Quarterly report pursuant to Section 13 or 15(d)

CONSOLIDATED STATEMENTS OF CASH FLOWS

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
 9 Months Ended
Sep. 30, 2011
Sep. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (2,153,269) $ (2,305,646)
Adjustments to reconcile net loss to operating cash flows:    
Depreciation and amortization 109,520 149,265
Stock-based compensation expense 113,689 227,476
Change in fair value of warrant derivative liability (307,467) 0
Bad debt expense 0 18,420
Changes in operating assets and liabilities:    
Short-term investments 0 (248,000)
Accounts receivable 118,818 (9,579)
Inventories (4,056) (494,470)
Deposits 0 175,538
Income tax receivable 0 (244,479)
Accounts payable 537,150 175,129
Accrued employee compensation 33,494 90,055
Deferred revenue and other accrued expenses (49,125) (27,543)
Prepaid expenses and other current assets 71,296 32,413
Net cash used in operating activities (1,529,950) (2,461,421)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Disposals/(Additions) to property and equipment 0 (86,949)
Net cash used in investing activities 0 (86,949)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from stock option exercise 43,980 0
Decrease in restricted cash 20,014 0
Proceeds from stock warrant exercise 0 1,421,275
Borrowings on short-term loans 412,000 0
Net proceeds from the issuance of preferred stock 798,077 465,867
Net cash provided by financing activities 1,274,071 1,887,142
Change in cash and cash equivalents (255,879) (661,228)
Cash and cash equivalents, beginning of period 552,849 1,609,778
Cash and cash equivalents, end of period 296,970 948,550
SUPPLEMENTAL INFORMATION:    
Income taxes paid 1,900 1,900
Issuance of common stock dividend on preferred stock 150,497 222,931
Issuance of common stock warrants to placement agent 94,313 18,122
Issuance of common stock for services 109,996 18,720
Series B dividend paid in cash 42,037 7,212
Deemed dividend on warrant modifications 325,595 0
Beneficial conversion feature on convertible preferred stock $ 304,823 $ 154,389