Annual report pursuant to Section 13 and 15(d)

CONSOLIDATED STATEMENTS OF CASH FLOWS

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
 12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (2,996,312) $ (3,128,262)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation and amortization 141,315 197,431
Accretion of interest and amortization of debt issue costs 108,876 0
Stock-based compensation expense 121,974 273,181
Borrowings on promissory note 150,000 0
Change in fair value of warrant derivative liability (430,424) 0
Bad debt expense 9,600 0
Changes in operating assets and liabilities:    
Accounts receivable (44,991) (30,635)
Inventories 48,608 (465,706)
Deposits 0 175,538
Accounts payable 763,849 86,481
Accrued employee compensation 8,186 66,427
Deferred revenue and other accrued expenses (78,500) 67,912
Prepaid expenses and other current assets 55,955 (114,547)
Net cash used in operating activities (2,141,864) (2,872,180)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property and equipment (2,642) (92,111)
Net cash used in investing activities (2,642) (92,111)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from stock option exercises 43,980 20,220
Decrease in restricted cash 20,014 0
Proceeds from stock warrant exercises 0 1,421,275
Borrowings on convertible debt 412,000 0
Net proceeds from the issuance of preferred stock 1,338,438 465,867
Net cash provided by financing activities 1,814,432 1,907,362
Change in cash and cash equivalents (330,074) (1,056,929)
Cash and cash equivalents, beginning of period 552,849 1,609,778
Cash and cash equivalents, end of period 222,775 552,849
SUPPLEMENTAL INFORMATION:    
Income taxes paid 1,900 0
Income tax refund received 23,710 244,479
Issuance of common stock dividend on preferred stock 150,497 222,931
Issuance of preferred stock warrants to placement agent 94,313 18,122
Issuance of common stock warrants for services 0 116,234
Issuance of common stock for services 109,996 25,970
Series B dividend paid in cash 65,543 7,212
Warrant modifications 325,595 0
Beneficial conversion feature on convertible preferred stock $ 722,971 $ 154,389