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<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTE
1 – BASIS OF PRESENTATION</b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">The
accompanying condensed financial statements were prepared by the Company without audit pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. In management’s opinion all necessary adjustments, which consist primarily of normal
recurring adjustments, to the financial statements have been made to present fairly the financial position and results of operations
and cash flows. The results of operations for the respective periods presented are not necessarily indicative of the results for
the respective complete years. The financial statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; text-align: left; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; text-align: left; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif">Certain
prior period amounts have been reclassified in the condensed financial statements to conform to current period presentation. </font></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTE
2 - INVENTORIES</b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
composition of inventories is as follows at:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 283.5pt"><font style="font: 10pt Times New Roman, Times, Serif">	</font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td colspan="1" style="text-align: center; padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">June 30, 2011</td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">December 31, 2010</td></tr>
<tr style="vertical-align: bottom">
<td style="width: 56%; text-align: left; padding-left: 0.5in">Finished goods</td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">358,925</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1,012,994</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left; padding-left: 0.5in">Raw materials</td>
<td style="text-align: left"> </td><td style="text-align: right">1,423,030</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,195,090</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 0.5in">Allowance for obsolete inventory</td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(400,000</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(400,000</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; padding-left: 5.4pt"> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; padding-bottom: 2.5pt; padding-left: 0.5in"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,392,275</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,808,084</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>NOTE
5 – related party transactions </b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b> </b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Sales
to Affiliates –</i></b> In September 2005, Water Science, a related party, paid to the Company $1,000,000 for the exclusive
rights to sell our products in South America and Mexico. The agreement allows for a pro-rated refund during the first 5 years
under certain circumstances. The Company recognized income from this agreement over the first 5 years of the agreement. As of
December 31, 2010, the deferred revenue had been fully recognized. The Company recognized $100,000 in the period ended June 30,
2010. This agreement also gives Water Science the rights to purchase machinery from the Company at cost plus 25 percent. The Company
did not have any sales to Water Science during the six months ended June 30, 2011 and had sales of $24,627 for the same period
in 2010. The Company has received and recorded $329,630 in advance deposits from Water Science on machine orders at June 30, 2011.
</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i> </i></b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Unsecured
Short Term Loans</i> –<i> </i></b>In January, February, March, May and June 2011, the Company obtained unsecured short term
loans totaling $783,763 from Peter Ullrich a member of the Board of Directors of the Company. The final agreement to document
the loan has not been signed, and the material terms are not final. It is anticipated that the final loan will be at 10% simple
interest and conversion rights into Company common stock at an exercise price of $1.00 per share. The material terms of the final
agreement will be disclosed in subsequent filings with the Securities and Exchange Commission.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Convertible
Notes Payable</i> –<i> </i></b>See Note 4 for disclosure of related party Convertible Notes Payable.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i> </i></b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Licensing
Fee –</i></b>In September 2005, the Company received $1,000,000 in exchange for providing Water Science exclusive licensing
and distribution rights for a five-year term for a specified market area. The agreement provides termination rights by Water Sciences
and a pro rata refund of the fee. The Company recognized the fee on a pro rata basis over the life of the agreement. As of December
31, 2010, the fee had been fully recognized. </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Escrow
Arrangement with Chief Executive Officer – </i></b>In November 2006 the Company entered into an employment agreement
with Wade Bradley, the Company’s CEO. Pursuant to the agreement the Company deposited $240,000 with an escrow agent in January
2007. The Company has recognized this amount as restricted cash on the Company’s financial statements. In February 2010,
the Company and the Chief Executive Officer entered into an agreement to terminate the escrow agreement and closed the account.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i> </i></b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Advances
</i></b>– Periodically throughout the year, the Company advances employees cash for certain reimbursable expenses. As of
June 30, 2011 and December 31, 2010, the Company had advances to employees in the amount of $5,500 and $5,500, respectively.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i> </i></b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b><i>Employee
Options </i></b>– In December 2007, the Company granted 480,260 options to various employees. The options are for a term
of ten (10) years and which now have an exercise price of $0.31 per share. The options vest over a period of four (4) years. The
options were valued using the Binomial model with the following assumptions: risk free rate of 2.1%, volatility at 201.13% and
the stock price at $0.31. The value of each option is approximately $0.31 per option. The Company recognized $37,355 in stock
option expense related to the options for the six months ended June 30, 2011.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">In
November 2007, the Company granted 530,000 options to Douglas Kindred, in connection with the appointment of Mr. Kindred as Chief
Technology Officer. The options are for a term of ten (10) years and which now have an exercise price of $0.31 per share. The
options vest over a period of four (4) years. The options were valued using the Binomial model with the following assumptions:
risk free rate of 2.1%, volatility at 199.88% and the stock price at $0.31. The value of each option is approximately $0.31 per
option. The Company recognized $34,712 in stock option expense related to the options for the six months ended June 30, 2011.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></p>
<p style="margin-top: 0; text-align: left; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif">During the six months ended June 30, 2011, the Company
recognized an additional $6,054 in expense related to the adjusting of certain options and warrants issued to employees and Directors.</font></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTE
7 – GOING CONCERN</b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">The
Company has incurred significant losses and has had negative cash flows from operations. As a result, at June 30, 2011, the Company
has had a high level of equity financing transactions and additional financing will be required by the Company to fund its future
activities and to support its operations. We currently do not have sufficient funds to operate our business without additional
funding. We do not have any written agreements in place for additional funding. Management will continue to seek to obtain sufficient
funding for its operations through either debt or equity financing. However, there is no assurance that the Company will be able
to obtain additional financing. Furthermore, there is no assurance that rapid technological changes, changing customer needs and
evolving industry standards will enable the Company to introduce new products and services on a continual and timely basis so
that profitable operations can be attained. The Company’s ability to achieve and maintain profitability and positive cash
flows is dependent upon its ability to achieve positive sales and profit margins and control operating expenses. </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">	 </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">The
Company estimates that it will need up to $1,500,000 for the upcoming twelve months to execute our business plan and an additional
$5,584,000, plus interest, in order to satisfy our senior notes payable with Water Science, which becomes due in December 2011,
if the note is not converted into common stock. Management plans to mitigate its losses in the near term through the further development
and marketing of its trademarks, brand and product offerings.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">Our
auditors have issued their Independent Registered Public Accountants’ Report on the Company's financial statements for the
fiscal year ended December 31, 2010 with an explanatory paragraph regarding the Company's ability to continue as a going concern.
The financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization
of assets and satisfaction of liabilities in the ordinary course of business. However, as a result of recurring operating losses,
such realization of assets and satisfaction of liabilities are subject to uncertainty, which raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.</font></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTE
8 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES </b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Stock
Based-Compensation Expense</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Stock-based
compensation is calculated according to FASB ASC Topic 718, <i>Compensation — Stock Compensation</i>, which requires a fair-value-based
measurement method to account for stock-based compensation. The Company uses the Binomial valuation formula, which is a closed-form
model that uses an equation to determine the estimated fair value of stock options. Stock-based compensation expense recognized
for the three month period ended June 30, 2011 and 2010 was $78,120 and $98,514, respectively, related to employee stock options
issued and vesting during the period.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif">Basic and
Fully Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td colspan="1" style="text-align: center"> </td><td> </td>
<td colspan="7" style="text-align: center">For the Three Months Ended</td><td> </td>
<td colspan="7" style="text-align: center">For the Six Months Ended</td></tr>
<tr style="vertical-align: bottom">
<td colspan="1" style="text-align: center; padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt"> </td>
<td colspan="7" style="text-align: center; border-bottom: Black 1pt solid">June 30,</td><td style="padding-bottom: 1pt"> </td>
<td colspan="7" style="text-align: center; border-bottom: Black 1pt solid">June 30,</td></tr>
<tr style="vertical-align: bottom">
<td colspan="1" style="text-align: center; padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">2011</td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">2010</td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">2011</td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: center; border-bottom: Black 1pt solid">2010</td></tr>
<tr style="vertical-align: bottom">
<td colspan="1" style="text-align: center"> </td><td> </td>
<td colspan="3" style="text-align: center"> </td><td> </td>
<td colspan="3" style="text-align: center"> </td><td> </td>
<td colspan="3" style="text-align: center"> </td><td> </td>
<td colspan="3" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 40%; padding-left: 5.4pt">Net Income (loss) (numerator)</td><td style="width: 3%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(1,064,712</td><td style="width: 1%; text-align: left">)</td><td style="width: 3%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">3,846,465</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">(1,765,542</td><td style="width: 1%; text-align: left">)</td><td style="width: 3%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 10%; text-align: right">3,623,194</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 5.4pt">Shares (denominator)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt">Basic</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">20,006,168</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">20,006,168</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">20,006,168</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">19,966,720</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt">Diluted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">N/A</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">20,102,168</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">N/A</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">20,063,272</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 5.4pt">Per share amount</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt">Basic</td><td> </td>
<td style="text-align: left">$</td><td style="text-align: right">(0.05</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left">$</td><td style="text-align: right">0.19</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left">$</td><td style="text-align: right">(0.09</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left">$</td><td style="text-align: right">0.18</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-left: 9pt">Dilutive</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">N/A</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left">$</td><td style="text-align: right">0.19</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">N/A</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left">$</td><td style="text-align: right">0.18</td><td style="text-align: left"> </td></tr>
</table>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
Company’s outstanding stock options and warrants have been excluded from the basic net loss per share calculation for the
three and six months ended June 30, 2011, because they are anti-dilutive.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b> </b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">The
following table is a summary of the status of the warrants and options granted and outstanding at June 30, 2011:</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<table cellpadding="0" cellspacing="0" style="width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">Number
of Options and Warrants</font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: Black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">Weighted
Average Exercise Price</font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="width: 56%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding at beginning of period</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">9,185,991</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 8%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.32</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif">Exercised</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif">Expired</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">25,000</font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2.00</font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: Black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding at end of period</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right; border-bottom: Black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">9,160,991</font></td><td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: Black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="text-align: right; border-bottom: Black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">0.31</font></td><td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">A
summary of the status of the warrants outstanding at June 30, 2011 is presented below:</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font-family: Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td colspan="9" style="border-bottom: Black 1pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">Warrants Outstanding</font> <font style="font: 10pt Times New Roman, Times, Serif"></font></td>
<td></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: Black 1pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">Warrants Exercisable</font> </td>
</tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Range of Exercise Prices</font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">Number
Outstanding</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">Weighted-Average
Remaining Contractual Life</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">Weighted-Average
Exercise Price</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">Number
Exercisable</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">Weighted-Average
Exercise Price</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="width: 35%"><font style="font: 10pt Times New Roman, Times, Serif">$.01-.50</font></td><td style="width: 2%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 9%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">9,135,991</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 2%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 9%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">4.6
years</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 2%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="width: 9%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.31</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 2%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 9%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">8,942,426</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 2%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="width: 9%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.31</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">1.00-2.00</font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">25,000</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.1
years</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.75</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">25,000</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.75</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">$.01-2.00</font></td><td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">9,160,991</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">4.6
years</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.31</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">8,967,426</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.3</font>1</td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-family: Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">The
fair value of each warrant granted is estimated on the date granted using the Binomial pricing model, with the following assumptions
used for the grants: risk-free interest rate of 1.15%, expected dividend yield of zero, expected lives of five years and expected
volatility of 246%.  </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTE
9 – SUBSEQUENT EVENTS</b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="margin-top: 0; text-align: left; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif">In accordance
with ASC 855, management evaluated events subsequent to June 30, 2011 and concluded there were no events or transactions during
this period that required recognition or disclosure in its financial statements.</font></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTE
6 – CAPITAL STOCK</b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">The
Company has certain notes payable to related parties that are convertible into shares of the Company’s common stock. See
Note 4.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">In
March 2010, Theodore Jacoby, a director of the Company, purchased 100,000 shares of common stock of the Company for $100,000 at
a price of $1.00 per share. </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="margin-top: 0; text-align: left; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif">In January
2010, a consultant exercised 20,000 warrants for $200, or $0.01 per share. The warrants were granted in 2005 for services.</font></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTE
4 - CONVERTIBLE NOTES PAYABLE – RELATED PARTIES </b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">In
September 2005, the Company entered into a Senior Convertible Note (the “Note”) with Water Science, a related party,
in exchange for $3,000,000. Pursuant to the debt agreement, the Note accrued interest at the rate of 3% per annum and was initially
due, principal and interest together, on September 16, 2008. In June 2008, Water Science agreed to extend the maturity date of
the Note to March 16, 2009. In March 2009, the Company and Water Science agreed to extend the maturity date to September 16, 2009
and increase the interest rate to 10%. No principal or interest payments needed to be paid during the loan period. In October
2008, as part of a new financing agreement, the Company amended the Note and changed the conversion rate from $3.00 per share
to $1.00 per share. The Note may be converted into 3,000,000 shares of the Company’s $0.0001 par value common stock prior
to the maturity date, and at any time, by the holder at a price per share equal to $1.00 per share, subject to certain other conversion
adjustments. The Company granted a security interest in all of the Company’s assets as collateral for the loan. In connection
with the original issuance of the Note, the Company granted a three year warrant to purchase up to two million shares of the Company’s
$0.0001 par value common stock with an exercise price of $2.76 per share. In August 2009, the Company entered into an agreement
with Water Science, a related party, to extend the maturity date of the Promissory Note from September 16, 2009 to November 1,
2010.  In October 2010, the Company entered into a Third Amended and Restated Secured Convertible Promissory Note (“Amendment”),
which extended the maturity date until December 1, 2011. The Amendment also deleted the anti-dilution protection for subsequent
equity offerings contained in the Note, as described above, and the loan agreement entered into in August 2009, and terminated
the registration rights agreement contained in both agreements.   </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; text-align: left; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">On
August 27, 2009, the Company entered into a Loan Agreement with Mr. Peter Ullrich, a related party, whereby he agreed to loan
$600,000 to the Company. Simple interest accrued at a rate of 10% per annum on the unpaid principal amount outstanding and the
loan was scheduled to mature on November 1, 2010, at which time accrued interest and the outstanding principal balance were due.  
In October 2010, the Company entered into an Amended and Restated $600,000 loan agreement, which extended the maturity date to
December 1, 2011. The agreement contains an optional conversion right, whereby the Lender may convert all or any portion of the
outstanding principal and interest due into shares of the Company’s common stock at a price per share equal to $1.00 per
share.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">The
amendments agreed to in October 2010 deleted the anti-dilution protection for subsequent equity offerings contained in the notes
and terminated the registration rights agreement contained in both agreements. Due to this change the “round down”
provisions were eliminated. This has resulted in the Company no longer recording a derivative liability. The Company recorded
a gain of $5,013,561 in the change of the derivative liability to fair market value for the six month period ended June 30, 2010.</font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">In
October, 2010, the Company entered into a loan agreement with Mr. Ullrich. The principal amount of the Note is $1,200,000. The
Note bears interest at a rate of 10% annually and will mature on December 1, 2011. The Note is convertible into shares of the
Company’s common stock at $1.00 per share and no principal or interest payments are due until maturity. Also, in conjunction
with the Note, the Company issued a warrant to Mr. Ullrich to purchase 6,969,231 shares of the Company’s common stock at
$0.31 per share (the “Warrant”). The Warrant has a term of five years.</font></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTE
3 – WARRANTY RESERVE</b></font></p>
<p style="font: 11pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></p>
<p style="margin-top: 0; text-align: left; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif">The Company
warrants its products against defects in materials and workmanship for a period of three years. The Company reviews the historical
experience of failure rates and estimates the rate of warranty claims that will be made and has accrued a warranty reserve for
these anticipated future warranty costs. If actual results differ from the estimates, the Company would adjust the estimated warranty
liability. Changes in the warranty reserve for the three months ended June 30, 2011 are as follows:</font></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
<table cellpadding="0" cellspacing="0" style="width: 100%">
<tr style="vertical-align: bottom">
<td style="width: 70%"><font style="font: 10pt Times New Roman, Times, Serif">Warranty reserve at beginning of period</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="width: 18%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">72,796</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif">Costs accrued for additional warranties</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">16,193</font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Service obligations honored</font></td>
<td style="text-align: left; border-bottom: Black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right; border-bottom: Black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">(3,989</font></td><td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Warranty reserve at end of period</font></td>
<td style="text-align: left; border-bottom: Black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="text-align: right; border-bottom: Black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">85,000</font></td><td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="margin-top: 0pt; text-align: left; margin-bottom: 0pt"></p>
20006168
3223612
0
0
0
0
0
0
50000
124627
702166
71524
89631
177406
702166
71524
139631
302033
681378
255347
27419
132885
20788
-183823
112212
169148
4908
2246
3885
7769
3000
0
16500
18600
1168821
569038
581587
1331919
1176729
571284
601972
1358288
-1155941
-755107
-489760
-1189140
-609616
-309620
-104988
-201253
15
15
0
26
0
0
4441213
5013561
-609601
-309605
4336225
4812334
-1765542
-1064712
3846465
3623194
20006168
20006168
20006168
19966720
-0.09
-0.05
.19
.18
0
0
.19
.18
345710
0
-218576
20006168
20006168
78120
78120
-1765542
-1765542