Annual report pursuant to Section 13 and 15(d)

2. Summary of Significant Accounting Policies (Tables)

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2. Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2012
Accounting Policies [Abstract]  
Inventories Table
    December 31,  
    2012     2011  
Raw materials   $ 183,655     $ 193,121  
Finished goods     789,707       875,892  
Inventory reserve     (50,000 )     -  
Total   $ 923,362     $ 1,069,013  
Customer Concentration

The following table illustrates the level of concentration of the below two groups within revenue as a percentage of total revenues during the years ended December 31, 2012 and 2011:

 

    For the Year Ended  
    December 31,  
    2012     2011  
Top Five Customers     50 %     37 %
Federal Agencies     41 %     26 %

 

The following table illustrates the level of concentration of the below two groups within accounts receivable as a percentage of total accounts receivable balance as of December 31, 2012 and 2011:

 

    For the Year Ended  
    December 31,  
    2012     2011  
Top Five Customers     34 %     89 %
Federal Agencies     32 %     42 %
Computation of Loss per Share
    For the Year Ended  
    December 31,  
    2012     2011  
Numerator:            
Net loss   $ (3,450,205 )   $ (2,996,312 )
Accrued interest on convertible debt, after tax     -       18,896  
Accrued dividend for Preferred Stock paid in common stock     (278,184 )     (164,904 )
Deemed dividend on warrant modifications     (190,891 )     (704,844 )
Issuance of common stock for dividends paid in kind     (284,116 )     -  
Beneficial conversion feature for preferred stock     -       (1,006,574 )
Series A Preferred dividends paid in  common stock     -       (188,380 )
Preferred dividends accrued and paid in cash     (196,819 )     (65,543 )
Net loss applicable to common shareholders   $ (4,400,215 )   $ (5,107,661 )
                 
Denominator for basic and diluted loss per share:                
Weighted average  common shares outstanding     10,113,881       6,618,484  
                 
Loss per common share - basic and diluted   $ (0.44 )   $ (0.77 )

 

    For the Year Ended  
    December 31,  
    2012     2011  
Stock options     1,605,750       1,508,500  
Convertible debt     -       412,000  
Common stock warrants     6,687,099       4,775,501  
Preferred stock warrants     -       -  
Convertible preferred stock:                
Series A Convertible Preferred     -       -  
Series B Convertible Preferred     -       -  
Series C Convertible Preferred     -       880,980  
Series D Convertible Preferred     750,000       1,143,077  
Series E Convertible Preferred     -       -  
Series G Convertible Preferred     1,453,200       -  
      10,496,049       8,720,058  

Stock based compensation expense
   

For the Year Ended

December 31,

 
    2012     2011  
Research and development   $ 30,034     $ 39,375  
Selling and marketing     28,944       43,201  
General and administrative     74,215       39,398  
Total stock-based compensation expense   $ 133,193     $ 121,974  
Liabilities measured at fair value on recurring basis

 

          Fair value measurements at December 31, 2012 using:  
    December 31, 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   $ 160,812     $ -     $ -     $ 160,812  
                                 

 

          Fair value measurements at December 31, 2011 using:  
    December 31, 2011     Quoted prices in active markets (Level 1)     Significant other observable inputs (Level 2)    

Significant unobservable inputs

(Level 3)

 
Series C Common Stock Purchase Warrants   $ 205,353     $ -     $ -     $ 205,353  
Series D Common Stock Purchase Warrants     231,200       -       -       231,200  
    $ 436,553     $ -     $ -     $ 436,553  

 

    January 1, 2012     Change in Fair Value     Reclass to Equity     December 31, 2012  
Series C Common Stock Purchase Warrants   $ 205,353     $ (74,452 )   $ (130,901 )   $ -  
Series D Common Stock Purchase Warrants     231,200       (70,388 )     -       160,812  
    $ 436,553     $ (144,840 )   $ (130,901 )   $ 160,812  

 

    January 1, 2011     Change in Fair Value     December 31, 2011  
Series C Common Stock Purchase Warrants   $ -     $ 205,353     $ 205,353  
Series D Common Stock Purchase Warrants     -       231,200       231,200  
    $ -     $ 436,553     $ 436,553  
Fair value assumptions

 

The following table summarizes the assumptions we utilized for grants of stock options to the three sub-groups of our stock option recipients during the twelve months ended December 31, 2012 and 2011:

 

Assumptions   Non-Employee Board Members     CEO, other Officers and Employees  
Expected life   2.0-5.0 (yrs)     6.0 (yrs)  
Expected volatility     55.66%-101.54 %     55.66%-124.89 %
Risk-free interest rate     1.00%-4.94 %     0.50%-4.94 %
Forfeiture rate     0.00%-5.00 %     2.00%-5.00 %
Expected dividend yield     0.0 %     0.0 %

 

Assumptions for re-pricing of the options were:

 

Assumptions   Awards re-priced during the year ended December 31, 2012  
Expected life (in years)     6  
Weighted average expected volatility     124.9 %
Risk-free interest rate     0.7 %
Weighted average re-priced Black-Scholes calculated fair value     0.32