Annual report pursuant to Section 13 and 15(d)

2. Summary of Significant Accounting Policies (Tables)

v2.4.1.9
2. Summary of Significant Accounting Policies (Tables)
 12 Months Ended
Dec. 31, 2014
Notes to Financial Statements  
Inventories Table
    2014     2013  
Raw materials   $ 304,928     $ 147,290  
Finished goods     595,624       639,386  
Inventory reserve     (50,000 )     (50,000 )
Total   $ 850,552     $ 736,676  
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:

 

    2014     2013  
Top Five Customers     32 %     53 %
Federal Agencies     6 %     33 %

 

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:

 

    2014     2013  
Top Five Customers     86 %     86 %
Federal Agencies     9 %     16 %

 
Computation of Loss per Share

    For the Year Ended  
    December 31,  
    2014     2013  
Numerator:            
Net loss   $ (4,612,540 )   $ (4,084,427 )
Beneficial conversion feature for preferred stock     (1,495,415 )     (1,002,602 )
Preferred dividends accrued     (143,771 )     (100,420 )
Preferred dividends paid in cash     -       (60,000 )
Net loss applicable to common shareholders   $ (6,251,726 )   $ (5,247,449 )
                 
Denominator for basic and diluted loss per share:                
Weighted average  common shares outstanding     14,264,753       11,821,870  
                 
Loss per common share - basic and diluted   $ (0.44 )   $ (0.44 )

 
Schedule of antidilutive securities

 

    2014     2013  
Stock options     3,406,250       1,771,708  
Convertible debt     5,453,571       2,242,024  
Common stock warrants     19,182,201       15,012,327  
Convertible preferred stock:                
Series D Convertible Preferred     750,000       750,000  
Series G Convertible Preferred     865,700       1,453,200  
Series H Convertible Preferred     1,000,000       1,000,000  
Series H2 Convertible Preferred     2,100,000       -  
Series J Convertible Preferred     3,546,000       5,087,500  
Series K Convertible Preferred     11,416,000       4,000,000  
      47,719,722       31,316,759  

 
Fair value assumptions
Assumptions   Non-Employee Board Members     CEO, other Officers and Employees  
Expected life   6.0 (yrs)     6.0 (yrs)  
Expected volatility   134.75%-141.15%     132.2%-141.15%  
Risk-free interest rate   1.90%-2.54%     1.09%-2.54%  
Forfeiture rate   5.00%     5.00%  
Expected dividend yield   0.0%     0.0%  

 

The assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per share common stock equivalent basis.

 

Assumptions   April 11, 2013     Conversion options revalued at February 10, 2014  
Expected life (in months)     12       2  
Expected volatility     206.2 %     119.7 %
Risk-free interest rate     0.10 %     0.04 %
Exercise price   $ 0.14     $ 0.25  
Fair value per conversion option   $ 0.29     $ 0.20  

 

Assumptions   June 26, 2013     Conversion options revalued at February 10, 2014  
Expected life (in months)     12       5  
Expected volatility     189.2 %     137.9 %
Risk-free interest rate     0.13 %     0.07 %
Exercise price   $ 0.17     $ 0.25  
Fair value per conversion option   $ 0.25     $ 0.23  

 

Assumptions   December 4, 2013     Conversion options revalued at June 30, 2014  
Expected life (in months)     24       1  
Expected volatility     170.3 %     77.1 %
Risk-free interest rate     0.30 %     0.02 %
Exercise price   $ 0.40     $ 0.40  
Fair value per conversion option   $ 0.16     $ 0.02  

 

Assumptions   December 23, 2013     Conversion options revalued at June 23, 2014  
Expected life (in months)     36       30  
Expected volatility     151.4 %     159.2 %
Risk-free interest rate     0.77 %     0.73 %
Exercise price   $ 0.40     $ 0.40  
Fair value per conversion option   $ 0.17     $ 0.32  

 

Assumptions   June 4, 2014     Conversion options revalued at Dec. 31, 2014  
Expected life (in months)     8       1  
Expected volatility     121.8 %     77.4 %
Risk-free interest rate     0.07 %     0.03 %
Exercise price   $ 0.45     $ 0.45  
Fair value per conversion option   $ 0.16     $ -  

 

Assumptions   July 7, 2014     Conversion options revalued at Dec. 31, 2014  
Expected life (in months)     12       6  
Expected volatility     117.9 %     114.7 %
Risk-free interest rate     0.12 %     0.12 %
Exercise price   $ 0.21     $ 0.16  
Fair value per conversion option   $ 0.18     $ 0.11  

  

 

Assumptions   July 7, 2014     Conversion options revalued at Dec. 31, 2014  
Expected life (in months)     12       6  
Expected volatility     117.9 %     114.7 %
Risk-free interest rate     0.12 %     0.12 %
Exercise price   $ 0.21     $ 0.17  
Fair value per conversion option   $ 0.18     $ 0.11  
                 

 

Assumptions   August 28, 2014     Conversion options revalued at Dec. 31, 2014  
Expected life (in months)     6       2  
Expected volatility     104.4 %     121.7 %
Risk-free interest rate     0.05 %     0.04 %
Exercise price   $ 0.14     $ 0.15  
Fair value per conversion option   $ 0.15     $ 0.11  
                 

 

Assumptions   Sept. 3, 2014     Conversion options revalued at Dec.31, 2014  
Expected life (in months)     36       32  
Expected volatility     153.8 %     154.1 %
Risk-free interest rate     0.99 %     0.88 %
Exercise price   $ 0.35     $ 0.35  
Fair value per conversion option   $ 0.24     $ 0.19  

 

Assumptions   Sept. 10, 2014     Conversion options revalued at Dec. 31, 2014  
Expected life (in months)     12       8  
Expected volatility     117.6 %     106.6 %
Risk-free interest rate     0.12 %     0.18 %
Exercise price   $ 0.13     $ 0.14  
Fair value per conversion option   $ 0.17     $ 0.14  

 

Assumptions   Sept. 26, 2014     Conversion options revalued at Dec. 31, 2014  
Expected life (in months)     12       9  
Expected volatility     116.6 %     106.2 %
Risk-free interest rate     0.11 %     0.17 %
Exercise price   $ 0.16     $ 0.15  
Fair value per conversion option   $ 0.19     $ 0.13  

 

Assumptions   Nov. 10, 2014     Conversion options revalued at Dec. 31, 2014  
Expected life (in months)     10       8  
Expected volatility     104.2 %     106.6 %
Risk-free interest rate     0.10 %     0.18 %
Exercise price   $ 0.13     $ 0.14  
Fair value per conversion option   $ 0.23     $ 0.14  

 

Assumptions   Nov. 17, 2014     Conversion options revalued at Dec. 31, 2014  
Expected life (in months)     12       10  
Expected volatility     117.9 %     107.1 %
Risk-free interest rate     0.12 %     0.15 %
Exercise price   $ 0.17     $ 0.17  
Fair value per conversion option   $ 0.20     $ 0.13  

 
Stock based compensation expense
    2014     2013  
Research and development   $ 30,550     $ 53,509  
Selling and marketing     19,792       26,551  
General and administrative     50,783       56,736  
Total stock-based compensation expense   $ 101,125     $ 136,796  
Liabilities measured at fair value on recurring basis

 

 

          Fair value measurements at December 31, 2014 using:  
    December 31, 2014     Quoted prices in active markets (Level 1)     Significant other observable inputs (Level 2)     Significant unobservable inputs (Level 3)  
Series D common stock Purchase Warrants   $ 159,875     $ -     $ -     $ 159,875  
                                 

 

 

          Fair value measurements at December 31, 2013 using:  
    December 31, 2013     Quoted prices in active markets (Level 1)     Significant other observable inputs (Level 2)     Significant unobservable inputs (Level 3)  
Series D common stock Purchase Warrants   $ 344,570     $ -     $ -     $ 344,570  
                                 

 

 

   

January 1,

2014

     Change in Fair Value     Reclassification into equity     December 31, 2014  
Series D common stock Purchase Warrants   $ 344,570     $ 145,710     $ (330,405 )   $ 159,875  
                                 

 

 

    January 1, 2013     Change in Fair Value     December 31, 2013  
Series D common stock Purchase Warrants   $ 160,812     $ 183,758     $ 344,570  
                         

 

          Fair value measurements at December 31, 2014 using:  
    December 31, 2014     Quoted prices in active markets (Level 1)     Significant other observable inputs (Level 2)     Significant unobservable inputs (Level 3)  
July 7, 2014 note, conversion option   $ 53,673       -       -     $ 53,673  
July 7, 2014 note, conversion option     70,604       -       -       70,604  
August 28, 2014 note, conversion option     25,146       -       -       25,146  
September 3, 2014 note, conversion option     95,938       -       -       95,938  
September 10, 2014 note, conversion option     99,124       -       -       99,124  
September 26, 2014 note, conversion option     92,699       -       -       92,699  
November 10, 2014 note, conversion option     74,343                       74,343  
November 17, 2014 note, conversion option     78,814       -       -       78,814  
Embedded conversion options   $ 590,341       -       -     $ 590,341  

 

    Jan. 1, 2014     Issuance fair value     Change in fair value     Reclassification into equity     Dec. 31, 2014  
April 11, 2013 note, conversion option   $ 130,734     $ -     $ 7,348     $ (138,082 )   $ -  
June 26, 2013 note, conversion option     55,307       -       6,118       (61,425 )     -  
December 4, 2013 note, conversion option     98,129       -       (98,129 )     -       -  
December 23, 2013 note, conversion option     72,027       -       48,804       (120,831 )     -  
June 4, 2014 note, conversion option     -       57,071       (57,071 )     -       -  
July 7, 2014 note, conversion option     -       64,233       (10,560 )     -       53,673  
July 7, 2014 note, conversion option     -       89,926       (19,322 )     -       70,604  
August 28, 2014 note conversion option             36,892       (11,746 )             25,146  
September 3 2014 note, conversion option     -       122,340       (26,402 )     -       95,938  
September 10, 2014 note, conversion option     -       129,710       (30,586 )     -       99,124  
September 26, 2014 note, conversion option     -       140,060       (47,361 )     -       92,699  
November 10, 2014 note, conversion option             136,021       (61,678 )             74,343  
November 17, 2014 note, conversion option     -       122,431       (43,617 )     -       78,814  
Embedded conversion options   $ 356,197     $ 898,684     $ (344,202 )   $ (320,338 )   $ 590,341