Quarterly report pursuant to Section 13 or 15(d)

3. Summary of Significant Accounting Policies (Tables)

v2.4.0.8
3. Summary of Significant Accounting Policies (Tables)
 9 Months Ended
Sep. 30, 2013
Notes to Financial Statements  
Inventories Table
  September 30,   December 31,
  2013   2012
Raw materials  $204,337    $183,655
Finished goods 697,131   789,707
Inventory reserve (50,000)   (50,000)
Total  $851,468    $923,362
Customer Concentration
    For the Three Months Ended
    September 30,
    2013   2012
Top Five Customers 53%   76%
Federal Agencies 27%   38%

 

    For the Nine Months Ended
    September 30,
    2013   2012
Top Five Customers 51%   54%
Federal Agencies 41%   46%

 

The following table illustrates the level of concentration as a percentage of net accounts receivable balance as of September 30, 2013 and December 31, 2012:

 

 

    September 30,   December 31,
    2013   2012
Top Five Customers 76%   76%
Federal Agencies 24%   30%

 
Computation of Loss per Share
    For the Three Months Ended   For the Nine Months Ended
    September 30,   September 30,
    2013   2012   2013   2012
Numerator:              
  Net loss  $(673,214)    $(796,038)    $(2,518,624)    $(2,368,637)
  Accrued dividend for Preferred Stock  (42,938)    (36,092)    (114,348)    (454,936)
  Deemed dividend on Series J Convertible Preferred Stock -    -      (651,182)    -   
  Preferred dividend paid in common stock -   (88,350)   -   (249,907)
  Deemed dividend on warrant modifications -    (5,347)   -    (190,891)
  Net loss applicable to common shareholders  $(716,152)    $(925,827)    $(3,284,154)    $(3,264,371)
                 
Denominator for basic and diluted loss per share:              
  Weighted average common stock shares outstanding 11,664,484    10,872,877    11,776,740    9,598,066
                 
  Loss per common share - basic and diluted  $(0.06)    $(0.09)    $(0.28)    $(0.34)

 

 
Stockholders' Equity Activity Series C Preferred Convertible Securities Exchange
    For the Nine Months Ended
    September 30,
    2013   2012
Stock options   1,793,750   1,680,250
Convertible debt   1,025,000   -
Common stock warrants   12,034,599   6,080,501
Preferred stock warrants   -    -   
Convertible preferred stock:        
  Series D Convertible Preferred   750,000    750,000
  Series E Convertible Preferred   -    245,098
Series G Convertible Preferred   1,453,200   1,200,950
Series H Convertible Preferred   1,000,000   -
Series J Convertible Preferred   5,087,500   -
    23,144,049    9,956,799

 

 

 
Stock based compensation expense
   

For the Three Months Ended

September 30,
    2013   2012
Research and development    $44,658    $21,633
Selling and marketing   17,024   17,877
General and administrative   30,549   57,216
Total stock-based compensation expense   $92,231   $96,726

 

   

For the Nine Months Ended

September 30,
    2013   2012
Research and development   $50,161   $27,759
Selling and marketing   21,216   24,659
General and administrative   48,871   64,398
Total stock-based compensation expense   $120,248   $116,816

 
Liabilities measured at fair value on recurring basis

 

 

                             Fair value measurements at September 30, 2013 using:
          September 30, 2013 Quoted prices in active markets   (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs       (Level 3)
Warrant derivative liability $170,137 -    -    $170,137

 

 

          January 1, 2013 Change in Fair Value September 30, 2013
Warrant derivative liability $160,812 $9,325 $170,137
Fair value assumptions
Assumptions Warrants revalued at December 31, 2012 Warrants revalued at September 30, 2013
Expected life (in months) 46.0 37.0
Expected volatility 146.4% 145.7%
Risk-free interest rate 0.44% 0.63%
Exercise price $0.40 $0.40
Fair value per warrant $0.15 $0.16

 

 

 

The following tables set forth the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013.

 

 

                                Fair value measurements at September 30, 2013 using:
          September 30, 2013 Quoted prices in active markets   (Level 1) Significant other observable inputs (Level 2)

Significant unobservable inputs

(Level 3)
April 11, 2013 note, conversion option $115,916 - - $115,916
May 24, 2013 note, conversion option 86,252 - - 86,252
June 6, 2013 note, conversion option 29,216 - - 29,216
June 26, 2013 note, conversion option 49,743 - - 49,743
Embedded conversion options $281,127  -     -    $281,127

 

 

          Issuance date fair value Change in fair value September 30, 2013
April 11, 2013 note, conversion option $274,840 $(158,924) $115,916
May 24, 2013 note, conversion option 122,223 (35,971) 86,252
June 6, 2013 note, conversion option 158,715 (129,499) 29,216
June 26, 2013 note, conversion option 84,146 (34,403) 49,743
Embedded conversion options $639,924 $(358,797) $281,127

 

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 September 30, 2013
Expected life (in months) 12 6
Expected volatility 206.2% 118.7%
Risk-free interest rate 0.10% 0.04%
Exercise price $0.14 $0.13
Fair value per conversion option $0.29 $0.11

 

Assumptions May 24, 2013 Conversion options revalued at September 30, 2013
Expected life (in months) 24 19
Expected volatility 170.0% 178.3%
Risk-free interest rate 0.27% 0.22%
Exercise price $0.25 $0.20
Fair value per conversion option $0.31 $0.17

 

Assumptions June 6, 2013 Conversion options revalued at September 30, 2013
Expected life (in months) 12 8
Expected volatility 209.7% 122.3%
Risk-free interest rate 0.13% 0.07%
Exercise price $0.40 $0.40
Fair value per conversion option $0.25 $0.05

 

Assumptions June 26, 2013 Conversion options revalued at September 30, 2013
Expected life (in months) 12 9
Expected volatility 189.2% 122.3%
Risk-free interest rate 0.13% 0.07%
Exercise price $0.17 $0.13
Fair value per conversion option $0.26 $0.12