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 $ (2,532,000) $ (7,537,000)
Adjustments to reconcile net loss to net cash used in operating activities:    
(Gain) loss on change in fair value of derivative-warrants (3,580,000) (4,621,000)
(Gain) loss on change in fair value of derivative-preferred stock (1,410,000) 5,840,000
Gain on negotiated payables (1,324,000) (509,000)
Depreciation and amortization 233,000 238,000
Stock option compensation expense 1,066,000 1,015,000
Stock and warrants issued for services 602,000 925,000
Change in operating assets and liabilities:    
Receivables 685,000 (982,000)
Inventory (151,000)  
Prepaid expenses and other current assets 31,000 (28,000)
Restricted cash (330,000) 17,000
Other assets (15,000)  
Accounts payable and accrued expenses 53,000 (601,000)
Dividends payable 271,000 168,000
Accrued interest payable (28,000) (437,000)
Deferred revenue (1,180,000) (348,000)
Net cash used in operating activities (7,609,000) (6,860,000)
Cash flows from investing activities:    
Capital expenditures (40,000) (7,000)
Net cash used in investing activities (40,000) (7,000)
Cash flows from financing activities:    
Payment of debt (2,750,000)  
Proceeds from exercise of stock options 0 192,000
Proceeds from common stock issuances, net of costs 5,826,000 13,101,000
Net cash provided by financing activities 3,076,000 13,293,000
Net increase (decrease) in cash and cash equivalents (4,573,000) 6,426,000
Cash and cash equivalents at beginning of year 7,033,000 607,000
Cash and cash equivalents at end of year 2,460,000 7,033,000
Supplemental cash flow information:    
Cash paid for interest 720,000 874,000
Supplemental disclosure of noncash transactions    
Shares issued for dividends on preferred stock 1,000 288,000
Warrants issued for placement agent fees 39,000 274,000
Preferred stock dividends in dividends payable $ 1,774,000 $ 1,791,000