----

----

| Nevada                                 |   | 91-1944887               |
|----------------------------------------|--------|--------------------------|
| (State      or other jurisdiction      |   | (IRS      Employer       |
| of      incorporation or organization) |   | Identification      No.) |

----

|                               | Explanatory      Note                                                                                   | 2      |
|------------------------------------|---------------------------------------------------------------------------------------------------------|--------|
|                               |                                                                                                    |   |
| PART      I: FINANCIAL INFORMATION |                                                                                                    |
|                               |                                                                                                    |   |
| Item      1.                       | Financial      Statements:                                                                              |   |
|                               |                                                                                                    |   |
|                               | Consolidated      Balance Sheets – December 31, 2007 (unaudited) (as restated)      and           |   |
|                               |    March      31, 2007 (audited)                                                         | 3      |
|                               |                                                                                                    |   |
|                               | Consolidated      Statements of Operations – For the three months ended December 31,      2007    |   |
|                               |    and      2006 (unaudited) (as restated)                                               | 5      |
|                               |                                                                                                    |   |
|                               | Consolidated      Statements of Operations – For the nine months ended December 31,      2007     |   |
|                               |    and      2006 (unaudited) (as restated)                                               | 6      |
|                               |                                                                                                    |   |
|                               | Consolidated      Statement of Stockholders’ Deficit – December 31, 2007      (unaudited)   |   |
|                               |    (as      restated) and March 31, 2007 (audited)                                       | 7      |
|                               |                                                                                                    |   |
|                               | Consolidated      Statements of Cash Flows – For the nine months ended December 31, 2007      and |   |
|                               |    2006      (unaudited) (as restated)                                                   | 8      |
|                               |                                                                                                    |   |
|                               | Notes      to Consolidated Financial Statements (unaudited)                                             | 10     |
|                               |                                                                                                    |   |
| Item      2.                       | Management’s      Discussion and Analysis or Plan of Operation                                    | 27     |
|                               |                                                                                                    |   |
| Item      3.                       | Controls      and Procedures                                                                            | 40     |
|                               |                                                                                                    |   |
| PART      II: OTHER INFORMATION    |                                                                                                    |
|                               |                                                                                                    |   |
| Item      1.                       | Legal      Proceedings                                                                                  | 42     |
|                               |                                                                                                    |   |
| Item      2.                       | Unregistered      Sales of Equity Securities and Use of Proceeds                                        | 42     |
|                               |                                                                                                    |   |
| Item      3.                       | Defaults      Upon Senior Securities                                                                    | 42     |
|                               |                                                                                                    |   |
| Item      4.                       | Submission      of Matters to a Vote of Security Holders                                                | 42     |
|                               |                                                                                                    |   |
| Item      5.                       | Other      Information                                                                                  | 42     |
|                               |                                                                                                    |   |
| Item      6.                       | Exhibits                                                                                                | 43     |
|                               |                                                                                                    |   |
| SIGNATURE                          | 44                                                                                                      |

----

----

|                                                           |   | December      31, 2007 |      |   | March      31, 2007 |   |
|----------------------------------------------------------------|--------|------------------------|-----------|--------|---------------------|--------|
|                                                           |   | As      restated       |      |   |                |   |
| Current      Assets:                                           |   |                   |      |   |                |   |
|    Cash                                         |   | $                      | 447,601   |   |                | $      | 534,871 |   |
|    Accounts      receivable                     |   |                   | 425,367   |   |                |   | 314,178 |   |
|    Other      receivable                        |   |                   | 16,037    |   |                |   | 23,927 |   |
|    Inventory                                    |   |                   | 150,367   |   |                |   | 75,743 |   |
|    Prepaid      expenses                        |   |                   | 27,553    |   |                |   | 10,143 |   |
|                                                           |   |                   |      |   |                |   |   |   |
|       Total      Current Assets  |   |                   | 1,066,925 |   |                |   | 958,862 |   |
|                                                           |   |                   |      |   |                |   |   |   |
| Fixed      Assets:                                             |   |                   |      |   |                |   |   |   |
|    Computer      equipment                      |   |                   | 203,595   |   |                |   | 123,035 |   |
|    Trade      show booth & fixtures         |   |                   | 15,637    |   |                |   | 10,641 |   |
|    Office      equipment                        |   |                   | 207,174   |   |                |   | 129,064 |   |
|    Property      held under capital leases      |   |                   | 10,205    |   |                |   | 10,205 |   |
|    Less      Accumulated depreciation           |   |                   | (200,383  | )      |                |   | (150,899 | ) |
|                                                           |   |                   |      |   |                |   |   |   |
|       Net      Fixed Assets      |   |                   | 236,228   |   |                |   | 122,046 |   |
|                                                           |   |                   |      |   |                |   |   |   |
| Intangible      Assets:                                        |   |                   |      |   |                |   |   |   |
|    Intellectual      property                   |   |                   | 2,717,755 |   |                |   | 2,717,755 |   |
|    Software      development                    |   |                   | 366,040   |   |                |   | 366,040 |   |
|    Less      Amortization                       |   |                   | (992,633  | )      |                |   | (788,802 | ) |
|                                                           |   |                   |      |   |                |   |   |   |
|       Net      Intangible Assets |   |                   | 2,091,162 |   |                |   | 2,294,993 |   |
|                                                           |   |                   |      |   |                |   |   |   |
| Total      Assets                                              |   | $                      | 3,394,315 |   |                | $      | 3,375,901 |   |
|                                                           |   |                   |      |   |                |   |   |   |

----

|                                                                                                                                                                                                                                |   | December      31, 2007 |         |   | March      31, 2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------------|--------|---------------------|--------|
|                                                                                                                                                                                                                                |   | As      restated       |         |   |                |   |
| Current      Liabilities:                                                                                                                                                                                                           |   |                   |         |   |                |   |
|    Accounts      payable                                                                                                                                                                                             |   | $                      | 264,522      |   |                | $      | 544,796 |   |
|    Accrued      liabilities                                                                                                                                                                                          |   |                   | 593,803      |   |                |   | 547,714 |   |
|    Accrued      liquidated damages – outside investors                                                                                                                                                         |   |                   | 525,115      |   |                |   | - |   |
|    Accrued      liquidated damages – related parties                                                                                                                                                           |   |                   | 15,579       |   |                |   | - |   |
|    Related      party payables                                                                                                                                                                                       |   |                   | 171,137      |   |                |   | 24,038 |   |
|    Line      of credit                                                                                                                                                                                               |   |                   | 17,534       |   |                |   | 62,094 |   |
|    Convertible      promissory notes – outside investors, net of discount                                                                                                                                      |   |                   | 380,252      |   |                |   | 144,000 |   |
|    Current      portion of other long-term debt                                                                                                                                                                      |   |                   | -            |   |                |   | 2,415 |   |
|    Current      portion of deferred revenue                                                                                                                                                                          |   |                   | 862,785      |   |                |   | 465,179 |   |
|                                                                                                                                                                                                                                |   |                   |         |   |                |   |   |   |
|      Total      Current Liabilities                                                                                                                                                                        |   |                   | 2,830,727    |   |                |   | 1,790,236 |   |
|                                                                                                                                                                                                                                |   |                   |         |   |                |   |   |   |
| Long-Term      Liabilities                                                                                                                                                                                                          |   |                   |         |   |                |   |   |   |
|    Convertible      promissory notes – outside investors, net of discount                                                                                                                                      |   |                   | 1,308,834    |   |                |   | 237,395 |   |
|    Convertible      promissory notes – related parties, net of discount                                                                                                                                        |   |                   | 49,704       |   |                |   | - |   |
|    Accrued      interest                                                                                                                                                                                             |   |                   | 149,836      |   |                |   | 50,309 |   |
|    Derivative      financial instruments – warrants                                                                                                                                                            |   |                   | -            |   |                |   | 2,265,225 |   |
|    Deferred      revenue                                                                                                                                                                                             |   |                   | 184,216      |   |                |   | 84,968 |   |
|      Total      Long-Term Liabilities                                                                                                                                                                      |   |                   | 1,692,590    |   |                |   | 2,637,897 |   |
|                                                                                                                                                                                                                                |   |                   |         |   |                |   |   |   |
|      Total      Liabilities                                                                                                                                                                                |   |                   | 4,523,317    |   |                |   | 4,428,133 |   |
|                                                                                                                                                                                                                                |   |                   |         |   |                |   |   |   |
| Stockholders’      Deficit:                                                                                                                                                                                                   |   |                   |         |   |                |   |   |   |
|    Preferred      Stock, $0.001 par value; 1,000,000 shares authorized;    -0-      shares issued and outstanding                                                                                |   |                   | -            |   |                |   | - |   |
|    Common      Stock, $0.001 par value; 50,000,000 shares authorized;      8,594,469      and 8,292,022 shares issued and outstanding,      Respectively |   |                   |   8,594 |   |                |   |   8,292 |   |
|    Additional      Paid-In Capital                                                                                                                                                                                   |   |                   | 13,560,497   |   |                |   | 9,526,323 |   |
|    Accumulated      Deficit                                                                                                                                                                                          |   |                   | (14,698,093  | )      |                |   | (10,586,847 | ) |
|      Total      Stockholders’ Deficit                                                                                                                                                                |   |                   | (1,129,002   | )      |                |   | (1,052,232 | ) |
|                                                                                                                                                                                                                                |   |                   |         |   |                |   |   |   |
| Total      Liabilities and Stockholders’ Deficit                                                                                                                                                                              |   | $                      | 3,394,315    |   |                | $      | 3,375,901 |   |

----

|                                                                                                                                                     |   | Three      months ended December 31, |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                                                                                                                     |   | 2007                                 |       |   | 2006 |   |
|                                                                                                                                                     |   | As      restated                     |       |   | As      restated |   |
|                                                                                                                                                     |   |                                 |       |   |   |   |
| Revenues                                                                                                                                                 |   | $                                    | 618,761    |   |   | $ | 601,871 |   |
| Cost      of goods sold                                                                                                                                  |   |                                 | 98,501     |   |   |   | 92,559 |   |
|                                                                                                                                                     |   |                                 |       |   |   |   |   |   |
|      Gross      Profit                                                                                                          |   |                                 | 520,260    |   |   |   | 509,312 |   |
|                                                                                                                                                     |   |                                 |       |   |   |   |   |   |
| Expenses:                                                                                                                                                |   |                                 |       |   |   |   |   |   |
|    Sales      and marketing                                                                                                               |   |                                 | 349,722    |   |   |   | 113,631 |   |
|    Research      and development                                                                                                          |   |                                 | 166,550    |   |   |   | 134,475 |   |
|    Software      consulting                                                                                                               |   |                                 | 523,443    |   |   |   | 224,412 |   |
|    General      and administrative                                                                                                        |   |                                 | 426,255    |   |   |   | 241,857 |   |
|                                                                                                                                                     |   |                                 |       |   |   |   |   |   |
|      Total      Expenses                                                                                                        |   |                                 | 1,465,970  |   |   |   | 714,375 |   |
|                                                                                                                                                     |   |                                 |       |   |   |   |   |   |
| Loss      from operations                                                                                                                                |   |                                 | (945,710   | ) |   |   | (205,063 | ) |
|                                                                                                                                                     |   |                                 |       |   |   |   |   |   |
| Other      Income (Expense)                                                                                                                              |   |                                 |       |   |   |   |   |   |
|    Interest      income                                                                                                                   |   |                                 | 3,760      |   |   |   | 8 |   |
|    Interest      expense                                                                                                                  |   |                                 | (79,860    | ) |   |   | (12,431 | ) |
|    Amortization      of discount on convertible notes – outside investors                                                           |   |                                 | (371,774   | ) |   |   | (27,557 | ) |
|    Amortization      of discount on convertible notes – related parties                                                             |   |                                 | (10,237    | ) |   |   | - |   |
|    Benefit      for change in estimated fair value of derivative financial     instruments      – Warrants |   |                                 | -          |   |   |   | 118,329 |   |
|      Total      Other Income (Expense)                                                                                          |   |                                 | (458,111   | ) |   |   | 78,349 |   |
|                                                                                                                                                     |   |                                 |       |   |   |   |   |   |
| Net      Loss                                                                                                                                            |   | $                                    | (1,403,821 | ) |   | $ | (126,714 | ) |
|                                                                                                                                                     |   |                                 |       |   |   |   |   |   |
| Basic      & diluted net loss per share                                                                                                              |   | $                                    | (0.16      | ) |   | $ | (0.02 | ) |
|                                                                                                                                                     |   |                                 |       |   |   |   |   |   |
| Weighted      Average Shares outstanding – basic and diluted                                                                                       |   |                                 | 8,594,469  |   |   |   | 8,152,648 |   |

----

|                                                                                                                                                     |   | Nine      months ended December 31, |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                                                                                                     |   | 2007                                |       |   | 2006 |   |
|                                                                                                                                                     |   | As      restated                    |       |   | As      restated |   |
|                                                                                                                                                     |   |                                |       |   |   |   |
| Revenues                                                                                                                                                 |   | $                                   | 2,192,330  |   |   | $ | 1,496,488 |   |
| Cost      of goods sold                                                                                                                                  |   |                                | 430,427    |   |   |   | 185,813 |   |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
|      Gross      Profit                                                                                                          |   |                                | 1,761,903  |   |   |   | 1,310,675 |   |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| Expenses:                                                                                                                                                |   |                                |       |   |   |   |   |   |
|    Sales      and marketing                                                                                                               |   |                                | 698,424    |   |   |   | 212,877 |   |
|    Research      and development                                                                                                          |   |                                | 475,026    |   |   |   | 382,315 |   |
|    Software      consulting                                                                                                               |   |                                | 1,201,320  |   |   |   | 681,164 |   |
|    General      and administrative                                                                                                        |   |                                | 1,015,188  |   |   |   | 771,150 |   |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
|      Total      Expenses                                                                                                        |   |                                | 3,389,958  |   |   |   | 2,047,506 |   |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| Loss      from operations                                                                                                                                |   |                                | (1,628,055 | ) |   |   | (736,831 | ) |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| Other      Income (Expense)                                                                                                                              |   |                                |       |   |   |   |   |   |
|    Interest      income                                                                                                                   |   |                                | 21,883     |   |   |   | 59 |   |
|    Interest      expense                                                                                                                  |   |                                | (228,220   | ) |   |   | (42,269 | ) |
|    Charge      for inducement to convert debt to convertible promissory    notes                                                          |   |                                | (135,825   | ) |   |   | - |   |
|    Amortization      of discount on convertible notes – outside investors                                                           |   |                                | (1,104,583 | ) |   |   | (82,371 | ) |
|    Amortization      of discount on convertible notes – related parties                                                             |   |                                | (30,155    | ) |   |   | - |   |
|    Charge      for estimated liquidated damages                                                                                           |   |                                | (251,176   | ) |   |   | - |   |
|    Benefit      for change in estimated fair value of derivative financial     instruments      – Warrants |   |                                | -          |   |   |   | 227,022 |   |
|      Total      Other Income (Expense)                                                                                          |   |                                | (1,728,076 | ) |   |   | 102,441 |   |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| Net      Loss                                                                                                                                            |   | $                                   | (3,356,131 | ) |   | $ | (634,390 | ) |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| Basic      & diluted net loss per share                                                                                                              |   | $                                   | (0.39      | ) |   | $ | (0.08 | ) |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| Weighted      Average Shares – outstanding – basic and diluted                                                                               |   |                                | 8,594,469  |   |   |   | 8,126,989 |   |

----

|                                                                                                                         |   | Preferred      Stock |   |   | Common      Stock |   |   | Additional      Paid-in Capital |   |   | Accumulated      Deficit |   |   | Total      Stockholders’ Deficit |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|--------|--------|-------------------|--------|--------|---------------------------------|--------|--------|--------------------------|--------|--------|----------------------------------------|--------|
|                                                                                                                         |   | Shares               |   |   | Amount            |   |   | Shares                          |   |   | Amount                   |   |   |                                   |   |   |   |   |   |   |   |
|                                                                                                                         |   |                 |   |   |              |   |   |                            |   |   |                     |   |   |                                   |   |   |   |   |   |   |   |
| Balances      at March 31, 2007                                                                                              |   |                 | -      |   |              | $      | -      |                            |   |   | 8,292,022                |   |   | $                                      | 8,292  |   |   | $ | 9,526,323 |   |   | $ | (10,586,847 | ) |   | $ | (1,052,232 | ) |
| Cumulative      effect of the change in an        accounting principle      (Note 2)                          |   |                 |   |   |              |   |   |                            |   |   |                     |   |   |                                   |   |   |   |   | 2,730,824 |   |   |   | (755,115 | ) |   |   | 1,975,709 |   |
| Allocation      of discount on convertible        promissory notes to      warrants        (Note 2) |   |                 |   |   |              |   |   |                            |   |   |                     |   |   |                                   |   |   |   |   | 488,054 |   |   |   |   |   |   |   | 488,054 |   |
| Beneficial      conversion feature of        convertible promissory notes        (Note 2)           |   |                 |   |   |              |   |   |                            |   |   |                     |   |   |                                   |   |   |   |   | 815,599 |   |   |   |   |   |   |   | 815,599 |   |
| Adjustment      for common stock shares        previously not reported                                        |   |                 |   |   |              |   |   |                            |   |   | 302,447                  |   |   |                                   | 302    |   |   |   | (303 | ) |   |   |   |   |   |   | (1 | ) |
|                                                                                                                         |   |                 |   |   |              |   |   |                            |   |   |                     |   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss for the nine months ended        December 31, 2007, as      restated                            |   |                 |   |   |              |   |   |                            |   |   |                     |   |   |                                   |   |   |   |   |   |   |   |   | (3,356,131 | ) |   |   | (3,356,131 | ) |
|                                                                                                                         |   |                 |   |   |              |   |   |                            |   |   |                     |   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances      at December 31, 2007,        as restated                                                             |   |                 | -      |   |              | $      | -      |                            |   |   | 8,594,469                |   |   | $                                      | 8,594  |   |   | $ | 13,560,497 |   |   | $ | (14,698,093 | ) |   | $ | (1,129,002 | ) |

----

|                                                                                                                                                     |   | Nine      months ended December 31, |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                                                                                                     |   | 2007                                |       |   | 2006 |   |
|                                                                                                                                                     |   | As      restated                    |       |   | As      restated |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                                                |   |                                |       |   |   |   |
| Net      loss                                                                                                                                            |   | $                                   | (3,356,131 | ) |   | $ | (634,390 | ) |
| Adjustments      used to reconcile net loss to net cash used in operating      activities:                                                               |   |                                |       |   |   |   |   |   |
|    Charge      for estimated liquidated damages                                                                                           |   |                                | 251,176    |   |   |   | - |   |
|    Amortization      of discount on convertible promissory notes – outside      investors                                           |   |                                | 1,104,583  |   |   |   | 82,371 |   |
|    Amortization      of discount on convertible promissory notes – related    parties                                               |   |                                | 30,155     |   |   |   | - |   |
|    Stock      issued for investors fees                                                                                                   |   |                                | 10,000     |   |   |   | - |   |
|    Benefit      for change in estimated fair value of derivative financial     instruments      – Warrants |   |                                | -          |   |   |   | (227,022 | ) |
|    Share-based      compensation                                                                                                          |   |                                | -          |   |   |   | 76,275 |   |
|    Charge      for inducement to convert debt to convertible promissory    notes                                                          |   |                                | 135,825    |   |   |   | - |   |
|    Depreciation      and amortization                                                                                                     |   |                                | 253,315    |   |   |   | 270,861 |   |
|    Changes      in operating assets and liabilities:                                                                                      |   |                                |       |   |   |   |   |   |
|      Accounts      receivable                                                                                                   |   |                                | (103,299   | ) |   |   | (14,978 | ) |
|      Inventory                                                                                                                  |   |                                | (74,624    | ) |   |   | (33,773 | ) |
|      Prepaid      expenses                                                                                                      |   |                                | (17,410    | ) |   |   | 32,208 |   |
|      Accrued      liabilities                                                                                                   |   |                                | 297,029    |   |   |   | 90,043 |   |
|      Accounts      payable                                                                                                      |   |                                | (33,204    | ) |   |   | (151,831 | ) |
|      Deferred      revenue                                                                                                      |   |                                | 496,854    |   |   |   | 329,486 |   |
|        Net      cash used in operating activities                                                                     |   |                                | (1,005,731 | ) |   |   | (180,750 | ) |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                                                                                                |   |                                |       |   |   |   |   |   |
| Purchase      of equipment                                                                                                                               |   |                                | (163,666   | ) |   |   | (8,197 | ) |
|        Net      cash used in investing activities                                                                     |   |                                | (163,666   | ) |   |   | (8,197 | ) |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                                                |   |                                |       |   |   |   |   |   |
| Payments      on capital lease                                                                                                                           |   |                                | (2,415     | ) |   |   | (2,621 | ) |
| Net      cash proceeds from issuance of convertible promissorynotes                                                                                      |   |                                | 1,225,000  |   |   |   | 332,500 |   |
| Proceeds      from loans                                                                                                                                 |   |                                | -          |   |   |   | 16,434 |   |
| Net      payments on line of credit                                                                                                                      |   |                                | (44,560    | ) |   |   | - |   |
| Payments      on loans and convertible promissory notes                                                                                                  |   |                                | (95,898    | ) |   |   | (70,434 | ) |
|        Net      cash provided by financing activities                                                                 |   |                                | 1,082,127  |   |   |   | 275,879 |   |
|                                                                                                                                                     |   |                                |       |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                                                                                |   |                                | (87,270    | ) |   |   | 86,932 |   |
| Cash      and cash equivalents at beginning of period                                                                                                    |   |                                | 534,871    |   |   |   | 60,990 |   |
| Cash      and cash equivalents at end of period                                                                                                          |   | $                                   | 447,601    |   |   | $ | 147,922 |   |

----

|                                                                                                                                                                          |   | Nine      months ended December 31, |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                                                                                                                          |   | 2007                                |       |   | 2006 |   |
|                                                                                                                                                                          |   | As      restated                    |       |   | As      restated |   |
| SUPPLEMENTAL      DISCLOSURE OF CASH FLOW INFORMATION:                                                                                                                        |   |                                |       |   |   |   |
|                                                                                                                                                                          |   |                                |       |   |   |   |
| Cash      paid during the year for:                                                                                                                                           |   |                                |       |   |   |   |
|   Interest                                                                                                                                                          |   | $                                   | 14,878     |   |   | $ | 7,276 |   |
|   Income      taxes                                                                                                                                                 |   |                                | -          |   |   |   | - |   |
|                                                                                                                                                                          |   |                                |       |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                                                                                                  |   |                                |       |   |   |   |   |   |
|                                                                                                                                                                          |   |                                |       |   |   |   |   |   |
| Conversion      of convertible promissory notes and related accrued  interest      to common stock                                                                  |   | $                                   | -          |   |   | $ | 17,931 |   |
| Conversion      of accounts payable and other accrued liabilities to   convertible      promissory notes                                                       |   |                                | 363,171    |   |   |   | 5,862 |   |
| Conversion      of other notes payable to common stock                                                                                                                        |   |                                | -          |   |   |   | 36,628 |   |
| Allocation      of discount on convertible promissory notes to warrants                                                                                                       |   |                                | 488,054    |   |   |   | 178,199 |   |
| Discount      related to beneficial conversion feature on convertible   promissory      notes                                                                  |   |                                | 815,599    |   |   |   | 82,719 |   |
|                                                                                                                                                                          |   |                                |       |   |   |   |   |   |
| OTHER      NON-CASH TRANSACTIONS:                                                                                                                                             |   |                                |       |   |   |   |   |   |
|                                                                                                                                                                          |   |                                |       |   |   |   |   |   |
| Cumulative effect of      change in accounting principle:                                                                                                                     |   |                                |       |   |   |   |   |   |
|    Reclassification      of Warrants from derivative financial instruments to     equity      securities (as valued at inception)     |   | $                                   | 2,730,824  |   |   | $ | - |   |
|    Accrued      liquidated damages at April 1, 2007                                                                                                            |   |                                | 289,518    |   |   |   |   |   |
|    Reclassification      of Warrants from derivative financial instruments to     equity      securities (as valued at April 1, 2007) |   |                                | (2,265,227 | ) |   |   |   |   |
|    Cumulative      effect of change in accounting principle                                                                                                    |   | $                                   | 755,115    |   |   | $ | - |   |

----

----

----

|                                      |   | Adjustments      to Consolidated Statements of Operations:Income      (Expense) |       |
|-------------------------------------------|--------|---------------------------------------------------------------------------------|------------|
|                                      |   | Convertible      Promissory Notes and Warrants                                  |       |   | Registration      payment arrangements |   |   | Share-based      compensation |   |   | Total |   |
|                                      |   |                                                                            |       |   |   |   |   |   |   |   |   |   |
| Three      months ended December 31, 2007 |   | $                                                                               | (382,011   | ) |   | $ | 155,984 |   |   | $ | - |   |   | $ | (226,027 | ) |
| Three      months ended December 31, 2006 |   |                                                                            | 90,772     |   |   |   | - |   |   |   | (25,425 | ) |   |   | 65,347 |   |
| Nine      months ended December 31, 2007  |   |                                                                            | (1,134,738 | ) |   |   | 101,531 |   |   |   | - |   |   |   | (1,033,207 | ) |
| Nine      months ended December 31, 2006  |   | $                                                                               | 144,651    |   |   | $ | - |   |   | $ | (76,275 | ) |   | $ | 68,376 |   |

|   | · | SFAS      133, Accounting for      Derivative Instruments and Hedging Activities (“SFAS      133”), |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | APB      Opinion 14, Accounting      for Convertible Debt and Debt Issued with Stock Purchase Warrants      (“APB   14”), |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Emerging      Issues Task Force (EITF) Issue 00-19, Accounting for Derivative      Financial Instruments Indexed to, and Potentially Settled in, a Company’s      Own Stock (“EITF 00-19”), |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | EITF      05-2, The Meaning of      “Conventional Convertible Debt Instrument” (“EITF      05-2”), |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | · | EITF      98-5, Accounting for      Convertible Securities with Beneficial Conversion Features or Contingently      Adjustable Conversion Ratios (“EITF  98-5”), |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | EITF      00-27, Application of      Issue No. 98-5 to Certain Convertible Instruments (“EITF 00-27”),      and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | SEC      Staff Accounting      Bulletin No. 107 (“SAB107”). |
|--------|--------|-------------------------------------------------------------------------|

----

----

|                         | Warrants      issued in PP1 |   | Warrants      issued in PP2 |
|------------------------------|-----------------------------|--------|-----------------------------|
|                         |                        |   |                        |
| Expected      volatility     | 128%                        |   | 100%-104%                   |
| Expected      term           | 5      years                |   | 5      years                |
| Risk-free      interest rate | 3.58%      - 4.33%          |   | 4.46%      - 4.65%          |
| Expected      dividend yield | 0%                          |   | 0%                          |

----

----

|                                                                                                                                                                    |   | For      the three months endedDecember      31, 2007 |       |   | For      the three months endedDecember      31, 2006 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|--------|-------------------------------------------------------|--------|
|                                                                                                                                                                    |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                    |   | As      previouslyreported                            |       |   | Adjustments                                           |   |   | As      restated |   |   | As      previously reported |   |   | Adjustments |   |   | As      restated |   |
|                                                                                                                                                                    |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit                                                                                                                                                       |   | $                                                     | 520,260    |   |                                                  | $      | - |   |   | $ | 520,260 |   |   | $ | 509,312 |   |   | $ | - |   |   | $ | 509,312 |   |
|                                                                                                                                                                    |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                                                                                                                                 |   |                                                  | 1,465,970  |   |                                                  |   |   |   |   |   | 1,465,970 |   |   |   | 688,950 |   |   |   | 25,425 |   |   |   | 714,375 |   |
|                                                                                                                                                                    |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      from operations                                                                                                                                               |   |                                                  | (945,710   | )      |                                                  |   |   |   |   |   | (945,710 | ) |   |   | (179,638 | ) |   |   | (25,425 | ) |   |   | (205,063 | ) |
|                                                                                                                                                                    |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense)                                                                                                                                             |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Interest      expense, net                                                                                                                                  |   |                                                  | (232,084   | )      |                                                  |   | 155,984 |   |   |   | (76,100 | ) |   |   | (12,423 | ) |   |   |   |   |   |   | (12,423 | ) |
|   Amortization      of discount on    convertible      notes                                                                              |   |                                                  | -          |   |                                                  |   | (382,011 | ) |   |   | (382,011 | ) |   |   | - |   |   |   | (27,557 | ) |   |   | (27,557 | ) |
|   Benefit      for change in estimated    fair      value of derivative         financial instruments      - Warrants |   |                                                  |   -   |   |                                                  |   |   |   |   |   |   - |   |   |   |   - |   |   |   |   118,329 |   |   |   |   118,329 |   |
|                                                                                                                                                                    |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                                                           |   | $                                                     | (1,177,794 | )      |                                                  | $      | (226,027 | ) |   | $ | (1,403,821 | ) |   | $ | (192,061 | ) |   | $ | 65,347 |   |   | $ | (126,714 | ) |
|                                                                                                                                                                    |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      & diluted net loss per share                                                                                                                             |   | $                                                     | (0.14      | )      |                                                  |   |   |   |   | $ | (0.16 | ) |   | $ | (0.02 | ) |   |   |   |   |   | $ | (0.02 | ) |
|                                                                                                                                                                    |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding: basic and diluted                                                                                                             |   |                                                  | 8,576,538  |   |                                                  |   | 17,931 |   |   |   | 8,594,469 |   |   |   | 8,152,648 |   |   |   |   |   |   |   | 8,152,648 |   |

----

|                                                                                                                                                                                 |   | For      the nine months endedDecember      31, 2007 |       |   | For      the nine months endedDecember      31, 2006 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|------------|--------|------------------------------------------------------|--------|
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                 |   | As      previouslyreported                           |       |   | Adjustments                                          |   |   | As      restated |   |   | As      previously reported |   |   | Adjustments |   |   | As      restated |   |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit                                                                                                                                                                    |   | $                                                    | 1,761,903  |   |                                                 | $      | - |   |   | $ | 1,761,903 |   |   | $ | 1,310,675 |   |   | $ | - |   |   | $ | 1,310,675 |   |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                                                                                                                                              |   |                                                 | 3,389,958  |   |                                                 |   |   |   |   |   | 3,389,958 |   |   |   | 1,971,231 |   |   |   | 76,275 |   |   |   | 2,047,506 |   |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      from operations                                                                                                                                                            |   |                                                 | (1,628,055 | )      |                                                 |   |   |   |   |   | (1,628,055 | ) |   |   | (660,556 | ) |   |   | (76,275 | ) |   |   | (736,831 | ) |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense)                                                                                                                                                          |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Interest      expense, net                                                                                                                                               |   |                                                 | (559,044   | )      |                                                 |   | 352,707 |   |   |   | (206,337 | ) |   |   | (42,210 | ) |   |   |   |   |   |   | (42,210 | ) |
|   Charge      for inducement to          convert debt      to convertible          promissory notes                      |   |                                                 | (135,825   | )      |                                                 |   |   |   |   |   | (135,825 | ) |   |   |   - |   |   |   |   |   |   |   |   - |   |
|   Amortization      of discount on    convertible      notes                                                                                           |   |                                                 | -          |   |                                                 |   | (1,134,738 | ) |   |   | (1,134,738 | ) |   |   | - |   |   |   | (82,371 | ) |   |   | (82,371 | ) |
|   Charge      for estimated liquidated    damages                                                                                                      |   |                                                 | -          |   |                                                 |   | (251,176 | ) |   |   | (251,176 | ) |   |   | - |   |   |   |   |   |   |   | - |   |
|   Benefit      for change in estimated         fair value of derivative         financial      instruments         - Warrants |   |                                                 |   -   |   |                                                 |   |   |   |   |   |   - |   |   |   |   - |   |   |   |   227,022 |   |   |   |   227,022 |   |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                                                                        |   | $                                                    | (2,322,924 | )      |                                                 | $      | (1,033,207 | ) |   | $ | (3,356,131 | ) |   | $ | (702,766 | ) |   | $ | 68,376 |   |   | $ | (634,390 | ) |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      & diluted net loss per share                                                                                                                                          |   | $                                                    | (0.27      | )      |                                                 |   |   |   |   | $ | (0.39 | ) |   | $ | (0.09 | ) |   |   |   |   |   | $ | (0.08 | ) |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding: basic and diluted                                                                                                                          |   |                                                 | 8,576,538  |   |                                                 |   | 17,931 |   |   |   | 8,594,469 |   |   |   | 8,126,989 |   |   |   |   |   |   |   | 8,126,989 |   |

----

|                                                                                               |   | As      previouslyreported |        |   | Adjustments |   |       | As      restated |   |
|----------------------------------------------------------------------------------------------------|--------|----------------------------|-------------|--------|-------------|--------|------------|------------------|--------|
|                                                                                               |   |                       |        |   |        |   |       |             |   |
| Current      liabilities:                                                                          |   |                       |        |   |        |   |       |             |   |
| Accounts      payable                                                                              |   | $                          | 264,522     |   |        | $      | -          |             |   | $ | 264,522 |   |
| Related      party payables                                                                        |   |                       | 171,137     |   |        |   |       |             |   |   | 171,137 |   |
| Accrued      liabilities                                                                           |   |                       | 593,803     |   |        |   |       |             |   |   | 593,803 |   |
| Accrued      liquidated damages                                                                    |   |                       | -           |   |        |   | 540,694    |             |   |   | 540,694 |   |
| Line      of credit                                                                                |   |                       | 17,534      |   |        |   |       |             |   |   | 17,534 |   |
| Convertible      promissory notes – outside investors,   net      of discount |   |                       | 525,711     |   |        |   | (145,459   | )                |   |   | 380,252 |   |
| Deferred      revenue                                                                              |   |                       | 862,785     |   |        |   |       |             |   |   | 862,785 |   |
|    Total      current liabilities                                                   |   |                       | 2,435,492   |   |        |   | 395,235    |             |   |   | 2,830,727 |   |
|                                                                                               |   |                       |        |   |        |   |       |             |   |   |   |   |
| Convertible      promissory notes, net of discount                                                 |   |                       | 3,060,206   |   |        |   | (1,701,668 | )                |   |   | 1,358,538 |   |
| Accrued      interest                                                                              |   |                       | 505,474     |   |        |   | (355,638   | )                |   |   | 149,836 |   |
| Deferred      revenue                                                                              |   |                       | 184,216     |   |        |   |       |             |   |   | 184,216 |   |
|    Total      long-term liabilities                                                 |   |                       | 3,749,896   |   |        |   | (2,057,306 | )                |   |   | 1,692,590 |   |
|                                                                                               |   |                       |        |   |        |   |       |             |   |   |   |   |
|      Total      liabilities                                               |   |                       | 6,185,388   |   |        |   | (1,662,071 | )                |   |   | 4,523,317 |   |
|                                                                                               |   |                       |        |   |        |   |       |             |   |   |   |   |
| Stockholders’      deficit:                                                                  |   |                       |        |   |        |   |       |             |   |   |   |   |
| Preferred      stock                                                                               |   |                       | -           |   |        |   |       |             |   |   | - |   |
| Common      stock                                                                                  |   |                       | 8,576       |   |        |   | 18         |             |   |   | 8,594 |   |
| Additional      paid-in capital                                                                    |   |                       | 8,721,755   |   |        |   | 4,838,742  |             |   |   | 13,560,497 |   |
| Cumulative      effect of adoption of FSP 00-19-2                                                  |   |                       | -           |   |        |   | (755,115   | )                |   |   | (755,115 | ) |
| Accumulated deficit                                                                           |   |                       | (11,521,404 | )      |        |   | (2,421,574 | )                |   |   | (13,942,978 | ) |
| Total      stockholders’ deficit                                                             |   |                       | (2,791,073  | )      |        |   | 1,662,071  |             |   |   | (1,129,002 | ) |
|                                                                                               |   |                       |        |   |        |   |       |             |   |   |   |   |
| TOTAL      LIABILITIES AND STOCKHOLDERS’   DEFICIT                       |   | $                          | 3,394,315   |   |        | $      | -          |             |   | $ | 3,394,3185 |   |

----

|                                                                                                                                  |   | As      previouslyreported |       |   | Adjustments |   |       | As      restated |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|--------|-------------|--------|------------|------------------|--------|
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                             |   |                       |       |   |        |   |       |             |   |
| Net      loss                                                                                                                         |   | $                          | (2,322,924 | )      |        | $      | (1,033,207 | )                |   | $ | (3,356,131 | ) |
| Adjustments      used to reconcile net loss to net cash used in   operating      activities:                           |   |                       |       |   |        |   |       |             |   |   |   |   |
|    Charge      for estimated liquidated damages                                                                        |   |                       | -          |   |        |   | 251,176    |             |   |   | 251,176 |   |
|    Amortization      of discount on convertible promissory notes -     outside      investors |   |                       | -          |   |        |   | 1,104,583  |             |   |   | 1,104,583 |   |
|    Amortization      of discount on convertible promissory notes -     related      parties   |   |                       | -          |   |        |   | 30,155     |             |   |   | 30,155 |   |
|    Charge      for inducement to convert debt to convertible     promissory      notes        |   |                       | -          |   |        |   | 135,825    |             |   |   | 135,825 |   |
|                                                                                                                                  |   |                       |       |   |        |   |       |             |   |   |   |   |
|    Stock      issued for investor fees                                                                                 |   |                       | 13,078     |   |        |   | (3,078     | )                |   |   | 10,000 |   |
|    Depreciation      and amortization                                                                                  |   |                       | 253,317    |   |        |   | (2         | )                |   |   | 253,315 |   |
|    Changes      in operating assets and liabilities:                                                                   |   |                       |       |   |        |   |       |             |   |   |   |   |
|      Accounts      receivable                                                                                |   |                       | (103,299   | )      |        |   |       |             |   |   | (103,299 | ) |
|      Inventory                                                                                               |   |                       | (74,500    | )      |        |   | (124       | )                |   |   | (74,624 | ) |
|      Prepaid      expenses                                                                                   |   |                       | (17,410    | )      |        |   |       |             |   |   | (17,410 | ) |
|      Accrued      liabilities                                                                                |   |                       | 625,167    |   |        |   | (328,138   | )                |   |   | 297,029 |   |
|      Accounts      payable                                                                                   |   |                       | (238,856   | )      |        |   | 205,652    |             |   |   | (33,204 | ) |
|      Deferred      revenue                                                                                   |   |                       | 499,929    |   |        |   | (3,075     | )                |   |   | 496,854 |   |
|        Net      cash used in operating activities                                                  |   |                       | (1,365,498 | )      |        |   | 359,767    |             |   |   | (1,005,731 | ) |
|                                                                                                                                  |   |                       |       |   |        |   |       |             |   |   |   |   |
|        Net      cash used in investing activities                                                  |   |                       | (163,666   | )      |        |   | -          |             |   |   | (163,666 | ) |
|                                                                                                                                  |   |                       |       |   |        |   |       |             |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                             |   |                       |       |   |        |   |       |             |   |   |   |   |
| Net      proceeds from issuance of convertible promissory notes                                                                       |   |                       | 1,584,885  |   |        |   | (359,885   | )                |   |   | 1,225,000 |   |
| Payments      on convertible promissory notes and other loans                                                                         |   |                       | (95,898    | )      |        |   |       |             |   |   | (95,898 | ) |
| Net      payments on line of credit                                                                                                   |   |                       | (44,678    | )      |        |   | 118        |             |   |   | (44,560 | ) |
| Payments      on capital lease                                                                                                        |   |                       | (2,415     | )      |        |   |       |             |   |   | (2,415 | ) |
|        Net      cash provided by financing activities                                              |   |                       | 1,441,894  |   |        |   | (359,767   | )                |   |   | 1,082,127 |   |
|                                                                                                                                  |   |                       |       |   |        |   |       |             |   |   |   |   |
| Net      decrease in cash and cash equivalents                                                                                        |   |                       | (87,270    | )      |        |   |       |             |   |   | (87,270 | )  |
| Cash      and cash equivalents at beginning of period                                                                                 |   |                       | 534,871    |   |        |   |       |             |   |   | 534,871 |   |
| Cash      and cash equivalents at end of period                                                                                       |   | $                          | 447,601    |   |        | $      | -          |             |   | $ | 447,601 |   |

----

|                                                                                                                                               |   | As      previouslyreported |     |   | Adjustments |   |     | As      restated |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|----------|--------|-------------|--------|----------|------------------|--------|
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                                          |   |                       |     |   |        |   |     |             |   |
| Net      loss                                                                                                                                      |   | $                          | (702,766 | )      |        | $      | 68,376   |             |   | $ | (634,390 | ) |
| Adjustments      used to reconcile net loss to net cash used in   operating      activities:                                        |   |                       |     |   |        |   |     |             |   |   |   |   |
|    Amortization      of discount on convertible promissory notes                                                                    |   |                       | -        |   |        |   | 82,371   |             |   |   | 82,371 |   |
|    Benefit      for change in estimated fair value of derivative     financial      instruments - Warrants |   |                       | -        |   |        |   | (227,022 | )                |   |   | (227,022 | ) |
|    Share-based      compensation                                                                                                    |   |                       | -        |   |        |   | 76,275   |             |   |   | 76,275 |   |
|    Stock      issued for accrued interest                                                                                           |   |                       | 13,060   |   |        |   | (13,060  | )                |   |   | - |   |
|    Depreciation      and amortization                                                                                               |   |                       | 270,861  |   |        |   |     |             |   |   | 270,861 |   |
|    Changes      in operating assets and liabilities:                                                                                |   |                       |     |   |        |   |     |             |   |   |   |   |
|      Accounts      receivable                                                                                             |   |                       | (266,399 | )      |        |   | 251,421  |             |   |   | (14,978 | ) |
|      Inventory                                                                                                            |   |                       | (33,773  | )      |        |   |     |             |   |   | (33,773 | ) |
|      Prepaid      expenses                                                                                                |   |                       | 32,208   |   |        |   |     |             |   |   | 32,208 |   |
|      Accrued      liabilities                                                                                             |   |                       | 71,121   |   |        |   | 18,922   |             |   |   | 90,043 |   |
|      Accounts      payable                                                                                                |   |                       | (151,831 | )      |        |   |     |             |   |   | (151,831 | ) |
|      Deferred      revenue                                                                                                |   |                       | 329,486  |   |        |   |     |             |   |   | 329,486 |   |
|        Net      cash used in operating activities                                                               |   |                       | (438,033 | )      |        |   | 257,283  |             |   |   | (180,750 | ) |
|                                                                                                                                               |   |                       |     |   |        |   |     |             |   |   |   |   |
|        Net      cash used in investing activities                                                               |   |                       | (8,197   | )      |        |   | -        |             |   |   | (8,197 | ) |
|                                                                                                                                               |   |                       |     |   |        |   |     |             |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                                          |   |                       |     |   |        |   |     |             |   |   |   |   |
| Net      proceeds from issuance of convertible promissory notes                                                                                    |   |                       | 338,362  |   |        |   | (5,862   | )                |   |   | 332,500 |   |
| Payments      on convertible promissory notes and other loans                                                                                      |   |                       | (70,434  | )      |        |   |     |             |   |   | (70,434 | ) |
| Net      proceeds on line of credit                                                                                                                |   |                       | 251,421  |   |        |   | (251,421 | )                |   |   | - |   |
| Proceeds      from loans                                                                                                                           |   |                       | 16,434   |   |        |   |     |             |   |   | 16,434 |   |
| Payments      on capital lease                                                                                                                     |   |                       | (2,621   | )      |        |   |     |             |   |   | (2,621 | ) |
|        Net      cash provided by financing activities                                                           |   |                       | 533,162  |   |        |   | (257,283 | )                |   |   | 275,879 |   |
|                                                                                                                                               |   |                       |     |   |        |   |     |             |   |   |   |   |
| Net      increase in cash and cash equivalents                                                                                                     |   |                       | 86,932   |   |        |   |     |             |   |   | 86,932 |   |
| Cash      and cash equivalents at beginning of period                                                                                              |   |                       | 60,990   |   |        |   |     |             |   |   | 60,990 |   |
| Cash      and cash equivalents at end of period                                                                                                    |   | $                          | 147,922  |   |        | $      | -        |             |   | $ | 147,922 |   |

----

| January      1, 2008 - March 31, 2008    |   | $      | 22,878  |   |
|------------------------------------------|--------|--------|---------|--------|
| April      1, 2008 - March 31, 2009      |   |   | 94,357  |   |
| April      1, 2009 - March 31, 2010      |   |   | 63,852  |   |
| April      1, 2010 - March 31, 2011      |   |   | -       |   |
| April      1, 2011 - March 31, 2012      |   |   | -       |   |
| Total      minimum future lease payments |   | $      | 181,087 |   |

----

----

----

----

----

| United      States (a) |   | 2003      – Present |
|------------------------|--------|---------------------------|

----

----

----

|                                      |   | Adjustments      to Consolidated Statements of Operations:Income      (Expense) |       |
|-------------------------------------------|--------|---------------------------------------------------------------------------------|------------|
|                                      |   | Convertible      Promissory Notes and Warrants                                  |       |   | Registration      payment arrangements |   |   | Share-based      compensation |   |   | Total |   |
|                                      |   |                                                                            |       |   |   |   |   |   |   |   |   |   |
| Three      months ended December 31, 2007 |   | $                                                                               | (382,011   | ) |   | $ | 155,984 |   |   | $ | - |   |   | $ | (226,027 | ) |
| Three      months ended December 31, 2006 |   |                                                                            | 90,772     |   |   |   | - |   |   |   | (25,425 | ) |   |   | 65,347 |   |
| Nine      months ended December 31, 2007  |   |                                                                            | (1,134,738 | ) |   |   | 101,531 |   |   |   | - |   |   |   | (1,033,207 | ) |
| Nine      months ended December 31, 2006  |   | $                                                                               | 144,651    |   |   | $ | - |   |   | $ | (76,275 | ) |   | $ | 68,376 |   |

|   | · | SFAS      133, Accounting for      Derivative Instruments and Hedging Activities (“SFAS      133”), |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | APB      Opinion 14, Accounting      for Convertible Debt and Debt Issued with Stock Purchase Warrants      (“APB   14”), |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Emerging      Issues Task Force (EITF) Issue 00-19, Accounting for Derivative      Financial Instruments Indexed to, and Potentially Settled in, a Company’s      Own Stock (“EITF 00-19”), |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | EITF      05-2, The Meaning of      “Conventional Convertible Debt Instrument” (“EITF      05-2”), |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | · | EITF      98-5, Accounting for      Convertible Securities with Beneficial Conversion Features or Contingently      Adjustable Conversion Ratios (“EITF  98-5”), |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | EITF      00-27, Application of      Issue No. 98-5 to Certain Convertible Instruments (“EITF 00-27”),      and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | · | SEC      Staff Accounting      Bulletin No. 107 (“SAB107”). |
|--------|--------|-------------------------------------------------------------------------|

----

----

|                         | Warrants      issued in PP1 |   | Warrants      issued in PP2 |
|------------------------------|-----------------------------|--------|-----------------------------|
|                         |                        |   |                        |
| Expected      volatility     | 128%                        |   | 100%-104%                   |
| Expected      term           | 5      years                |   | 5      years                |
| Risk-free      interest rate | 3.58%      - 4.33%          |   | 4.46%      - 4.65%          |
| Expected      dividend yield | 0%                          |   | 0%                          |

----

----

|                                                                                                                                                                                      |   | For      the three months endedDecember      31, 2007 |       |   | For      the three months endedDecember      31, 2006 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|--------|-------------------------------------------------------|--------|
|                                                                                                                                                                                      |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                      |   | As      previouslyreported                            |       |   | Adjustments                                           |   |   | As      restated |   |   | As      previously reported |   |   | Adjustments |   |   | As      restated |   |
|                                                                                                                                                                                      |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit                                                                                                                                                                         |   | $                                                     | 520,260    |   |                                                  | $      | - |   |   | $ | 520,260 |   |   | $ | 509,312 |   |   | $ | - |   |   | $ | 509,312 |   |
|                                                                                                                                                                                      |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                                                                                                                                                   |   |                                                  | 1,465,970  |   |                                                  |   |   |   |   |   | 1,465,970 |   |   |   | 688,950 |   |   |   | 25,425 |   |   |   | 714,375 |   |
|                                                                                                                                                                                      |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      from operations                                                                                                                                                                 |   |                                                  | (945,710   | )      |                                                  |   |   |   |   |   | (945,710 | ) |   |   | (179,638 | ) |   |   | (25,425 | ) |   |   | (205,063 | ) |
|                                                                                                                                                                                      |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense)                                                                                                                                                               |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Interest      expense, net                                                                                                                                                    |   |                                                  | (232,084   | )      |                                                  |   | 155,984 |   |   |   | (76,100 | ) |   |   | (12,423 | ) |   |   |   |   |   |   | (12,423 | ) |
|   Amortization      of discount on    convertible      notes                                                                                                |   |                                                  | -          |   |                                                  |   | (382,011 | ) |   |   | (382,011 | ) |   |   | - |   |   |   | (27,557 | ) |   |   | (27,557 | ) |
|   Benefit      for change in estimated    fair      value of derivative         financial instruments         - Warrants |   |                                                  |   -   |   |                                                  |   |   |   |   |   |   - |   |   |   |   - |   |   |   |   118,329 |   |   |   |   118,329 |   |
|                                                                                                                                                                                      |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                                                                             |   | $                                                     | (1,177,794 | )      |                                                  | $      | (226,027 | ) |   | $ | (1,403,821 | ) |   | $ | (192,061 | ) |   | $ | 65,347 |   |   | $ | (126,714 | ) |
|                                                                                                                                                                                      |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      & diluted net loss per share                                                                                                                                               |   | $                                                     | (0.14      | )      |                                                  |   |   |   |   | $ | (0.16 | ) |   | $ | (0.02 | ) |   |   |   |   |   | $ | (0.02 | ) |
|                                                                                                                                                                                      |   |                                                  |       |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding: basic and diluted                                                                                                                               |   |                                                  | 8,576,538  |   |                                                  |   | 17,931 |   |   |   | 8,594,469 |   |   |   | 8,152,648 |   |   |   |   |   |   |   | 8,152,648 |   |

----

|                                                                                                                                                                                 |   | For      the nine months endedDecember      31, 2007 |       |   | For      the nine months endedDecember      31, 2006 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|------------|--------|------------------------------------------------------|--------|
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                 |   | As      previouslyreported                           |       |   | Adjustments                                          |   |   | As      restated |   |   | As      previously reported |   |   | Adjustments |   |   | As      restated |   |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      profit                                                                                                                                                                    |   | $                                                    | 1,761,903  |   |                                                 | $      | - |   |   | $ | 1,761,903 |   |   | $ | 1,310,675 |   |   | $ | - |   |   | $ | 1,310,675 |   |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                                                                                                                                              |   |                                                 | 3,389,958  |   |                                                 |   |   |   |   |   | 3,389,958 |   |   |   | 1,971,231 |   |   |   | 76,275 |   |   |   | 2,047,506 |   |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      from operations                                                                                                                                                            |   |                                                 | (1,628,055 | )      |                                                 |   |   |   |   |   | (1,628,055 | ) |   |   | (660,556 | ) |   |   | (76,275 | ) |   |   | (736,831 | ) |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense)                                                                                                                                                          |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Interest      expense, net                                                                                                                                               |   |                                                 | (559,044   | )      |                                                 |   | 352,707 |   |   |   | (206,337 | ) |   |   | (42,210 | ) |   |   |   |   |   |   | (42,210 | ) |
|   Charge      for inducement to          convert debt      to convertible          promissory notes                      |   |                                                 | (135,825   | )      |                                                 |   |   |   |   |   | (135,825 | ) |   |   |   - |   |   |   |   |   |   |   |   - |   |
|   Amortization      of discount on    convertible      notes                                                                                           |   |                                                 | -          |   |                                                 |   | (1,134,738 | ) |   |   | (1,134,738 | ) |   |   | - |   |   |   | (82,371 | ) |   |   | (82,371 | ) |
|   Charge      for estimated liquidated    damages                                                                                                      |   |                                                 | -          |   |                                                 |   | (251,176 | ) |   |   | (251,176 | ) |   |   | - |   |   |   |   |   |   |   | - |   |
|   Benefit      for change in estimated         fair value of derivative         financial      instruments         - Warrants |   |                                                 |   -   |   |                                                 |   |   |   |   |   |   - |   |   |   |   - |   |   |   |   227,022 |   |   |   |   227,022 |   |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                                                                                                                                        |   | $                                                    | (2,322,924 | )      |                                                 | $      | (1,033,207 | ) |   | $ | (3,356,131 | ) |   | $ | (702,766 | ) |   | $ | 68,376 |   |   | $ | (634,390 | ) |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      & diluted net loss per share                                                                                                                                          |   | $                                                    | (0.27      | )      |                                                 |   |   |   |   | $ | (0.39 | ) |   | $ | (0.09 | ) |   |   |   |   |   | $ | (0.08 | ) |
|                                                                                                                                                                                 |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding: basic and diluted                                                                                                                          |   |                                                 | 8,576,538  |   |                                                 |   | 17,931 |   |   |   | 8,594,469 |   |   |   | 8,126,989 |   |   |   |   |   |   |   | 8,126,989 |   |

----

|                                                                                               |   | As      previouslyreported |        |   | Adjustments |   |       | As      restated |   |
|----------------------------------------------------------------------------------------------------|--------|----------------------------|-------------|--------|-------------|--------|------------|------------------|--------|
|                                                                                               |   |                       |        |   |        |   |       |             |   |
| Current      liabilities:                                                                          |   |                       |        |   |        |   |       |             |   |
| Accounts      payable                                                                              |   | $                          | 264,522     |   |        | $      | -          |             |   | $ | 264,522 |   |
| Related      party payables                                                                        |   |                       | 171,137     |   |        |   |       |             |   |   | 171,137 |   |
| Accrued      liabilities                                                                           |   |                       | 593,803     |   |        |   |       |             |   |   | 593,803 |   |
| Accrued      liquidated damages                                                                    |   |                       | -           |   |        |   | 540,694    |             |   |   | 540,694 |   |
| Line      of credit                                                                                |   |                       | 17,534      |   |        |   |       |             |   |   | 17,534 |   |
| Convertible      promissory notes – outside investors,   net      of discount |   |                       | 525,711     |   |        |   | (145,459   | )                |   |   | 380,252 |   |
| Deferred      revenue                                                                              |   |                       | 862,785     |   |        |   |       |             |   |   | 862,785 |   |
|    Total      current liabilities                                                   |   |                       | 2,435,492   |   |        |   | 395,235    |             |   |   | 2,830,727 |   |
|                                                                                               |   |                       |        |   |        |   |       |             |   |   |   |   |
| Convertible      promissory notes, net of discount                                                 |   |                       | 3,060,206   |   |        |   | (1,701,668 | )                |   |   | 1,358,538 |   |
| Accrued      interest                                                                              |   |                       | 505,474     |   |        |   | (355,638   | )                |   |   | 149,836 |   |
| Deferred      revenue                                                                              |   |                       | 184,216     |   |        |   |       |             |   |   | 184,216 |   |
|    Total      long-term liabilities                                                 |   |                       | 3,749,896   |   |        |   | (2,057,306 | )                |   |   | 1,692,590 |   |
|                                                                                               |   |                       |        |   |        |   |       |             |   |   |   |   |
|      Total      liabilities                                               |   |                       | 6,185,388   |   |        |   | (1,662,071 | )                |   |   | 4,523,317 |   |
|                                                                                               |   |                       |        |   |        |   |       |             |   |   |   |   |
| Stockholders’      deficit:                                                                  |   |                       |        |   |        |   |       |             |   |   |   |   |
| Preferred      stock                                                                               |   |                       | -           |   |        |   |       |             |   |   | - |   |
| Common      stock                                                                                  |   |                       | 8,576       |   |        |   | 18         |             |   |   | 8,594 |   |
| Additional      paid-in capital                                                                    |   |                       | 8,721,755   |   |        |   | 4,838,742  |             |   |   | 13,560,497 |   |
| Cumulative      effect of adoption of FSP 00-19-2                                                  |   |                       | -           |   |        |   | (755,115   | )                |   |   | (755,115 | ) |
| Accumulated deficit                                                                           |   |                       | (11,521,404 | )      |        |   | (2,421,574 | )                |   |   | (13,942,978 | ) |
| Total      stockholders’ deficit                                                             |   |                       | (2,791,073  | )      |        |   | 1,662,071  |             |   |   | (1,129,002 | ) |
|                                                                                               |   |                       |        |   |        |   |       |             |   |   |   |   |
| TOTAL      LIABILITIES AND STOCKHOLDERS’   DEFICIT                       |   | $                          | 3,394,315   |   |        | $      | -          |             |   | $ | 3,394,315 |   |

----

|                                                                                                                                  |   | As      previouslyreported |       |   | Adjustments |   |       | As      restated |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|--------|-------------|--------|------------|------------------|--------|
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                             |   |                       |       |   |        |   |       |             |   |
| Net      loss                                                                                                                         |   | $                          | (2,322,924 | )      |        | $      | (1,033,207 | )                |   | $ | (3,356,131 | ) |
| Adjustments      used to reconcile net loss to net cash used in   operating      activities:                           |   |                       |       |   |        |   |       |             |   |   |   |   |
|    Charge      for estimated liquidated damages                                                                        |   |                       | -          |   |        |   | 251,176    |             |   |   | 251,176 |   |
|    Amortization      of discount on convertible promissory notes -     outside      investors |   |                       | -          |   |        |   | 1,104,583  |             |   |   | 1,104,583 |   |
|    Amortization      of discount on convertible promissory notes -     related      parties   |   |                       | -          |   |        |   | 30,155     |             |   |   | 30,155 |   |
|    Charge      for inducement to convert debt to convertible     promissory      notes        |   |                       | -          |   |        |   | 135,825    |             |   |   | 135,825 |   |
|    Stock      issued for investor fees                                                                                 |   |                       | 13,078     |   |        |   | (3,078     | )                |   |   | 10,000 |   |
|    Depreciation      and amortization                                                                                  |   |                       | 253,317    |   |        |   | (2         | )                |   |   | 253,315 |   |
|    Changes      in operating assets and liabilities:                                                                   |   |                       |       |   |        |   |       |             |   |   |   |   |
|      Accounts      receivable                                                                                |   |                       | (103,299   | )      |        |   |       |             |   |   | (103,299 | ) |
|      Inventory                                                                                               |   |                       | (74,500    | )      |        |   | (124       | )                |   |   | (74,624 | ) |
|      Prepaid      expenses                                                                                   |   |                       | (17,410    | )      |        |   |       |             |   |   | (17,410 | ) |
|      Accrued      liabilities                                                                                |   |                       | 625,167    |   |        |   | (328,138   | )                |   |   | 297,029 |   |
|      Accounts      payable                                                                                   |   |                       | (238,856   | )      |        |   | 205,652    |             |   |   | (33,204 | ) |
|      Deferred      revenue                                                                                   |   |                       | 499,929    |   |        |   | (3,075     | )                |   |   | 496,854 |   |
|        Net      cash used in operating activities                                                  |   |                       | (1,365,498 | )      |        |   | 359,767    |             |   |   | (1,005,731 | ) |
|                                                                                                                                  |   |                       |       |   |        |   |       |             |   |   |   |   |
|        Net      cash used in investing activities                                                  |   |                       | (163,666   | )      |        |   | -          |             |   |   | (163,666 | ) |
|                                                                                                                                  |   |                       |       |   |        |   |       |             |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                             |   |                       |       |   |        |   |       |             |   |   |   |   |
| Net      proceeds from issuance of convertible promissory notes                                                                       |   |                       | 1,584,885  |   |        |   | (359,885   | )                |   |   | 1,225,000 |   |
| Payments      on convertible promissory notes and other loans                                                                         |   |                       | (95,898    | )      |        |   |       |             |   |   | (95,898 | ) |
| Net      payments on line of credit                                                                                                   |   |                       | (44,678    | )      |        |   | 118        |             |   |   | (44,560 | ) |
| Payments      on capital lease                                                                                                        |   |                       | (2,415     | )      |        |   |       |             |   |   | (2,415 | ) |
|        Net      cash provided by financing activities                                              |   |                       | 1,441,894  |   |        |   | (359,767   | )                |   |   | 1,082,127 |   |
|                                                                                                                                  |   |                       |       |   |        |   |       |             |   |   |   |   |
| Net      decrease in cash and cash equivalents                                                                                        |   |                       | (87,270    | )      |        |   |       |             |   |   | (87,270 | )  |
| Cash      and cash equivalents at beginning of period                                                                                 |   |                       | 534,871    |   |        |   |       |             |   |   | 534,871 |   |
| Cash      and cash equivalents at end of period                                                                                       |   | $                          | 447,601    |   |        | $      | -          |             |   | $ | 447,601 |   |

----

|                                                                                                                                                     |   | As      previouslyreported |     |   | Adjustments |   |     | As      restated |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|----------|--------|-------------|--------|----------|------------------|--------|
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                                                |   |                       |     |   |        |   |     |             |   |
| Net      loss                                                                                                                                            |   | $                          | (702,766 | )      |        | $      | 68,376   |             |   | $ | (634,390 | ) |
| Adjustments      used to reconcile net loss to net cash used in   operating      activities:                                              |   |                       |     |   |        |   |     |             |   |   |   |   |
|    Amortization      of discount on convertible promissory notes                                                                          |   |                       | -        |   |        |   | 82,371   |             |   |   | 82,371 |   |
|    Benefit      for change in estimated fair value of derivative     financial      instruments – Warrants |   |                       | -        |   |        |   | (227,022 | )                |   |   | (227,022 | ) |
|    Share-based      compensation                                                                                                          |   |                       | -        |   |        |   | 76,275   |             |   |   | 76,275 |   |
|    Stock      issued for accrued interest                                                                                                 |   |                       | 13,060   |   |        |   | (13,060  | )                |   |   | - |   |
|    Depreciation      and amortization                                                                                                     |   |                       | 270,861  |   |        |   |     |             |   |   | 270,861 |   |
|    Changes      in operating assets and liabilities:                                                                                      |   |                       |     |   |        |   |     |             |   |   |   |   |
|      Accounts      receivable                                                                                                   |   |                       | (266,399 | )      |        |   | 251,421  |             |   |   | (14,978 | ) |
|      Inventory                                                                                                                  |   |                       | (33,773  | )      |        |   |     |             |   |   | (33,773 | ) |
|      Prepaid      expenses                                                                                                      |   |                       | 32,208   |   |        |   |     |             |   |   | 32,208 |   |
|      Accrued      liabilities                                                                                                   |   |                       | 71,121   |   |        |   | 18,922   |             |   |   | 90,043 |   |
|      Accounts      payable                                                                                                      |   |                       | (151,831 | )      |        |   |     |             |   |   | (151,831 | ) |
|      Deferred      revenue                                                                                                      |   |                       | 329,486  |   |        |   |     |             |   |   | 329,486 |   |
|        Net      cash used in operating activities                                                                     |   |                       | (438,033 | )      |        |   | 257,283  |             |   |   | (180,750 | ) |
|                                                                                                                                                     |   |                       |     |   |        |   |     |             |   |   |   |   |
|        Net      cash used in investing activities                                                                     |   |                       | (8,197   | )      |        |   | -        |             |   |   | (8,197 | ) |
|                                                                                                                                                     |   |                       |     |   |        |   |     |             |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                                                |   |                       |     |   |        |   |     |             |   |   |   |   |
| Net      proceeds from issuance of convertible promissory notes                                                                                          |   |                       | 338,362  |   |        |   | (5,862   | )                |   |   | 332,500 |   |
| Payments      on convertible promissory notes and other loans                                                                                            |   |                       | (70,434  | )      |        |   |     |             |   |   | (70,434 | ) |
| Net      proceeds on line of credit                                                                                                                      |   |                       | 251,421  |   |        |   | (251,421 | )                |   |   | - |   |
| Proceeds      from loans                                                                                                                                 |   |                       | 16,434   |   |        |   |     |             |   |   | 16,434 |   |
| Payments      on capital lease                                                                                                                           |   |                       | (2,621   | )      |        |   |     |             |   |   | (2,621 | ) |
|        Net      cash provided by financing activities                                                                 |   |                       | 533,162  |   |        |   | (257,283 | )                |   |   | 275,879 |   |
|                                                                                                                                                     |   |                       |     |   |        |   |     |             |   |   |   |   |
| Net      increase in cash and cash equivalents                                                                                                           |   |                       | 86,932   |   |        |   |     |             |   |   | 86,932 |   |
| Cash      and cash equivalents at beginning of period                                                                                                    |   |                       | 60,990   |   |        |   |     |             |   |   | 60,990 |   |
| Cash      and cash equivalents at end of period                                                                                                          |   | $                          | 147,922  |   |        | $      | -        |             |   | $ | 147,922 |   |

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software sales, our gross margins arepositively impacted. Management expects that as sales continue to ramp up,margins will remain above 75 percent.

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----

----

|   | 1. | Order      Entry Accounting & Reporting |
|--------|----|---------------------------------------------|

|   | 2. | Debt/Equity      Accounting & Compliance |
|--------|----|----------------------------------------------|

|   | 3. | Cash      & Other Working CapitalManagement |
|--------|----|-------------------------------------------------|

|   | 4. | Compensation      Accounting & Administration |
|--------|----|---------------------------------------------------|

|   | 5. | Other      Assets & Liability AccountManagement |
|--------|----|-----------------------------------------------------|

|   | 6. | Financial      Reporting |
|--------|----|--------------------------|

----

----

| (a) | EXHIBITS |
|-----|----------|

| Exhibit      No. | Exhibit                                                                                                                                                                                                                                                                        |
|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                                                                                                                                                                           |
| 4.1              | Form      of Convertible Note Purchase Agreement dated as of December 13, 2004      (Incorporated by reference from Exhibit 4.1 to the Company’s Current      Report on Form 8-K filed with the Commission on December 20,      2004)                                    |
|             |                                                                                                                                                                                                                                                                           |
| 4.2              | Form      of Senior Unsecured Convertible Note (Incorporated by reference from      Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the      Commission on December 20, 2004)                                                                         |
|             |                                                                                                                                                                                                                                                                           |
| 4.3              | Form      of Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s      Current Report on Form 8-K filed with the Commission on December 20,      2004)                                                                                                   |
|             |                                                                                                                                                                                                                                                                           |
| 4.4              | Registration      Rights Agreement dated as of December 13, 2004 (Incorporated by reference      from Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with      the Commission on December 20, 2004)                                                       |
|             |                                                                                                                                                                                                                                                                           |
| 4.5              | Form      of Convertible Note Purchase Agreement dated as of April 5, 2007      (Incorporated by reference from Exhibit 4.1 to the Company’s Current      Report on Form 8-K filed with the Commission on April 12,      2007)                                           |
|             |                                                                                                                                                                                                                                                                           |
| 4.6              | Form      of Senior Unsecured Convertible Note (Incorporated by reference from      Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the      Commission on April 12, 2007)                                                                            |
|             |                                                                                                                                                                                                                                                                           |
| 4.7              | Form      of Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s      Current Report on Form 8-K filed with the Commission on April 12,      2007)                                                                                                      |
|             |                                                                                                                                                                                                                                                                           |
| 4.8              | Registration      Rights Agreement dated as of April 7, 2005 (Incorporated by reference from      Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the      Commission on April 12, 2007                                                               |
|             |                                                                                                                                                                                                                                                                           |
| 6.1              | License      Agreement (incorporated by reference to Exhibit 10.1 to the Company’s      Annual Report on Form 10-KSB for the fiscal year ended March 31,      2004)                                                                                                      |
|             |                                                                                                                                                                                                                                                                           |
| 10.1             | Employment      Agreement by and between Derek Downs and Cistera Networks, Inc. dated as      of January 1, 2005 (Incorporated by reference from Exhibit 10.1 to the      Company’s Registration Statement on Form SB-2 filed with the Commission on      May 23, 2007)  |
|             |                                                                                                                                                                                                                                                                           |
| 10.2             | Employment      Agreement by and between Cynthia Garr and Cistera Networks, Inc. dated as      of January 1, 2005 (Incorporated by reference from Exhibit 10.2 to the      Company’s Registration Statement on Form SB-2 filed with the Commission on      May 23, 2007) |
|             |                                                                                                                                                                                                                                                                           |
| 10.3             | Employment      Agreement between Gregory Royal and Cistera Networks Canada, Inc. dated as      of October 1, 2004(Incorporated by reference from Exhibit 10.3 to the      Company’s Registration Statement on Form SB-2 filed with the Commission on      May 23, 2007) |
|             |                                                                                                                                                                                                                                                                           |
| 31.1             | Certification      Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                  |
|             |                                                                                                                                                                                                                                                                           |
| 32.1             | Certification      Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of      The Sarbanes-Oxley Act of 2002                                                                                                                                               |

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|                   |   | CISTERA      NETWORKS, INC.                    |   |
|------------------------|--------|------------------------------------------------|--------|
|                   |   |                                           |   |
|                   |   |                                           |   |
| Date: October 17, 2008 |   | /s/    Derek P.      Downs |   |
|                   |   | Derek      P. Downs                            |   |
|                   |   | Chief      Executive Officer and interim       |   |
|                   |   | Chief      Financial Officer                   |   |
|                   |   |                                           |   |
|                   |   | (Principal      Executive, Financial and       |   |
|                   |   |  Accounting      Officer)                 |   |

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