Quarterly report pursuant to Section 13 or 15(d)

3. Summary of Significant Accounting Policies (Tables)

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3. Summary of Significant Accounting Policies (Tables)
 6 Months Ended
Jun. 30, 2012
Accounting Policies [Abstract]  
Inventories Table
    June 30,   December 31,
    2012   2011
Raw materials   $ 186,630     $ 193,121  
Finished goods     789,267       875,892  
Total   $ 975,897     $ 1,069,013  
Customer Concentration
    For the Three Months Ended
    June 30,
    2012   2011
Top Five Customers 73%   65%
Federal Agencies 49%   12%

 

    For the Six Months Ended
    June 30,
    2012   2011
Top Five Customers 60%   40%
Federal Agencies 50%   10%

 

The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of June 30, 2012 and December 31, 2011:

 

 

    June 30,   December 31,
    2012   2011
Top Five Customers 78%   89%
Federal Agencies 45%   42%
Computation of Loss per Share
    For the Three Months Ended   For the Six Months Ended
    June 30,   June 30,
    2012   2011   2012   2011
Numerator:              
  Net loss  $(509,692)    $(758,181)    $(1,572,599)    $(1,591,546)
  Accrued dividend for Preferred Stock  (394,430)    (109,537)    (418,884)    (242,628)
  Beneficial conversion feature for Preferred Stock  -      (304,823)    -      (304,823)
  Deemed dividend on warrant modifications  (185,544)    -      (185,544)    -  
  Net loss applicable to common shareholders  $(1,089,666)    $(1,172,541)    $(2,176,987)    $(2,138,997)
                 
Denominator for basic and diluted loss per share:              
  Weighted average common stock shares outstanding  10,197,850    2,874,305    10,352,461    2,867,381
                 
  Loss per common share - basic and diluted  $(0.11)    $(0.41)    $(0.21)    $(0.75)
Stockholders' Equity Activity Series C Preferred Convertible Securities Exchange
    For the Three Months Ended   For the Six Months Ended
    June 30,   June 30,
    2012   2011   2012   2011
Stock options     1,555,500       1,418,500       1,555,500       1,418,500  
Convertible debt     7,000       —         7,000       —    
Common stock warrants     5,115,533       2,745,110       5,115,533       2,745,110  
Preferred stock warrants     —         940,550       —         940,550  
Convertible preferred stock:                                
Series A Convertible Preferred     —         2,611,350       —         2,611,350  
Series B Convertible Preferred     —         841,790       —         841,790  
Series C Convertible Preferred     —         880,980       —         880,980  
Series D Convertible Preferred     461,539       —         461,539       —    
Series E Convertible Preferred     343,137       —         343,137       —    
      7,482,709       9,438,280       7,482,709       9,438,280  
Stock based compensation expense
    For the Three Months Ended June 30,
    2012   2011
Research and development   $ 3,508     $ 3,737  
Selling and marketing     3,669       2,728  
General and administrative     4,045       5,737  
Total stock-based compensation expense   $ 11,222     $ 12,202  

 

We recognized stock-based compensation expense of $20,090 and $81,168 for the six months ended June 30, 2012 and 2011, respectively. The following table summarizes the effect of this stock-based compensation expense within each of the line items of our costs and expenses within our Consolidated Statements of Operations:

 

    For the Six Months Ended June 30,
    2012   2011
Research and development   $ 6,125     $ 25,342  
Selling and marketing     6,783       33,739  
General and administrative     7,182       22,087  
Total stock-based compensation expense   $ 20,090     $ 81,168  
Liabilities measured at fair value on recurring basis
        Fair value measurements at June 30, 2012 using:
    June 30, 2012   Quoted prices in active markets   (Level 1)   Significant other observable inputs (Level 2)   Significant unobservable inputs       (Level 3)
Series D Common Stock Purchase Warrants   $ 168,588     $ —       $ —       $ 168,588  
    $ 168,588     $ —       $ —       $ 168,588  

 

 

 

      January 1, 2012       Change in Fair Value       Reclassified to Equity       June 30, 2012  
Series C Common Stock Purchase Warrants   $ 205,353     $ (72,688 )   $ (132,665 )   $ —    
Series D Common Stock Purchase Warrants     231,200       (62,612 )     —         168,588  
    $ 436,553     $ (135,300 )   $ (132,665 )   $ 168,588  

 

 

 

The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of June 30, 2011.

 

 

 

          January 1, 2011 Change in Fair Value June 30, 2011
Series C Common Stock Purchase Warrants  $-    $507,883  $507,883
           $-    $507,883  $507,883
Fair value assumptions
      Warrants revalued at April 5, 2012
Assumptions   April 8, 2011   June 20, 2011   April 8, 2011   June 20, 2011
Expected term (in months)     36.0       36.0       24.0       24.0  
Expected volatility     118.5 %     118.5 %     100 %     100 %
Risk-free interest rate     0.625 %     0.625 %     0.75 %     0.75 %
Exercise price   $ 2.13     $ 2.13     $ 2.13     $ 2.13  
Fair value per warrant   $ 0.70     $ 0.62     $ 0.15     $ 0.15  

 

 

The assumptions for the binomial pricing model are represented in the table below for the warrants issued in the Series D private placement reflected on a per share common stock equivalent basis.

 

Assumptions   November 10, 2011   Warrants revalued at June 30, 2012
Expected term(in months)     60.0       53.0  
Expected volatility     104.5 %     123.9 %
Risk-free interest rate     0.875 %     0.75 %
Exercise price   $ 0.81     $ 0.74  
Fair value per warrant   $ 0.54     $ 0.30