Annual report pursuant to Section 13 and 15(d)

CONSOLIDATED STATEMENT OF CASH FLOWS

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CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)
 12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Cash Flows for Operating Activities:    
Net Loss $ (3,248,405) $ (2,731,610)
Adjustments to reconcile net loss to net cash used in operating activities:    
Stocks and warrants issued for services rendered 48,429 130,862
Finance costs paid in stocks and warrants costs. 797,573 553,615
Amortization of deferred finance costs. 13,722 43,984
Amortization of bond discount. 668,747 142,413
Amortization of intangibles 967 967
Depreciation expense 73,843 91,433
Fair value adjustment of derivative liability. (506,728) (24,422)
Decrease in deferred rent (125,501) (27,384)
Changes in assets and liabilities:    
Decrease in inventories 0 10,554
Decrease in prepaid expenses 1,710 443
(Increase) Decrease in security deposits (845) 1,565
Increase in accounts payable 278,075 204,969
Increase in customer deposits 0 2,643
(Decrease) in deferred revenue 0 (15,000)
Increase in obligation to issue common stock 29,814 307,664
Increase in accrued liabilities 195,335 13,176
Net Cash (Used) in Operating Activities (1,773,264) (1,294,128)
Cash Flows from Investing Activities:    
Capital expenditures (3,500) (4,720)
Net Cash (Used) in Investing Activities (3,500) (4,720)
Cash Flow from Financing Activities:    
Proceeds from loans payable, others 243,592 24,306
Proceeds from loans payable, related party 15,262 152,773
Payment of deferred finance costs (34,957) 0
Payments of other borrowings (7,682) (20,141)
Proceeds from issuance of convertible debentures 732,000 734,500
Proceeds from exercise of common stock warrants 35,000 260,000
Proceeds from sale of common stock and warrants 615,000 357,500
Net Cash Provided by Financing Activities 1,598,215 1,508,938
Increase (Decrease) in Cash (178,549) 210,093
Cash at Beginning of Period 225,696 15,603
Cash at End of Period 47,147 225,696
Cash paid during the period for:    
Interest 0 7,290
Income taxes 50 0
Supplemental Disclosure of Non-Cash Investing and Financing Activities:    
Issued convertible debentures 0 62,500
Recorded a discount on the debentures 332,000 62,500
Warrants were repriced from $.25 to $.15 resulting in deferred finance costs 0 57,706
Issued convertible debentures in the principal amount 0 52,000
Discount on the debentures 500,000 52,000
Issued 333,334 shares of common stock in satisfaction of an obligation to issue common stock valued 0 50,000
Several three year 1% convertible notes in the aggregate principal amount 155,100 196,000
During the quarter ended September 30, 2011, issued convertible debentures in the principal amount 0 20,000
During the quarter ended September 30, 2011 recorded a discount on the debentures 0 15,921
During the quarter ended December 31, 2011 issued shares of common stock, and warrants to purchase shares of common stock in repayment of loans totaling 0 164,675
Recognized additional derivative liabilities valued $ 1,004,291 $ 0