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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

Tabular disclosure of liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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