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, 2012
Dec. 31, 2011
Cash flows from operating activities:    
Net loss $ (10,532,000) $ (2,532,000)
Adjustments to reconcile net loss to net cash used in operating activities:    
Gain on change in fair value of derivative-warrants (1,236,000) (3,580,000)
(Gain) loss on change in fair value of derivative-preferred stock 4,770,000 (1,410,000)
Warrant extension expense 2,316,000 0
Gain on negotiated payables (241,000) (1,324,000)
Depreciation and amortization 419,000 233,000
Stock option compensation expense 390,000 1,066,000
Stock issued to directors and employees 305,000 0
Stock and warrants issued for services 77,000 602,000
Change in operating assets and liabilities:    
Receivables (507,000) 685,000
Inventory (43,000) (151,000)
Prepaid expenses and other current assets (212,000) 31,000
Restricted cash 330,000 (330,000)
Other assets 17,000 (15,000)
Accounts payable and accrued expenses 567,000 53,000
Dividends payable 319,000 271,000
Accrued interest payable (98,000) (28,000)
Deferred revenue (596,000) (1,180,000)
Net cash used in operating activities (3,955,000) (7,609,000)
Cash flows from investing activities:    
Capital expenditures (13,000) (40,000)
Net cash used in investing activities (13,000) (40,000)
Cash flows from financing activities:    
Payment of debt (2,750,000) (2,750,000)
Proceeds from preferred stock issuances, net of costs 4,654,000 5,826,000
Net cash provided by financing activities 1,904,000 3,076,000
Net decrease in cash and cash equivalents (2,064,000) (4,573,000)
Cash and cash equivalents at beginning of year 2,460,000 7,033,000
Cash and cash equivalents at end of year 396,000 2,460,000
Supplemental cash flow information:    
Cash paid for interest 388,000 720,000
Supplemental disclosure of noncash transactions    
Shares issued for dividends on preferred stock 22,000 1,000
Warrants issued for placement agent fees 0 39,000
Preferred stock dividends in dividends payable 1,999,000 1,774,000
Dividends payable exchanged for preferred stock $ 5,297,000 $ 0