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12. RESTATEMENT

6 Months Ended

Jun. 30, 2012

Due to an accounting error, the Company has restated its consolidated financial statements as of and for the six months ended June 30, 2011 to reflect a correction to an understatement of deferred income that results from allocating the revenue received under extended warranty arrangements over the life of the warranty. In addition the Company is restating the June 30, 2011 consolidated financial statements due to the reclassification of common stock that was issued to a holder of a note payable. The Company had originally recorded the issuance of the stock as a payment in full for the note and related costs (see note 10 above). However, after a further review of the legal documents, it was determined that the debt was not satisfied but instead the ultimate resolution of the debt was contingent on events that were still unfolding. The Company’s summarized consolidated financial statement elements comparing the restated financial statement elements to those originally filed are as follows:

Consolidated Financial Statement Elements as of and for the six months ended June 30, 2011.

	Original			Restated			Change
Consolidated Balance Sheet:
Accounts receivable		53,692			39,360			( 14,332	)
Total assets		1,091,965			1,077,633			(14,332	)
Accounts payable		440,231			394,188			( 46,043	)
Stock settlement payable		0			163,366			163,366
Deferred income		0			198,923			198,923
Current liabilities		1,413,221			1,729,467			316,246
Total liabilities		1,437,659			1,753,905			316,246
Stock settlement in process		0			163,366			163,366
Accumulated Deficit
Beginning of period		(22,837,787	)		(22,953,904	)		(116,117	)
End of period		(23,189,151	)		(23,356,363	)		(167,212	)
Total stockholders’ deficit		( 345,694	)		(676,272	)		(330,578	)

Consolidated Statement of Operations:
Revenue		191,296			93,832			(97,464	)
Cost of sales		58,339			10,854			(47,485	)
Gross profit		132,957			82,978			(49,979	)
Operating expenses		419,575			420,691			1,116
Net loss		(351,364	)		(402,459	)		(51,095	)

- Definition

Tabular disclosure of the nature and effects of a restatement to correct an error in the reported results of operations of prior periods. When prior period adjustments are recorded, the resulting effects (both gross and net of applicable income tax) on the net income of prior periods are disclosed in the annual report for the year in which the adjustments are made, and amended filings of previously issued reports are typically issued.

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