1 1 . COMMITMENTS AND CONTINGENCIES a ) Product warranties The Company offers warranties on its products and records an estimate of the associated liabilities. Product warranty activity during the years ended December 31, 2012 and for the six months ended June 30, 20 13 was as follows: At December 31, 20 12 At June 30, 20 13 $ $ Beginning balance 12,836 10,317 Warranty provision 5,345 4,899 Changes in estimate (7,788 )   Reduction for warranty cost incurred (174 )   Foreign exchange effect 98 196 Ending balance 10,317 15,412 b ) Legal matters The Company is a party to legal matters and claims in the normal course of its operations. While the Company believes that the ultimate outcome of these matters will not have a material adverse effect on our financial position, results of operations or cash flows, the outcome of these matters is not determinable with certainty and negative outcomes may adversely affect the Company. In June 2011, CEP Ltd., or CEP, one of our module customers, sued us in the High Court in Hong Kong for damages of ¬917,280 for breach of a sales contract. We denied CEP s assertion and defended that the termination of the sales contract was due to CEP s material breach of the sales contract by failure to provide a letter of credit in accordance with the sales contract. A pre-trial has been set for October 2013, to be followed by a five-day trial expected to occur in December 2013. Based on the i nformation available to us, a negative outcome is not probable and the amount of loss, if any, is not reasonably estimable and as such no amount was accrued as of December 31, 2011. There was no subsequent development related to this case as of June 30, 2013 . In December 2012, the Company received an unfavorable verdict from the Nanjing Supreme People s Court in Nanjing, Jiangsu Province in its litigation with one of our module customers, Nanjing Zhongdian New Energy Ltd, for material breach of the sales contract. As a result of this ruling, the Company recorded charges to other operating expense and a l