Annual report pursuant to Section 13 and 15(d)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (USD $)
 12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (3,450,205) $ (2,996,312)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 107,519 141,315
Accretion of interest and amortization of debt issue costs 91,315 108,876
Stock-based compensation expense 133,193 121,974
Amortization of third party fees paid in restricted common stock 489,605 0
Net change in inventory reserves 50,000 0
Borrowings on promissory note 0 150,000
Change in fair value of warrant derivative liability (144,840) (430,423)
Bad debt expense (recovery of bad debt expense) (9,600) 9,600
Changes in operating assets and liabilities:    
Accounts receivable 84,988 (44,991)
Inventories 95,651 48,608
Accounts payable 309,170 763,849
Accrued employee compensation (61,099) 8,186
Deferred revenue and other accrued expenses 119,403 (78,500)
Prepaid expenses and other current assets 20,099 55,955
Net cash used in operating activities (2,164,801) (2,141,863)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property and equipment 0 (2,642)
Net cash used in investing activities 0 (2,642)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from stock option exercises 0 43,980
Decrease in restricted cash 0 20,014
Borrowings on convertible debt 1,394,000 412,000
Proceeds from related party debt 98,675 0
Repayments of convertible debt (101,556) 0
Payment of dividends (196,818) 0
Net proceeds from the issuance of common stock 377,453 0
Net proceeds from the issuance of preferred stock 371,733 1,338,437
Net cash provided by financing activities 1,943,487 1,814,431
Change in cash and cash equivalents (221,314) (330,074)
Cash and cash equivalents, beginning of period 222,775 552,849
Cash and cash equivalents, end of period 1,461 222,775
SUPPLEMENTAL INFORMATION:    
Income taxes paid 1,900 1,900
Income tax refund received 0 23,710
Issuance of common stock dividend on preferred stock 284,116 188,379
Issuance of common stock warrants to placement agent 0 94,313
Convertible debt exchanged for common stock 387,547 0
Debt and accrued interest exchanged for Series G preferred stock 586,873 0
Fair value of common stock issued for services 354,547 4,999
Issuance of  Series G preferred stock for board fees 123,200 0
Issuance of common stock for deferred board fees 0 104,997
Warrant modifications 190,891 704,844
Beneficial conversion feature on convertible preferred stock $ 0 $ 1,006,574