NOTE 10. RESTATEMENT

As discussed further in Notes 4 and 5, in May 2011 the Company sold Units of common and preferred stock and warrants for net proceeds of $3,007,473 and we have determined the warrants require classification in liability as derivative warrants in accordance with ASC 815. Derivative warrants are carried both initially and subsequently at fair value with changes in fair value reflected in income. In addition, we determined the Units sold to the Company’s Chief Executive Officer resulted in compensation expense in accordance with ASC 718. The impact of the application of ASC 815 and ASC 718 on the affected line items of the Company's quarterly financial statements for the three and six months ended June 30, 2011 is set forth below:

Balance Sheet

As of June 30, 2011

	As Previously Reported	Adjustment	As Restated
Warrant liability	$ -	$1,037,419	$1,037,419
Total liabilities	2,201,977	1,037,419	3,239,396
Additional paid-in capital	17,080,516	(1,051,210)	16,029,306
Accumulated deficit	(15,413,206)	13,791	(15,399,415)
Total stockholders’ equity	1,671,108	(1,037,419)	633,689

Statement of Operations

Three Months Ended June 30, 2011

	As Previously Reported	Adjustment	As Restated
General and administrative expenses	$984,517	$16,000	$1,000,517
Total operating expenses	1,063,219	16,000	1,079,219
Loss from operations	(598,517)	16,000	(614,517)
Change in fair value of warranty liability	-	29,791	29,791
Total other income (expense)	(6,168)	29,791	23,623
Net loss	(604,685)	13,791	(590,894)

Statement of Operations

Six Months Ended June 30, 2011

	As Previously Reported	Adjustment	As Restated
General and administrative expenses	1,917,639	$16,000	1,933,639
Total operating expenses	2,193,863	16,000	2,209,863
Loss from operations	(1,247,918)	16,000	(1,263,918)
Change in fair value of warranty liability	-	29,791	29,791
Total other income (expense)	(13,096)	29,791	16,695
Net loss	(1,261,014)	13,791	(1,247,223)