renewable energy in the United States, driven by: (1) high costs of hydrocarbon based fuels; (2) high political and economic costs to obtain fossil fuels from unstable foreign countries; (3) harder to reach (therefore more expensive) locations for exploration and development of new oil and gas reserves; (4) increasing competition from developing countries such as China and India for finite amounts of hydrocarbon based energy; and (5) a growing public awareness of the environmental damages brought on by increasing levels of greenhouse gasses in the atmosphere created by carbon-based energy fuels which may be contributing to global warming. These factors have led to state and federal legislation. For example, the California Renewable Portfolio Standard established in 2002 requires certain retail electricity sellers to have 20% of their retail sales come from renewable energy sources by the year 2010. Twenty-two other states have some form of Renewable Portfolio Standard and popular support for such requirements appears to be growing.

ELECTRICITY OPPORTUNITIES

We plan to focus our efforts on the utilization of one or more gasification technologies that will generate various renewable energy products from MSW and other waste streams. We plan to seek to enter into strategic relationships with companies that have developed gasification technologies, and to further investigate the commercialization of our own technology. A process which we believe has significant potential for successful commercialization involves using a gasification technology to produce a synthetic gas (or "syngas") from the cellulose biomass fraction of MSW derived from a materials' separation and classification process. Wood waste, sewage sludge and other commercial waste streams are also potential feedstocks. The resulting syngas would be used to fire a boiler driving a steam turbine. We also believe that after a gas clean-up process it may be possible to put the syngas directly into a gas-fired turbine. In either case, we believe the process has the potential to produce a significant amount of renewable electricity for sale to utilities.

STRATEGY

Our goal is to develop and/or acquire full-scale commercial facilities which profitably transform residual MSW, wood waste and other waste streams into usable renewable energy or products, including electricity, synthetic gas, bio-oil and/or bio-fuels.

Pursuit of this strategy entails work in the following areas:

REPLICATE AND ROLLOUT NEW FACILITIES WITH TECHNOLOGIES, PRODUCTS, AND FINANCING TAILORED TO THE LOCATION

We anticipate using a suite of technologies, each of which would be specifically applied on a site by site basis to profitably meet the needs of a particular local market. We expect that these needs will change from market to market and will be influenced by many factors, including the materials composition of feedstock at that facility, local permitting and land use requirements, and local political considerations. We plan to seek to develop facilities, implementing the most profitable end product platforms on a site by site basis in the most favorable locations within the United States. We also anticipate exploring licensing opportunities to accelerate the rollout inside the U.S. We plan to leverage experienced engineering and construction partners for the most effective utilization of our resources. Also, we expect each project to operate independently and to possibly have different financial partners and ownership structures.

SEEK OUT POTENTIAL ACQUISITIONS WHICH STRENGTHEN OUR EFFORTS AND ACCELERATE IMPLEMENTATION

As part of the implementation of our strategy, we may pursue acquisitions. In general, we may seek acquisition candidates with characteristics that include: (a) technology, strategy, or people which complement our focus, (b) projects which will allow us to manage and control the feedstock for our renewable energy generation facilities, (c) projects or companies which can be accelerated through participation by us, or (d) projects or companies with established or growing revenue and cash flow.

Our ability to implement these strategies will be dependent upon our ability to raise significant additional capital. While the market demand for renewable energy is high, there can be no assurance that we will be able to raise the financing necessary to execute this business plan.

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TRENDS IN OUR BUSINESS

The Resource Conservation and Recovery Act of 1991 requires landfills to install expensive liners and other equipment to control leaching toxins. Due to the increased costs and expertise required to run landfills under this Act, many small, local landfills closed during the 1990's. Larger regional landfills were built requiring increased logistics costs for the waste haulers.

In addition, state and federal governments have continued to increase the pressure on the industry to improve their recycling percentages. California currently mandates one of the highest standards in the United States by requiring 50% of all incoming MSW to be diverted from landfills. We believe that the trend in state law throughout the U.S. is to migrate toward this California standard.

We expect that the resale price of our products, including renewable electricity and bio-fuels will be tied to commodity markets. The market demand for these materials can be volatile, which could significantly impact our results of operations.

CORPORATE HISTORY OF REVERSE MERGER

We were formed as a result of two mergers that occurred in 2004. First, in March 2004, World Waste of America, Inc. ("WWA") merged with and into a wholly-owned subsidiary of Waste Solutions, Inc. ("WSI"), a California corporation. Cagan McAfee Capital Partners and its affiliates were the controlling shareholders of WSI. As a result of this merger, WSI continued as the surviving corporation, assumed the operations and business plan of WWA, the shareholders of WWA became shareholders of WSI, and WSI changed its name to World Waste Technologies, Inc. ("Old WWT").

Second, in March 2004, Old WWT entered into an Agreement and Plan of Reorganization with Voice Powered Technologies International, Inc., a California corporation ("VPTI"), to merge with and into a wholly-owned subsidiary of VPTI. VPTI was a publicly traded company trading under the stock symbol VPTI.OB. VPTI had no material assets, liabilities or operations. The merger of Old WWT with VPTI's wholly-owned subsidiary was completed on August 24, 2004. Pursuant to the merger, Old WWT's shareholders became the holders of approximately 95% of the outstanding shares of VPTI. Upon completion of this merger, VPTI changed its name to World Waste Technologies, Inc. VPTI was incorporated on June 21, 1985 and provided voice recognition and voice activated products. Because the shareholders of Old WWT became the controlling shareholders of VPTI after the merger, Old WWT was treated as the acquirer for accounting purposes, and therefore the transaction was accounted for as a reverse merger. Accordingly, for accounting purposes, the historical financial statements presented are those of Old WWT. Additionally, the prior operating results of VPTI are not indicative of our future operations, and none of the assets or liabilities on our balance sheet as of December 31, 2008 and 2007 relate to VPTI prior to the merger.

Since the formation of WWA in 2002, our efforts have been principally devoted to research and development activities, construction of our initial facility (which facility is no longer a component of our business strategy), raising capital, and recruiting additional personnel and advisors. To date, we have not generated any significant revenues. Before the effect of our pending merger with Vertex Nevada, we do not anticipate generating significant revenue until sometime in 2011, if ever.

Our stock is quoted on the OTC Bulletin Board under the symbol WDWT.OB

OUR PLANNED REVENUE AND ANTICIPATED MARKETS

Pursuant to our current business model, we anticipate our product and services could result in three distinct revenue streams. First, we would receive a "tipping fee" for each ton of MSW or other waste material delivered to and processed by us. Second, our process might be designed to mechanically sort and collect standard recyclable materials such as scrap steel, cans, and aluminum. Third, we would produce and sell commodity products such as electricity or bio-fuel. We plan to accomplish this through our development and/or acquisition of gasification technologies.

Our plan is to provide waste processing services to other companies and municipalities in the MSW industry throughout the United States. The MSW industry in the United States is dominated by large MSW processors such as Waste Management, Inc. and Republic Services, Inc. Many other smaller regional companies and municipalities are also in the waste handling business. Many state governments in the United States mandate that certain percentages of all MSW be recycled. The State of California, where our headquarters are located, currently

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mandates the highest standard in the United States by requiring that 50% of all incoming MSW be diverted from landfills. We believe that the trend in state law throughout the country is to migrate toward this California standard. Accordingly, we anticipate providing our processing services to MSW handlers looking for efficient ways to increase the percentage of their recycled MSW.

SALES AND MARKETING

We currently plan to market our services to waste handlers, waste collectors and municipalities, focusing on higher recycling rates, with the goal of lowering use of the landfills and creating a cost savings for these customers. In addition, we plan to market and to sell bio-fuels and steam/electricity into their respective markets.

We currently plan to market and promote our services with a team of officers and outside consultants. Alternatively, we may enter into strategic alliances with larger companies. We currently expect that our services and products will be marketed in the U.S., although we may also pursue specified international opportunities.

COMPETITION

We expect to compete with numerous other products, technologies and services that are in use currently or may subsequently be developed by companies, academic institutions and research institutions. These competitors consist of both large established companies as well as small, single product or service development stage companies. Two companies dominate the MSW industry in the United States: Waste Management, Inc. ($13.4 billion in revenues); and Republic Services, Inc. who recently acquired Allied Waste Industries ($9.4 billion in combined revenues). There are also many smaller regional companies and municipalities in the waste handling business. We expect competition from these companies as they develop different and/or novel approaches to the processing of MSW. Some of these approaches may directly compete with the products or services that we are currently developing.

Although we do not view MSW haulers as competitors, but rather as consumers for the services we plan to provide, such haulers would be competitors to the extent they make capital investments in material recovery facilities, incineration, composting, or landfills rather than outsourcing through us. We believe that the primary competitive factors in our industry are price, reliability of service, and quality of recycling programs.

Several companies have developed businesses burning MSW to generate energy. Others have focused on converting MSW to recyclables, ethanol or other beneficial uses. These companies may compete against us for MSW supply contracts.

REGULATION

Our business is subject to extensive federal, state and local environmental, health, safety and transportation laws and regulations. These laws and regulations are administered by the Environmental Protection Agency ("EPA") and various other federal, state and local environmental, zoning, transportation, land use, health and safety agencies in the United States. Many of these agencies regularly examine our operations to monitor compliance with these laws and regulations and have the power to enforce compliance, obtain injunctions or impose civil or criminal penalties in case of violations.

Because a major component of our business is expected to be the processing of solid waste in an environmentally sound manner, a portion of our future capital expenditures will likely be related, either directly or indirectly, to environmental protection measures, including compliance with federal, state or local provisions that regulate the discharge of materials into the environment. We anticipate that there will be significant costs relating to our compliance with environmental laws if and when a plant is operational on a commercial-scale level and that there will be significant costs associated with sighting, design, operations, monitoring, site maintenance, corrective actions, and financial assurance of each facility that we might in the future operate. In connection with our development or expansion of a facility, we expect that we will need to spend considerable time, effort and money to obtain or maintain necessary required permits and approvals. There cannot be any assurances that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agency. Compliance with these and any future regulatory requirements could require us to make significant capital and operating expenditures.

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The primary United States federal statutes affecting our business as currently conducted are summarized below:

The Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), regulates handling, transporting and disposing of hazardous and non-hazardous wastes and delegates authority to the states to develop programs to ensure the safe disposal of solid wastes. In 1991, the EPA issued its final regulations under Subtitle D of RCRA, which set forth minimum federal performance and design criteria for solid waste landfills. These regulations must be implemented by the states, although states can impose requirements that are more stringent than the Subtitle D standards. We expect to incur costs in complying with these standards in the ordinary course of our operations.

The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), which is also known as Superfund, provides for federal authority to respond directly to releases or threatened releases of hazardous substances into the environment. CERCLA's primary means for addressing such releases is to impose liability for cleanup of disposal sites upon current and former site owners and operators, generators of the hazardous substances at the site and transporters who selected the disposal site and transported substances to the site. Liability under CERCLA is not dependent on the intentional disposal of hazardous substances; it can be based upon the release or threatened release, even as a result of lawful, unintentional and non-negligent action, of hazardous substances as the term is defined by CERCLA and other applicable statutes and regulations.

The Federal Water Pollution Control Act of 1972 (the "Clean Water Act") regulates the discharge of pollutants into streams, rivers, groundwater, or other surface waters from a variety of sources. If run-off from our operations may be discharged into surface waters, the Clean Water Act would require us to apply for and obtain discharge permits, conduct sampling and monitoring, and, under certain circumstances, reduce the quantity of pollutants in those discharges. In addition, if a landfill or a transfer station discharges wastewater through a sewage system to a publicly owned treatment works, the facility must comply with discharge limits imposed by the treatment works. The Clean Water Act provides for civil, criminal and administrative penalties for violations of its provisions.

The Clean Air Act of 1970, as amended, provides for increased federal, state and local regulation of the emission of air pollutants. The Clean Air Act would likely apply to certain of our planned and potential operations, including gasification of MSW, solid waste landfills and waste collection vehicles.

The Occupational Safety and Health Act of 1970, as amended ("OSHA"), establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the OSHA, and various record keeping, disclosure and procedural requirements.

There are also various state and local regulations that are expected to affect our potential future operations, which are stricter than comparable federal laws and regulations.

Many states, provinces and local jurisdictions have enacted "fitness" laws that allow the agencies that have jurisdiction over waste services contracts or permits to deny or revoke these contracts or permits based on the applicant's or permit holder's compliance history. Some states, provinces and local jurisdictions go further and consider the compliance history of the parent, subsidiaries or affiliated companies, in addition to the applicant or permit holder. These laws authorize the agencies to make determinations of an applicant or permit holder's fitness to be awarded a contract to operate, and to deny or revoke a contract or permit because of unfitness, unless there is a showing that the applicant or permit holder has been rehabilitated through the adoption of various operating policies and procedures put in place to assure future compliance with applicable laws and regulations.

RESEARCH AND DEVELOPMENT

During 2008, 2007, and 2006, we spent $16,359, $2,380,943, and $273,894, respectively, on research and development activities.

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INTELLECTUAL PROPERTY

On June 21, 2002, we entered into a U.S. technology sub-license agreement with Bio-Products International, Inc., an Alabama corporation, with respect to several patent claims and other related intellectual property relating to the methods and processes developed by the University of Alabama in Huntsville ("UAH").

On May 1, 2006, we purchased the patent for this technology, subject to existing licenses, from UAH, for a payment of $100,000 in cash and 167,000 shares of our common stock. The common stock was valued at $698,000, the fair value on May 1, 2006.

We have determined that we will not use the patented technology in our future facilities. In March 2008, we entered into an agreement to sell the patent and all of the rights associated with it, including the sublicense agreement, to Clean Earth Solutions, Inc. (“CES”). After receiving the first two payments, CES failed to make the third payment, thereby placing it in default under the agreements governing the sale of the patent.  In October 2008, we sold the patent and related intellectual property rights in our pressurized steam classification process to CleanTech Biofuels, Inc. (“CTB”) for consideration composed of cash, debt and warrants.

EMPLOYEES

As of March 20, 2009, we had 2 full-time employees, both members of our executive management team. We are not a party to any collective bargaining agreements. We also had 3 part-time employees. We have not experienced work stoppages and we believe that our relationship with our employees is good.

ITEM 1A.

NOT APPLICABLE.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Our principal executive offices are in Cupertino, California. We utilize the office space of Cagan McAfee Capital Partners, for which we do not pay rent.

ITEM 3.

LEGAL PROCEEDINGS

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the Company's shareholders for a vote during the fourth quarter of the fiscal year covered by this report.

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PART II

ITEM 5.

MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our common stock has been traded on the OTC Bulletin Board over-the-counter market since August 24, 2004 under the symbol "WDWT.OB" Prior to the merger in which World Waste Technologies, Inc. became our wholly-owned subsidiary on August 24, 2004, our common stock was listed on the OTC Bulletin Board over-the-counter market under the symbol "VPTI.OB"

The following table sets forth, for the periods indicated, the high and low closing bid prices for our Common Stock on the OTC Bulletin Board, for the quarters presented. Bid prices represent inter-dealer quotations without adjustments for markups, markdowns, and commissions, and may not represent actual transactions:

HOLDERS

As of March 19, 2009 there were approximately 442 holders of record of our common stock, not including holders who hold their shares in street name.

DIVIDENDS

We have not paid any dividends on our common stock to date and do not anticipate that we will be paying dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our anticipated capital requirements and other factors that our Board of Directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future. Additionally, the terms of our preferred stock impose restrictions on our ability to pay dividends.

ITEM 6.

NOT APPLICABLE.

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The following discussion, as well as information contained elsewhere in this report, contain "forward-looking statements." These statements include statements regarding the intent, belief or current expectations of us, our directors or our officers with respect to, among other things: anticipated financial or operating results, financial projections, business prospects, future product performance and other matters that are not historical facts. The success of our business operations is dependent on factors such as the impact of competitive products, product development, commercialization and technology difficulties, the results of financing efforts and the effectiveness of our marketing strategies, and general competitive and economic conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors.

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OVERVIEW

We were formed as a result of two mergers that occurred in 2004. First, in March 2004, World Waste of America, Inc. ("WWA") merged with and into a wholly-owned subsidiary of Waste Solutions, Inc. ("WSI"), a California corporation. Cagan McAfee Capital Partners and its affiliates were the controlling shareholders of WSI. As a result of this merger, WSI continued as the surviving corporation, assumed the operations and business plan of WWA, the stockholders of WWA became stockholders of WSI, and WSI changed its name to World Waste Technologies, Inc. ("Old WWT").

In March 2004, Old WWT entered into an Agreement and Plan of Reorganization with Voice Powered Technologies International, Inc., a California corporation ("VPTI"), to merge with and into a wholly-owned subsidiary of VPTI. VPTI was a publicly traded company trading under the stock symbol VPTI.OB. VPTI had no material assets, liabilities or operations. The merger of Old WWT with VPTI's wholly-owned subsidiary was completed on August 24, 2004. Pursuant to the merger, Old WWT's stockholders became the holders of approximately 95% of the outstanding shares of VPTI. Upon completion of this merger, VPTI changed its name to World Waste Technologies, Inc. VPTI was incorporated on June 21, 1985 and provided voice recognition and voice activated products. Because the stockholders of Old WWT became the controlling stockholders of VPTI after the merger, Old WWT was treated as the acquirer for accounting purposes, and therefore the transaction was accounted for as a reverse merger. Accordingly, for accounting purposes, the historical financial statements presented are those of Old WWT. Additionally, the prior operating results of VPTI are not indicative of our future operations, and none of the assets or liabilities on our balance sheet as of December 31, 2008 relate to VPTI prior to the merger.

Since the formation of WWA in 2002, our efforts have been principally devoted to research and development activities, construction of a facility (which facility is no longer a component of our business strategy), raising capital, and recruiting additional personnel and advisors. To date, we have marketed and sold only a limited amount of product and have not generated any significant revenues, therefore, we continue to report as a Development Stage Company.

PLAN OF OPERATIONS

COMPANY OVERVIEW

On May 15, 2008, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Vertex Energy, LP, a Texas limited partnership (“Vertex LP”), Vertex Energy, Inc., a Nevada corporation (“Vertex Nevada”), Vertex Merger Sub, Inc., a California corporation and wholly-owned subsidiary of Vertex Nevada, and Benjamin P. Cowart, as agent for the shareholders of Vertex Nevada (the “Agent”). On May 19, 2008, we, Vertex LP, Vertex Nevada, and Vertex Merger Sub, LLC, a California Limited Liability Company and wholly-owned subsidiary of Vertex Nevada (“Merger Sub”), entered into an Amended and Restated Merger Agreement (as so amended and restated, the “Merger Agreement”).  Vertex LP is a Texas-based privately held limited partnership controlled by the Agent.  Among other businesses, Vertex LP engages in the business of recycling of used motor oil and other hydrocarbons.  

At a special meeting of our shareholders held on March 6, 2009, the holders of a majority of the outstanding shares of each of our common stock, Series A preferred stock and Series B preferred stock, adopted the Merger Agreement.  Upon consummation of the merger, the Company will become a wholly-owned subsidiary of Vertex Nevada, and Vertex Nevada will succeed to our company’s reporting obligations under the Securities Exchange Act of 1934. The parties anticipate that the merger will be consummated on April 1, 2009.

Our management team is currently focused on completing the above-described merger, while maintaining the viability of our renewable energy business plan. Upon the closing of the merger, it is anticipated that the renewable energy business plan will continue to be pursued by Vertex Nevada through a subsidiary. Expenditures related to the renewable energy business are being managed as we seek to maintain relationships, contract negotiations and other relevant activities related to the potential development of renewable energy projects without encumbering our ability to meet the closing conditions of the merger in a timely manner. While the renewable energy project development effort remains viable, the primary focus of the combined company post merger will become Vertex Nevada’s hydrocarbon recycling business and the pursuit of growth opportunities related to this business segment. The following is an overview of World Waste and its business operations prior to consummation of the pending merger and other transactions contemplated by the associated merger agreement.

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We are a development stage company formed to develop, design, build, own and operate facilities which employ systems and technologies designed to profitably convert municipal solid waste (“MSW”) and other waste streams, such as wood waste and construction and demolition debris, into usable commodities and products. These products are expected to include renewable energy and recyclable commodities. We will continue our efforts on producing renewable energy from waste materials through the use of gasification and pyrolysis technologies in order to meet the rapidly growing demand for renewable power. We believe that this increased demand is being driven, to a large extent, by the adoption of Renewable Portfolio Standards in a number of states, which require or encourage utilities to have a specific percentage of their electricity sales come from renewable sources.

To implement our renewable energy platform, we may pursue the development of facilities in targeted markets where we believe we will be able to earn a “tipping” fee for accepting wastes and a premium for the sale of renewable energy products or receive a very low cost biomass feedstock. We also may plan to develop or obtain the rights to use gasification technologies in demonstration application to gain operating experience with the unique aspects of gasifying biomass derived from municipal solid waste and other waste streams such as construction and demolition debris, and to develop detailed design criteria for larger-scale systems.

We anticipate that the development of projects using these technologies could position us to generate three distinct revenue streams: (a) “tipping” fees charged to the entities that supply us with MSW or other waste materials, (b) recycling revenue from the sale of commodity recyclables (such as beverage containers, aluminum, steel, plastics, and glass) that our process recovers and which otherwise would be interred in landfills, and (c) revenue from the sale of our end products, anticipated to be primarily renewable electricity, and potentially bio-fuels. We believe that our receipt of fees from waste generators or handlers could provide us with a low cost fuel source, which is an important and beneficial characteristic of our business model.

ELECTRICITY OPPORTUNITIES

We plan to focus our efforts on the utilization of one or more gasification technologies that will generate various renewable energy products from MSW and other waste streams. We plan to seek to enter into strategic relationships with companies that have developed gasification technologies, and to further investigate the commercialization of our own technology. A process which we believe has significant potential for successful commercialization involves using a gasification technology to produce a synthetic gas (or "syngas") from the cellulose biomass fraction of MSW derived from a materials' separation and classification process. Wood waste, sewage sludge and other commercial waste streams are also potential feedstocks. The resulting syngas would be used to fire a boiler driving a steam turbine. We also believe that, after a gas clean-up process, it may be possible to put the syngas directly into a gas-fired turbine. In either case, we believe the process has the potential to produce a significant amount of renewable electricity for sale to utilities.

TRENDS IN OUR BUSINESS

We believe there is a large and growing market for the production and sale of renewable energy in the United States, driven by: (1) high costs of hydrocarbon based fuels; (2) high political and economic costs to obtain fossil fuels from unstable foreign countries; (3) harder to reach (therefore more expensive) locations for exploration and development of new oil and gas reserves; (4) increasing competition from developing countries such as China and India for finite amounts of hydrocarbon based energy; and (5) a growing public awareness of the environmental damages brought on by increasing levels of greenhouse gasses in the atmosphere created by carbon-based energy fuels which may be contributing to global warming. These factors have led to state and federal legislation. For example, the California Renewable Portfolio Standard established in 2002 requires certain retail electricity sellers to have 20% of their retail sales come from renewable energy sources by the year 2010. Twenty-two other states have some form of Renewable Portfolio Standard and popular support for such requirements appears to be growing.

We expect that the resale price of our products, including renewable electricity and bio-fuels, will be tied to commodity markets. The market demand for these materials can be volatile, which could significantly impact our results of operations.

11

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, bad debts, impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Our significant accounting policies are summarized in note 3 to the accompanying audited financial statements included in this report. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Furthermore, there is a high likelihood that materially different amounts would be reported under different conditions or using different assumptions.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We used estimates to perform the undiscounted cash flow projections used in the impairment analysis of the Anaheim plant assets (see Fixed Assets below). We also used estimates in determine the employee stock based compensation expense.

REVENUE RECOGNITION

In 2006, revenue for receiving Municipal Solid Waste (MSW) was recognized when the MSW was delivered. Revenue for products sold, such as unbleached fiber, metals and aluminum, were recognized when the product was delivered to the customer. We recorded no revenue during 2008 or 2007.

All shipping and handling costs were included in gross sales and accounted for as cost of goods sold.

INTANGIBLES

Intangible assets are recorded at cost. On May 1, 2006, pursuant to a Patent Assignment Agreement and a Patent Assignment, both dated as of May 1, 2007, (the "Patent Assignment Agreement and a Patent Assignment"), we completed the purchase of all right, title and interest in United States Patent No. 6,306,248 (the "Patent") and related intellectual property, subject to existing licenses, from the University of Alabama in Huntsville for $100,000 and 167,000 shares of our unregistered common stock valued at approximately $698,000, based on the market price of the stock on the date issued, May 1, 2006.

During the fourth quarter of 2007, we determined that we would not use the patented technology in our future facilities and consequently ceased amortization of the patent and moved the unamortized intangible assets to assets held for sale and stated at its book value, which was lower of fair value less costs to sell in accordance with SFAS 144. In February 2008, and again in October 2008, we entered into agreements to sell the patent and all of its associated rights.

FIXED ASSETS

Machinery and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful asset lives or for leasehold improvements or equipment installed in our Anaheim plant (no longer being used), over the remaining life of the lease, whichever is shorter.

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We completed the construction of our initial plant in Anaheim, California early in the second quarter of 2006. We capitalized all costs directly associated with developing the plant, including interest and labor, throughout the construction period. We placed into service and began depreciating the assets related to this facility in the second quarter of 2006.

Our policy regarding fixed assets is to review such fixed assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the review indicates that intangible assets are not recoverable (i.e. the carrying amounts are more than the future projected undiscounted cash flows), their carrying amounts would be reduced to fair value.

The assets at the Anaheim plant were comprised of two basic technologies; the front half of the plant consisted of assets related to our patented technology related to "steam classification" and material separation and the back half of the plant consisted of assets related to screening and cleaning of the cellulose biomass material to prepare it for sale to paper mills. During the plant start up phase, we became aware of several issues, including the creation of an unexpectedly high level of biological oxygen demand (BOD) from organic wastes in the wastewater from the pulp screening and cleaning process, and design issues related to the steam classification vessels. We decided not to make the capital improvements necessary to the Anaheim plant's wetlap process, or "back half," which we considered necessary in order to recover the carrying amount of the wetlap plant assets through projected future undiscounted cash flow from its operation. Consequently, in 2006, we recorded a charge of $9,737,344 which represented the net carrying value of the wetlap process or back half equipment. The charge was equal to the carry cost of the assets of the wetlap process, net of accumulated depreciation. We did not record an impairment charge for the steam classification equipment or front half of the plant at that time because we intended to use that equipment in research and development activities as part of our development of alternative back end processes such as, but not limited to, gasification and acid hydrolysis.

During the third quarter of 2007, we determined that our ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, our research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on our renewable energy process, we initiated conversations with Taormina Industries, Inc. (“Taormina”) regarding termination of the lease of the Anaheim facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007. Consequently, we recorded a charge of $8,454,106 in the third quarter of 2007 which represented the net carrying value of the assets at the Anaheim plant, net of estimated fair value of the equipment and estimated costs of the equipment removal and scrap. The estimated carrying value was revalued and adjusted at December 31, 2007. In February 2008, we sold the assets related to the "front-end" process of the facility, and as of December 31, 2008, we had no fixed assets.

We capitalize leases in accordance with FASB 13.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations when incurred.

STOCK-BASED COMPENSATION

During the fourth quarter of 2004, we adopted SFAS No. 123 entitled, "Accounting for Stock-Based Compensation" retroactively to our inception. Accordingly, we have expensed the compensation cost for the options and warrants issued based on their fair value at their grant dates. During the quarter ended March 31, 2006, we adopted SFAS No. 123R, "Share Based Payments." The adoption had no material effect on our financial statements.

REDEEMABLE CONVERTIBLE PREFERRED STOCK

Convertible preferred stock which may be redeemable for cash at the determination of the holder is classified as mezzanine equity, in accordance with FAS 150, EITF Topic D 98 and ASR 268, and is shown net of discounts for offering costs, warrant values and beneficial conversion features.

13

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2008 AND 2007

EXPENSES

Operating expense of $4.8 million during the year ended December 31, 2008 decreased approximately $11.2 million compared to the year ended December 31, 2007.  The main driver of the variance was approximately $8.5 million of impairment charges recorded in 2007 relating to disposal of our Anaheim facility. Other significant decreases occurred in expenditures relating to research and development and general and administrative expenses.

Research and development expenses of $16,359 for the year ended December 31, 2008 decreased $2,364,584 compared to the year ended December 31, 2007. This was primarily due to $2,074,000 of expense incurred in connection with activities and deprecation at our Anaheim facility, which was sold in 2007.  Expenditures incurred in connection with gasification also decreased in 2008, as we began to focus more on negotiating and closing our pending merger transaction.

General and administrative expenses of $4,832,861 for the year ended December 31, 2008 decreased by approximately $419,027 compared to the year ended December 31, 2007. The decrease was primarily due to lower payroll and related costs as a result of our smaller organization in 2008.  This decrease was partially offset by an increase in legal and board of director fees incurred in connection with activities required for our pending merger.

During the third quarter of 2007, we determined that our ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, our research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on our renewable energy process, we initiated conversations with Taormina regarding termination of the lease of the Anaheim facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007. Consequently, we recorded a charge of $8,454,106 in the third quarter of 2007 which represented the net carrying value of the assets at the Anaheim plant, net of estimated fair value of the equipment and estimated costs of the equipment removal and scrap.

Interest income for the year ended December 31, 2008 of $235,641 decreased $343,627, due to lower cash and investment balances in 2008 as compared to 2007, and due to the lack of interest income earned during the collapse of the auction rate securities market. We were able to liquidate our portfolio of auction rate securities by the end of the third quarter 2008, and we recorded a $389,289 loss in connection with the conversion of such securities into US government treasury bills.

Other income is comprised primarily of a $60,524 gain that we recorded in connection with the sale of our patent to CTB.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2008, we had cash and cash equivalents on hand of approximately $7.6 million.

During the year ended December 31, 2008, net cash used for operating activities was approximately $3.1 million. The use of cash was primarily for general and administrative expenses and significant expenses associated with our pending merger. In addition to the $3.1 million used in operating activities we received approximately $8.0 million in proceeds from asset sales and from the sales of short term investments.

As part of the merger, World Waste will deliver to certain of Vertex Nevada’s existing shareholders a total of $4.4 million in cash, World Waste will transfer at least $2.4 million of cash to Vertex Nevada and Vertex Nevada will assume up to $1.6 million of Vertex LP’s indebtedness as well as other specified liabilities of Vertex LP comprised primarily of trade accounts payable (in each case, unless and to the extent that such condition to closing is waived or modified).  

World Waste recently loaned Vertex Nevada $1.0 million for general working capital. Unless repaid prior to the closing of the merger, proceeds of such loan will reduce the amount of cash required to be transferred by World Waste to the Vertex LP partners at the closing. We currently anticipate the merger will close on April 1, 2009.

14

The holders of our preferred stock have the right to require us to redeem their shares on April 10, 2010, at a price equal to the original issuance price (with accrued but unpaid dividends being treated as outstanding for purposes of calculating the total redemption price), for a total of approximately $47.3 million (assuming none of such shares of preferred stock are converted to common stock prior to any such redemption). In the event that the proposed merger with Vertex Nevada does not close, we will need to raise significant additional capital or restructure the terms of our preferred stock in order to meet this redemption obligation if and when it becomes due. If we are unable to do so, and if the holders of our preferred stock exercise their redemption right, World Waste would likely be rendered insolvent. In addition, if the merger does not close, the holders of World Waste's Series A Preferred Stock could exercise their right to elect a majority of our Board of Directors, which would give such holders effective control over World Waste.

As a result of the default by CES relating to the sale of our patent, on October 22, 2008, we sold the patent and related intellectual property rights in our pressurized steam classification process to CleanTech Biofuels, Inc. (“CTB”) in exchange for $150,000 in cash, a $450,000 secured promissory note and warrants to purchase up to 900,000 shares of CTB’s common stock. The promissory note matures on July 22, 2009, bears interest at 6.0% per annum and is secured by the patent. The warrants are exercisable at any time for five years from the date of issuance at a price of $0.45 per share. In addition, CTB issued us a contingent warrant to purchase up to an additional 900,000 shares of its common stock on the same terms, except that this warrant is exercisable only if CTB defaults on its obligations under the note.   Due to realizability concerns, we have fully reserved the note and have assigned no value to the warrants in our financial statements.  Similarly, our assessment of the warrants in accordance with SFAS No. 157 “Fair Value Measurements” resulted in an immaterial value, so are therefore not reflected in our consolidated financial statements.

In the event the proposed merger with Vertex is not consummated, we estimate that our cash will sustain operations through at least March of 2010, based on our current level of expenditures. We may, however, plan to change our current cash use levels if and when we are able to move forward on certain initiatives, primarily related to gasification.

As of December 31, 2008, we had no long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations, or other similar long-term liabilities.  We terminated  a capital lease in 2008.

CONTRACTUAL COMMITMENTS

As of December 31, 2008, we had no long-term contractual obligations.

We are not a party to any off-balance sheet arrangements, and we do not engage in trading activities involving non-exchange traded contracts. In addition, we have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets.

We do not believe that inflation has had a material impact on our business or operations.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 157, Fair Value Measurements - In September 2006, the FASB issued SFAS No. 157 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 became effective for our company beginning January 1, 2008. The adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements.

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - The FASB issued SFAS No. 159 which permits an entity to chose to measure many financial instruments and certain other items at fair value. SFAS No. 159 became effective for our company beginning January 1, 2008. The adoption of SFAS No. 159 did not have a material impact on our consolidated financial statements.

SFAS No. 141 (Revised 2007), Business Combinations. On December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007). Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Statement 141R will change the accounting treatment for certain specific items, including: acquisition costs will be generally expensed as incurred; noncontrolling interests (formerly known as "minority interests" -- see Statement 160 discussion below) will be valued at fair value at the acquisition date; acquired contingent liabilities will be

15

recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. Statement 141R also includes a substantial number of new disclosure requirements. Statement 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We do not expect Statement 141R to have a material impact on our financial statements.

SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51. On December 4, 2007, the FASB issued FASB Statement No. 160. Statement 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Statement 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Because we have no such arrangements currently, the adoption of this principle will not have a material impact on our financial statements. However, as we pursue our gasification strategy, we may have such arrangements in the future.

ITEM 7A.

NOT APPLICABLE.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Schedules have been omitted since they are either not required, are not applicable or the required information is shown in the financial statements or the related notes.

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The Board of Directors and Stockholders of World Waste Technologies, Inc.

Cupertino, California

We have audited the accompanying consolidated balance sheets of World Waste Technologies, Inc. and subsidiaries (a developmental stage enterprise) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2008. 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. We were not engaged to perform an audit of the Company’s 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 financial statements referred to above present fairly, in all material respects, the financial position of World Waste Technologies, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the company as a going concern. As discussed in Note 2, the Company has incurred significant net losses since its inception and has an accumulated deficit of $85,205,864 and expects to incur substantial additional losses and costs. The foregoing matters raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2 of the accompanying financial statements. These financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/ Stonefield Josephson, Inc.

Los Angeles, California

March 30, 2009

17

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

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

18

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

———————

*

approximately $67,526 in consulting and travel expenses incurred prior to inception of the business on June 18, 2002 are not included.

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

19

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND OTHER

COMPREHENSIVE LOSS

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

20

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND OTHER

COMPREHENSIVE LOSS

(Continued)

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

21

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

22

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Non-Cash Investing and Financing Activities:

*

During 2002, the Company issued $67,526 of Convertible Promissory Notes payable for preformation funds received and expended prior to inception.

*

The Company issued warrants to purchase 315,354 shares of common stock to the placement agent for services rendered in connection with the fund raising effort during 2004 and 2005.

*

The Company issued warrants to purchase 50,000 shares of common stock for consulting services in 2004 and 100,000 shares of common stock upon the exercise of a warrant in exchange for services rendered in 2005.

*

The Company issued 1,193,500 shares of common stock upon conversion of the Convertible Promissory notes payable and accrued interest of $135,327 during 2004.

 * The Company issued warrants to purchase 250,000 shares of its common stock for a modification to the technology license agreement during 2004.

*

Accounts Payable of $1,266,060 and other liabilities of $ 114,242 at December 31, 2005 related to asset acquisitions. The impact has been adjusted in the year ended December 31, 2006 statement of cash flow.

*

During the year ended December 31, 2006, non-cash interest expense of $340,343 was capitalized in fixed assets.

*

During the year ended December 31, 2006, $3,488,000 of Senior Secured Debt was exchanged for Series B Preferred Stock.

*

During the year ended December 31, 2006, the Company issued 167,000 shares of common stock for the purchase of a patent from the University of Alabama in Huntsville at a fair value on the date of issuance of approximately $698,000.

*

During the year ended December 31, 2006, the Company transferred all of its construction in progress to Leasehold Improvements and Machinery and Equipment.

*

During the year ended December 31, 2007, the Company issued 103,340 shares in exchange for services rendered in 2006.

*

During the years ended December 31, 2008 and  2007, the Company issued 20,445 and 1,860,724 shares of common stock in exchange for conversion of $17,635 and $4,705,960 of Preferred Series B stock, respectively.

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

23

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

DESCRIPTION OF BUSINESS

The accompanying consolidated financial statements include the accounts of World Waste Technologies, Inc. (Formerly World Waste of America, Inc.) and its wholly owned subsidiaries World Waste of Anaheim, Inc., and World Waste of California, Inc. (collectively the “Company”). All significant inter-company accounts and transactions have been eliminated upon consolidation. World Waste Technologies, Inc. (WWTI), a California corporation, was formed on June 18, 2002 as World Waste of America, Inc. WWTI held the United States license from Bio-Products International, Inc. with respect to patented technology developed at the University of Alabama in Huntsville, and other related intellectual property, which technology was designed to convert a significant percent of municipal solid waste into a cellulose biomass containing material.

On March 6, 2009, a majority of the Company’s shareholders voted to merge with a wholly-owned subsidiary of Vertex Energy, Inc. (“Vertex Nevada”).  Vertex Nevada, a Nevada corporation based in Houston, Texas, is engaged in the business of recycling used motor oil and other hydrocarbons. Vertex Nevada operates through its Black Oil division, which aggregates used motor oil from third-party collectors and manages the delivery of this feedstock primarily to a third-party re-refining facility, and (2) through its Refining and Marketing division, which aggregates hydrocarbon streams from collectors and generators and manages the delivery of the hydrocarbon waste products to a third-party facility for further processing, and then manages the sale of the end products. In addition, Vertex Nevada proposes to implement proprietary thermo-chemical upgrading technology that will process used motor oil and convert it to higher value products such as marine diesel oil and vacuum-gas oil. The accompanying financial statements and footnote disclosures do not reflect the financial impact of the merger, which is expected to close on April 1, 2009.  See Note 13.

In March 2004, World Waste of America, Inc. (WWA), merged with a wholly owned subsidiary of Waste Solutions, Inc. (WSI), a California corporation, and changed its name to World Waste Technologies, Inc. (Old WWTI). Cagan McAfee Capital Partners and its affiliates were the controlling shareholders of WSI. Prior to the merger WSI had 7,100,000 shares of common stock outstanding and WWA had 9,100,000 shares of common stock outstanding. The merger was transacted by WSI issuing one of its shares for each share of WWA. After the merger there were 16,200,000 shares outstanding. The transaction was accounted for as a reverse merger of WWA, similar to a recapitalization, because the shareholders of WWA became the controlling shareholders of the entity after the exchange. Accordingly, for accounting purposes, the historical financial statements presented are those of WWA.

In March 2004, Old WWTI entered into an Agreement and Plan of Reorganization with Voice Powered Technologies International, Inc., a California corporation (“VPTI”), to merge with and into VPTI. VPTI was a publicly traded company trading under the stock symbol VPTI.OB. VPTI had no material assets, liabilities or operations. The merger with VPTI was completed on August 24, 2004. Pursuant to the merger, Old WWTI shareholders received 20,063,706 VPTI shares or approximately 95% of the outstanding shares of VPTI in exchange for 20,063,706 Old WWTI shares, or a one for one exchange. Upon completion of the merger, VPTI changed its name to World Waste Technologies, Inc. Because the shareholders of Old WWTI became the controlling shareholders of VPTI after the exchange, Old WWTI was treated as the acquirer for accounting purposes, and therefore the transaction was accounted for as a reverse merger. Accordingly, for accounting purposes, the historical financial statements presented are those of Old WWTI.

NOTE 2.

GOING CONCERN

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had a net loss for the year ended December 31, 2008 of $15,205,581 and an accumulated deficit attributable to common shareholders at December 31, 2008 of $85,205,864. The Company expects it will incur substantial additional losses, costs and capital expenditures before it can operate profitably. These issues raise substantial doubt about the Company’s ability to continue as a going concern. The Company is party to a merger agreement with Vertex Energy, Inc. If this transaction fails to close as contemplated, the Company may be unable to continue as a going concern for a reasonable period of time.

24

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2.

GOING CONCERN (CONTINUED)

The 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. On May 15, 2008, the Company entered into a definitive agreement to merge with Vertex Energy, Inc. The agreement was amended and restated on May 19, 2008. There can be no assurance that the transaction will be completed. If not closed as contemplated, the Company’s continuation as a going concern remains dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing, and ultimately to attain successful operations.

NOTE 3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Company is a new enterprise in the development stage as defined by Statement No. 7 of the Financial Accounting Standards Board, since it has not derived substantial revenues from its activities to date.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

During 2006, revenue for receiving Municipal Solid Waste (MSW) was recognized when the MSW was delivered. Revenue for products sold, such as unbleached fiber, metals and aluminum, are recognized when the product was delivered to the customer.

All shipping and handling costs were included in gross revenue and accounted for as cost of goods sold.

Research and Development

Research and development costs are charged to operations when incurred.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” In accordance with SFAS No. 109, the Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment.

The Company adopted FIN 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109, on January 1, 2007. There was no material impact on the Company’s financial statements as a result of the adoption.

25

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased, which are not securing any corporate obligations, to be cash equivalents.

Short Term Investments

The Company determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. During the the third quarter 2008, all short term investments held for sale, which included auction rate securities, were sold and the proceeds are included in cash and cash equivalents. The Company recognized a loss of approximately $389,000, recorded in Other Income and (Expense), upon the sale.  All investments held at December 31, 2007 were short-term available for sale securities, and were carried at quoted fair value, with unrealized gains and losses reported in shareholders’ equity as a component of accumulated comprehensive income.

Concentration of Credit Risk

The Company maintains its cash balances at financial institutions. Cash balances at the institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. All cash equivalents are invested in government securities.

Fixed Assets

The Company reviews fixed assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the review indicates that fixed assets are not recoverable (i.e. the carrying amounts are more than the future projected undiscounted cash flows), their carrying amounts would be reduced to fair value.

During 2008, all remaining fixed assets were liquidated. Machinery and equipment was stated at cost. Prior to the fixed assets being recorded as held for sale, depreciation was computed on the straight-line method over the estimated useful asset lives or for leasehold improvements or equipment installed in our Anaheim plant (no longer leased or otherwise being used by us), over the remaining life of the lease, whichever was shorter. Due to the fact that at the time the assets were placed into service the lease had 8 years and two months remaining, all assets and leasehold improvements at the Anaheim facility were being depreciated over a maximum of 8 years and two months on a straight line basis. Maintenance and repairs are expensed as incurred.

The Company completed the construction of its initial plant in Anaheim, California early in the second quarter of 2006. The Company placed into service and began depreciating the assets related to this facility in the second quarter of 2006.

The assets at the Anaheim plant were comprised of two basic technologies; the front half of the plant consisted of assets related to the Company’s patented technology related to “steam classification” and material separation and the back half of the plant consist of assets related to screening and cleaning of the cellulose biomass material to prepare it for sale to paper mills. During the plant start up phase, we confronted several issues, including an unexpected high level of biological oxygen demand from organic waste in the wastewater from the pulp screening and cleaning process. The Company decided not to make the capital improvements necessary to the Anaheim plant’s wetlap process, or “back half” which the Company considered necessary in order to recover the carrying amount of the wetlap plant assets through projected future undiscounted cash flow from its operation. Consequently, the Company recorded a charge of $9,737,344 in 2006 which represented the net carrying value of the wetlap process (or “back half”) equipment.

26

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fixed Assets (Continued)

The Company did not record an impairment charge for the steam classification equipment (or “front half”) of the plant at that time because the Company intended to use that equipment in research and development activities as part of its development of alternative back end processes such as, but not limited to, gasification and acid hydrolysis.

During the third quarter of 2007, the Company determined that the ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, the Company’s research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on the Company’s renewable energy process, the Company initiated conversations with Taormina regarding termination of the lease of the Anaheim Facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007. Consequently, the Company recorded a charge of $8,454,106 in the third quarter of 2007 which represents the net carrying value of the assets at the Anaheim plant, net of estimated fair value of the equipment and estimated costs of the equipment removal and scrap. The estimated net carrying value was reevaluated at December 31, 2007. As of December 31, 2008, the Company had sold or disposed of all the equipment.

The Company capitalizes leases in accordance with FASB 13, “Accounting for Leases.”

Intangibles

Intangible assets are recorded at cost.

The Company’s policy regarding intangible assets is to review such intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the review indicates that intangible assets are not recoverable (i.e. the carrying amounts are more than the future projected undiscounted cash flows), their carrying amounts would be reduced to fair value.

Redeemable Convertible Preferred Stock

Convertible Preferred Stock which may be redeemable for cash at the determination of the holder is classified as mezzanine equity, in accordance with FAS 150 “Accounting for Certain Financial Instruments with Characteristics of Both Debt and Equity,” EITF Topic D 98 and ASR 268, and is shown net of discounts for offering costs, warrant values and beneficial conversion features.

Stock-Based Compensation

As of December 31, 2008, the Company had two share-based compensation plans, which are described below. The compensation cost that has been charged against income for the plans was $1,638,319 and $1,638,128 for the years ended, December 31, 2008 and December 31, 2007, respectively. Because the Company is in a net loss position, no income tax benefit has been recognized in the income statement for share-based compensation arrangements. As of December 31, 2008, no share-based compensation cost had been capitalized as part of inventory or fixed assets.

The Company’s 2004 Incentive Stock Option Plan (the 2004 Plan), which is shareholder-approved, provides for the issuance by the Company of a total of up to 2.0 million shares of common stock and options to acquire common stock to the Company’s employees, directors and consultants. The Company granted options to acquire no shares under this Plan during the year ended December 31, 2008 to employees, members of the board of directors and consultants. At December 31, 2008, there were 1,696,167 options outstanding under the Plan.

In May of 2007 the board of directors approved the Company’s 2007 Incentive Stock Plan (the 2007 Plan), which is not shareholder-approved. The 2007 Plan provides for the issuance by the Company of a total of up to 6.0 million shares of common stock and options to acquire common stock to the Company’s employees, directors and consultants in 2008. The Company formed a Special Committee of its Board of Directors, comprised of four

27

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation (Continued)

directors, to evaluate the Company’s strategic alternatives, and the Special Committee retained a financial advisor to assist in this process. These alternatives included, but were not limited to, a sale or merger of the Company and/or a restructuring.  As compensation for serving on the Special Committee, each of the members thereof is entitled to receive a monthly payment of $5,000 for the period the Special Committee continues to function, and was granted an option to acquire up to 300,000, or a total of 1,200,000, shares of common stock pursuant to the Company’s 2007 Plan. Each option has an exercise price equal to $0.155 per share (the closing price of the Company’s common stock on the date of grant) and vested in six equal monthly installments commencing as of March 27, 2008.

The Company granted options to acquire a total of 1,575,000 shares during the year ended December 31, 2008 to employees, members of the board of directors and consultants. At December 31, 2008, there were 4,292,120 options outstanding under the Plan.

The Company believes that option awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest based on 2 to 4 years of continuous service and have 10-year contractual terms. Certain option awards provide for accelerated vesting if there is a change in control (as defined in each Plan).

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the table below. Expected volatilities are based on the historical volatility of the Company’s common stock from August 24, 2004 through the date of the respective grant. The Company uses historical data to estimate option exercise and employee terminations within the valuation model. The expected term of options granted was estimated using the simple method which the Company believes provides a reasonable estimation of the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the LIBOR rate at the time of grant.

A summary of option activity under the Plan as of December 31, 2008, and changes during the year then ended is presented below:

28

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation (Continued)

The weighted-average grant-date fair value of options granted during 2008, 2007 and 2006, was $0.16,  $0.92 and $2.38, respectively. There have been no options exercised since inception. When options are exercised, the Company will issue new shares to the recipient.

As of December 31, 2008, there was $716,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of  approximately one year.

Non employee stock warrants outstanding:

Earnings per Share

The Company has adopted Statement of Financial Accounting Standards No. 128, “Earnings per Share” (SFAS No. 128). SFAS No. 128 provides for the calculation of basic and diluted earnings per share.

Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, such as stock options, warrants or convertible securities. Due to their anti-dilutive effect, common stock equivalents of 30,851,374, consisting of employee options of 5,988,000, non employment warrants of 6,829,828, Preferred Series A of 6,505,978 and Preferred Series B of 11,527,568, were not included in the calculation of diluted earnings per share at December 31, 2008. Common stock equivalents of 28,337,007, consisting of employee options of 4,843,000, non employment warrants of 6,829,827, Preferred Series A of 6,010,516 and Preferred Series B of 10,653,664, were not included in the calculation of diluted earnings per share at December 31, 2007.

New Accounting Pronouncements

FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”. This new standard provides guidance for using fair value to measure assets and liabilities and information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS 157 also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. Adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

29

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New Accounting Pronouncements (Continued)

The FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115(SFAS No. 159). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. The accounting provisions of SFAS No. 159 are effective for financial statements issued for fiscal years beginning after November 15, 2007. Adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

On December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007). Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Statement 141R will change the accounting treatment for certain specific items, including: acquisition costs will be generally expensed as incurred; noncontrolling interests (formerly known as “minority interests” -- see Statement 160 discussion below) will be valued at fair value at the acquisition date; acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. Statement 141R also includes a substantial number of new disclosure requirements. Statement 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption No. 141R to have a material impact on its consolidated financial statements.

SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51. On December 4, 2007, the FASB issued FASB Statement No. 160. Statement 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Statement 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Because the Company has no such arrangements currently, the adoption of this principle will not have a material impact on the Company’s financial statements. However, as the Company pursues its gasification strategy, it may have such arrangements in the future.

NOTE 4.

PATENT AND LICENSE AGREEMENT

On June 21, 2002, the Company entered into a U.S. technology sub-license agreement with Bio-Products International, Inc. (BPI), an Alabama corporation with respect to certain intellectual property and patented methods and processes. This agreement was amended on June 21, 2004 and again on August 19, 2006. The technology was designed to provide for the processing and separation of material contained in Municipal Solid Waste (MSW). Through April 30, 2006, the University of Alabama in Huntsville (“UAH”) owned the patent for this technology. On May 1, 2006, the Company acquired the patent from UAH for $100,000 and 167,000 shares of the Company’s unregistered common stock valued at its fair value on the date of issuance of approximately $698,000. The patent reverts to UAH in the event of bankruptcy of the Company. This patent is licensed to BPI. The license to the patent in the United States was assigned to the Company.

30

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4.

PATENT AND LICENSE AGREEMENT (CONTINUED)

In April 2007, the Company filed a lawsuit against BPI alleging, among other things, breach of contract and negligence with respect to the construction of the vessels.

During the fourth quarter of 2007, the Company determined it would not use the technologies related to the intangible assets in its future plants. Consequently, it reclassified the unamortized intangible assets to Assets Held for Sale and accounted for at the lower of fair value less cost to sell (net fair value) or carrying value. In March of 2008, the Company entered into a definitive agreement to sell the intangible Assets, settle the lawsuit with BPI and sell a significant amount of the assets which were used in the Anaheim plant to exploit the patent for a total of approximately $1.9 million. Because the carrying value is less than the net fair value no adjustment was recorded.

In March 2008, the Company entered into an agreement with Clean Earth Solutions, Inc. (“CES”), pursuant to which it agreed (i) to sell to CES specified assets relating to the “front end” process of World Waste’s Anaheim Facility for a cash payment to the Company of $500,000 (the “First Closing”), (ii) to settle a dispute arising from design issues related to the steam classification vessels that the Company had intended to use in its operations, in exchange for a payment to us of $640,000 (the “Second Closing”) and (iii) to sell to CES all of the Company’s intellectual property rights in its pressurized steam classification process in exchange for a payment of $800,000 (of which $236,000 was previously paid by CES) (the “Third Closing”). On March 7, 2008, CES paid $500,000, and the First Closing was consummated. In June 2008, CES paid the Company $640,000 for the Second Closing. Pursuant to this agreement, the Third Closing was to occur on such a date as determined by CES, provided that the Third Closing could not occur later than July 31, 2008.

As a result of the default by CES, the Third Closing never occurred. On October 22, 2008, the Company sold the patent and related intellectual property rights in its pressurized steam classification process to CleanTech Biofuels, Inc. (“CTB”) in exchange for $150,000 in cash, a $450,000 secured promissory note and warrants to purchase up to 900,000 shares of CTB’s common stock. The promissory note matures on July 22, 2009, bears interest at 6.0% per annum and is secured by the patent. The warrants are exercisable at any time for five years from the date of issuance at a price of $0.45 per share. In addition, CTB issued the Company a contingent warrant to purchase up to an additional 900,000 shares of its common stock on the same terms, except that this warrant is exercisable only if CTB defaults on its obligations under the note.  Due to the uncertainty of the collectability of the note, the Company had fully reserved the balance of $450,000 as of December 31, 2008, and is therefore not included in the Company’s consolidated financial statements.  The warrants were valued in accordance with SFAS No. 157, utilizing the Black Scholes model.  Using the five year treasury bill risk free interest rate of 2.56%, historical volatility of 203%, the contractual exercise price of $0.45 per warrant, and a fair value per warrant of $0.03, the total value of the warrant grnat was immaterial to the Company’s financial statements. The contingent warrant was not valued or reflected in the Company’s financial statements as their issuance is contingent on an event (default of the note) that has not occurred.

NOTE 5.

TERMINATION OF SIGNIFICANT CONTRACT

In June 2003 the Company entered into a multi-year recycle agreement with Taormina Industries, Inc. pursuant to which, among other things, Taormina agreed to deliver residual municipal solid waste (MSW) to the Company for processing and the Company agreed to lease a building for the related recycling facility on Taormina’s campus in Anaheim, California (the “Anaheim Facility”). The lease for the Anaheim Facility was entered into in July 2004. The recycling agreement, as amended, provided that the recycling agreement would terminate automatically upon termination of the lease.

As previously disclosed, during early 2007 the Company began using the Anaheim Facility to conduct research and development activities related to the production of renewable energy from MSW. Recently the Company determined that the ongoing research and development work would more efficiently be carried out at the location of Applied Power Concepts, the Company’s research and development partner. Consequently, in order to reduce costs and focus management attention and cash resources on the Company’s renewable energy process, the Company initiated conversations with Taormina regarding termination of the lease of the Anaheim Facility and the cancellation of the associated recycling agreement. On October 29, 2007, Taormina terminated the lease and the recycling agreement, effective as of October 31, 2007.

31

WORLD WASTE TECHNOLOGIES, INC. AND SUBSIDIARIES

(FORMERLY WORLD WASTE OF AMERICA, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5.

TERMINATION OF SIGNIFICANT CONTRACT (CONTINUED)

On November 7, 2007, Taormina filed an unlawful detainer action in the Superior Court of the State of California, County of Orange (the “Action”) against the Company as to the Anaheim Facility. On March 5, 2008, Taormina and the Company entered into a stipulation for entry of judgment in the Action (the “Stipulation”). The Stipulation provides for: (a) the cancellation and forfeiture of the lease; (b) the Company to make a payment of $192,218 (the “Payment”) to Taormina; and (c) the Company to remain in possession of the Anaheim Facility until June 30, 2008. As of December 31, 2008, the Company had  made the Payment to Taormina and had completed its orderly exit from the facility.

The non-competition and right of first refusal provisions of the recycle agreement will survive termination of such agreement through July 25, 2014 (the date that the lease would have expired had it not been terminated).

NOTE 6.

INCOME TAXES

Income Taxes

The components of the income tax (expense) benefit for the fiscal years ended December 31, 2008 and 2007, and for the period from June 18, 2002 (Inception) to December 31, 2008, are as follows: