TABLE OF CONTENTS
Years Ended December 31, 2006 and December 31, 2005
Sales and marketing expenses decreased $741,783, or 26%, to $2,070,419 in the year ended December 31, 2006 from $2,812,202 in the year ended December 31, 2005, primarily due to a decrease of $494,306 in expenses related to trade shows and similar activities and $291,508 in expenses for our sales force which transitioned during 2005 from an outsourced organization to one employed and managed by us. General marketing and public relations expenses decreased by $103,729 in 2006 as compared to 2005. Partially offsetting these decreases in expenses was $170,285 for customer services, responsibility for which was transferred in 2006 to marketing from
support services the expenses for which are included in general and administrative operations. The reduction in sales and marketing expenses in 2006 primarily reflects our decision to reduce our market presence while we changed our strategic direction.
General and administrative expenses decreased $88,079, or 2%, to $4,513,273 in the year ended December 31, 2006 from $4,601,352 in the year ended December 31, 2005, primarily because of the transfer of customer services at the beginning of the year to marketing from support services. Increases in general and administrative expenses included $145,876 for loss on disposal of our original version of the DigiScope®, $124,858 in tax and audit fees and $42,635 in consulting fees. Partially offsetting these increases were decreases of $136,652 in recruiting fees, $72,646 in travel expenses, $51,105 in office expenses and $36,508 in the provision for bad
debt.
Interest Income
Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
Interest income decreased $44,590, or 53%, to $40,175 in the six months ended June 30, 2007 from $84,765 in the six months ended June 30, 2006, due to a decrease in investable cash between the two periods.
Years Ended December 31, 2006 and December 31, 2005
Interest income increased $29,818, or 31%, to $124,522 in the year ended December 31, 2006 from $94,704 in the year ended December 31, 2005 due to an increase in investable cash between the two periods.
Interest Expense
Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
Interest expense increased $780,360, or 299%, to $1,041,610 in the six months ended June 30, 2007 from $261,250 in the six months ended June 30, 2006, primarily due to a $2,500,000 convertible bridge loan we obtained on December 28, 2006 and an additional $3,926,976 in convertible bridge loans we obtained in April and May 2007. The maturity date of both loans is December 27, 2007. Interest expense of $190,236 was accrued on the 2006 convertible bridge loan and the 2007 convertible bridge loan in the six months ended June 30, 2007.
In connection with the 2006 convertible bridge loan and the 2007 convertible bridge loan, we issued warrants to the lenders, which were valued at $636,305 and $998,439, respectively, using the Black-Scholes Model. These amounts are being accreted as additional debt discount over the term of each loan. In the six months ended June 30, 2007, $570,268 was accreted.
Years Ended December 31, 2006 and December 31, 2005
Interest expense was $594,027 in the year ended December 31, 2006 compared to $0 in the year ended December 31, 2005. Of the total amount of interest expense, $454,166 relates to interest expense paid to a lender from whom we borrowed $4,000,000 in February 2006 and $2,055 to accrued interest on the 2006 convertible bridge loan.
In connection with the February 2006 loan, we issued the lender a warrant to purchase 229,555 shares of our Series B, at a price of $1.394 per share, which was valued at $288,805 using the Black-Scholes Model and is being accreted as additional debt discount. $67,593 was accreted during 2006 and charged to interest expense. The terms of the February 2006 loan also require us to pay an additional fee of $300,000 at maturity. This amount is being accreted over the term of the February 2006 loan as interest expense. During 2006, $70,213 was accreted.